Unidisc – Quebec Court of Appeal treats master recordings as intangible (Class 14.1) rather than tangible (Class 8) property
Unidisc bought master recordings of music, i.e., the magnetic tapes containing the original recordings of the music for the purpose of having them reproduced in order to make and sell song compilations. Before reversing the decision below that the masters were Class 8(j) tangible capital property, and agreeing with the ARQ that they instead were eligible capital property (now Class 14.1 property), Schrager JA referenced s. 18 of the Copyright Act, which provided that “the maker of a sound recording has a copyright in the sound recording, consisting of the sole right to … [inter alia] reproduce it in any material form,” and then stated (at para. 31):
There are intangible rights … as described in section 18 … which were purchased in association with the physical tapes. It is not credible that an experienced business person would pay in excess of one million dollars for tapes without the right to make and sell copies (albeit subject to the composer’s and the publisher’s copyrights). The value is found in what is recorded on the plastic or cellulose and what Respondent can do with it – i.e. make and sell good quality copies … .
Since Unidisc had not presented any evidence as allocation of the value between the tangible and intangible property, it had failed to meet its burden of demonstrating that the ARQ reassessment (allocating all of the property value to the intangible rights) was incorrect, so that on these grounds, 100% of the capital cost, rather than some lesser amount, was allocated to the intangible property (i.e., eligible capital property).