Canada: For Whom The Ringtone Tolls — Federal Court Confirms No Repayment Owed To Telecommunications Companies By SOCAN For Communicating Downloadable Ringtones

The Blacksonian principle—that law is not made, but merely discovered—does not operate to nullify royalty payments for communicating downloadable musical works by telecommunication made under private settlement agreements between parties or Tariffs certified by the Canadian Copyright Board and not overturned by the courts. The Federal Court's recent decision in Rogers Communication Canada Inc v Society of Composers, Authors and Music Publishers of Canada, 2021 FC 207, ("Rogers 2021") confirmed that, notwithstanding the Supreme Court's 2012 decisions in Entertainment Software Association v Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34 ("ESA") and Rogers Communications Inc v Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 35  ("Rogers"), telecommunications companies are not entitled to repayment from SOCAN (the Society of Composers, Authors, and Music Publishers, the Canadian performing rights organization that controls and administers performance and communication royalties related to the copyright in musical works) for royalties paid with respect to communicating downloadable mobile phone ringtones under certified tariffs and settlement agreements entered into prior to the Supreme Court's decision. Moreover, to the extent those telecommunications companies withheld payments to SOCAN owed under such certified tariffs or settlement agreements, they were now required to pay back the amount withheld, with interest.     

The impact of technological change, developing consumer demands, res judicata, and the complexity of the Canadian royalty tariff certification regime, were all in play before Justice Lafrenière. The case revolved around the impact of the Supreme Court's decisions on copyright royalty payment requirements in ESA and Rogers. Those decisions settled arguments as to whether downloading copyrighted works via the Internet triggers royalty payments for both making a copy of that work as well as a "communication to the public by telecommunication". In short, it doesn't. The Supreme Court relied on the principle of "technological neutrality" to find that it is the end result that attracts the royalty payment. In the case of downloads, the Internet is simply a "technological taxi" that delivers the copy. There is no practical difference between this delivery method and buying a durable copy of the work in a store or receiving it through the mail. Nearly ten years later, the practical repercussions of these decisions are still winding their way through the court system. 

Prior to ESA and Rogers, SOCAN and many rights holders took the position that sending a downloadable work over the Internet did implicate both a communication right and a reproduction right. As such, SOCAN applied to the Copyright Board to set royalty rates for communication of ringtones by telecommunication. Tariffs were issued. Telecommunication companies—such as Rogers, Bell, and Quebecor, the Plaintiffs in the present case—paid royalties pursuant to those tariffs. The parties entered into settlement agreements for payment. 

In Rogers 2021, the telecommunications companies sought declaratory relief from the Courts that, following ESA, they were entitled to recoup payments made to SOCAN under Tariff 24 for communicating downable mobile phone ringtones to their customers, as well as actual repayment. The Court rejected this. Tariff 24, and the payments made thereunder, were valid. 

Background

The Tariffs and payments at issue in the recent Federal Court Rogers 2021 decision all relate to a period between 2003 and 2015. In January 2008, the Federal Court of Appeal upheld Tariff 24 (2003-2005) sought by SOCAN and certified by the Copyright Board. The Appeals Court agreed with the Board that transmissions of musical ringtones were communications by telecommunication, thus could be subject to a tariff. The Supreme Court declined to hear a further appeal. (Canadian Wireless Telecommunications Assn. v. Society of Composers, Authors and Music Publishers of Canada, 2008 FCA 6). 

SOCAN then applied for another tariff to cover subsequent years, Tariff 24 (2006-2013). The telecommunications companies Rogers, Bell, and Shaw objected to the new tariff. However, they entered into a settlement agreement with SOCAN to pay royalties until December 31, 2013 ("Settlement Agreement") and agreed to have Tariff 24 (2006-2013) approved and certified by the Board in accordance with the Settlement Agreement. The Board did so on June 29, 2012. The telecommunication companies paid their fees but objected to "the applicability of SOCAN's rights" under the Canadian Copyright Act in respect of this Tariff 24, as well as a different (but related) Tariff 22, which covered royalties payable for use of musical works over the Internet.   

Less than two weeks later, on July 12, 2012, the Supreme Court issued its decisions in ESA. It held communicating a downloadable work via the Internet (in that case, a video game), did not trigger royalty payments in relation to a communication right (although it would trigger a reproduction royalty). Likewise, communicating a work by streaming—the issue in Rogers, 2012 SCC 35 —did trigger royalty payments in relation to a communication right (but not a reproduction right). The royalty Tariff at issue in ESA was Tariff 22, which covered use of musical works over the internet. As a result of ESA, SOCAN was required to return all payments ever made to SOCAN under the Tariff at issue Tariff 22.A—which stretched back to 1996.

Soon after, Rogers, Bell, and Quebecor took the position that Tariff 24 was likewise without foundation, and thus license fees paid under the 2003-2005 and 2006-2013 Tariffs 24 should be returned. These telecommunications companies applied to the Board to effectively rescind Tariff 24 through a variance. However, the Board denied the application. They found that the Canadian Copyright Act did not grant the power to rescind a certified tariff. No judicial review of that decision was sought. 

However, on November 13, 2012, the Rogers, Bell, and Quebecor filed the present action with the Federal Court. They sought declaratory relief that the transmission of a ringtone containing a musical work was not a communication to the public by telecommunication, as well as payment of $15 million as restitution for payments made to SOCAN under Tariff 24 (this amount was higher than the claimed damages). Alternatively, they sought a constructive trust for the amount and an accounting of all payments made to SOCAN under the Tariff.

SOCAN took the position that the Supreme Court's decisions in ESA and Rogers were not applicable to ringtones. Moreover, res judicata applies to the certified Tariff 24. SOCAN also counterclaimed for royalties based on the telecommunications companies "making available" the works (for an update as to the status of the "making available" right, see our discussion of Entertainment Software Assoc. v. Society Composers, 2020 FCA 100 and CMRRA-SODRAC Inc. v. Apple Canada Inc., 2020 FCA 101 in our Canadian Copyright 2020 Year in Review). 

Over the years, as the present dispute wore on, Rogers, Bell, and Quebecor each stopped paying license fees to SOCAN for ringtone downloads, and stopped selling ringtones, all at different times. 

Justice Lafrenière's Rogers 2021 decision

Wading through the long and complex background and history of the proceedings (including prior hearings before the Federal Court (2015 FC 286) and Federal Court of Appeal (2016 FCA 28 (Rogers 2016)) relating to questions of law, and a dispute between all the parties about the interpretation of the Settlement Agreement with SOCAN), Justice Lafrenière noted the following four issues to be determined:   

1.    Whether the doctrine of issue estoppel should be applied in respect of the claims made by the telecommunications companies.

2.    What is the effect of the Settlement Agreement on the telecommunications companies' ability to pursue this claim against SOCAN?

3.    Was SOCAN unjustly enriched when it received royalties pursuant to Tariff 24?

4.    Are the telecommunications companies entitled to an order tracing the Tariff 24 royalties?

On issues 1 and 2 (i.e., issue estoppel and the role of the Settlement Agreement), the Court found that while the Federal Court of Appeal found Tariff 24 (2003-2005) was decided in Rogers 2016, Justice Lafrenière was nevertheless required to assess whether issue estoppel (or res judicata) applied in the present proceeding to limit the re-litigation of an already decided matter. 

In doing so, Justice Lafrenière followed the Supreme Court's decision in Danyluk v. Ainsworth Technologies Inc, 2001 SCC 44, which held that to ensure the finality of litigation, issue estoppel should be invoked to ensure the "orderly administration of justice but not at the cost of real injustice in the particular case." The Court found that SOCAN and the telecommunications companies were sophisticated parties. None had sought judicial review of Tariff 24 (2006-2013) once it was certified, even after ESA was released. Moreover, there was no evidence of any objection to SOCAN's right to collect royalties under Tariff 24, and SOCAN never agreed to return any royalties. The Court made note of the statutorily compelled nature of the relationship of the parties, which at times was both adversarial and collaborative in nature. This showed the parties all understood how royalties were set, certified, collected, and distributed, and how the relationship worked if a tariff or collected royalties were judicially disputed. 

Importantly, the Court found the evidence did not support a relationship between Tariff 22 (the tariff at issued in ESA) and Tariff 24 (the tariff at issue in Rogers 2021). SOCAN's statement in their ESA Supreme Court factum—that if the Supreme Court found no basis in law for SOCAN to retain ringtone royalties and ordered their return, SOCAN would comply—was found to be an argument, not an admission. It was also important to Justice Lafrenière that the telecommunications companies did not change their position about the validity of Tariff 24 while the proceedings in ESA and Rogers were ongoing; did not indicate to SOCAN that they would seek recovery of payments made under Tariff 24 if they succeeded in overturning Tariff 22; and also entered into the Settlement Agreement with SOCAN after the appeal to the Supreme Court was made and argued. 

In total, Justice Lafrenière found the evidence showed there "was never any express or implied expectation that SOCAN would be required to refund Tariff 24 royalties collected from the Plaintiffs." Instead, it showed a business decision by the telecommunications companies to provide certainty and settle the ringtones issue—they would stop fighting Tariff 24 and enter a Settlement Agreement, notwithstanding the fact that the somewhat related Tariff 22 was in dispute. 

Of note, the change in the law represented by ESA and Rogers with respect to royalties triggered by streaming versus downloading was found to be an insufficient basis to re-open the previously decided matter of ringtone royalty payments. In that respect, Justice Lafrenière held the Federal Court of Appeal's Rogers 2016 decision in the present matter tied its hands and prevented the telecommunications companies from re-litigating the validity of Tariff 24. The Federal Court of Appeal already rejected the telecommunications companies' arguments. 

The Court therefore dismissed the telecommunication companies' application. Issue estoppel applied. It prevented the Plaintiffs from resiling from the validity of the Settlement Agreement. Moreover, it would be inequitable to make SOCAN repay the royalties. 

With respect to the claimed unjust enrichment by SOCAN (issue 3), the Court reviewed the test for unjust enrichment as set out by the Supreme Court in Garland v Consumers' Gas Co, 2004 SCC 25— (a) was the defendant enriched? (b) was there a corresponding deprivation to the plaintiff? (c) was there an absence of juristic reason for the enrichment? If the answer to any of those questions was "no", there is no unjust enrichment. In the present case, the Court found the Settlement Agreement and certification of Tariff 24 were juristic reasons for the enrichment—SOCAN was entitled to rely on them to collect and distribute the ringtone royalties. Because there was no unjust enrichment, the tracing order request (issue 4) was moot. 

Last, Justice Lafrenière granted, in part, SOCAN's counterclaim for payment of the withheld royalties (i.e., SOCAN was entitled to collect payments owing to them under the Tariff 24 (2003-2005) and Settlement Agreement, which spoke to Tariff 24 (2006-2013) until December 31, 2013). Costs were awarded to SOCAN notwithstanding sealed submissions made by the parties on costs because the offer made by the Plaintiffs was less favourable than the Court's decision. 

This 2021 decision is but the latest step in a long litigation history relating to royalty payments for downloadable ringtones. The appeals deadline has not yet passed. Stay tuned!

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