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York v. Access Copyright: Tariffs & Fair Dealing Revisited on Appeal

On April 22, 2020, the Federal Court of Appeal released its long-awaited decision in an ongoing copyright dispute between York University (“York”) and the collective society, Access Copyright. We reviewed the trial court decision in a previous article published in July 2017. The appeal resulted in divided success for both parties.

Background

The dispute arose after York refused to sign a new license agreement with Access Copyright and refused to tender royalties to Access Copyright under an Interim Tariff issued by the Copyright Board for secondary education institutions. York took the position that paying royalties under the Interim Tariff was voluntary and, in any event, that copies made under its so-called “Fair Use Guidelines” (the “Guidelines”) qualified for the fair dealing exemption to copyright infringement. Access Copyright commenced an action to enforce the Interim Tariff. York denied the claim and counterclaimed for a declaration that its Guidelines qualified for the fair dealing exemption.

In the trial court decision, the Federal Court held that: (a) payment of the royalties set under the Interim Tariff was mandatory in the absence of a license agreement; and (b) York’s Guidelines did not qualify for the "fair dealing" exemption. In the result, York was liable to pay Access Copyright for royalties under the tariff.

In the appeal court decision, the Federal Court overturned the trial court decision insofar as it found that the Interim Tariff is voluntary and York was not required to pay royalties to Access Copyright under the tariff. However, it upheld the trial court decision that York’s Guidelines were not “fair”. In the result, York is not liable to pay Access Copyright royalties under the Interim Tariff, but remains potentially liable to the copyright owners for copyright infringement. Subject to any appeal decision from the Supreme Court, this appears to be a pyrrhic victory for both parties.

Access Copyright & the Tariff

Access Copyright is a collective society which administers copyright for a vast portfolio of published literary works in Canada under the Copyright Act. Access Copyright is responsible for collecting royalties from users of the copyrighted works in its portfolio and then distributing the proceeds to the authors and creators of the works.

Unlike some other collective societies, Access Copyright is not entitled to sue third parties for copyright infringement on behalf of the works in its portfolio. Given its agreement with its members, Access Copyright is limited to negotiating voluntary licenses and asking the Copyright Board to issue tariffs.

Tariffs are a set royalty rate payable by identified categories of users established by the Copyright Board for authorized use of copyright protected materials. At the request of Access Copyright, an Interim Tariff was issued by the Copyright Board in December 2010 with respect to the reproduction of literary works by secondary educational institutions.

Fair Dealing Guidelines

Per section 29 of the Copyright Act, “fair dealing for the purpose of research, private study, education, parody or satire does not infringe copyright”. Assuming that copies are made for an authorized purpose, several factors are considered to determine whether the dealing is “fair”, including: (a) the purpose of the dealing; (b) the character of the dealing; (c) the amount of the dealing; (d) alternatives to the dealing; (e) the nature of the work; and (f) the effect of the dealing on the work.

In an attempt to qualify for the fair dealing exemption, York adopted the Guidelines which permitted the copying of a “short excerpt” from a copyrighted work in either paper or electronic form. A “short excerpt” was defined as 10% or less of a work, or no more than (a) one chapter from a book; (b) a single article from a periodical; (c) an entire artistic work from a compilation containing other artistic works; (d) an entire single poem or musical score from a compilation containing other poems or musical scores; or (e) an entire entry from an encyclopedia, dictionary or similar reference work; whichever is greater.

The trial court found that the threshold of 10% of a work or one component (chapter, article, poem etc.) to be arbitrary and unfair. It noted that such a limit would allow the copying of an entire story if it was found in a compilation while prohibiting the copying of the same story if published as a standalone work. The trial court also found that the Guidelines would not prevent the copying of almost an entire work if it was divided up in the context of different courses and publishing formats. Finally, the trial court found that the Guidelines lacked any consideration of what copying would be qualitatively fair, meaning that the core content of a work could be copied so long as the quantitative size of an excerpt was kept below the threshold.

The trial court further found that York was systematically copying materials on a massive scale, producing approximately 2.9 million paper copies of published works in course packs between September 2011 and December 2013. The trial court also found that its digital distribution of materials through databases and sharing services was voluminous, being estimated at 16.3 million digital copies for the same time period.

The trial court finally found that York lacked infrastructure to administer its Guidelines, failed to test or otherwise take steps to ensure compliance with them and failed to discipline staff who contravened them.

Tariff on Appeal

In its decision, the appeal court conducted a detailed review of the history of tariffs under the Copyright Act. It found that tariffs were first established in the 1930’s when a small group of performing rights societies successfully got control over the public performance rights for the vast majority of popular musical and dramatic works. Amendments to the Copyright Act starting in 1931 sought to correct this quasi-monopoly by prohibiting the collection of royalties in excess of an approved tariff. Users who tendered or paid the royalty set out in the tariff were immune from liability for infringement. This became known as a “statutory license”.

In sum, the appeal court found that the tariff regime is a means of “regulating licensing schemes which, by definition, are consensual”. Although courts subsequently started to use the tariff as a convenient means of calculating damages for copyright infringement, the appeal court found that this does not render the tariff enforceable against parties who did not seek a license or tender the royalty set out in the tariff. In such cases, the remedy is an action for copyright infringement. It is not an action for enforcing the tariff.

In other words, Access Copyright cannot enforce the Interim Tariff against York. The only remedy is an action for copyright infringement, but Access Copyright cannot sustain an action for copyright infringement given its agreement with its members. Access Copyright’s claim was therefore dismissed.

Fair Dealing on Appeal

In its decision, the appeal court substantially agreed with the trial court’s finding that compliance with York’s Guidelines would not necessarily qualify as “fair dealing” and that in certain respects the Guidelines were markedly unfair.

While institutions who permit or undertake copying under the banner of fair dealing need not demonstrate fair dealing by each of their patrons, they must show that the institution’s dealings were fair. Given that York relied on its Guidelines to demonstrate that its dealings were fair, it was required to justify its guidelines. In the end, it failed to do so.

In particular, the appeal court found that:

  • York’s real purpose or motive in adopting the Guidelines was to “obtain for free what it had previously paid for” and use the savings to minimize student costs and support other parts of its operations;
  • it was incumbent on York to ensure that its Guidelines were implemented according to their intent and the fact that safeguards were virtually absent undermines its fair dealing claim;
  • York did not attempt to forestall downstream copying and redistribution by students by including any limitations in the Guidelines that would preclude students from retaining, copying and sharing the copies of works provided to them by York; and
  • York provided no evidence, rationale or justification for its definition of ‘short excerpts’ under which it permitted copying only 10% of a work when published as a freestanding work, but permitted copying of the same work in its entirety when originally published as part of a compilation.

The Decision and its Impact

The dismissal of Access Copyright’s claim under the tariff may provide York with some leverage to negotiate a more favourable license for future use of the Access Copyright portfolio of works. However, that leverage may be effectively undermined and any savings set off by claims for copyright infringement by individual members of Access Copyright for voluminous copying in the past which may not qualify as “fair dealing” even if it complied with the Guidelines.

Per section 38.1 of the Copyright Act, statutory damages for copyright infringement may be awarded in a sum of not less than $100 for non-commercial infringement and not less than $500 for commercial infringement for each work. The court has discretion to reduce the resulting reward considering: (a) the good faith or bad faith of the defendant; (b) the conduct of the parties; (c) the need to deter infringements; and (d) the need for the award to be proportionate to the infringement. Educational institutions are exempt from awards of statutory damages in certain limited situations, but do not enjoy a broad immunity to such awards. With the findings that York’s real motive was to “obtain for free what it had previously paid for”, that safeguards to ensure compliance with its Guidelines were virtually absent and that its copying was voluminous, York may find it challenging to convince a court to reduce any statutory damage award sought for infringement.

As we have stated in the past, the subjective nature of certain factors in the "fair dealing" test make it a risky challenge for any institution to develop practical guidelines that comply with the law. The need to implement safeguards to ensure compliance with such guidelines will also result in additional costs. Although the terms of written license agreements with Access Copyright and the tariffs granted to Access Copyright can be criticized as arbitrary, they do have the benefit of being predictable and relatively easy to administer for both parties.

Given the divided result, either party may seek to leave to appeal to the Supreme Court of Canada and, given the importance of the issues, there is some chance that leave may be granted. Under the rules, the deadline to appeal is presumptively June 22, 2020. However, such deadlines are presently suspended due to the Covid-19 pandemic. Of course, the parties may also agree that it would be prudent, in all the circumstances, to settle their differences and move forward.