There’s no Hiding from the Auditing Power of Collecting Societies

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THERE’SNOHIDINGFROMTHEAUDITINGPOWEROFCOLLECTINGSOCIETIES

LaurentCarrièreandMarc-AndréRouet*
LEGERROBICRICHARD
,L.L.P.
Lawyers,PatentandTrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.(514)9876242-Fax(514)8457874
info@robic.com-www.robic.ca
PRECIS:TheFederalCourthasdemonstratedthatcertaincircumstances
allowfortheapplicationofadoctrinewithwhichcourtscanshortcircuit
abusivebehaviour,suchastheavoidanceofauditsforblankmedialevies.
Aswellasrecognizingtheapplicabilityofthisdoctrine,thiscasedisplaysa
shortcutthatmaypavethewayforaneasiersolutiontosuchproblems.
InCanadianPrivateCopyingCollectivevFuzionTechnologyCorp2006FC
1284
theFederalCourtofCanadahasdemonstratedthatcertain
circumstancesallowfortheapplicationofadoctrinewithwhichcourtscan
shortcircuitabusivebehaviour,suchastheavoidanceofauditsforblank
medialevies.Aswellasrecognizingtheapplicabilityofthisdoctrine,thiscase
displaysashortcutthatmaypavethewayforaneasiersolutiontosuch
problemsinthefuture.
PursuanttoSection9ofthePrivateCopyingTariff,2003-2004theCanadian
PrivateCopyingCollective(CPCC)istheresponsiblebodyforthecollection
andredistributionoflevies.Section9alsorequiresimportersand
manufacturerstokeeprecordsfromwhichtheCPCCcanreadilyascertain
theamountspayable.
Inthepresentcase,theCPCC’sattempttoauditFuzion,animporterofblank
media,endedbluntly.BeforetheCPCCcouldseeklegalremediestopursue
itsaction,Fuzionhadtransferreditsstock,employees,rightsunderitslease,
phonenumbers,websiteandlogotoanothercompany,FTCComputers,in
aneffort“toallowforaseamlesstransitionforcustomersandsupplies”.When
theCPCCattemptedtocontinuetheauditbyauditingFTC’sbooks,itsefforts



















































©CIPS,2007.*Lawyerandtrade-markagent,LaurentCarrière,isaseniorpartnerwithLEGERROBIC
RICHARD
,L.L.P.,amultidisciplinaryfirmoflawyers,andpatentandtrademarkagents.Marc-
AndréRouetisanarticlingstudentwiththefirm.PublishedinWorldCopyrightLawReport.
Publication328.031.

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reachedasimilaroutcome:FTCclaimedthatitwasanindependententity
thatneitherimportednormanufacturedblankmedia.
TheCPCCthenpetitionedtheFederalCourtofCanadaforablanket
auditingorderagainstFuzion,FTCandYeung(FTC’ssoleshareholder,officer
anddirector).Fuzionwasnotrepresentedandtheorderwassummarily
granted.
Asfortheotherrespondents,thecourtturnedtothedoctrineoftheliftingof
thecorporateveiltoissueanidenticalorder.Recognizingthatthelawonthis
subjectfollowsnoconsistentprinciple,thecourtretainedithadadutyto
lookbehindacorporatestructuretoseeitinlawasitisinfact:apuppet
structureshouldbeignoredifitisusedasavehicleforfraudorimproper
purposes.
ThecourtorderedFTCtoopenitsbooks,statingthatalthoughtheremay
havebeenlegitimatebusinessreasonstorealizea”seamlesstransitionfor
customersandsupplies”,andthattherewasnoevidencethatthistransition
wascreatedtodefraudcreditors,thedeliberateeffortstoblurtheline
betweenFuzionandFTCamountedtoanimproperpurpose.Alsorelevantto
thisissuewasthefactthattherewasnoevidenceofpaymentforFTC’s
acquisitionofFuzion’sgoodwill,stockanduseofitspremisesforthreemonths
andthatYeung,aswellasbeingaformerdirectorofbothcorporationsfora
periodoftime,continuedtosignFuzion’slevyreportsevenafterthebusiness
transition.
AsfortheorderagainstYeung,thecourtconcludedthatassoleshareholder,
officeranddirectorofFTChehadthebestknowledgeoftherecord’s
handlinginbothentities,wastheprincipalactorinvolvedinthetransitionand
shouldbetargetedbytheordertoensurehiscooperation.
Further,havinggainedcontroloverthestockbywayofanagreementthat
putFTCinchargeofsellingitforFuzion,FTCneveracquiredpropertyrights
overitandtheact’sprovisiononsellingorotherwisedisposingofblank
mediadidnotputFTCinitsambit.Interestingly,thecourtconsideredthisto
constitutesufficientgroundstoorderanauditagainstFTC,becausegaining
controlandsellingmustentailbookkeeping.
Finally,thecourtconsideredtheorderforpaymentofeventualoutstanding
leviespremature,shouldtheCPCC’sauditconfirmany.Unlikesomelaws
dealingwithtaxesandduties,theactdoesnotprovideforprovisional
payments.

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