Recent Judicial Decision: A Tale of Two Music Royalty Streams (ESA v SOCAN)

Decision re Music Royalties

A potential new source of music revenue for artists has recently been eliminated. In Society of Composers, Authors and Music Publishers of Canada v Entertainment Software Association et al. 2022 SCC 30 (“ESA v SOCAN”),  the Supreme Court clarified that making a work available online does not result in a separate royalty when that work is actually streamed or downloaded.

In reaching its conclusion, the Supreme Court disagreed with the Copyright Board of Canada (the “Board”), whose earlier decision found that the act of making a work available is a separately protected activity that should result in a separate royalty.

Appeal in ESA v SOCAN

ESA v SOCAN is the latest decision in a series of cases between the Society of Composers, Authors and Music Publishers of Canada (“SOCAN”) and Entertainment Software Association (“ESA”), regarding the interpretation and application of copyright law in Canada.

Copyright Act & Copyright Treaty

At issue in this latest appeal was the interpretation of s. 2.4(1.1) of the Copyright Act (Canada) (the “Act”),  which was added in 2012 by way of the Copyright Modernization Act.  In enacting s. 2.4(1.1), Parliament’s intention was to implement the rights and protections of the WIPO Copyright Treaty (the “Treaty”), the purpose of which is to adapt international copyright rules to new and emerging technologies.

WIPO Copyright Treaty

The Treaty, to which Canada is a signatory, requires that member countries provide authors with the exclusive right to make their works available to the public in such a way that a person may access the work from a place and at a time individually chosen by them.  Section 2.4(1.1) of the Act imports this so-called “making available right” (or “MAR”)  by amending s .3(1)(f) of the Act to provide that communicating a work to the public via telecommunication includes making it available in a way that allows a person to access it from a place and at a time chosen by them.

Multiple Royalties Streams

The Board, in certifying a separate tariff under s. 2.4(1.1), stated that MAR provisions create two royalty streams when a work is available online: (1) when a work is first made available online, and (2) when the work is actually streamed or downloaded. On appeal, the Federal Court of Appeal quashed the decision of the Board, concluding that Parliament did not intend to create a new, separately compensable “making available right,” and that s. 2.4(1.1) does not subject downloads and streams to two royalties. SOCAN appealed to the Supreme Court.

In dismissing the appeal, the Supreme Court upheld the decision of the Federal Court of Appeal. In its reasons, the Supreme Court considered the balance of rights between authors and users, writing that the Act does not exist solely for the benefit of authors, and that there must be a balance between securing “just rewards for authors while facilitating public access to works.”

Interpretation of the Act

In addition, the Supreme Court found that the Board’s interpretation undermines the purpose of the Act because it violates the principle of technological neutrality; that is, the Act should not be interpreted so as to favour or discriminate one form of technology over another. By requiring users to pay two royalties to access works online, the Board did not treat old and new technologies the same: an artist does not receive a separate MAR royalty when a work is reproduced in a durable form, such as a CD. What matters is what the user receives, not how the user receives it.

The Supreme Court found that Canada’s commitments under the Treaty are fulfilled through the combination of performance, reproduction and authorization rights, set out in s. 3(1) of the Act.

Final Decision and Implications

As summarized by the Supreme Court, the main takeaway for the music industry is that the current legislative scheme adequately protects artists’ rights and protections under the Treaty: “If a work is streamed or made available for on-demand streaming, the author’s performance right is engaged. If a work is downloaded, the author’s reproduction right is engaged. If a work is made available for downloading, the author’s right to authorize reproductions is engaged. There are no gaps in protection.”

The Supreme Court’s complete decision can be found here.

© 2022 Edwards Creative Law, LLP

Updated to September 9, 2022

Edwards Creative Law is Canada’s Entertainment Law Boutique™, providing legal services to Canadians, and international clients who partner with Canadians, in the Music, Film & Television, Animation, Interactive Digital Media, Game, Publishing and Software industries. 

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* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.

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