Randall J. Hofley

Partner

Dir: Ottawa: 613.788.2211Toronto: 416.863.2387randall.hofley@blakes.comReference: 00071273/000007

December 22, 2010

VIA E-MAIL

Mr. Gilles McDougallActing SecretaryCopyright Board of Canada56 Sparks, Suite Bureau 800Ottawa ON K1A 0C9

Attention:Gilles McDougallActing General SecretaryRe:Access Copyright – Post-Secondary Educational Institutions Tariff, 2011-2013:Access Copyright’s Reply in the Application for Interim Decision dated October 7, 2010

Dear Mr. McDougall:

We write on behalf of Access Copyright further to the Copyright Board's Ruling of December 8,2010 (“Ruling”) concerning Access Copyright’s application for an interim decision (the “InterimApplication”) dated October 7, 2010. In accordance with the Ruling, Access Copyright filed itsreply (“Question 1 Reply”) on December 15, 2010. This letter contains Access Copyright’ssubmissions in reply to Questions 2 through 4 as set out in the Ruling. In making thesesubmissions, Access Copyright repeats and relies on the submissions contained in its InterimApplication and the Question 1 Reply. The submissions made herein, and in the Question 1Reply, are without prejudice to the position Access Copyright may take in the main applicationfor a final tariff.By Notice dated December 3, 2010, the Board requested that Access Copyright provide theBoard with “a draft interim tariff that reflects the terms of the model licences, with suchmodifications as necessary”. On December 5, 2010, Access Copyright filed a draft interim tariff (“Interim Tariff”) in response to the December 3, 2010 Notice. On December 6, 2010, the Boardrequested that Access Copyright file a table (the “Source Table”) “indicating precisely the sourcefor each provision of the proposed interim tariff. If any provision of the interim tariff is new, thepurpose shall be explained”, as well as a table (the “Correlation Table”) “correlating the modellicence with the provisions of the proposed interim tariff. Where a provision of the licence is notin the interim tariff, an explanation shall be provided.” On December 6, Access Copyright filedthe Source Table and Correlation Table with the Board. There are a number of issues raised bythe respondents that go to the heart of the value of the Proposed Tariff. Issues such as thescope of fair dealing, whether hyperlinking or protection of an image infringe copyright, and thepurported privacy issues, among other issues, are properly determined on a full evidentiaryrecord before the Board. They cannot and should not be resolved in the Interim Application.

Page 1

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I.THE RESPONDENTS’ IMPROPER SUR-REPLYA.Introduction

The process established by the Notice of the Board dated November 26, 2010 and the Rulingrequired the respondents to file their responses to the Interim Application by December 10,2010 and for Access Copyright to file its reply by December 15, 2010 on the matters raised byQuestion 1, namely, whether the Board should issue an interim decision. The next stage calledfor submissions from the respondents concerning Questions 2 through 4 as articulated by theBoard in the Ruling. These are the submissions to which Access Copyright responds herein.The Board did not provide any process for the respondents to provide a sur-reply in response tothe Question 1 Reply. Yet some of the respondents have used this second stage, during whichthey are asked to respond to Questions 2 through 4, to make further submissions onQuestion 1. The most glaring overstepping in this respect is committed by the Association of Universities and Colleges of Canada (“AUCC”), whose submissions on pages 1 through 4 areaddressed solely in sur-reply to Access Copyright’s reply submissions. However, several other respondents also take improper advantage of the Board’s process, notably Professor Katz andAthabasca University. Access Copyright urges the Board to disregard these sur-replysubmissions in their entirety in accordance with the principles of procedural fairness touted sostrenuously by many of the respondents.If the Board decides to place weight on these submissions, Access Copyright must have anopportunity to respond and does so here.

B.AUCC

’s sur-reply

In its current submissions, the AUCC justifies wading into the deleterious effects argumentrelevant to Question 1 on the basis that Access Copyright “supplemented its argument in theInterim Application”.

In accordance with the principles generally applicable to replies, in theQuestion 1 Reply, Access Copyright responded to matters raised in the responses that had notbeen addressed in the Interim Application. Many if not most of the respondents madesubmissions regarding why, in their respective views, there would be no deleterious effects if the Board decided not to issue an interim decision or tariff obligating the payment of royaltiesduring the Gap Period. In making these submissions, some respondents asserted that AccessCopyright had revenues from other sources which should be utilized by Access Copyright duringthe Gap Period to offset losses from royalties in the post-secondary sector. For example, theAUCC and Association of Canadian Community Colleges (“ACCC”) suggested that AccessCopyright should use a “windfall” of retroactive payments in excess of $40 million it receivedupon certification of the K-12 Tariff.

In keeping with the principles applicable to replies, AccessCopyright responded to these suggestions by explaining the constraints on its use of thepayment of royalties from the K-12 Tariff, as these funds are held in trust for the benefit of rightsholders. In a footnote to its Reply on this point, Access Copyright referenced its 2009Annual Report. The AUCC has quite improperly made detailed submissions using the 2009Annual Report, and other annual reports,

as a departure point.In sur-reply, AUCC refers to Access Copyright’s 2009 Annual Report and states, “AccessCopyright receives well over $30 million dollars a year in payments, not including the K-12 tariff

AUCC, p. 1.

AUCC, p. 11; ACCC, p. 7.

All of which were publicly available at the time of AUCC’s response to the Interim Application on December 10,2010.

Page 3 of 18

payment […] Even with the loss of $16,000,000 in revenue [from the post-secondary licenceagreements], Access Copyright will have between $15,000,000 and $20,000,000 to distribute asroyalties and to pay expenses, including legal fees”.

The AUCC misstates the situation.After the loss of revenues from the post-secondary licence agreements is subtracted from the$35 million in revenues in 2009,

this leaves approximately $19 million. Of this $19 million, $10million is revenue received from the K-12 sector that can be recognized. The majority of thesemonies are held in trust for distribution to the K-12 rightsholders. The remaining funds aregenerated from licences granted to the government and corporate sectors, and from foreignreproduction rights organizations, and are held for distribution to those respective rightsholders.So, clearly, the AUCC’s argument that Access Copyright can use this money to fund itsoperations generally is wrong: it cannot take this money “from Peter to pay Paul”.By cobbling together various sections of seven years of Access Copyright’s annual reports,AUCC reasons that somehow Access Copyright has built up a reserve of $8.7 million to fund itstariff applications.

AUCC has misconstrued the annual reports. First, the line item “Net assetsinternally restricted for contingencies”, upon which the AUCC relies, is not cumulative. Thefigure represents the balance of that contingency fund at each year-end. Also, as is fullyexplained by the note to the line,

these monies represent a reserve to finance against thetriggering of any indemnity granted by Access Copyright and to finance any infringement actionsbrought by or against Access Copyright, not to finance tariff applications. The Annual Reportsexpressly show that tariff applications are funded not by a cumulative reserve, but out of aseparate budget line item – “Copyright Board Applications” – under the operating expenses of the organization. There is no pot of money accumulated over 7 years, as alleged by AUCC,which can be used to fund Access Copyright’s tariff applications and/or operate the business.With respect to the costs associated with tariff applications,

it is noteworthy that

for the yearsduring which the K-12 Tariff proceedings were underway in 2004 to 2007, i.e., the years whenthe K-12 Tariff proceedings were before the Board, the costs averaged $1.44 million per year.The total for these years of active involvement is $6,135,000. This is not the insignificantamount the AUCC would have the Board believe. Moreover, Access Copyright now has twoactive tariff proceedings before the Board and the K-12 proceedings are still unresolved, due toappeals brought by the objectors to that tariff. There is therefore no relevant comparison withthe periods referred to in the AUCC’s sur-reply. For example, the K-12 Tariff involved,essentially, one group of respondents who were represented by one counsel. Currently, in thetwo proceedings before the Board, there are at least three separately represented objectors inthe provincial-territorial tariff proceedings and, in the present proceedings, there are numerousobjectors, and intervenors that have, effectively, identical rights as the objectors. The simplereality is that, as reflected in this matter by the submissions of the objectors and interveners(including the implied and expressed threats of judicial review) and in the recent disputes beforethe Board in the matter related to provincial and territorial governments, parties subject (or potentially subject) to a proposed tariff are aggressively pursuing their interests at every stageand by all means. In the interests of its affiliates, Access Copyright must respond to these

AUCC, p. 2.

AUCC, pp. 3-4.

Note 10 to the 2009 Financial Statement, states: “Net assets internally restricted for contingencies representamounts designated by the Board of Directors to finance any material costs arising from the corporation'sindemnifications as described in Note 14(a) and any future legal actions concerning the corporation or brought by thecorporation against others in respect of alleged copyright infringements”.