Procedure, Substance, Deference: Netflix, Inc. v. Society of Composers, Authors and Music Publishers of Canada, 2015 FCA 289

Netflix, Inc. v. Society of Composers, Authors and Music Publishers of Canada, 2015 FCA 289 is a useful illustration of some of the problems caused by judicial intervention on an intrusive standard on procedural matters.

At issue was a tariff certified by the Copyright Board that imposed a monthly minimal fee for free trial periods of subscription audiovisual webcasting services, the sort offered by companies like Netflix. SOCAN proposed tariffs for these services and the Copyright Board commenced a tariff certification process. Netflix was never a party to this process.

The parties to the certification process negotiated a settlement, but “the royalty provisions provided for in the Agreement were substantially different from those contained in the previously published version” (at para. 9). In particular, the settlement agreement “proposed to distinguish among services that charged consumers a fee per program, offered subscriptions and earned advertising revenue” (at para. 10) .

The Board asked the parties to make submissions on the proposed tariff. SOCAN did. And so did Netflix. The Board refused to make Netflix’s submissions part of the record:

First, since Netflix’s submissions were not based on the record as it stood, additional evidence would be required in order to address the points raised by Netflix in its submissions. Second, the issues raised by Netflix had not been raised by any of the parties to the proceedings. In making this determination, the Board pointed out that although Netflix had been aware of the proceedings “for some time”, it had chosen not to participate (at para. 17).

It nonetheless permitted Netflix to participate in a new process, though one which would be restricted to the existing evidence in the record. There were a few more procedural twists in the road before Netflix headed for the Federal Court of Appeal, the most important being a continuing refusal by the Board to permit Netflix to introduce new evidence (even though this would have been, according to Netflix, limited in scope) and a refusal by the Board to order Netflix to respond to questions raised by SOCAN (even though Netflix would have been happy to answer them).

The Federal Court of Appeal unanimously concluded, for reasons given by Nadon J.A., that the process was procedurally unfair. The standard of review was correctness (at para. 35), though no cases from the contrary line of authority were cited (cf. the qualification at para. 38). Fatal to the Board’s position was its failure to permit Netflix to make representations about an aspect of the certified tariff that was not part of the initial proposal: “where, as here, a settlement agreement deals with subject matter that did not appear in the published proposed royalties and where none of the parties at the negotiating table are adversely affected by the change, as is the case here, it seems to me that procedural fairness requires that a representative member of the affected segment of the industry be given the opportunity, if it so chooses, to make its comments and point of view known and dealt with by the Board” (at para. 49, emphasis added). As a result, “the Board erred in certifying provisions of the Tariff which did not affect any of the negotiating parties” (at para. 51, emphasis added).

The highlighted portions indicate some of the difficulties created by an application of the correctness standard to procedural matters. Proceedings in this matter were contemplated as early as 2007 and formally commenced in 2011. This was not a state secret; it was publicly known, to Netflix and everybody else. The interests of large commercial entities are often affected by decisions of the Board. For tactical reasons, these entities might decide not to participate. Who is in a better position to judge whether permitting Netflix to participate at a late stage in the process would allow them — and other parties in the future — to game the tariff-setting process, the Copyright Board, which has been managing the process for at least two years, or the Federal Court of Appeal, which is limited to the material contained in the record? At the very least, some deference should be due to the Copyright Board on such issues: here, Nadon J.A. was able to second-guess the procedures employed.

It is true that the certified tariff covered more ground than the proposed tariff. However, this is surely a matter of substance. How far the Board is willing to extend the terms of a proposed tariff involves a policy choice. Ordinarily, this sort of discretion-laden judgement call is entitled to deference. On the Federal Court of Appeal’s correctness approach, the Board permits any extension of a proposed tariff at its peril, unless, of course, it then allows new parties to enter the process — and the Board should usually be very accommodating to new parties, for fear of being second-guessed by the courts. This can only lengthen the Board’s tariff-setting process and provide incentives for parties to wait on the sidelines before joining in at the most opportune moment for them.

Here, substance and process were intertwined in the Board’s decision. For instance, Nadon J.A. criticized the Board for failing to properly apply one of its own precedents. In addition, from the excerpts at para. 31, it seems clear that the Board felt that the core of Netflix’s argument was that its free trials amounted to fair dealing; if so, Netflix would be able to raise the argument in another forum, in defence to an infringement suit, for example. Not a great deal would be gained by having the Board spend further time addressing the fair dealing point. Viewed this way, the Board’s decision seems to be about how best to use its resources, considering the substantive issues at stake.

It is clear from my analysis that I am more sympathetic to the Board than to Netflix, but my point really is that this is the sort of question for which correctness review is not well designed to provide the best possible answer. This matters. Had reasonableness been the standard, Netflix might well have lost, because this case involved the sort of judgement calls a front-line decision-maker is best placed to make.

This content has been updated on April 14, 2016 at 20:14.