On September 4, the Supreme Court of Canada granted leave to appeal from the Federal Court of Appeal in CBC v SODRAC 2003 Inc which considered the issue of whether broadcasters must pay royalties on ephemeral or incidental copies of an audiovisual work created during the preparation of that work for broadcast. The case arose out of a decision by the Copyright Board to collect royalties for these ephemeral copies; the CBC disagreed on technological neutrality grounds.

The Board's rationale was that because they add value to the final broadcast, incidental acts of reproduction should attract royalties of their own in addition to those payable for the broadcast of the work. It relied on Bishop v Stevens in support of its interpretation of the law. The facts in Bishop were very similar to those in the present case, and raised the same question of whether incidental reproductions made in the course of preparing an audiovisual work for broadcast were subject to tariffs. At issue in Bishop was whether pre-recordings of television shows created "to ensure the quality of the broadcasts, and to enable broadcasters to offer the same programming at convenient times across five different time zones" fell within the scope of the Copyright Act s 3.1(f) (broadcasting) or s 3.1(d) (recording). The Court used a narrow, "ordinary words" interpretation of the Act in concluding that the creation of incidental copies to be used in the broadcast process was not a component of the broadcast right itself.

The CBC on the other hand, relied on the technological neutrality principle stated in ESA v SOCAN, and claimed that the Supreme Court’s decision in that case changed the law as it relates to incidental copies. The principle as articulated by the Court provides that the public should not be subject to additional taxes or tariffs for a copyrighted work depending merely on its method of delivery – more advanced technological methods of delivering a work to a customer should not attract additional levies. The particular version of technological neutrality espoused in ESA seems to be that of functional equivalence: if two technologies have the same effect, such as mailing a video game to a customer and downloading the same game via the internet, one method of delivery should not be favoured over the other by copyright law. CBC argued that because the incidental copies were produced "purely to meet the technological requirements of the systems used by producers and broadcasters", an increase in royalties would result in a restriction on technological innovation and efficiency.

The Federal Court of Appeal sided with SODRAC and the Board, reasoning that while the Supreme Court in ESA stated three versions of technological neutrality in its majority reasons, it used none of them in its final decision, relying instead on an analysis of the history and jurisprudence separating the performance right from the reproduction right. Because the application of this new principle of copyright law to a changing technological landscape was not the basis of the ESA decision, the Federal Court of Appeal rejected the CBC's technological neutrality argument. Instead, it preferred the reasoning of the Supreme Court in Bishop, which did deal with technological change in similar circumstances to the case at hand, and emphasized the distinctness of the reproduction right from the broadcast right.

If SODRAC prevails at the Supreme Court of Canada, consumers will likely be relatively unaffected, at least as concerns the broadcasts at issue in this case. However, the status of ephemeral reproductions under copyright law is of great importance in the transfer of copyright-protected works over the internet. In American cases dealing with the resale of digital works such as MP3s, copyright holders have used the reproduction right to restrict the ability of consumers to resell their "used" audio and video files, despite the fact that they were purchased legally. The lack of a digital right to resale stands in stark contrast to the thriving physical trade in used copies of music and movies. The legal avenue through which copyright holders have been successful in stymieing the development of digital secondary markets is the engagement of the exclusive right of reproduction, a technicality of transferring a file over the internet: in order to transfer a digital file, a reproduction of that file — an ephemeral copy — must be created on the recipient's computer and the original subsequently deleted from the sender's computer. A technological neutrality argument in favour of digital resale — that because resale of copyrighted works is permissible offline, that it ought not to be illegal online merely due to a technicality of online transfer — would be significantly harder to make if the Supreme Court decides to hobble the seemingly broad statement of the principle in ESA.

Another possibility is that the court will reconcile Bishop with ESA in a way that recognizes the importance of technological efficiency and innovation, and allows new business models to thrive while protecting and rewarding the work of artists.

Adam Chan is an IPilogue Editor and graduate of the University of British Columbia Faculty of Law.