Canadian Association of Broadcasters v. Society of Composers, Authors and Music Publishers of Canada

Canadian Association of Broadcasters v. Society of Composers, Authors and Music Publishers of Canada Court (s) Database Federal Court of Appeal Decisions Date 2006-10-19 Neutral citation 2006 FCA 337 File numbers A-542-05 Notes Digest Decision Content Date: 20061019 Docket: A-542-05 Citation: 2006 FCA 337 CORAM: LÉTOURNEAU J.A. NOËL J.A. EVANS J.A. BETWEEN: CANADIAN ASSOCIATION OF BROADCASTERS Applicant and SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA and NEIGHBOURING RIGHTS COLLECTIVE OF CANADA Respondents Heard at Toronto, Ontario, on October 12, 2006. Judgment delivered at Ottawa, Ontario, on October 19, 2006. REASONS FOR JUDGMENT BY: EVANS J.A. CONCURRED IN BY: LÉTOURNEAU J.A. NOËL J.A. Date: 20061019 Docket: A-542-05 Citation: 2006 FCA 337 CORAM: LÉTOURNEAU J.A. NOËL J.A. EVANS J.A. BETWEEN: CANADIAN ASSOCIATION OF BROADCASTERS Applicant and SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA and NEIGHBOURING RIGHTS COLLECTIVE OF CANADA Respondents REASONS FOR JUDGMENT EVANS J.A. A. INTRODUCTION [1] This is an application for judicial review by the Canadian Association of Broadcasters (“CAB”) to set aside a decision made by the Copyright Board pursuant to subsection 68(3) of the Copyright Act, R.S.C. 1985, c. C-42. In this decision, dated October 14, 2005, the Board certified tariffs of the royalties payable by commercial radio stations in the years 2003-2007 to the Society of Composers, Authors and Music Publishers of Canada (“SOCAN”) and to the Neighbouring Rights Collective of Canada (“NRCC”). The tariffs are payable for the public performance of musical works and sound recordings in which members of the two collectives respectively hold rights. [2] The tariffs are based on a percentage of the gross annual advertising revenues of commercial radio broadcasters. From 1978 to 2002, the general rate of the SOCAN tariff for the public performance of musical works by commercial radio broadcasters remained unchanged at 3.2%. Using the same methodology as for the SOCAN tariff, the Board approved a general rate for the NRCC tariff of 1.44% for the years 1998 to 2002. [3] In the decision under review, the Board certified a general rate for the SOCAN tariff of 4.2% and, because of its smaller repertoire, 2.1% for the NRCC tariff. The Board rejected the models for determining an appropriate royalty proposed by NRCC and CAB. Instead, it started with the existing SOCAN tariff and adjusted it in light of the evidence which the parties adduced. [4] The Board found that an increase to the tariff was warranted on three grounds: the existing tariff underestimated the value of music to radio stations’ revenue; broadcasters were now using more music in their programming; and, as result of new formats and other developments in the industry, broadcasters used music more efficiently to target particular audiences and, hence, to increase their revenues. B. ISSUES AND ANALYSIS [5] CAB has challenged the tariffs on two grounds: the failure of the Board to consider an objection by CAB to the tariffs proposed by the collective societies, and inadequacies in the Board’s reasons. (i) Failure to consider cumulative royalty burden [6] CAB argued that the Board failed to take into account its objection to the proposed tariffs, namely that there had been a proliferation in the number of rights holders to be compensated. SOCAN was the original collective society. A tariff was certified for NRCC in 1998 and, in 2003, for CSI, which represents the holders of the rights to the reproduction of music. The CSI tariff is the smallest of the three. The increased financial burden that this has placed on the industry, it was said, should be recognized by the Board in certifying the tariffs for SOCAN and NRCC. [7] Although the “cumulative burden” argument is not specifically mentioned in the Board’s reasons, it is in my opinion implicit in the Board’s finding that, on the basis of the evidence of rising revenues, the industry can afford to pay increased royalties even greater than those certified by the Board. And, as Mr Laskin, counsel for CAB, fairly pointed out, the Board refers to the combined rates payable to all three collectives in a footnote to its reasons. [8] In these circumstances, I am not persuaded that the Board erred in law by failing to consider a relevant factor which it was statutorily bound to consider. (ii) Inadequacy of the reasons [9] CAB argued that the Board failed to provide adequate reasons for the following two findings: first, that the previous royalty rate underestimated by between 10-15% the value of music to commercial radio stations, and that a 10% increase in the SOCAN tariff was warranted; second, that broadcasters’ increased efficiency in their use of music to enhance revenues warranted a 7.5% increase in the tariff. [10] The Board is required by paragraph 68(4)(b) of the Copyright Act to provide the parties with a copy of the approved tariffs and the reasons for its decision. It is common ground that, in order to comply with this statutory duty, the Board’s reasons must be adequate. [11] “Adequacy” is to be assessed in light of the functions performed by reasons: enhancing the quality of decisions, assuring the parties that their submissions have been considered, enabling the decision to be subject to a meaningful judicial review, and providing future guidance to regulates: see VIA Rail Canada Inc. v. National Transportation Agency, [2001] 2 F.C. 25 (C.A) at paras. 17-22. Equally important, the adequacy of the reasons must be assessed in context, including the agency’s record, the issues to which the reasons relate, and the scope of the agency’s expertise. [12] It is also agreed that a royalty rate set by the Board in the exercise of its broad statutory discretion is subject to review only on the ground of patent unreasonableness: Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Broadcasters (1999), 1 C.P.R. (4th) 80 (F.C.A.). However, the adequacy of the Board’s reasons is a question of procedural fairness and, as such, is for the Court to decide for itself. (a) historical undervaluation of music [13] CAB concedes that the Board’s finding that the existing rate had historically undervalued music to a radio station’s revenues is rationally supported by the evidence, and does not challenge it. However, the difficulty lies with the Board’s explanation of its quantification of the amount of the underestimation. On this issue, the Board simply states (at p. 20 of its reasons) that “based on the evidence taken as a whole”, the undervaluation “is important and lies in an interval of between 10 and 15 percent.” It goes on to say that, since “the evidence is not more precise,” the Board chooses “to be careful” and values the underestimation at “about 10 percent”. [14] CAB says that there is nothing in the record to explain the Board’s quantification of the undervaluation: the Board’s reasons reveal so little of the basis of its decision on this issue as to deny CAB its right to obtain a meaningful judicial review of the Board’s decision. The quantification of a tariff is the core of the Board’s decision. [15] The Board’s reasons are very thin. Nor could counsel for SOCAN or NRCC refer us to anything in the evidence that would explain how the Board arrived at the 10-15% range. Indeed, as the Board’s reasons indicate, the parties had not adduced evidence directly bearing on the quantification of the amount of the undervaluation. In effect, counsel argued that the Board was entitled to use its expertise to assess the evidence as whole and that it was not required to explain how it translated the evidence of undervaluation into a percentage. [16] The Board is entitled to the greatest deference in the exercise of its discretion to set a rate and, accordingly, the discretionary decisions lying at the heart of its expertise are reviewable only for patent unreasonableness. However, it must explain the basis of its decisions in a manner that enables the Court on judicial review to determine on the basis of the reasons, read in context, whether the decision was rationally supportable. When an administrative tribunal’s decision is reviewable on a standard of reasonableness, its reasons are the central focus of a judicial review: Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, 2003 SCC 20, at paras. 48-9, 54-5. [17] In my view, it was not sufficient in the circumstances of this case for the Board to justify its quantification of the undervaluation by merely referring to the evidence taken as a whole. It is not enough to say in effect: “We are the experts. This is the figure: trust us.” The Board’s reasons on this issue served neither to facilitate a meaningful judicial review, nor to provide future guidance for regulatees. [18] I recognize that the Board’s difficulty in this respect seems to have stemmed in part from the failure of CAB to put in evidence showing, for example, the relative rates of return earned by radio stations which made a significant use of music and those which did not. Parties have a responsibility to produce relevant evidence in support of their position. This is not a case where the reasons fail to deal with significant evidence that appears to be contrary to its conclusion. [19] However, the Board may always ask the parties to provide evidence of the amount of the undervaluation. If none is forthcoming, then it can explain how it has made its best efforts to estimate an appropriate rate increase. It is not bound to quantify each of the components that justify an increase, but may choose simply to explain the reasoning supporting its quantification of the global royalty rate increase. (b) increased efficiency in the use of music [20] Prior to the hearing of the application for judicial review, CAB abandoned its challenge to the sufficiency of the evidence to support the Board’s finding that radio stations are now able to make more efficient use of music to attract particular audiences. But it argued that the Board’s reasons do not provide an adequate explanation of its conclusion that this factor warranted an increase in the tariff of between 5 and 10%, and its decision to select the mid point, 7.5%. [21] The Board found (at p. 27 of its reasons) that in the years 1998-2002 the advertising revenue of the industry had increased by an average of $40 million each year. Acknowledging that the contribution that music had made to this increase could not be precisely measured, the Board stated that 5 to 10% of the increase would adequately compensate the rights-holders for the greater efficiencies that broadcasters had been able to achieve through the use of music. The Board chose the mid-point in this range, bringing the increased royalty to 4.2%. [22] For the reasons given above, the Board’s failure to explain why it selected 7.5% breaches its duty to provide adequate reasons for its decision. I appreciate that this may be more a question of expert judgment than evidence. Nonetheless, the Board must be more forthcoming in revealing the chain of reasoning that led it to its conclusion. C. CONCLUSIONS [23] The inadequacies of the Board’s reasons respecting the quantifications of the royalty increases attributable to both the historical undervaluation of music, and the greater efficiencies achieved by the industry through its use of music, in my opinion warrant the intervention of the Court. [24] Accordingly, I would grant the application for judicial review with costs, set aside the Board’s decision, and remit the matter to the Board to re-determine the issues in respect of which the reasons have been found to be inadequate. On these issues of quantification, the Board may invite the parties to supplement the existing record with new evidence and submissions. When rehearing this matter, the Board shall be constituted to include the two members who were not members of the panel which rendered the decision under review. “John M. Evans” J.A. “I agree Gilles Létourneau J.A.” “I agree Marc Noël J.A.” FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-542-05 STYLE OF CAUSE: CANADIAN ASSOCIATION OF BROADCASTERS v. SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA AND NEIGHBOURING RIGHTS COLLECTIVE OF CANADA PLACE OF HEARING: TORONTO DATE OF HEARING: OCTOBER 12, 2006 REASONS FOR JUDGMENT BY: EVANS J.A. CONCURRED IN BY: LÉTOURNEAU J.A. NOËL J.A. DATED: OCTOBER 19, 2006 APPEARANCES: John B. Laskin Andrew Bernstein FOR THE APPELLANT Y.A. George Hynna Gilles M. Daigle FOR THE RESPONDENT Glen A. Bloom Steve Seiferling FOR THE RESPONDENT SOLICITORS OF RECORD: Torys LLP Toronto, ON FOR THE APPELLANT Canadian Association of Broadcasters Gowling Lafleur Henderson LLP Ottawa, ON FOR THE RESPONDENT Society of Composers, Authors and Music Publishers of Canada Osler Hoskin Harcourt LLP Ottawa, ON FOR THE RESPONDENT Neighbouring Rights Collective of Canada