Bell Canada v. Copyright Collective of Canada

Bell Canada v. Copyright Collective of Canada
Court (s) Database
Federal Court of Appeal Decisions
Date
2021-07-22
Neutral citation
2021 FCA 148
File numbers
A-45-19, A-47-19
Notes
A correction was made on August 12, 2021A correction was made on March 7, 2023
Reported Decision
Decision Content
Date: 20210722
Dockets: A-45-19
A-47-19
Citation: 2021 FCA 148
CORAM:
RENNIE J.A.
DE MONTIGNY J.A.
GLEASON J.A.
Docket: A-45-19
BETWEEN:
BELL CANADA, COGECO CABLE INC., ROGERS COMMUNICATIONS INC., SHAW COMMUNICATIONS INC., VIDÉOTRON LTD. AND TELUS COMMUNICATIONS INC.
Applicants
and
COPYRIGHT COLLECTIVE OF CANADA, BORDER BROADCASTERS INC., CANADIAN BROADCASTERS RIGHTS AGENCY, CANADIAN RETRANSMISSION COLLECTIVE, CANADIAN RETRANSMISSION RIGHT ASSOCIATION, DIRECT RESPONSE TELEVISION COLLECTIVE INC., FWS JOINT SPORTS CLAIMANTS INC., MAJOR LEAGUE BASEBALL COLLECTIVE OF CANADA, SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA AND CANADIAN CABLE SYSTEMS ALLIANCE
Respondents
Docket: A-47-19
AND BETWEEN:
COPYRIGHT COLLECTIVE OF CANADA, CANADIAN BROADCASTERS RIGHTS AGENCY, CANADIAN RETRANSMISSION COLLECTIVE, FWS JOINT SPORTS CLAIMANTS, INC., BORDER BROADCASTERS INC., CANADIAN RETRANSMISSION RIGHT ASSOCIATION, SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA, AND DIRECT RESPONSE TELEVISION COLLECTIVE INC.
Applicants
and
BELL CANADA, COGECO CABLE INC., ROGERS COMMUNICATIONS INC., SHAW COMMUNICATIONS INC., VIDÉOTRON LTD., TELUS COMMUNICATIONS INC., CANADIAN CABLE SYSTEMS ALLIANCE, AND MAJOR LEAGUE BASEBALL COLLECTIVE OF CANADA INC.
Respondents
Heard by online video conference hosted by the Registry on March 1 and 2, 2021.
Judgment delivered at Ottawa, Ontario, on July 22, 2021.
REASONS FOR JUDGMENT BY:
DE MONTIGNY J.A.
CONCURRED IN BY:
RENNIE J.A.
GLEASON J.A.
Date: 20210722
Dockets: A-45-19
A-47-19
Citation: 2021 FCA 148
CORAM:
RENNIE J.A.
DE MONTIGNY J.A.
GLEASON J.A.
Docket: A-45-19
BETWEEN:
BELL CANADA, COGECO CABLE INC., ROGERS COMMUNICATIONS INC., SHAW COMMUNICATIONS INC., VIDÉOTRON LTD. AND TELUS COMMUNICATIONS INC.
Applicants
and
COPYRIGHT COLLECTIVE OF CANADA, BORDER BROADCASTERS INC., CANADIAN BROADCASTERS RIGHTS AGENCY, CANADIAN RETRANSMISSION COLLECTIVE, CANADIAN RETRANSMISSION RIGHT ASSOCIATION, DIRECT RESPONSE TELEVISION COLLECTIVE INC., FWS JOINT SPORTS CLAIMANTS INC., MAJOR LEAGUE BASEBALL COLLECTIVE OF CANADA, SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA AND CANADIAN CABLE SYSTEMS ALLIANCE
Respondents
Docket: A-47-19
AND BETWEEN:
COPYRIGHT COLLECTIVE OF CANADA, CANADIAN BROADCASTERS RIGHTS AGENCY, CANADIAN RETRANSMISSION COLLECTIVE, FWS JOINT SPORTS CLAIMANTS, INC., BORDER BROADCASTERS INC., CANADIAN RETRANSMISSION RIGHT ASSOCIATION, SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA, AND DIRECT RESPONSE TELEVISION COLLECTIVE INC.
Applicants
and
BELL CANADA, COGECO CABLE INC., ROGERS COMMUNICATIONS INC., SHAW COMMUNICATIONS INC., VIDÉOTRON LTD., TELUS COMMUNICATIONS INC., CANADIAN CABLE SYSTEMS ALLIANCE, AND MAJOR LEAGUE BASEBALL COLLECTIVE OF CANADA INC.
Respondents
REASONS FOR JUDGMENT
DE MONTIGNY J.A.
[1] Six broadcasting distribution undertakings – Bell Canada, Cogeco Cable Inc., Rogers Communications Inc., Shaw Communications Inc., Videotron Ltd., and Telus Communications Inc. (the BDUs) applied for judicial review (A-45-19) of a decision of the Copyright Board of Canada (the Board) dated December 18, 2018, for which reasons were issued on August 2, 2019. The Board determined the quantum of royalty rates payable under the Tariff for the Retransmission of Distant Television Signals, 2014-2018 (the Tariff, 2014-2018), thereby exercising the discretion conferred by section 70 of the Copyright Act, R.S.C. 1985, c. C-42 (the Act).
[2] This decision is also challenged, in a separate application for judicial review (A-47-19), by eight collective societies – the Copyright Collective of Canada, Border Broadcasters Inc., the Canadian Broadcasters Rights Agency, the Canadian Retransmission Collective, the Canadian Retransmission Right Association, Direct Response Television Collective Inc., FWS Joint Sports Claimants Inc. and the Society of Composers, Authors and Music Publishers of Canada (the Collectives).
[3] Both parties accept the Board’s overall “proxy” approach to setting the royalty rates. This approach involves determining the initial value of a “proxy” set of analogous services and then applying adjustments to bring that value into line with the characteristics of the distant signals to which the royalty applies. They disagree, however, with the application of that methodology in light of the evidentiary record.
[4] The BDUs submit that the royalty rates fixed by the Board exceed the amounts that would be fair and equitable in the circumstances, contrary to section 66.501 of the Act. In particular, the BDUs take issue with the Board’s failure to make adjustments for simultaneous substitution and for relative viewing of distant signals as compared to viewing of the proxy services, as well as with what they allege to be a reduction of the substitutability adjustment by half.
[5] The Collectives, for their part, argue that the Board erred in: 1) failing to use the latest available version of the key pricing and subscribership data based upon which the initial proxy price was calculated; 2) using a profit margin figure that was inapplicable to the speciality services selected to form the proxy set; 3) imposing an arbitrary input and overhead reduction; and 4) misapplying its own precedent with respect to a purported market power deduction. Each of these errors, in the Collectives’ view, reduced the royalty rates that should have been calculated pursuant to the Board’s proxy approach.
[6] For the reasons set out below, I am of the view that this Court should dismiss the application for judicial review brought by the BDUs (A-45-19), while partially granting the Collectives’ application (A-47-19). The following are my reasons to so conclude.
I. Factual and Procedural Context
[7] The BDUs are “retransmitters” within the meaning of subsection 31(1) of the Act; they distribute over-the-air distant television signals in Canada as part of cable, satellite or internet protocol television (IPTV) subscription services they distribute to their customers.
[8] The Collectives are authorized under the Act to represent the rights of copyright holders, including thousands of Canadian and foreign broadcasters and program producers, who are entitled to royalties for the retransmission of their works on over-the-air distant television signals in Canada. The Collectives’ copyright holders cannot exercise their rights directly, but must do so through the statutory compulsory licensing regime established by the Act.
[9] The Canadian retransmission regime allows BDUs to retransmit over-the-air broadcast signals without authorization of the programs’ copyright owners. Contrary to “local signals” (defined as a TV signal that covers an area within a 32 km radius of the station: see Definition of Local Signal and Distant Signal Regulations, S.O.R./89-254), the retransmission of “distant” signals requires payment of royalties to the various collective societies that have filed tariffs (Act, paragraph 31(2)(d)). The Board is vested with the authority to approve the proposed tariffs, and to make any alterations to royalty rates that it deems appropriate (Act, subsection 70(1)). In Reference re Broadcasting Regulatory Policy CRTC 2010-167 and Broadcasting Order CRTC 2010-168, 2012 SCC 68, [2012] 3 S.C.R. 489, the Supreme Court has aptly summarized this regime in the following way:
[58] It bears underlining that, in the case of works carried in both local and distant signals, the copyright owner has no right to prohibit the simultaneous retransmission of the work; recourse is limited to receiving through a collective society the prescribed royalty, but only for the simultaneous retransmission of works carried in distant signals (ss. 76(1) and 76(3) of the Copyright Act). On the one hand, the copyright owner is granted a general right to retransmit the work. This retransmission right is part of the right, under s. (3)(1)(f), to communicate the work by telecommunication to the public. On the other hand, the owner’s general right to retransmit is restricted by a carve-out in s. 31(2) of the Copyright Act, which effectively grants to a specific class of retransmitters two retransmission rights. The first right lets these users simultaneously retransmit without a royalty payment, works carried in a local signal. The second right lets them simultaneously retransmit works carried in distant signals, but only subject to the payment of royalties under a form of compulsory licence regime (Copyright Act, s. 31(2)(a) and (d)). Both user rights are, subject to s. 31(2), beyond the owner’s control.
[Emphasis in original.]
[10] On March 28, 2013, the Collectives initiated the underlying proceeding by filing a proposed tariff for the retransmission of distant television signals for the years 2014-2018 (the Proposed Tariff). The proposed royalty rate was $1.06 per subscriber per month for 2014 for “large” retransmitters (those serving over 6,000 premises), rising to $1.38 in 2018.
[11] The Board certified the first retransmission tariff in 1990, at $0.70 per subscriber per month (the 1990 Decision). A second hearing took place in 1993, following which the Board decided that there was no reason to abandon or modify the rate-setting principles adopted in its 1990 Decision, and left the rates for the period 1992-1994 unchanged (the 1993 Decision). For the periods between 1993 and 2014, the Board certified tariffs agreed upon by the relevant broadcasting distribution undertakings and collective societies. The BDUs and the Collectives were unable to reach an agreement, however, for the period 2014-2018. On July 31, 2013, the BDUs, along with two other undertakings and the Canadian Cable System Alliance, jointly filed timely objections to the Proposed Tariff.
[12] This led the Board to conduct its first hearing on tariff rates since 1993. The hearing took place over 15 days divided into four hearing sessions in November and December 2015, and January, March and August 2016. During the proceeding, the Board received evidence from ten experts and five industry witnesses.
[13] Pending the Board’s final decision, the BDUs and the Collectives requested the certification of an interim tariff which would, as proposed, continue the terms of the recently certified Tariff for the Retransmission of Distant Radio and Television Signals, 2009-2013. In an interim decision dated December 19, 2013, the Board acceded to the parties’ request. The Television Retransmission Tariff, 2009-2013 would remain applicable, unless modified, until the final tariff was certified for the years 2014-2018.
[14] In the course of a tariff proceeding, the Board must set the amount of royalties that each retransmitter is required to pay to the collective societies (the quantum). It must also determine how the total amount of royalties is to be distributed amongst the collective societies (the allocation). In the present case, at the request of the Collectives, the Board addressed the two issues separately. Indeed, while the allocation issue was left to be further determined, the oral hearing before the Board exclusively concerned the quantum issue.
[15] As previously mentioned, the Collectives’ proposed rates for the years 2014-2018 initially ranged from $1.06 to $1.38. After the exchange of interrogatories, the Collectives proposed in May 2015 a further increase of the retransmission royalty rate to $2.00 per subscriber per month for 2014, with an annual adjustment factor of 4.4 per cent for the years 2015 through 2018 (leading to a monthly rate of $2.38 for 2018). The Collectives justified these higher rates by relying on the new information that was not previously available to them, showing the significant changes that occurred in the industry since the early 1990s. For instance, they referred to the significant increase in the number of distant signals retransmitted by BDUs, the increased value of these distant signals, and the new feature of time shifting allowing distant signals to duplicate local signals from a different time zone. Needless to say, the BDUs disputed the significance of these changes.
[16] In the course of the hearing, the BDUs and the Collectives presented the Board with extensive written and oral evidence, and counsel for both sides made detailed written and oral submissions. The Collectives and the BDUs jointly commissioned a study to provide information on the average number of distant signals per residential subscriber from 2004 to 2014. As for the expert economist witnesses, their general approach was to use the market-based amounts paid by BDUs for permission to distribute various U.S. and Canadian specialty television services as a “proxy” for estimating the value of distant television signals. On that basis, they opined on the royalty rates that BDUs should pay to the Collectives for the retransmission of those distant signals.
[17] Following the conclusion of the hearing, the Collectives requested, without objection from the BDUs, that a decision with respect to the quantum be issued as soon as possible. A decision on the quantum, the Collectives argued, might prove helpful in negotiating the remaining allocation issues, in addition to alleviating the burden of maintaining significant monetary reserves and/or holding back on the distribution of royalties.
[18] On December 18, 2018, the Board released its decision, without reasons, in respect of the quantum of the Tariff, 2014-2018. The Board noted that the certification of the Tariff as approved pursuant to section 73 of the Act would only follow the determination of the allocation. The royalty rates were set as per the following table:
Number of
premises
2014
2015
2016-2018
Up to 1,500
0.49
0.57
0.60
1,501 - 2,000
0.54
0.62
0.65
2,001 - 2,500
0.60
0.68
0.71
2,501 - 3,000
0.66
0.74
0.77
3,001 - 3,500
0.71
0.79
0.82
3,501 - 4,000
0.77
0.85
0.88
4,001 - 4,500
0.83
0.91
0.94
4,501 - 5,000
0.89
0.97
1.00
5,001 - 5,500
0.94
1.02
1.05
5,501 - 6,000
1.00
1.08
1.11
6,000+
1.06
1.14
1.17
[19] On January 31, 2019, the Board was informed that an agreement on the allocation among all of the Collectives had been reached.
[20] The reasons of the Board, which I detail below, were released on August 2, 2019. While the reasons cover both the quantum and the allocation of royalties, I only discuss the Board’s treatment of the former since the latter, as acknowledged by the parties, is not at issue.
II. The decision below
[21] After having reviewed the evidence submitted by the parties, the Board first considered the Act’s legal framework with respect to the retransmission regime and dealt with a few legal issues that are of no bearing for the resolution of this application for judicial review. It is the economic analysis that is at the heart of this litigation.
[22] Three methodologies were presented to the Board to set tariffs for the retransmission of distant signals: the proxy approach, the trend-analysis approach, and the direct-market approach. Both the BDUs and the Collectives agree that the Board appropriately adopted a comparative services “proxy” methodology in order to value distant signals.
[23] Different proxy approaches were proposed by the Collectives’ expert Professor Church and the BDUs’ expert Dr. Chipty. The Board characterized its chosen proxy approach as an “amalgam” between the views of these experts (Reasons, para. 418). Adjustments to their respective methodologies and assumptions were applied, the Board noted, in order to “yield[] the fair and equitable price” (ibid). The Board did this in a series of steps.
[24] First, the Board constructed a proxy for distant signals which, in its words, “adequately resembles the content of Canadian distant signals, and at the same time, ensures that the price of the proxy is the result of a competitive market” (Reasons, para. 420). The Board found that the royalties to retransmit programming on distant over-the-air signals should be based on the amounts paid by BDUs to Canadian and U.S. specialty television services to retransmit programming. To this end, the Board considered the 24 U.S. speciality services proposed by Professor Church, and the 47 Canadian category B speciality services proposed by Dr. Chipty. From this set of speciality services, the Board first excluded vertically-integrated Canadian category B speciality services, holding that “the price of a proxy including these services may not resemble a competitive market price” (Reasons, para. 421). The Board also excluded certain U.S. speciality services whose content greatly differed from distant signal content (ibid). The Board finally selected a subset of the remaining services in order to obtain “a proxy that most closely resembles the genre distribution of distant signals” (Reasons, para. 422). The Board’s choice landed on 20 U.S. speciality services and 3 Canadian “category B” speciality services (Reasons, para. 424).
[25] Second, the Board calculated the total monthly payments made by four English-Canadian BDUs to the proxy services (Reasons, para. 425). The four BDUs were chosen for the completeness of their payment information. The amount of $21,187,297 was obtained by multiplying the per subscriber rate for each service by the number of the four BDUs’ subscribers who actually subscribed to the service.
[26] Third, the Board divided the total monthly payments ($21,187,297) by the number of all of the four BDUs’ subscribers (8,078,000), rather than the number of the four BDUs’ subscribers who actually subscribed to the services (Reasons, para. 426). This yielded an average proxy price of $2.62 per subscriber per month. This approach constituted a “penetration adjustment”, as it effectively assumed that, if the proxy services were distributed to all BDUs’ subscribers (like distant signals), it would be without any increase in the total amounts paid to them by the BDUs.
[27] Fourth, the Board applied a series of downward adjustments to the initial proxy price for it to reflect the price of distant signals (Reasons, para. 427). These adjustments can be summarized as follows:
a) “Cost of programming” adjustment: The Board held that the tariff should only apply to the programming portion of the proxy price, and proceeded to isolate the cost of programming (Reasons, para. 428). It first applied a 25% adjustment factor to exclude the average profit margin of all of the proxy services, whether U.S. or Canadian based (Reasons, para. 430). It further applied a 10% adjustment factor to exclude input and overhead costs (Reasons, para. 431). As a result, the proxy price went from $2.62 to $1.70.
b) “Market power” adjustment: The Board reasoned that certain proxy services, targeting very specific audiences in “niche” markets, exercise greater market power than more general channels (Reasons, paras. 432-433). To account for this disparity, the Board applied the same 25% adjustment factor it had used in its 1990 Decision (Reasons, para. 434). Despite recognizing that two changes in the speciality services market had occurred since 1990 (an increase in number and a higher degree of program specialization), the Board assumed that the effects of these changes cancelled out (Reasons, para. 435). This market power adjustment reduced the proxy price from $1.70 to $1.28.
c) “Program substitutability” adjustment: The Board held that distant signal programs tend to be substituted, by way of alternate viewing sources, more than specialty services programs (Reasons, para. 437). The value of distant signals, therefore, decreases more than does the value of speciality services (Reasons, para. 438). In fixing an adjustment factor, the Board relied on the data detailing the use of personal video recorders (PVR) and “over-the-top” (OTT) services. In the Board’s view, an adjustment factor of 16.5%, modelled after the PVR and OTT services’ combined percentage of use, “would [have] overestimate[d] the true impact of alternative viewing opportunities” (Reasons, para. 442). The Board divided the figure by half, resulting in the application of an 8.25% adjustment factor. The proxy price of $1.28 was thereby reduced to $1.17 (Reasons, para. 443).
[28] The Board declined to make any other adjustments for which it was unable to obtain an estimate due to the lack of reliable evidence. For example, the Board refused to make an adjustment to the price of the proxy based on relative viewing of distant signals to the speciality channels contained in the proxy, and did not consider whether similar genres on the speciality services and distant signals have similar values to subscribers. The Board similarly refused to take into account the potential disparity of bargaining power between the BDUs and the Collectives, and also assumed that payments for the same service from different BDUs should roughly be the same (Reasons, paras. 446-450).
[29] As a result, the Board found that the royalty rate of $1.17 per subscriber per month, to be paid by large BDUs, could have been reasonable for the year 2014 (Reasons, para. 451). The same could have been said for the years 2015-2018, since inflation and possible declines in viewership would likely offset each other (Reasons, paras. 452-453).
[30] However, the Board held that it was “not prepared to approve a tariff in excess of the amounts initially proposed by the Collectives” (Reasons, para. 451). In keeping with this approach, the Board capped the royalty rates for 2014 and 2015 at the levels originally proposed by the Collectives, respectively $1.06 and $1.14 (Reasons, paras. 451 and 453). For the years 2016-2018, the originally proposed rates were not lower, but higher than $1.17, and thus the Board approved this figure (Reasons, para. 453).
III. Issues
[31] The application for judicial review brought by the BDUs (A-45-19) raises three questions, which can be reformulated as follows:
(1) Did the Board err in failing to make an adjustment for simultaneous substitution?
(2) Did the Board err in failing to make an adjustment for relative viewing?
(3) Did the Board err in its determination of the appropriate program substitutability adjustment?
[32] The Collectives’ application for judicial review (A-47-19), on the other hand, raises five questions which I have restated as follows:
(1) Did the Board use an incomplete and superseded version of the payment data in its calculations?
(2) Did the Board use the wrong profit margin figure in its calculations?
(3) Did the Board err in applying an adjustment for input and overhead costs without evidence?
(4) Did the Board err in applying a market power adjustment without evidence?
(5) Did the Board fail to properly apply the principles of procedural fairness in capping the 2014 and 2015 royalty rates?
IV. Standard of review
[33] There is no issue between the parties that the Board’s royalty-setting decisions involve questions of mixed fact and law that should be reviewed on the reasonableness standard on applications for judicial review. As this Court stated in Re:Sound v. Canadian Association of Broadcasters, 2017 FCA 138, 148 C.P.R. (4th) 91 [Re:Sound], such decisions are suffused with subjective judgment calls, policy considerations and regulatory experience, and courts are not in the best position to opine on policy issues involving public interest and economic aspects. The following statement is as apposite here as it was in that case:
[50] A decision about the quantum of “equitable remuneration”, such as the one in this case, is not a simple one, arrived at by processing information objectively and logically against fixed, legal criteria. Rather, it is a complex, multifaceted decision involving sensitive weighings of information, impressions and indications using criteria that may shift and be weighed differently from time to time depending upon changing and evolving circumstances. Accordingly, the Board’s decision on such an issue is [relatively unconstrained]…
[34] The amendments that have been made to the Act following that decision and the decision of the Supreme Court in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, 441 D.L.R. (4th) 1 [Vavilov] are of no impact on the applicable standard of review in the case at bar. Subsection 70(1) of the Act, much like paragraph 68(2)(b) at issue in Re:Sound, still instructs the Board to approve the Proposed Tariff after making any alterations “that the Board considers appropriate”. As for Vavilov, it made no change to the existing law in this respect; if anything, it reinforced the presumption that reasonableness is the default standard of review and this case clearly does not fall into one of the few exceptions where correctness should apply: see Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2020 FCA 100 at paras. 14-21 CMRRA-SODRAC Inc. v. Apple Canada Inc., 2020 FCA 101 at paras. 4-7 [CMRRA-SODRAC].
[35] For a decision to be considered reasonable, it must be “based on an internally coherent and rational chain of analysis” and “justified in relation to the facts and law that constrain the decision maker” (Vavilov at para. 85). Accordingly, a reviewing court must refrain from deciding the issue itself, or seek to determine what would have been the correct solution to the problem (Vavilov at para. 83). This is particularly the case when the enabling statute confers on a decision maker a broad policy mandate with an unconstrained range of options to choose from. This is not to say that a reviewing court should not intervene when the challenged decision exemplifies a failure of rationality internal to the reasoning process, or where there is no line of analysis that could reasonably lead the tribunal from the evidence in the record to the conclusion it reached. But this is not a conclusion to be arrived at lightly, as Vavilov instructs:
[100] The burden is on the party challenging the decision to show that it is unreasonable. Before a decision can be set aside on this basis, the reviewing court must be satisfied that there are sufficiently serious shortcomings in the decision such that it cannot be said to exhibit the requisite degree of justification, intelligibility and transparency. Any alleged flaws or shortcomings must be more than merely superficial or peripheral to the merits of the decision. It would be improper for a reviewing court to overturn an administrative decision simply because its reasoning exhibits a minor misstep. Instead, the court must be satisfied that any shortcomings or flaws relied on by the party challenging the decision are sufficiently central or significant to render the decision unreasonable.
[36] As for the allegation by the Collectives that the Board improperly applied procedural fairness in capping the royalty rates for 2014-2015, it must be reviewed on the correctness standard. For a discussion on the application of the correctness standard to procedural fairness issues, in the post-Vavilov era, see: Canadian Association of Refugee Lawyers v. Canada (Immigration, Refugees and Citizenship), 2020 FCA 196 at para. 35. See also, in an analogous context of the private copying regime: Canadian Private Copying Collective v. Canadian Storage Media Alliance, 2004 FCA 424, [2005] 2 F.C.R. 654 at para. 172 [CPCC].
V. Analysis
A. A-45-19
(1) Did the Board err in failing to make an adjustment for simultaneous substitution?
[37] Simultaneous substitution has been part of the Canadian broadcasting landscape for many years, and refers to the process whereby Canadian broadcasters can request that their signals be simultaneously substituted for a distant signal programming (usually an American channel) when they are broadcasting a similar program at the same time. In these instances, viewers may be tuned to the distant signal channel, but they are in effect watching a simultaneously substituted program (including the advertising embedded in that programming) from a local signal. This practice, which is required or authorized pursuant to section 7(a) of the Broadcasting Distribution Regulations, S.O.R./97-555 and the Simultaneous Programming Service Deletion and Substitution Regulations, S.O.R./2015-240, is meant to protect Canadian broadcasters who have bought programs from American producers, and to keep advertising dollars in the Canadian market.
[38] The BDUs contend that the Board’s failure to make an adjustment for simultaneous substitution is unreasonable in two respects. First, the Board purportedly erred by departing from past decisions, in which adjustments for simultaneous substitution has been applied, without providing reasons. In advancing this argument, the BDUs note that a 20% adjustment for simultaneous substitution was applied in the Board’s 1990 Decision; the same rate setting principle was applied in its 1993 Decision and was carried through subsequent agreements between the parties. In essence, the BDUs argue that the Board chose not to follow these precedents without providing any justification.
[39] Second, the Board would have further erred by ignoring the “uncontroverted and unequivocal evidence” tendered by the parties on simultaneous substitution. On this point, the BDUs emphasize that the approaches of Dr. Chipty (an expert for the BDUs) and Dr. Wall (an expert for the Collectives) both included, albeit in a different manner, an adjustment for simultaneous substitution.
[40] The Collectives counter that neither side argued for the application of a “stand-alone” simultaneous substitution adjustment. The Collectives submit that the only proposed use of simultaneous substitution information, which came from Dr. Chipty, was narrowly construed. This information’s sole purpose would have been to refine Dr. Chipty’s set-top box data, and to determine the true amount of distant signal viewing that it comprised. The approach of Dr. Wall, on the other hand, did not even call for the use of a separate simultaneous substitution adjustment. Under Dr. Wall’s approach, the proxy price first established in the 1990 Decision was understood as a “given” which ought to be updated, without any particular reference to simultaneous substitution. In brief, upon dismissing Dr. Chipty’s set-top box data as biased and unrepresentative, the Board discredited the only viewing data set for which simultaneous substitution could have been relevant.
[41] The Collectives add that no prior decisions of the Board stand for the application of a “stand-alone” simultaneous substitution adjustment in the present context, where the Board chose a different proxy methodology than the one employed in its 1990 Decision. In any event, the Board is not bound by its prior decisions.
[42] Having carefully considered the evidence that was before the Board and given appropriate consideration to the parties’ submissions, I am of the view that the BDUs’ argument calling for the application of a separate, stand-alone simultaneous substitution adjustment, is without merit.
[43] First of all, it need not be repeated that the Board is not bound by its prior decisions and that stare decisis does not apply to administrative decision making: Vavilov at para. 129. Of course, a decision maker that does depart from past practices or longstanding practices bears the burden of explaining why it is doing so, because those affected by a tribunal’s decision are entitled to expect that like cases will be treated alike: Vavilov at para. 131. In the case at bar, however, there was no precedent requiring the application of a stand-alone simultaneous substitution adjustment whatever the context and irrespective of the methodology adopted by the Board.
[44] In its 1990 Decision, the Board used as a starting point the wholesale price for only one speciality service (A&E), and considered that the value of a distant signal should be discounted by 20% because programs on distant signals are simultaneously substituted while those on A&E are not. In its latest decision, the Board refused to build on that approach and to use the growth of the price of A&E and the growth of the number of distant signals per subscribers to update the last certified price, as suggested by Dr. Wall. The Board was of the view that A&E, which was a good proxy for distant signals in 1990, could no longer serve as a good proxy for a number of reasons and therefore decided to opt for the amalgam proxy methodology based on Dr. Chipty and Professor Church’s approaches (Reasons, paras. 394-398).
[45] In that new context, the Board was not required to explain why it did not apply an adjustment for simultaneous substitution; such an adjustment has never been designed as a stand-alone adjustment but was very much tied to the methodology adopted in 1990. The only obligation of the Board was to consider the evidence before it, to develop a methodology that would result in a fair and equitable tariff, and to explain its reasoning for setting the rates as it did: see CMRRA-SODRAC at para. 17. In coming to its conclusion, the Board was entitled to prefer one set of experts and their approaches over others, and that kind of assessment is entitled to considerable deference.
[46] I also agree with the Collectives that the BDUs’ argument, calling for the application of a stand-alone simultaneous substitution adjustment, was never formally presented to the Board. Dr. Wall never suggested that simultaneous substitution ought to be used in every proxy model either in his report or during his examination or cross-examination. His first two methods to estimate the value of distant signals do not rely on the use of the total or relative amount of viewing to distant signals, whereas his third method, which is based on an update of the 1990 Decision, does not formally involve the application of a revised simultaneous substitution adjustment. In any event, as previously mentioned, the Board rejected that approach.
[47] As for Dr. Chipty, who was the only one to make explicit use of simultaneous substitution, she narrowly construed it as an aid to the assessment of another type of adjustment – the relative viewing adjustment, to which I will turn next. Dr. Chipty proposed to adjust her initial proxy price by a relative viewing adjustment factor, calculated as the ratio of distant signal viewing relative to proxy services viewing. The viewing minutes on which Dr. Chipty relied came from set-top box tuning data, which failed to distinguish between (1) viewing to a distant signal; and (2) viewing to a simultaneously substituted local signal on a distant signal channel. To isolate the latter type of viewing, which ought to be removed from the calculation, Dr. Chipty proposed to use the simultaneous substitution information from a narrow sample of data, encompassing the popular services of three BDUs from the three largest cities over a two-week period. Upon reviewing Dr. Chipty’s approach and the underlying data, the Board found the selected sample to be “problematic”, “unrepresentative of nation-wide viewership” and susceptible to “bias” (Reasons, para. 360). I agree with the Collectives that, as a result, the Board discredited the only viewing data for which simultaneous substitution could have been relevant.
[48] Finally, Professor Church’s approach contemplated the notion of simultaneous substitution, but applied no discount for it because the viewing minutes to a simultaneously substituted local signal had already been excised from his proposed distant viewing data. No further adjustment, as the one applied in the 1990 Decision, was therefore required.
[49] In this light, I am of the view that the Board did not ignore the evidence that was before it and provided reasons not to apply a simultaneous substitution adjustment. Such an adjustment is relevant only to the measurement of distant signal viewing. To the extent that the Board’s amalgam proxy methodology does not in any way include or depend on the use of the total or relative amount of viewing to distant signals, there was no logical basis for the Board to apply a stand-alone adjustment to account for simultaneous substitution.
[50] The BDUs’ request for a stand-alone simultaneous substitution adjustment is therefore raised for the first time in the context of this application for judicial review. For that reason, it ought not be entertained by this Court: Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654 at paras. 22-29. This Court is deprived of the evidentiary record necessary to consider the issue and does not have the benefit of the Board’s views on that issue. Moreover, the Board cannot be faulted for not having addressed an issue that was not clearly raised by the BDUs before it.
(2) Did the Board err in failing to make an adjustment for relative viewing?
[51] The BDUs argue that, having recognized the need to adjust for relative viewing, the Board erred by making no such adjustment in the face of appropriate evidence – namely the set-top box data used by Dr. Chipty – which was either ignored or dismissed without adequate explanation. With all due respect, this argument is entirely without merit.
[52] Relative viewing accounts for the alleged difference in value between distant signal programming and speciality services. The Board did consider Dr. Chipty’s proposed adjustment for relative viewing but chose not to apply it and never considered that it was required in the context of its methodology. As an amalgam of Dr. Chipty and Dr. Church’s approaches, the Board’s methodology involved the choice of adjustments that would yield a fair and equitable price. The fact that other adjustments may have been appropriate does not in any way elevate them to the level of being necessary.
[53] Moreover, the Board gave an explanation as to why such an adjustment was not warranted. As previously mentioned, the Board found that the set-top data upon which Dr. Chipty based her adjustment suffered from important drawbacks, being inconsistent with other broadcasting industry data sources and unrepresentative of nation-wide viewership (Reasons, para. 358). It is on that basis that the Board refused to venture into making an estimate:
First, due to the lack of data, no adjustment on the price of the proxy can be done based on the relative viewing of distant signals to the specialty channels contained in the proxy. As explained by Dr. Chipty, the price of the proxy should be adjusted by the ratio of viewing attributed to distant signals relative to the viewing attributed to the selected proxy. Since the parties did not provide reliable viewing data for each specialty service, it is not possible to make that adjustment.
Reasons, para. 447.
[54] Contrary to the BDUs’ submission, therefore, I find that the Board’s reasons are reasonable, “based on an internally coherent and rational chain of analysis” and “justified in relation to the facts and law that constrain the decision maker”: Vavilov at para. 85. The Board’s findings that no relative viewing adjustment was necessary, and that in any event there was no reliable data with which to make it, were open to it on the basis of the evidence on the record. Indeed, Dr. Chipty herself acknowledged on cross-examination before the Board that her proposed relative viewing adjustment should be set aside if the set-box data was to be found unreliable.
(3) Did the Board err in its determination of the appropriate program substitutability adjustment?
[55] The BDUs contend that it was unreasonable to reduce the 16.5% program substitutability adjustment by half, as the Board did, without any evidence. Moreover, the Board ruled on the program substitutability adjus