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 

Will the Canadian Voltage Reverse Class Action Now Fizzle?

I have been writing about Voltage, copyright trolls,  and mass litigation in Canada and elsewhere for almost seven years (beginning on September 9, 2011  here).

On August 9, 2018 the Supreme Court of Canada 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. That order required that Voltage must pay $75,000 into court for security for costs “forthwith” pursuant to Federal Courts Rule 416.  This case is the very controversial “reverse class action” in which Voltage and  a few others are trying to sue more than 50,000 individuals at once. This is an unprecedented and arguably completely unforeseen and unintended use of the relatively new Federal Courts rules permitting class actions.

For reasons that are not apparent, the FCA’s decision has only just been posted very belatedly on August 13, 2018, although it was rendered on November 15, 2017. I presume that this was an oversight. It’s unfortunate, because this proceeding was a major milestone in the ongoing efforts by Voltage and others to sue tens of thousands of individuals through this reverse class action and in approximately 15 current mass litigation law suits naming hundreds of “Does”. For example, one such action, that of Bodyguard Productions, has 726 “Doe” defendants. Another, Morgan Creek, as 352 Doe Defendants. Both of these strategies – namely the “reverse class action” and the 15 or so mass litigation lawsuits – are being pursued by the law firm of Aird and Berlis, LLP. The lead counsel is Mr. Kenneth “Ken” Clark, whose name has arisen before on this blog. Interestingly, most of these 15 mass litigation proceedings began after the Federal Court ordered the payment into court “forthwith” of $75,000 for security for costs on February 2, 2017.

I do not know at this time what connection, if any, Voltage has with these 15 or so mass litigation actions. However, there are at least some connections. There is apparently a possible connection between Voltage and Morgan Creek in action T-71-18. There is also an apparent possible connection between Voltage and Dallas Buyers Club in action T-1674-16. 

The SCC’s refusal to grant leave to appeal to Voltage will come as good news to the potential 50,000 or so defendants in this very unusual and indeed unprecedented “reverse” copyright class action. One person, Mr. Robert Salna, was singled out by Voltage to represent thousands of potential class members. As luck would have it, Voltage chose quite possibly the very worst possible representative person from Voltage’s standpoint, Mr. Robert Salna, who is a landlord whose internet account allegedly “was used (likely by his tenants) to unlawfully distribute all of the films at issue in the underlying proceeding.”  Mr. Salna clearly has some means, has stood on principle and has good counsel.

I have previously written about how Voltage’s attempt to use a “reverse class action” in the USA was tossed by a federal district court judge in Oregon in 2013.

Naturally, each of the 50,000 or so defendants in this “reverse class action” may have had a different factual story to tell. Moreover, as any copyright lawyer in Canada knows, there is no Canadian case law establishing liability involving the use of BitTorrent technology by individuals.  In any event, even if there is liability in such a case, the amount of actual damage by any individual is likely to be minimal – since the cost of streaming or buying a movie is at most a few dollars. The range of statutory minimum damages for non-commercial activity is $100 to $5,000 and Canadian courts are consistent in ruling that statutory minimum damages must bear a correlation to actual damages. Even $100 is arguably far more than any reasonable measure of actual damage attributable to one individual in the circumstances as alleged.

There are approximately 50,000 class members as estimated by the plaintiffs in this proposed class action. If each of them is held liable for the maximum statutory damages amount of $5,000 for infringement of one work, that could lead to damages of $250,000,000. Even at the $100 low end of the range, the judgment could be in the realm of $5,000,000. In fact, several works are involved in this proposed class proceeding

In this instance, Voltage is attempting to sue at least 50,000 individuals for a total court filing fee of $50 for an “application.”  This is in contrast to a normal “action”, which would normally require a filing fee of either $150 or $50 for each separate lawsuit, the latter being available only for a “simplified action” when the amount claimed does not exceed $50,000.

So, if Voltage pursues its strategy and succeeds in getting this reverse class action certified, it will get to sue at least 50,000 individuals for a court filing fee of less than $0.001each – that’s less than a tenth of a cent.

Voltage and the other plaintiffs were unwilling to put up any security for costs, which is a very normal step at the outset of any Federal Court litigation when, inter alia, the plaintiff is a non-resident entity or when it does not provide an address. See Federal Courts Rule 416.

Voltage had argued the Federal class action regime was designed to prevent costs awards, including any “security for costs” requirement.

334.39 (1) Subject to subsection (2), no costs may be awarded against any party to a motion for certification of a proceeding as a class proceeding, to a class proceeding or to an appeal arising from a class proceeding, unless

·        (a) the conduct of the party unnecessarily lengthened the duration of the proceeding;

·        (b) any step in the proceeding by the party was improper, vexatious or unnecessary or was taken through negligence, mistake or excessive caution; or

·        (c) exceptional circumstances make it unjust to deprive the successful party of costs.

Voltage wanted to argue that the class action mechanism in the Federal Courts Rules is intended to immunize plaintiffs from costs except in very limited circumstances. However, the Federal Court of Appeal ruled that the nature of a reverse class action may well be an example of when “exceptional circumstances make it unjust to deprive the successful part of costs”. The motions judge in this instance, Justice Boswell, awarded $75,000 security for costs because he reasoned that the certification motion had not yet been filed.

The FCA convincingly ruled that Justice Boswell got the right result but for the wrong reason:

[8] Notwithstanding this, I believe that the Federal Court’s order should nonetheless be upheld as there is an alternate basis for finding that the Court possessed the jurisdiction to make it. In the exceptional circumstances of this case, which involve a proposed reverse class proceeding brought by foreign corporations with no significant assets in Canada against a proposed class potentially comprised of thousands of individuals resident in Canada, it is entirely possible that, if he is successful, the respondent might be awarded costs under Rule 334.39(1)(c). This paragraph allows for costs in respect of a certification motion, a class proceeding or an appeal arising from a class proceeding if “exceptional circumstances make it unjust to deprive the successful party of costs”. Such circumstances could well be found to exist in the present case, but that issue will not be addressed unless and until the Federal Court dismisses the certification motion.

[9] The circumstances in Rules 416(1)(a) and (b) apply, and, therefore, but for this being a proposed class proceeding, the Federal Court would be empowered to make an order for security for costs. I do not believe that the fact that this is a proposed class proceeding forecloses the Federal Court from making such an order in the present case. More specifically, I do not believe that a determination under Rule 334.39(1)(c) is a condition precedent to the exercise by the Federal Court of its discretion under Rule 416 to order security for costs in a case such as this, and there is nothing in the Rules or the case law of this Court that would require such a conclusion.

…

[11] If the appellants were correct in the interpretation they urge, an order for security for costs could never be made in the case of a class proceeding involving exceptional circumstances as a determination under Rule 334.39(1)(c) cannot be made until a determination on the merits is made. In my view, such an interpretation is untenable as it could well deprive a representative defendant like Mr. Salna of any realistic hope of recovering the costs he might eventually be awarded.

[12] Moreover, it appears that none of the access to justice concerns that motivate the prima facie no-costs regime enshrined in the Rules for class proceedings militates against the order for security in the instant case. The appellants appear to be fully able to bring their action, and, indeed, had two lawyers gowned before this Court on this appeal. In addition, they declined to file any evidence detailing their financial means to retain and instruct counsel or to post the required security for costs. On the other hand, the respondent and other members of the proposed class will likely face difficulty in funding representation. Thus, there is no principled basis for finding that an order for security for costs should not be made in the present case and there is no binding authority that indicates that the Federal Court erred in making such an order. I therefore believe that it was open to the Federal Court to make the impugned order for security for costs.

[13] Nor do I see any basis to interfere with the quantum of the security set by the Federal Court, a discretionary factual determination that this Court cannot interfere with in the absence of palpable and overriding error. The appellants can point to no such error here, particularly in light of the magnitude of the expenses incurred to merely litigate the motion for security. Further, if the appellants are right and the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic will be intervening in the certification motion and carrying the bulk of the argument, it would be possible for the appellants to seek to have the Federal Court vary its order and decrease the amount of the security for costs they are required to provide. Indeed, in its reasons, the Federal Court commented on just such a possibility.

[14] Thus, I would dismiss this appeal.

The Supreme Court of Canada is not going to hear Voltage’s appeal regarding the security for costs order. As usual, they don’t provide reasons. The bottom line is that the FCA decision stands as controlling precedent.

Thus, the takeaway from all this is arguably as follows:

• A “reverse class action” is indeed an “exceptional circumstance” and any foreign plaintiff must be prepared to put up potentially substantial security for costs at an early stage and potentially even more to follow at later stages if such an action ever gets certified, which is far from being clearly likely, for reasons beyond the scope of this blog

• Voltage may also be liable for reasonably substantial costs for the motion for security for costs.

It will be extremely interesting to see whether Voltage now proceeds in this controversial “reverse class action”. If it wishes to proceed, it must put up $75,000 now and may be liable for substantial costs of the vigorously opposed security for costs motion in due course. I have previously noted how a prior Voltage foray in the Federal Court against Tekksavy customers fizzled when it was ordered to pay substantial costs. In fact, notwithstanding the Federal Court’s order of February 2, 2017 that the $75,000 for security for costs be paid into court “forthwith” (which means in a matter of days, not months or years), it apparently has still not been done, which seems rather odd. That order was not stayed by the unsuccessful appeal to the FCA or the subsequent unsuccessful leave to appeal application to the SCC.

Moreover, it will also be very interesting to see whether the possibly greater awareness amongst lawyers and even self-represented defendants about Federal Courts Rule 416  and “security for costs” will have any impact on the 15 or so mass litigation lawsuits against thousands of “Doe” defendants that were also launched by Mr. Clark.

Stay tuned.

HPK