My speaking notes for the CHPC Committee Hearing of November 27, 2018 about Remuneration Models for Artists and Creative Industries

John Kenneth Galbraith  1908 - 2006

(Wikimedia)

Here are  my speaking notes for the CHPC Committee Hearing of November 27, 2018 about Remuneration Models for Artists and Creative Industries 

Audio Webcast here – beginning at ~ 11:47:30

1.     Introduction

The late legendary Canadian economist John Kenneth Galbraith explained the aptly named trickle-down theory of economics as follows. He said:

 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'”

That’s essentially the basis of the copyright system as we know it in Canada. It’s frankly a bit messy. We have about 38 collectives in Canada – which is about six times more than the USA. We have the largest, most expensive and slowest moving copyright tribunal in the world. 

Most of the sparrows get little from this system. Take Access Copyright for example. Based on its 2017 figures, 11,000 creators got $2,090,000 from AC and publishers, for an average of $190 per annum each. That’s less than the hourly billing rate of most junior lawyers these days.

The copyright system can actually be a disincentive to creation. Case in point is Giuseppe Verdi – perhaps the greatest of all opera composers, as documented in a wonderful book by Prof. F. M. Scherer called Quarter  Notes and Bank Notes. And there’s a recent book and article on the sound recording and popular music industry by Prof. Glynn Lunney.

Here are some facts to keep in mind:

·       It is impossible to define who is a professional writer, musician, composer, painter or other creator. I write a lot in my work and outside of my day job. I certainly don’t consider myself a professional “writer”. However, I got paid about $85 this year by Access Copyright– which is more than others I know. It’s always been incredibly easy to qualify as an Access Copyright creator affiliate. Doubling my Access Copyright royalties will mean nothing to me other than a nice lunch for two – but could cost the educational system hundreds of millions of dollars a year.

·       The composers whose works you might hear at the National Arts Centre are lucky to make more than $500 or $1,000 a year from SOCAN. Good thing they get grants and commissions and maybe salaries as a professor if they are lucky.

·       Virtually all professors are writers – and they get well paid for their writing by getting tenure and nice six figure salaries. But only a very small handful – such as Jordan Peterson – make serious money writing books.

·       A trade book selling 5,000 copies is a great success in Canada. The writer will be lucky to get $15,000 from the publisher and a pittance from Access Copyright. I hope they have a good day job.

2.     How digital technology can help artists get paid….

 Digital technology has much potential. Justin Bieber was discovered by his talent manager through his YouTube video cover versions in 2008 and the rest is history. And there’s the recent example of that wonderful 95-year-old Canadian gentleman Harry Leslie Smith who is suddenly a world-wide sensation and who we wish a speedy recovery.

There’s no doubt that artists will find a way – perhaps with the help of Google, Amazon, Shopify or others yet to come – of selling directly online to their fans without signing away their rights and most of their revenues in exchange for recoupable advances and elusive dreams that almost never come true.

But beware of digital delusions and vapor ware. For example, I’m frankly very skeptical about Access Copyright’s latest announcement called “Prescient” that promises the world once again. I’m not holding my breath, based upon its past failures to deliver. Talking about blockchain and machine learning is easy to do. That’s why everyone is doing it.  

Above all – please consider that we are looking at the cultural and knowledge sector, of which copyright is only a component or tool – and not the sector or the end itself. The transportation sector evolved from the horse and buggy to cars. More money got spent on transportation – but it got spent differently. Things change and constantly evolve. Old business models and jobs are not guaranteed – just look at Oshawa. As Universities Canada pointed out the other day and, in its brief, filed with the INDU Committee in June 2018. Canadian universities “are spending more than ever purchasing content: more than one billion dollars in library content in the last three years combined” – based upon Statistics Canada data.

3.     Increased use of the public lending right and similar models

 The Public Lending Right is an excellent program that rewards writers whose works are borrowed from public libraries. Because it’s outside the copyright system, the payments can be restricted to Canadian writers. Sadly, the maximum annual payout has fallen over the years from $4,000 to $3,000. Let’s put more money into this system – and consider Roy McSkimming’s suggestion for broadening the system to include an Educational Lending Right. This would enable payments to Canadian authors of school and college textbooks and other educational materials, including scholarly works.

4.     How collectives can best serve artists?

 Collectives have an inherent conflict of interest when it comes to serving creators. High salaries and high legal fees can only be justified in big organizations with annual revenues in the tens or hundreds of millions of dollars.

Collectives can best serve artists by doing their best to put themselves out of business – or at least by making themselves smaller and smarter - by embracing digital technology. It is simply unacceptable for a collective to spend 25% to 30% of it revenues on administration, lobbying and legal fees.  That’s members’ money.

The Copyright Board should only allow a collective to operate if it does so in the best interest of both creators and users. In all cases, it should require full disclosure of:

•        Actual repertoire
•        Average and median payments to individual creators
•        Salaries of senior officers and in-house counsel
•        Amounts spent on outside lobbyists, lawyers, experts and other consultants together with names

5.     Levies and taxes

 Since 1997 Canada has had a blank media levy system. I have tried on behalf of the Retail Council of Canada to get the Federal Court of Appeal to agree that it’s an illegal tax and very nearly succeeded. As they say, close but no cigar. However, a previous Minister Hon. James Moore agreed with me and in 2010 called proposed iPods, phones and other devices a “tax” and said, “this idea is really toxic and, frankly, really dumb.”

The Copyright Board is inexplicably keeping this zombie tax alive – and allowing the music industry to use the small revues of about $2 million a year – almost 30% of which is spent in administration, including lobbying and lawyers  – ­­­­­­to wait in zombie like stealth for another day to pounce on smart phones, ISPs, the cloud or whatever they can persuade a gullible government  to somehow tax.

The music industry is asking for a new “tax” on iPhones and other devices as well as its proposal for a $40 million per year taxpayer handout until an iPhone type tax can be implemented. Not to mention a recent proposal that would subject broadband data use to a copyright tax.

It’s more than high time to kill off the levy scheme in Part VIII of the Copyright Act and any idea of zombie tax. There’s no “Value Gap” in the copyright system. However, there’s a serious “values gap” in the fake news that is being disseminated these days about IP in general and Canadian copyright revision in particular.

6.     Need to clarify that tariffs are not mandatory

 The elephant in the room is the issues of whether Copyright Board tariffs are mandatory. They are not. I won that case in the SCC three years ago – but most of the copyright establishment is in denial or actively resisting. A tariff that sets the maximum for a train ticket from Ottawa to Toronto is fine – and we used to have such tariffs. But passengers were always free to take the plane, bus, drive my car or ride my bicycle or use any other legal and usually unregulated means. It should be no different with Copyright Board tariffs.

*********

I look forward to your questions

HPK

Follow Up on Bill C-86 – The Omnibus Bill that Amends Canadian IP Law

Bill C-86 has already been given second reading and is at the Finance Committee of the House of Commons. Yesterday, November 7, 2018, in the Finance Committee, there were about 10 minutes in total testimony by Grant Lynds, past President of the Intellectual Property Institute of Canada(“IPIC”) and Michael Geist in his own capacity on There were some subsequent questions. This takes place in the second hour of the webcast.

IPIC is the main professional association that represents intellectual property lawyers and agents in Canada. (I have been a member of IPIC forever and have spoken at many IPIC annual meetings). Michael Geist needs no introduction.

Mr. Lynds made some important points about file wrapper estoppel and how an immediate change may impact pending prosecutions and litigation. He also raised some important points about the proposed College of Patent and Trademark agents.

Michael Geist was largely positive about the package but concerned about the need for regulations re patent and copyright trolling notices and a need for an exception for informational analysis for text and data mining exception.  Michael did not deal at this time with the issue of whether the existing copyright law is adequate to implement the necessary regulations to prohibit the inclusion of settlement demands in s. 41.25 and 41.26 notices. In my humble opinion, it is, and it is inexplicable that this hasn’t been done in the last six years.  The question of patent trolling notices and demand letters is potentially much more complex and controversial and may yet not be ripe for specificity in the form of a detailed statutory requirement or even a regulation.

Both Grant and Michael were invited to provide “one line” drafts of amendments about their concerns.

Their concerns are not necessarily susceptible to one-line cures – at least not without considerable potential controversy. And both have many concerns that go way beyond one-line solutions. And needless to say, these two people – able as they are – can hardly speak for all in the IP community.

Neither Grant nor Michael were critical of the omnibus process of this bill, which was disappointing. Even if they mostly like this bill – apart from the serious concerns both raised which are not fixable by one-line amendments – this sets a dreadful precedent for the future. I’m surprised that neither made that point.

It was noted, if I heard correctly, that amendments must be proposed by November 15, 2018 and “clause by clause” will take on November 20, 2018.

There’s no downside in carving out the 100 pages or so of IP provision in C-86 and putting them into a separate IP bill – for which there are many precedents – which could get a few days worth of necessary, dedicated, and informed committee hearings and debate.

Instead, it looks like this will get literally only a few minutes – with perhaps of couple of “one line” token amendments… that may well be controversial and will certainly deal only with the tip of the iceberg.

There is no precedent in Canadian IP history for this massive bypass of parliamentary democracy. There is no urgency here to justify this departure from democracy.

While none of the provisions are obviously “evil”, some are potentially complicated and fraught with uncertainty and unintended consequences.

On the good news front, the LEGISinfo site indicated that the Senate Banking, Trade and Commerce Committee, which include Senator Joe Day – a former IP practitioner – and which has done good IP work before, for example on the Copyright Board, will hold hearings on the IP part of his bill even before it gets to the Senate.

On the bad news front, it also is unusual for the Senate to do is review in advance and this confirms the unseemly and completely unnecessary haste inherent in this unprecedented and unwarranted omnibus approach to IP law review in Canada.

HPK

Massive Canadian IP Law Reform in a Budget Bill – Throwing Parliamentary Scrutiny Under the Omnibus Bus with Bill C-86

We will not resort to legislative tricks to avoid scrutiny.

Stephen Harper has used prorogation to avoid difficult political circumstances. We will not.

Stephen Harper has also used omnibus bills to prevent Parliament from properly reviewing and debating his proposals. We will change the House of Commons Standing Orders to bring an end to this undemocratic practice.

Justin Trudeau: 2015 Campaign Platform

(highlight added)

Bill C-86, which was given first reading on October 29, 2018, is 884 pages long. It is an omnibus budget implementation bill that touches innumerable unrelated issues and amends dozens of acts. This is not the first Liberal omnibus bill that that breaks an important campaign promise. But it is the longest and most obviously “omnibus” bill to date. To the Liberal’s credit, there is now a procedure to divide omnibus bills with a Speaker’s ruling – EXCEPT notably in the case of budget bills. However, division has apparently even been done recently even in the case of a budget bill based upon a Speaker’s ruling. The NDP now wants this done again.  

Peter Julian MP (NDP) has raised the possibility of such division on Bill C-86 as a point of order. He appears to have a major point, without even focussing on IP. He has called this bill the “the largest and the worst omnibus bill ever presented in Canadian Parliament.”

Omnibus bills raise interesting and even existentially important questions about the democratic process. For example:

• When is it appropriate to use an omnibus bill – even a budget bill – that mixes together so many unrelated issues that may be fraught with complexity and even controversy and may bear only a nebulous relationship to the budget, which in turn may be an artificial berth for such proposal in the first place?  After all, budgets in the Westminster tradition have traditionally been about taxation and other important financial and fiscal matters – not extremely detailed micromanagement of arcane aspects of IP law, for example.
• Even if the provisions are welcome and uncontroversial, how can there be assurance of “quality” of the drafting when there may be only token and extremely abbreviated committee hearings and debate?
• How can Canadian be assured of the advantage of “crowd sourcing” – which is a new term that could be applied to the very old concept of Parliamentary democracy and the law but essential procedure that entails three readings in each of the House of Commons and Senate, detailed committee consideration in both places, floor debate and eventual passage and royal assent? That takes time and is meant to take time. Otherwise, why would we need that big building on Wellington Street known as the Centre Block with its 338 Members of Parliament and 105 Senators?

Many of the IP issues dealt with in Bill C-86 cannot be said to be “provisions that were announced in the budget presentation or in the documents tabled during the budget presentation” as required by Standing Order 69.1(2) so as to prevent division. The Government’s IP Strategy announced on April 26, 2018 along with a promise to spend $85.3 million as part of the Budget  was extremely vague in general and devoid of any specific documents. The few references in it to proposed legislation, in the colourful but non-specific and largely uninformative web presentation were very uninformative and devoid of documentation . The closest the April announcement comes to Copyright Board reform is a vague reference to “less costly IP dispute resolution and copyright tariff setting at the Federal Court and Copyright Board of Canada.” That is a very thin basis for one of the two or three most drastic structural changes to the Copyright Board and its predecessor in the last 80+ years – all of which involved substantial standalone legislation and considerable scrutiny.

The Bill contains nearly 100 pages of dense, complicated and game changing IP legislation that will result in some significant structural change in several respects and may result in potentially controversial, costly and unintended consequences.  Ostensibly, this is about implementing this Government’s extremely vague IP strategy, and this is the pretext for including all of this in giant sized omnibus bill.

On the IP side, among other things, Bill C-86;

• Uses the heavy and not easily correctable hand of legislation on many issues when regulatory authority has been available for years, but the government didn’t act, for whatever reason
• Will establish a new and inevitably very expensive “college” of patent and trademark agents
• Will quite possibly slow down the work of the Copyright Board rather than expedite it and stops well short of establishing hard-wired deadlines to hold hearings or render decisions, which could have been decisively done by regulation long ago
• Introduces numerous complex and potentially controversial changes, such as patent “file wrapper estoppel” – an American concept that may help Canadian users/defendants in some cases but may backfire on innovator/patentees in others.

More specifically:

On copyright:

Bill C-86 contains provisions in ss. 243 – 246 of the bill that amend the Copyright Act “in order to specify that certain information is not permitted to be included within a notice under the notice and notice regime and to provide for a regulation-making power to prohibit further types of information from being included within such a notice.”  That’s OK  - but it is six years late and arguably unnecessary, since the authority to implement regulations prohibiting such abusive messaging is probably already sufficiently there in s. 41.25. This is better late than never, though we will never know how much money was unnecessarily paid by unsophisticated recipients who were naïve enough to unnecessarily respond to abusive notices and who needlessly put themselves on the radar of a troll after the in appropriate notices were passed along without apparent protest by risk averse and profit motivated ISPs

More complicated by far are the 20 pages of amendments from pages 216 -236 of the bill concerning the Copyright Board. The amendments purport to amend the Copyright Act:

in order to modernize the legislative framework relating to the

Copyright Board so as to improve the timeliness and clarity of its

proceedings and decision-making processes. More specifically, it

repeals spent provisions and

(a) codifies the Board’s mandate and establishes decision making

criteria;

(b) establishes new timelines in respect of Board matters, including

earlier filing dates for proposed tariffs and longer effective

periods for approved tariffs, and empowers the Governor

in Council to make additional timelines by regulation;

(c) formalizes case management of Board proceedings;

(d) reduces the number of matters that must be considered

by the Board;

(e) streamlines procedural steps across different tariff contexts,

maintaining differences between them only where necessary;

(f) amends relevant enforcement provisions, including the

availability of statutory damages for certain parties in respect

of Board-set royalty rates and enforcement of Board-set

terms and conditions; and

(g) modernizes existing language and structure for greater

clarity and consistency

That is reasonably accurate summary, as far as it goes, and is included in the bill. However, there are some detailed and new provisions that may have unintended consequences. In anything this complex, the devil is in the details – and there’s 20 pages of details.

Most of what needed to be done to the Copyright Board to speed things up and lower costs could have been and should have been done by regulation, since the authority for timelines, case management, etc. is already there. Here’s a copy of my submission to Industry Canada in 2017 incorporating my previous submission to the Senate BANC Committee, showing how most of the immediately pressing concerns can be dealt with by regulations.

There was a conference call on very short notice on November 1, 2018 with officials. A number of important questions were raised, such as the following:

• What is the purpose or need for the new s. 73.1 which imports language from the “mandatory” levy scheme in Part VIII of the act re enforcement of “terms and conditions”?
• Why will the 80+ year-old requirement of tariff filing and board hearings in the music sector – because it is such a powerful monopolist when operating collectively – be suddenly rendered obsolete? The Parker Commission recommended this in 1935, and the government of day approved it for reasons that are essentially just as valid today as they were more than 80 years ago.
• How can it help small businesses to potentially have to negotiate separately with SOCAN and RE:SOUND who have millions a year to spend on legal fees and other costs associated with collective administration and pushing revenues up?
• Has the permissive language of “may” referred to the in the SCC decision in CBC v. SODRAC in current s. 70.4 disappeared?
• Will the imposition of explicit criteria re “competitive market” and “public interest” cause more mischief, costs and need for protracted and expensive evidence from so-called experts? The Board has purported to be concerned with the public interest all along – so do we really need to etch this into stone, whatever it may mean? Even John Degen agreed with me that this was cause for concern – thought for difference reasons. But the fact that Mr. Degen and I agreed on something should tell you something.
• How will the great idea of cost recovery for public interest involvement is a great idea – but which I have not been able to find in the nearly 100 pages of IP legislation in Bill C-86 amount to anything other than an empty gesture? At the CRTC, cost recovery is provided for in legislation where appropriate.

The conference call Q&A was short, highly managed and scripted, and frankly not very satisfactory. While it was useful for those invited, it was no substitute for the normal committee hearing process which is the basis of good legislation.

Bill C-86 also contains other IP stuff – some of it potentially controversial, such as:

• Regulations on patent demand letters
• File wrapper estoppel, as noted above
• A “college” for patent and trademark agents that have great powers and potentially great complexity and operational costs and resembling a provincial law society
• Trademark “use” and inability of registered users to sue for three years unless they have actual “use’
• “Official marks” that makes only a tiny incremental step forward on a massive problem
• Awarding of costs in Trademark Opposition Board proceedings – but no details as to how or on what scale.

Again, there was a conference call on October 31, 2018 on very short notice. Questions were managed, truncated and/or ignored, perhaps but not clearly due to technical reasons. There was no discussion at all about the “College” – a potentially huge topic. There were mostly unsatisfactory answers to some good questions.

At least this is not stealth legislation, as we saw with Stephen Harper’s gratuitous windfall to the American recording industry in a budget bill on his way out the door in 2015. Or as we saw in the Liberal’s stealth attempt to prolong the copyright term in the name of Lucy Maude Montgomery in 2003 buried away in a “machinery of government” bill to merge the national library and archives.

True, there have been consultations on many though not all of the IP matters in Bill C-86. But this is no way to do IP legislation. The good intentions and hard work of the government and officials have led to a very dangerous procedural precedent because there will be no meaningful review of this work. Nearly 100 pages of dense legislation require parliamentary scrutiny – not a rubber stamp. Prior consultation is not and never will be an excuse to avoid parliamentary scrutiny.

This is a bad procedural precedent. Good intentions by ministers and officials are not necessarily sufficient for good legislation. Parliament is there for a reason. It should be allowed to do its job – without artificial shortcuts, and especially where there is no urgency to warrant any short cut. Good legislation requires good drafting – but also close scrutiny, testimony from interested parties, debate in committee and in the house and senate. Otherwise, what’s parliament for?

Bills and regulations require public comment and scrutiny. Errors and omissions can get corrected.  Even policy changes can be made, if warranted.  In the case of a free-standing bill with normal committee hearings and debate, there would also be a legislative history – which can be very important in subsequent litigation.

Prime Minister Trudeau made an important campaign promise about omnibus legislation. Hopefully, he will now ensure that the IP stuff is divided out of this Bill – or at least send it off to dedicated hearings at the INDU committee in the House and the BANC Committee in the Senate – and give these complicated provisions all the time they need for further consideration.

A token hearing by the Finance Committee, which has no experience or expertise in IP law, is no substitute for a normal hearing on a complicated IP bill.

The Ministers Letter to the INDU Committee

Here is a link to an undated  (presumably October 29, 2018 – the day of Bill C-86 first reading) letter from Ministers to the INDU Committee.

The letter has a heavy focus on the educational sector. Certain officials are widely believed to have been responsible for the ill-fated and temporarily derailed attempt to make Access Copyright tariffs effectively mandatory through the artifice of harmonizing statutory damage regimes to provide Access Copyright the same 3 -10 times statutory damage nuclear weapon available to SOCAN. This shameful attempt was heavily criticized by many, including Michael Geist and me. The rumoured legislation that would have done this failed to materialize in the spring. Nonetheless, the letter from the Ministers to the INDU Committee confirms that this very bad idea is very much alive and suggests that the certain bureaucrats apparently won’t let go of it.  The letter seems to unduly focus on educational issues, where there has clearly been intense lobbying and more than the usual litany of fake news about starving artists and who they are being failed by the allegedly inadequate copyright laws. The letter concludes as follows with an explicit invitation to the INDU Committee:

We are eager to receive the results of your work. We would appreciate any

recommendations the committees are able to offer on fairness and predictability in educational markets, including recommendations on the applicability and enforcement of Board-set rates.

(highlight added)

It looks like the confrontation over mandatory tariffs will be one of the main battle fronts in the s. 92 review. It will be fought not only in the Courts but also in Parliament. It seems that officials and Ministers and even parties who ought to know better  are either unable or unwilling to embrace the ruling of the Supreme Court of Canada in Canadian Broadcasting Corp. v. SODRAC 2003 Inc., [2015] 3 SCR 615, 2015 SCC 57 that tariffs set in the course of the so-called “arbitration” regime are not mandatory for users. This is a ruling resulting from arguments I made in the Supreme Court of Canada on behalf of Prof. Ariel Katz and the Centre for Intellectual Property Policy (“CIPP”) at McGill. If such tariffs are not mandatory even for users who voluntary submit to the Board’s so-called “arbitration” regime, how can tariffs be mandatory for those who are not party to any Board proceeding and wish to have no dealings with a collective because they can clear their copyright needs more efficiently in other ways? The issue is pending in the Federal Court of Appeal – and will likely end up in the Supreme Court of Canada.

With all of the above, and the Government’s extremely costly capitulation to Trump on the life + 70-year copyright term in the USMCA, which this Government is proclaiming as a victory, Canadian copyright is in great turmoil.

The one thing that should be obvious at this point is that an omnibus bill is not the way to proceed to fix Canada’s IP laws and lead to innovation for the nation.

Oone of my best law school professors, the wonderful Harry Glasbeek, said that anytime there’s a new Supreme Court of Canada decision or new legislation, think of the worst possible unintended consequence – and rest assured that it will indeed come to pass and sooner rather than later. Another cliché comes to mind, namely that “if it ain’t broke, don’t fix it.”

If I sound like a crusty old curmudgeon here, that may be because that’s what I may well be. It displeases me that decisions and actions are being taken on major IP issues by officials who may, in some cases, have little actual corporate memory and virtually no real IP expertise, which is somewhat understandable the way the bureaucracy works and people come and go. That is why we have Parliament to study and enact, if so inclined and after adequate study and debate, the legislation devised and drafted by officials.

There will presumably be some discussion in the Finance Committee of the House of Commons of the “subject matter” of Bill C-86 beginning tomorrow.  IPIC and Michael Geist will have a few minutes on November 7, 2018.

HPK

PS - It seems that Speaker Geoff Regan  has concerns about this process and has already begun to divide the bill upon the request of Peter Julian MP according to this report from the Globe and Mail.

Buried Deep in a Budget Bill - Sweeping Amendments re Canada's Copyright Board

Buried in a Budget Bill  introduced today are dozens of pages of very complicated amendments concerning Canada's Copyright Board.

Here is the Bill. 

See pages 216-236 for starters of this 884 page bill.

I haven't examined it yet - but will do so ASAP in the morning with great trepidation.

It looks like the most drastic and comprehensive amendments concerning the Copyright Board at least since 1988 and possibly since the 1930's.

Whether these amendments are good or bad or both, it would seem inexplicable and inexcusable to include them hidden away in a budget bill in such a manner that meaningful debate or committee hearings are virtually impossible.

The last time that a significant copyright amendment was buried in a budget bill was Stephen Harper's gratuitous windfall handout re sound recording term extension to the American music industry in 2015.

I regret having to ruin your evening.

HPK

Voltage Pictures and the Massive Mass Litigation Mess in Canada

Voltage Pictures has been trying to sue 55,000 Canadians all at once through an unprecedented federal “reverse class action” in which one defendant was singled out and expected to defend the interests of the entire so-called class. Voltage seems to have picked its fight with the wrong defendant – Mr. Robert Salna - who is a landlord and who is sufficiently principled and financially able to have retained capable counsel. In the course of this quest, Voltage Pictures also managed to fight with Rogers as an ISP from which it sought disclosure of names and addresses. Both of the fights found their way to the Supreme Court of Canada, which recently declined to hear Voltage's appeal in one case and ruled against Voltage in the other. 

The Supreme Court of Canada (“SCC”) ruled on September 14, 2018 in   Rogers Communications Inc. v. Voltage Pictures, LLC, 2018 SCC 38 (CanLII), that Rogers is entitled to be reimbursed for “its reasonable costs of compliance with the Norwich order” to disclose the names and addresses of alleged copyright infringers. Here is the webcast of the SCC hearing that took place on April 26, 2018. This was in the context of the controversial “reverse class action” by Voltage Pictures against 55,000 or so individuals. The ruling will clearly affect future mass litigation and should have a serious and chilling impact on other pending mass litigation, of which there are at least 17 examples in the Federal Court involving thousands of individual “Doe” defendants. These 17 or so actions are not reverse class actions but typically sweep in hundreds of “Doe” defendants alleged to have infringed the same movie using BitTorrent.  All of these cases have been launched by Mr. Kenneth Clark of Aird and Berlis LLP

These costs – to be determined by the motions judge and this time with an adequate evidentiary record – can include only the steps above and beyond those already required by the Copyright Act pursuant the Notice and Notice regime. The SCC decision is notable for many reasons.

The issuance of the decision followed unusually quickly – less than five months after the April 26, 2018 oral hearing. The Court usually takes about six months or so.

It follows the major SCC setback for Voltage when on August 9, 2018 the SCC dismissed Voltage Pictures et al’s application for leave to appeal from a judgment from the Federal Court of Appeal (FCA) affirming the Federal Courts’ February 2, 2017 order regarding security for costs but for very different reasons. Voltage had been ordered to pay $75,000 into court for security for costs forthwith – which dates back to February 2, 2017 – more than 19 months ago. This payment apparently still has not been made, so the “reverse class action” has presumably fizzled fatally and finally. The reverse class action never got to the “certification” stage, where it would very likely have failed. The astonishing concept of forcing one individual chosen by the plaintiff to retain counsel and defend a class of 55,000 others - each of whom may have a different story to tell – was apparently predicated upon an untested reading of the Federal Courts Rules, which have not been and almost certainly were never meant to be used in the reverse mode as contemplated in this way.

This hearing was about an interlocutory procedural matter involving an apparently very small amount of money with an inadequate evidentiary record and very little explanation by the motions judge of why he thought $100/hour was appropriate – or a suggestion as to how many hours would be required. The SCC rarely gets involved in such matters but obviously saw the importance of this issue. Given the inadequate record below, the SCC hearing at times resembled a motion in the Federal Court with experienced lawyers and justices at times seeming to speak the language of systems analysis.

Oral arguments can and do matter - and Voltage said some things discussed below that may have backfired in this case and may cause it problems in the future beyond the obvious fact that it and others will now have to pay an amount – not necessarily “negligible” – for the details of each alleged infringer’s name and address.

It is clear that the SCC is concerned about the torrent of BitTorrent litigation in Canada. It has been clear since 2011 that Voltage and some apparently related entities are trying to unleash a Torrent of “BitTorrent” litigation. There have been changes in lawyers and strategies along the way in the quest to bring what many would call “copyright trolling” litigation – or worse - to Canada.

Justice Abella challenged Mr. Kenneth Clark, the counsel from Aird & Berlis LLP, for Voltage in the SCC hearing, as to whether his concerns that “The sky isn't necessarily fallen, but it has certainly caused a lot of damage” was based upon actual evidence or “just anecdotal.” He had no good answer. Indeed, he told her that “The United States has been complaining about Canada's position as a copyright infringer for a long time and in our materials we included a 2017 report saying Canada is still a haven for copyright pirates.” Voltage placed a lot of reliance on anecdotal and unreliable secondary sources – such as an IIPA report from 2017.   That report was  an IIPA report from 2017, which is an annual report from an American lobbying firm used to heavily influence USTR “301” reports. These reports are argumentative, mostly anecdotal and virtually devoid of scholarly rigor or actual evidence.  As I said in 2010 about these IIPA reports, the IIPA is the powerful Washington lobbying organization that is highly influential in the content of the notorious annual USTR “Special 301" report - which provides predictable and perennial negative commentary about Canada that our own Government says "lacks reliable and objective analysis". They are not taken seriously by the Canadian government. It is hardly a legal authority and should never have been filed as an authority in the SCC. Clearly, the SCC wisely ignored it.

In this case, Voltage’s counsel told the Supreme Court that he was trying “to make copyright infringement akin to a parking ticket” and that he was looking for “$100 or $200, in the ballpark…” per defendant. So, why has he been looking for $5,000 settlements in the 17 other mass litigation BitTorrent actions he has been pursuing in the Federal Court beginning in 2016? $5000 is quite a parking ticket. It’s the maximum the statute allows for statutory damages for non-commercial infringement and 50 time more than the minimum of $100. And why would anyone ever agree to settle at the max at the beginning of a process that is extremely unlikely to go to trial?

Voltage and other will now have to come up with real money when the Federal Court determines reasonable costs of compliance with Norwich orders. In the past, Voltage fizzled when it came to paying $33,380 costs in the TekSavvy case and now has failed to pay $75,000 into court for security of costs in this reverse class action case.

Above all, the SCC has made it explicitly clear that merely “being associated with an IP address that is the subject of a notice under s. 41.26(1)(a) is not conclusive of guilt”.  The SCC also clearly stated in the 2004  CCH v. LSUC decision that liability for “authorization” must entail “sufficient control” over the person doing the infringing, which is surely an oxymoron when it comes to teenage children and their friends using the household Wi-Fi with numerous devices. So, it’s open to question now whether there can even be any massive drift net type of action based upon any sustainable one-size-fits- all pleading – especially by way of a simplified action involving BitTorrent activity.

The Court’s judgment should put the brakes on some of the arguably overly informal procedures and accommodating rulings in the name of efficiency by the Federal Court in these 17 actions. This approach has apparently been based upon the sweeping dicta of Justice Stratas in the FCA decision below that culminated in his urging that these cases be dealt with “as quickly, easily and efficiently as possible while ensuring fair treatment of all.” Hopefully, more attention will now be paid on the “fair treatment for all” rather than the “quickly” and “easily” wording.

Here are perhaps the two most consequential paragraphs in the judgment – which put a severe chill on all the legal basis of the outstanding mass BitTorrent cases:

[35] I acknowledge that there will likely be instances in which the person who receives notice of a claimed copyright infringement will not in fact have illegally shared copyrighted content online. This might occur, for example, where one IP address, while registered to the person who receives notice of an infringement, is available for the use of a number of individuals at any given time. Even in such instances, however, accuracy is crucial. Where, for example, a parent or an employer receives notice, he or she may know or be able to determine who was using the IP address at the time of the alleged infringement and could take steps to discourage or halt continued copyright infringement. Similarly, while institutions or businesses offering Internet access to the public may not know precisely who used their IP addresses to illegally share copyrighted works online, they may be able, upon receiving notice, to take steps to secure its internet account with its ISP against online copyright infringement in the future.

[41] It must be borne in mind that being associated with an IP address that is the subject of a notice under s. 41.26(1)(a) is not conclusive of guilt.  As I have explained, the person to whom an IP address belonged at the time of an alleged infringement may not be the same person who has shared copyrighted content online. It is also possible that an error on the part of a copyright owner would result in the incorrect identification of an IP address as having been the source of online copyright infringement. Requiring an ISP to identify by name and physical address the person to whom the pertinent IP address belonged would, therefore, not only alter the balance which Parliament struck in legislating the notice and notice regime, but do so to the detriment of the privacy interests of persons, including innocent persons, receiving notice.

(highlight and emphasis added)

Even if these comments from the SCC go beyond the narrow “ratio decidendi” (what is actually decided and what is generally rooted in the facts) to the those that are “obiter dicta”, the latter type of comments can still be authoritative if they are closely related to “ratio decidendi”.  Those who are curious about the role of SCC “obiter dicta” may want to read the SCC’s own important 2005 decision regarding this issue. See  R. v. Henry.  In this instance, these comments were arguably closely related to the “ratio” and should now be regarded as binding authority.

Hopefully, these statements from the SCC will send a clear signal to the case management prothonotaries and judges in the Federal Court to proceed with caution, to ask the necessary questions in default proceedings, and not to inappropriately sign default judgments or even consent judgments that do not appear to be appropriate in individual cases. Above all, the SCC judgment may serve to prevent hundreds or thousands of unsuspecting individuals having judgments entered against them en masse in default proceeding for up to $5,000 each– with all the attendant consequences that could follow.

We are, unfortunately, seeing American-style mass litigation in Canada predicated upon the notion that few defendants will retain counsel to fight a “parking ticket” but will settle for some portion or, inexplicably in some cases apparently even all -  of the maximum amount of $5,000. This is being fueled by lack of access to justice. Sadly, the law school clinics are not stepping up to the plate. In some cases, lawyers may be giving questionable advice. All of this will hopefully somehow soon stop. Presumably, the Federal Court will get the message from the SCC.

HPK

PS - update of January 2, 2019

Voltage has paid the required $75,000 into court on November 9, 2018 and steps are being taken to determine Rogers' "reasonable costs", pursuant to the ruling of the SCC. Here's the docket: http://apps.fct-cf.gc.ca/pq/IndexingQueries/infp_RE_info_e.php?court_no=T-662-16&select_court=T