Wednesday, January 29, 2020

Update on Allarco’s “Unusual” Litigation

Here’s an update on the Allarco’s copyright + countless other alleged causes of action and claims against four of Canada’s most prestigious retailers and 50,000 John Doe Customers for selling unspecified devices from unspecified suppliers and somehow infringing copyright in unspecified works and trademark rights in unspecified trademarks, conspiracy, circumvention, stealing, intentional interference, etc., etc., etc…. Here’s my earlier post on how the retailers had predictably attacked Federal Court pleading. Here once again is the Federal Court docket.

Allarco (aka Super Channel) discontinued its lawsuit in the Federal Court on January 6, 2020. Meanwhile, Allarco had started a similar action in the Court of Queen’s Bench in Alberta on December 6, 2019. Here’s that newer Statement of Claim, which adds unspecified John Doe suppliers as defendants and seeks $50,000,000 in damages and has a few other differences from the Federal Court action.

Although this litigation was at an early stage in the Federal Court in terms of procedural steps, the retailers have clearly already been put to considerable trouble and expense and are understandably seeking substantial costs arising on a solicitor and client (i.e. substantial indemnity) basis arising upon the discontinuance. Motions and countermotions were heard on this on January 23, 2020 which resulted in this lengthy and unusually blunt order dated January 27, 2020 which suggests that the retailers will indeed be awarded substantial costs arising from the discontinued Federal Court action.

As the Court correctly noted:
Rule 402 expressly provides that the Defendants are entitled to their costs payable forthwith upon discontinuance. Pursuant to Rule 412 these costs may be assessed upon filing of the notice of discontinuance. The Plaintiff has not displaced this presumption.
Meanwhile, back in Alberta, Allarco had scheduled an injunction hearing on January 22, 2020 – the day before the long-scheduled January 23, 2020 Federal Court hearing mentioned above. That injunction hearing has now been adjourned to May 7 and 8, 2020 and a schedule has been set for cross examinations, etc.

It will be interesting to see what happens in the Alberta Court of Queen’s Bench. While the Alberta court in principle can cast a wider jurisdictional net than the Federal Court in terms of weird causes of action such as conspiracy, intentional interference with business, contractual and economics interests, relations, etc., that won’t make any difference if the underlying facts, particulars, and ultimately the evidence, if it gets that far,  are just not there.

Among the more inexplicable aspects of the first pleading was a reference to s. 420 of the Criminal Code – which refers to buying, receiving, or detaining …”any military stores that are owned by Her Majesty or for which the member, deserter or absentee without leave”. That is now gone from the new pleading. Some of the colourful language in the earlier pleading that reappears in the new one includes: 
59. The actions of the 4Stores constitute a public nuisance in that they encourage a culture of dishonesty and theft within the general public in Canada which is promoted by 4Stores. The 4Stores fashion and promote themselves as industry leaders and educators in the promotion, education, and guidance of Canadians in the electronic devices market while acting to the contrary.60. The actions and omissions of the 4Stores as pleaded herein are high handed and advertently misleading in the pursuit of profit and unreasonably interfere with the public's interest in questions of honesty, conscience and morality and preservation of Canadian Culture., including ethnic and indigenous Canadian culture. As such they merit the award of punitive damages or the maximum level of statutory damages prescribed in the Copyright Act.(highlight added)
I said in my earlier blog that “I can safely say that in nearly four decades of being an intellectual property lawyer, I have never seen a more unusual Statement of Claim.” That may have been an understatement. If anything, I would say that the new Statement of Claim with its addition of the “John Doe Suppliers” as defendants seems even more “unusual”.

Allarco is asking for “costs of this action on a solicitor and client basis, plus GST, or HST, including all disbursements and costs of tracking and communicating with Customers”. Of course, there’s an old adage about "Live by the sword, die by the sword". If this new litigation goes badly for Allarco and Allarco becomes liable for solicitor and client costs, it is not difficult to imagine such costs rather quickly amounting to six or even seven figures.

Meanwhile, let’s keep tabs on how much Allarco will be on the hook for costs to date in the Federal Court, including the costs of its apparently forceful and lengthy but predictably unsuccessful attempt to punt on the Federal Court costs issue and kick it over to Alberta or, alternatively. to adjourn or stay the costs matter and a “laundry list” of other requests for relief. As for Allarco’s motion of January 23, 2020, the Court ordered that “Costs of this motion are awarded to the Defendants in an amount to be fixed and payable forthwith with the remainder of the costs for the action.”

I’ll post more about the forthcoming injunction proceeding and/or other developments when I get copies of the basic publicly filed documents. It would hardly be surprising if the defendant retailers attack this highly “unusual” Alberta Statement of Claim for the similar reasons that they were poised to proceed with in the Federal Court. Indeed, it would be surprising if they do not do so.

It’s too early to speculate about what Allarco will attempt do and what the Court might let it do about the 50,000 John Doe Customers or the now added John Doe Suppliers and how their interests will be represented if things ever get anywhere near that far.


Wednesday, January 22, 2020

The “M” Word in Canadian Copyright Law – The “Mandatory” Matter

After almost a full decade since the application was filed, the Copyright Board of Canada released its Access Copyright Post-Secondary tariff and decision at the end of the day on Friday, December 6, 2019. Objections to the next round of Access Copyright tariffs were due on the following Monday December 9, 2019. That deadline was, itself, 30 days earlier than the usual 60 days that has been in place for decades. I’ve written about that ill-conceived abridgment of time and the related changes that will do little if anything to speed things up at the Copyright Board.

The greater irony and inconvenience of the Copyright Board’s timing on this decision was that December 6, 2019 was just two weeks before the academic community in Canada virtually shut down between December 21, 2019 and January 6, 2020 and communications with and among that community may have become difficult or even impossible. The Copyright Board’s timing is nothing if not interesting. It came almost four years after an effectively uncontested hearing and well over a year after the expiration of the Board appointments of two of the three members who were seized of the case.

The Board’s timing caused the countdown clock to begin to tick on December 6, 2019 on the 30-day deadline to file a judicial review Notice of Application concerning the Access Copyright tariff. That deadline is hardwired under s. 18.1 of the Federal Courts Act and is not postponed by the “Christmas Recess” provisions which apply only to deadlines set under the Rules and not the Act and which happen to coincide with the academic community break.

For whatever reason, there have been no notices of applications for judicial review filed.

In any event, one of the most interesting aspects of the Board’s decision was that it notably and conspicuously stated that:

The mandatory nature of the tariff

[357] The Tariffs are silent on whether compliance with a tariff is mandatory for users who do not seek to benefit from the licence offered thereby. We are aware that related issues have been raised in recent judicial proceedings [FN Canadian Broadcasting Corp v SODRAC 2003 Inc, 2015 SCC 57] and it is not necessary for us to opine on the issue at this point.

[358] To the extent it might be appropriate for a tariff to include wording whereby its benefits and obligations would only apply on an opt-in basis, we would appreciate a more complete record before including such a provision and invite affected persons to participate in the proceedings on the next occasion the Board considers proposed tariffs for these users.
(highlight added)

It is important to remind the entire educational community that the Supreme Court of Canada (“SCC”) agreed in 2015 with the submissions that I made on behalf of Prof. Ariel Katz and Prof. David Lametti, as he then was, and his CIPP institute at McGill that resulted in the 2015 CBC v. SODRAC ruling that Copyright Board tariffs are not mandatory. Here is the gist of what the SCC majority, per Rothstein J. ruled:
[104]  I do not read the Copyright Act to necessitate that decisions made pursuant to the Board’s licence-setting proceedings under s. 70.2 have a binding effect against users. Section 70.2(1) itself provides that where a collective organization and a user cannot agree on the terms of a licence, either party may apply to the Board to “fix the royalties and their related terms and conditions”. This grant of power speaks of the Board’s authority to set down in writing a set of terms that, in its opinion, represent a fair deal to license the use of the works at issue. It says nothing, however, about whether these terms are to be binding against the user.
 [107] The conclusion that Board licences established pursuant to s. 70.2 are not binding on users comports with the more general legal principle that “no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except upon clear and distinct legal authority”: Gosling v. Veley (1850), 12 Q.B. 328, 116 E.R. 891, at p. 407, as approved and adopted in Ontario English Catholic Teachers’ Assn. v. Ontario (Attorney General)2001 SCC 15, [2001] 1 S.C.R. 470, at para. 77, and Attorney-General v. Wilts United Dairies, Ltd. (1921), 37 T.L.R. 884 (C.A.), at p. 885. To bind a user to a licence would be to make it liable according to its terms and conditions should it engage in the covered activity. In the absence of clear and distinct legal authority showing that this was Parliament’s intent, the burdens of a licence should not be imposed on a user who does not consent to be bound by its terms.
 [112] I conclude that the statutory licensing scheme does not contemplate that licences fixed by the Board pursuant to s. 70.2 should have a mandatory binding effect against users. However, this case does not require this Court to decide whether the same is true of collective organizations. It may be that the statutory scheme’s focus on regulating the actions of collective organizations, and the case law’s focus on ensuring that such organizations do not devolve into “instruments of oppression and extortion” (Vigneux v. Canadian Performing Right Society, Ltd.1943 CanLII 38 (SCC), [1943] S.C.R. 348, at p. 354, per Duff J., quoting Hanfstaengl v. Empire Palace, [1894] 3 Ch. 109, at p. 128) would justify finding that the Board does have the power to bind collective organizations to a licence based on the user’s preferred model — transactional or blanket — on terms that the Board finds fair in view of that model. However, this issue was not argued in this case.
[113] I find that licences fixed by the Board do not have mandatory binding force over a user; the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2, but a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline.
(highlight added)
Here is the Factum behind our submissions.

If, as the SCC held in CBC v SODRAC, the Board’s determination of royalties and related terms and conditions cannot be imposed on users even in so-called “arbitration” proceedings (which allow a collective or a user to ask the Board to fix the royalties or any related terms and conditions when the parties are unable to agree on them), then the Board’s determination of tariffs (which are proposed by a collective and set the royalties and related terms and conditions applicable to a class of users, whether or not they participate in the Board proceedings), should be all the more (“a fortiori” as lawyers say) non-mandatory.

Unfortunately, the very clear ruling of the SCC that tariffs are not mandatory was not followed in the 2017 Federal Court of Canada’s Access Copyright v. York University judgment. This may have been due to the decision of York University’s counsel to focus on whether the interim tariff was mandatory and not to address – and even to seemingly “effectively” concede – the point about whether final approved tariffs are mandatory and not to rely on the CBC v. SODRAC decision. See Ariel Katz’s very important post mortem analysis  of Justice Phelan’s decision:

The most important question in Access Copyright v. York University was whether “approved tariffs” can be imposed on users. Access Copyright’s road to victory required it to convince the Court that approved tariffs are indeed mandatory and that the Interim Tariff was an approved tariff. York could have scored a short-term victory by persuading the court that the Interim Tariff couldn’t possibly be an “approved tariff” regardless of whether an approved tariff would be mandatory, but it would have scored a long-term victory if it persuaded the Court that even a final approved tariffs wouldn’t be mandatory. After the Supreme Court’s judgment in CBC v. SODRAC, the conclusion that Access Copyright’s tariffs aren’t mandatory should have been low-hanging fruit.

But York chose to bet on the first option. Not only did it fail to convince the Court that the Interim Tariff wasn’t an approved tariff, but by failing to counter any of Access Copyright’s arguments on why approved tariffs are mandatory, it effectively conceded that they are. In losing this battle, then, it looks poised to lose the war.

Nobody can tell how Justice Phelan would have decided this issue if York had made submissions on it. Maybe he would still find Access Copyright’s arguments more compelling. But without even trying to vigorously counter Access Copyright’s submissions on this point, Justice Phelan was predictably bound to agree with Access Copyright.
(highlight added)

York University’s approach to the “mandatory” issue was more cognizant of CBC v. SODRAC in the Federal Court of Appeal (“FCA”) hearing, which took place on March 5 & 6, 2019. The “mandatory” issue was also addressed to some extent by interveners.

It could have helped if the FCA had not unfortunately declined to allow the intervention of my client CARL, which would have fully and forcefully addressed the issue. Here is a link to my blog on the eve of the FCA hearing, which contains links to CARL’s material that I submitted in support of its leave to intervene motion and motion for reconsideration. CARL would have argued, essentially, that:

o   First, the learned trial Judge made a fundamental legal error in holding that tariffs, such as those proposed by Access Copyright, whether interim or final, are mandatory for users. This was a threshold issue that had not been fully and forcefully addressed by York at trial. Had this issue been correctly decided and preferably at an early stage, this litigation, which is only the first of two planned phases, could have ended much earlier. This litigation was based upon the Interim Tariff imposed by the Copyright Board on December 23, 2010 in a proceeding that has still not resulted in a final approved tariff or a decision. A correct decision would also have prevented much potential future litigation, some of which has recently been commenced.

o   Second, CARL will submit that the Court below need not have and should not have dealt with the issue of infringement and fair dealing, because Access Copyright, which lacks standing to sue for copyright infringement, cannot ask the Court to make findings on any alleged infringement by institutions such as York. CARL believes that the learned trial Judge’s findings on infringement and fair dealing, which should not have been made, are seriously erroneous, particularly with respect to the need for monitoring and supervision as well as aggregate copying, and in any event, are merely obiter dicta.

The FCA hearing mostly focussed on fair dealing. This was ironic, because it doesn’t really matter whether York’s guidelines were consistent with fair dealing if the tariff isn’t mandatory. If York or any other university is infringing, it can be sued for copyright infringement like anyone else – though not by Access Copyright, which is neither a copyright owner nor an exclusive licensee. If the tariff isn’t mandatory, then the fair dealing issues and all of the Phase II issues in the York case – which haven’t even begun to unfold – will simply go away.

For whatever reason, the SCC’s clear ruling has not been fully assimilated thus far. Indeed, countless K-12 school teachers at 300 schools across Canada are being forced as we speak to dredge up old lesson plans in litigation involving this issue because a stay  was denied in proceedings in which the “mandatory” question is central, in spite of the fact that a decision from the FCA was pending in the York appeal. Curiously, the order denying the stay does not even mention the CBC v. SODRAC decision from the SCC. The order was not appealed.

Hopefully, the FCA will make it clear to one and all that the SCC said what it meant and meant what it said in 2015, which is that tariffs are not mandatory. That may be an inconvenient truth for many collectives and for many of the large law firms acting for collectives, users, and in some cases on both sides of the fence. If tariffs are not mandatory, then the Board will have an incentive to issue tariffs in the public interest that will hopefully be attractive to users and binding on collectives, but not on users. That was the essence of the old system of railway tariffs, for example, which set upper limits on the price that train operators could charge customers – but did not force anyone to take the train to get from point A to point B if there were better and/or cheaper ways to get there. That is how the Copyright Act was and is intended to work.

Of course, it also follows that the issue of whether and to what extent tariffs can be retroactive becomes much less important for practical purposes if tariffs are not mandatory. Moreover, Prof. Katz, Prof. Lametti, as he then was, and I succeeded in getting the SCC to put the issue of the “legitimacy of or limits on the Board’s power to issue retroactive decisionson alert in the unusual and important footnote 2 of the CBC v. SODRAC decision.

Whatever the FCA decides, it is very likely that one side or the other or both will seek leave to appeal to the SCC. If leave is granted, there will likely be a lot of interest in intervention.

In the meantime, it’s been almost 11 months since the FCA heard the York appeal. This delay is unusual from a Court that normally renders decisions in six months and often much less.

It will be very interesting to see whether Access Copyright attempts to enforce its new nine-year retroactive tariff in this extraordinary confluence of circumstances and indecision in the courts below about what seems abundantly clear and decisive from the SCC.

What is mandatory is that all who are concerned with any of this should be paying close attention.  I look forward to talking about the state of play at the University of Alberta Fair Dealing Week event on February 26, 2020.  This will be about a week before the one year anniversary of the FCA’s hearing of the York University appeal.