Federal Court of Appeal Overturns Decision Regarding Tarrifs for Turn-Key Contracts
Neighbouring Rights Collective of Canada v. Astral Media Radio Inc., 2010 FCA 16
(Nadon J.A., Evans J.A., Pelletier J.A.)

January 18, 2010

Glen A. Bloom for the Appellant, Neighbouring Rights Collective of Canada (“NRCC”)
Mark Hayes for the Respondent

This was an appeal by NRCC to the Federal Court’s grant of a motion for summary judgment concerning the royalties collected by NRCC on behalf of the performers and makers of sound recordings of musical works.

The NRCC collects royalties in accordance with a tariff based on a percentage of the “advertising revenue” earned by broadcasters when they air advertisements. Broadcasters may also be party to a “turn-key contract” with businesses, where the broadcaster both produces and airs the advertisement, charging a single fee.

At issue in the appeal was whether “advertising revenues” include the value of these production services provided by the broadcasters. The trial judge ordered that the fair market value of the production services should be excluded.

The Federal Court of Appeal agreed that money received by the broadcaster other than to advertise falls outside of the statutory definition of “advertising revenue.” In a situation of a turn-key contract, however, not all of the revenue received by the broadcaster following the airing of an advertisement is attributable to the production of the advertisement – some may indeed be advertising revenue. The Court held that the characterizing of revenue is a factual issue that should be determined at trial. The statutory objective that performers and makers should receive equitable remuneration was of no assistance to the Respondent.

The Respondent argued that Subsection 2(2) of the Regulations Defining Advertising Revenues concerning the valuation of goods at fair market value would result in the deduction of the value of production services. The Court held, however, that the subsection applies only to goods and services received by a broadcaster as compensation to advertise. 

The appeal was therefore allowed and the Federal Court of Appeal granted a declaration: the mere fact that broadcasters incur costs in the production of advertisements does not prove that they have revenues that must be excluded.

By: Sue Diaz, Deeth Williams Wall LLP