Friday, April 03, 2015

Voltage, TekSavvy and The Cost of Taking a Position to Take “No Position” - "Nice Work If You Can Get It"?

The long awaited decision by Prothonotary Roza Aronovitch of the Federal Court regarding TekSavvy’s claim to entitlement to $346,480.68  “on a full indemnity basis to make it whole for the costs it says it incurred as a result of Voltage’s motion” has now been released. Spoiler alert – TekSavvy got only $21,557.50 – about 6% of what it asked for overall. And of that, only $4,500 was for legal costs, which were sought in the amount of $178,820.98.  That’s 2.5% of what was asked for in legal costs. Further spoiler alert: both Voltage and TekSavvy are appealing Prothonotary Aronovitch's ruling. Here’s the docket and here’s the notice of motion for the TekSavvy appeal dated March 27, 2015. I’ve been waiting on this posting partly because I didn’t want to say anything prior to the appeal deadline. And since it is now being appealed by both sides and the appeal has not yet been heard, I will say less about this case at this time than I might otherwise. In any event, I’ve had lots to say about this case in the past.  However, I should at least bring readers up to date.

It will be recalled that TekSavvy took the position that it “took no position” on the Voltage disclosure motion. This appears to have been a key factor in the Federal Court’s refusal to reward TekSavvy and its counsel with almost $180,000 in legal fees.

Ironically, if TekSavvy had actually opposed Voltage’s motion, it may well have been in a much better position to successfully seek costs.  Prothonotary Aronovitch cites Justice von Finckenstein’s ruling on costs in a similar case where two the ISPs actively opposed the disclosure motion:
[44] Justice von Finckenstein goes on as follows at para 35:
[35] Clearly the process that is sought to be imposed on the ISPs
would be costly and would divert their resources from other tasks.
Given that the ISPs are in no way involved in any alleged
infringement, they would need to be reimbursed for their
reasonable costs for furnishing the names of account holders, as
well as the legal costs of responding to this motion.
[Emphasis added]
[45] In that case, the Court ultimately denied the motion but awarded the costs of the motionto the third party ISPs who had opposed it.
(emphasis added)
I must respectfully and explicitly disagree, which I rarely do, with Prof. Michael Geist; however, I must do so about this case. He has been very supportive of TekSavvy throughout. He had a blog the other day entitled “Defending Privacy Doesn’t Pay”.  In my view, it would be more accurate to say that defending privacy can and does pay if done vigorously and out of principle – both in terms of legal costs and subscriber good will. Moreover, full indemnity legal costs are very rarely recovered in Canadian litigation. Responsible ISPs should expect to incur some non-recoverable legal costs for defending their customers’ privacy as part of their “cost of doing business”. Indeed, speaking generally and not necessarily about this case, it’s arguable that ISPs have a positive duty to actually oppose ill-founded motions for disclosure and that failing to do so could expose them to liability - but that’s another topic for another day.
There is also the explicit suggestion in Prothonotary Aronovitch ruling that TekSavvy should have put its cards on the table regarding TekSavvy’s costs much earlier:
[73] Whatever the reason, the parties’ failure to address the costs of the motion is an oversight that cannot now be remedied by subsuming them within the legal costs of abiding by the Order. This applies equally to the legal costs claimed on account of TekSavvy’s attendances at the motion to intervene and the various motions to adjourn. In that connection, counsel for TekSavvy conceded at the hearing of this motion that the costs of appearing before Justice Mandamin for a further adjournment could not be claimed as Justice Mandamin explicitly determined that no costs should be awarded in respect of the adjournment.

Prothonotary Aronovitch was rather obviously displeased with both sides, as her conclusion on costs of the costs motion reveals:
[129] …It may be said that success is divided and that costs should therefore not be awarded. Rather, no costs of the assessment will be awarded because neither party should be rewarded for its conduct: TekSavvy, without justification, has greatly exaggerated its claim, while Voltage has unreasonably sought to trivialize it based on unreliable and largely irrelevant evidence.

TekSavvy’s position of taking “no position” effectively meant that it did virtually nothing to protect its subscribers’ privacy other than to play for time to send out an arguably unnecessary notice to its potentially affected customers and attend for adjournments in order to let a law school clinic, CIPPIC, seek leave to and eventually intervene in the case. TekSavvy may not be Bell or Rogers but it is a very successful commercial entity with about $5- $10 million a month in estimated cash flow.  As to the notices, Prothonotary Aronovitch commented:
[64] While the Court has the discretion to order a party to give notice, the Rules do not require TekSavvy to have provided notice of the motion to its affected clients. TekSavvy acted voluntarily and on its own initiative. Whether it acted out of altruism or self-interest is irrelevant.

I have been insistent, persistent and consistent in the past in challenging TekSavvy’s “no position” position.  Indeed, it may have been arguable that the evidence in this case was no better and perhaps even worse than the evidence in the BMG case  (in which I was counsel for CIPPIC) over a decade ago, where Shaw, Telus and CIPPIC were successful in stopping the plaintiff American record companies in in their tracks because their evidence was essentially all hearsay and unreliable. The plaintiffs then were unable or unwilling to provide reliable non-hearsay evidence sufficient to justify piercing the privacy rights of the ISPs subscribers. The roadmap in the current case was perfectly clear based on the BMG case. Indeed, the landmark ruling of Justice Von Finckenstein was upheld in all essential respects by the Federal Court of Appeal. Here’s a balanced discussion of the rulings.

In the end, TekSavvy did nothing in the current case to challenge the adequacy of Voltage’s arguably inadequate evidence and to stop the disclosure motion from proceeding. It did not cross-examine on Voltage’s affidavit material in connection with the actual disclosure motion. Instead, TekSavvy chose to vigorously cross-examine to recover its alleged costs of $346,480.68 – for legal and other technical costs resulting from having taken no position and complying with the order.

Defending privacy is not remotely equivalent to supporting piracy. It is an ISP’s job under PIPEDA to ensure that disclosure in situations such as this happens only pursuant to a court order. As I said earlier, if that order is not warranted, for example because the evidence may be clearly inadequate, it is arguably the ISPs job to oppose the motion. Anyway, it can’t be “CIPPIC to the rescue” every time there’s a mass litigation attempt and it’s absurd to expect one or more individual subscribers to shoulder this responsibility of fighting for the privacy of themselves and thousands of others. They pay good money to their ISPs to do that, and ISPs generally do very well indeed finically in Canada.

CIPPIC ended up doing a good job on the policy side about the negative aspects of trolling and speculative invoicing. However, although it did mention the “hearsay” issue in its Memorandum, it is unclear to what extent if any “hearsay” was raised by CIPPIC during the oral hearing before Prothonotary Aalto. It is not even mentioned by CIPPIC, at least according to the unofficial” transcript of the oral argument on CIPPIC’s website. However, I have no way of knowing how complete or accurate that transcript may be and there are several references in it to the microphone being off for various periods of time. Ironically, hearsay was briefly mentioned by Voltage’s lawyer according to this unofficial transcript.

In any event, Prothonotary Aalto’s learned and lengthy decision following CIPPIC’s intervention and TekSavvy’s “no position” appearance does not mention the word “hearsay”. The rule against hearsay evidence (i.e. where the witness has personal knowledge and relies on statements from others) might have been Voltage’s potential “Achilles Heel”, but nobody seemed interested in going for that kind of victory. Arguably, if a victory is just, it should be taken where it can be found.

TekSavvy clearly went to great lengths, including extensive cross-examination, to pursue its alleged entitlement to “reasonable costs” in the amount of $346,480.68. Arguably, for much less expense, it might have instead stopped the arguably deficient and hearsay-based Voltage application from going forward at all. And as the Court pointed out, as noted above, TekSavvy would have been in a better position to recover costs.

It’s very difficult to predict what will happen now. Voltage may have already invested a lot of money on this case, unless there is a contingency arrangement with its consultants and/or its counsel – which would hardly be surprising. The small 6% fractional recovery by TekSavvy of its claim for costs is no doubt a victory for Voltage, but the costs of proceeding any further may still be very high. This case is still under Court supervision – and the Court has strongly indicated in the original decision from Prothonotary Aalto that it won’t allow the names and addresses of TekSavvy’s customers to be used simply as a database for uncontrolled speculative invoicing. Indeed, the Court must approve any proposed demand letter to be sent by Voltage to subscribers and is clearly contemplating that any actions commenced must be “separate” actions to be case managed by the Court. But will TekSavvy and/or CIPPIC step up to the plate to follow through on the possibly complicated and time-consuming future steps? If not, are TekSavvy’s customers going to be on their own and out there all alone?

According to an article published on April 2, 2015, it seems that Voltage’s lawyer now has a theory that he can sue for actual damages that will be greater than the statutory damages limit of $5,000 in cases of non-commercial infringement. The article is not entirely clear on what this theory is based but this is what it says:
Zibarras explained that plaintiffs in piracy cases can opt for statutory damages or actual damages. The former are awarded automatically once it’s been proven in court the defendant actually did download the movie. The latter, actual damages, take into account how much money the production company may have lost due to the downloading and subsequent distribution.

However, assuming that Mr. Zibarras’ theory is being stated accurately, that is just not the way things work. Statutory damages for non-commercial infringement (if proven) could be as much as $5,000 but also as little as $100. It’s up to the Judge. True, a plaintiff need not elect statutory damages and can go for “actual damages”. However, it’s a real stretch and “extremely far-fetched”, as I was quoted in the article, to suggest that a typical “ non-commercial” Bittorent user could be liable for any losses supposedly resulting from subsequent distribution via a Bittorent "swarm" of hosts “that upload to/download from each other simultaneously”, if that is indeed Voltage’s current theory.

To use such theory to ratchet up “actual damages” for downloading one movie (which might have cost $10 or so from iTunes or Amazon and from which Voltage would receive even less) to actual damages of more than $5,000 is “extremely far-fetched” indeed from every factual and legal standpoint, and that’s an understatement. Clearly, there would be immense if not insurmountable difficulty in proving how many,  if any, actual “lost sales” were the results of a particular customer’s individual infringement (if proven) by downloading and what damages, if any can be proven. Clearly too, a typical downloader has no “profits” for which to account.

If I understand this theory correctly, it is rather reminiscent of and perhaps even more “far-fetched” than Catherine Leuthold’s extremely longshot and so far very unsuccessful attempt to parlay a $19,200 claim into a $22,000,000 claim by trying to hold the CBC liable for separate acts of infringements for transmissions from each of the CBC’s 800 or so participating affiliated stations and Broadcasting Distribution Undertakings [BDUs].  An application for leave to appal her case is pending in the  Supreme Court of Canada and the result is expected shortly. It would be surprising if leave to appeal were to be granted.

It will also be very interesting indeed to see what happens with respect to Voltage’s presumptive obligation as a non-resident of Canada to post “security for costs” pursuant to the Federal Court Rules, and who – if anyone – will raise that issue and when. If Voltage gets around to actually suing anyone and doing so in separate lawsuits,  which is the Court’s clear expectation, that may be the first thing that knowledgeable counsel would address. And in this case, the security for costs motion may prove to be anything but routine.

If Voltage’s strategy is to avoid actual litigation, it may find itself in some trouble with the Court – because Prothonotary Aalto at para. 40 of his reasons  and the Federal Court of Appeal before him have made it very clear that the essential “bona fide” threshold requirement for disclosure means “that they really do intend to bring an action for infringement of copyright based upon the information they obtain”.

In one sense at least, the fact that the hearsay issue was not even mentioned in the proceedings to date is good news. This means that, in the future, another ISP may well challenge a disclosure motion the way that Shaw and Telus did in BMG, if the evidence is based upon hearsay or is otherwise inadequate. Indeed, another Canadian indie ISP, Distributel recently stood up to a plaintiff successfully, as I have pointed out, and stopped the disclosure motion even before it went forward.

So, we still have an uncertain future with respect to trolling and speculative invoicing in Canada. But one thing is certain – which is that door is now appears to be a little bit more open than it was before TekSavvy took the position that it would take “no position”.

And we also now have a potentially “perfect storm” about to hit Canada in the form of Bill S-4, which if enacted, could effectively take away the need for court approval of a disclosure motion. I wrote about this at length almost a year ago, and the timing and other coincidences with the Voltage case, TekSavvy’s “no position” response to it, and the coming into force, without regulations, of the problematic notice and notice regime. It’s a perfect storm of immense magnitude for those who care about privacy. All of this may also be a perfectly appealing opportunity for those entities who wish to engage in speculative invoicing and trolling, and lawyers who may wish to engage in pursuing this type of activity. And it may not even be too cynical a stretch to think that some ISPs in this new regime could be tempted to monetize the private information they have concerning their customers’ potentially infringing activities, along with their names and contact information – all without the bother of worrying about a court order.

But in the meantime and unless there’s a successful appeal by TekSavvy’s concerning its alleged entitlement to full indemnity costs, including legal fees, for a total of $346,480.68 for "for the costs it says it incurred as a result of Voltage’s motion" and for taking “no position” on the motion, TekSavvy’s “no position” position  would have been  Nice work if you can get itHowever, up until now TekSavvy didn’t get it and about 2,000 or so of its subscribers could soon be getting into a lot of trouble by being thrown into an uncertain but almost certainly unsettling settlement demand process.


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