Canada’s Intellectual Property Firm

Federal Court interprets ambiguous licensing terms in favour of common usage in licensee’s industry

Authored byMark Pidkowich

Contra proferentem is a doctrine of contractual interpretation which provides that an ambiguous term in a contract should be interpreted against the interests of the party who insisted that the clause be included. The doctrine is typically connoted as protecting the more vulnerable party to an agreement. Nevertheless, the recent Federal Court decision in Catherine Leuthold v Canadian Broadcasting Corporation, 2012 FC 748 ("Leuthold"), illustrates the reluctance of the Court to resort to contra proferentem, even for clearly weaker parties, and highlights the importance of detailing the scope of a license in an agreement, especially for parties unfamiliar with the industry in which the license is to be exploited.

The contract terms. The Leuthold decision involved the Canadian Broadcasting Corporation’s (the “CBC’s”) use of five photographs owned by Catherine Leuthold for a documentary film entitled As the Towers Fell (the “Production”). On September 10, 2002, the CBC transmitted the Production over its main channel in all five Canadian time zones, directly or indirectly through its affiliated stations, and over its wholly owned specialty service cable channel (“Newsworld”). According to a licensing agreement drafted by the CBC and executed by Leuthold (the “License”), the CBC was granted a non-exclusive and limited right to incorporate the five photographs in the Production for “one broadcast on CBC’s Network & Regional TV stations” (emphasis added). Accordingly, the Court was charged with determining the scope of the terms “one broadcast” and “CBC’s Network”.

Leuthold argued that “one broadcast” should be interpreted as meaning a single broadcast in a single time zone on the CBC’s main channel. The CBC, on the other hand, characterized the term as more encompassing and inclusive of all time zones. The Court rejected Leuthold’s interpretation of the “one broadcast” in the absence of a specific term to that effect, and in view of the CBC’s evidence that it was commonly understood in the industry that a Canadian broadcast, when it relates to a Canadian network, includes all time zones.

With respect to the term “CBC’s Network” and the broadcasts on Newsworld, Leuthold provided evidence that the CRTC considers CBC Television Network to be a separate and distinct entity from CBC Newsworld from a regulatory standpoint, such that it would be unreasonable to interpret “CBC’s Network” as inclusive of Newsworld. The CBC relied on evidence as to the CBC’s intent to include Newsworld in the License, including copies of contracts between the CBC and the company producing the Production which indicated that Newsworld was intended to be part of the agreement, and evidence establishing that the CBC always included Newsworld when obtaining permissions from rights holders.

Ambiguity. Leuthold further argued that any ambiguity in the term “CBC’s Network” should be resolved in her favour according to the doctrine of contra proferentem. More specifically, since the contract was drafted by the CBC, it was the responsibility of the CBC to clearly indicate the scope of the License. The Court, however, held that contra proferentem will only be invoked when all other rules of contractual construction fail to enable the Court to ascertain the meaning of a term, and referred to the following excerpt from Progressive Homes Ltd v Lombard General Insurance Co of Canada, 2010 SCC 33:

[23] … (C)ourts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the (agreement). Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the (agreement) was concluded.

Holding that the Court may turn to industry usage when interpreting what the reasonable expectations of parties may have been, the Court found the evidence as to industry usage, and what would have been commercially sensible to the CBC, to clearly favour the CBC’s position. While acknowledging that the distinction between the CBC and Newsworld may be correct from a regulatory perspective, the Court nonetheless found that it did not apply to the process of obtaining permissions from rights holders, and that the defendants had clearly established that the CBC always included Newsworld when doing so. Accordingly, the Court concluded that the License included Newsworld and the right to broadcast in all time zones to affiliates and regional television stations, such that the September 10, 2002, broadcasts on Newsworld did not infringe Leuthold’s copyrights.

Know the industry. The Leuthold decision signals that ambiguous licensing terms may be interpreted from the perspective of the industry for which rights are licensed, regardless of the strict legal interpretation of the term or the sophistication of a party vis-à-vis that industry. It may further highlight the significance of contractual terms seeking to preclude the application of contra proferentem.

The Leuthold decision is currently under appeal.

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