Canada’s Intellectual Property Firm

Perhaps coincidentally, companies behind the peer-to-peer music sharing program known as Kazaa seem to have sought to avoid liability in countries with strong copyright laws by incorporating and/or operating in locales such as the small Pacific archipelago of Vanuatu. Readers can decide for themselves whether perching one's corporate legal personality on this tiny slice of paradise is done in an effort to make oneself judgment-proof or whether it is simply a coincidental matter that file sharing companies happen to enjoy the warm waters of the South Pacific.

But after a March 31, 2004 decision of the Federal Court of Canada upholding (for the time being at least) the legality of downloading and uploading of music to/from the internet, one question that comes to the authors’ minds is whether Canada has become the Vanuatu of the north.

While this probably will not appeal to those who appreciate the finer aspects of the sun-baked beaches of the South Pacific, Canada could try enticing such companies to locate in this country because, among other things, we have refreshing weather at least four to five months out of every year. Well, at least we can dream.

As for the actual decision that has caused such an uproar in the field of Canadian copyright law, on February 10, 2004, the Canadian arms of leading record labels brought suit in BMG et al v John Doe et al against 29 unnamed John and Jane Does for copyright infringement with respect to file sharing activity. This action paralleled the activity of the Recording Industry Association of America (RIAA), which has sued several hundred individual file sharers in the US.

Seeking identities
These members of the recording industry, operating under an umbrella group called the Canadian Recording Industry Association (CRIA), had tracked the activities of individual file sharers who were using Kazaa and other peer-to-peer networks. By tracking the file sharers, the CRIA was able to collect their online screen names, the Internet Protocol (IP) addresses from which they traded files and the names of the files involved. The file names typically indicated popular songs in which the complainants held the copyright. However, the CRIA also required the true names and identities of the individuals involved to effectively sue them for breach of copyright.

In the US actions, identification of file sharers has also been an important issue. The RIAA has sought to take advantage of the provisions of the Digital Millennium Copyright Act to fast-track identification of file sharers through subpoenas issued to internet service providers (ISPs). There is, however, no equivalent statute in Canada.

In December 2003, the US Court of Appeals for the District of Columbia Circuit ruled that such subpoenas were not valid because ISPs of peer-to-peer network users operated only as intermediary conduits for communication. But suits by the RIAA have continued in the US, using the more standard but administratively burdensome process of filing suits against unidentified John Does. At present, filing actions against individual infringers appears to be the only avenue available to the recording industry, given the recent dismissal of actions against the providers of peer-to-peer programs in MGM Studios et al v Grokster et al.

The Canadian action was similarly initiated against unidentified John Does. To reach behind the online pseudonyms of the file sharers, the CRIA brought a motion to compel the ISPs to which the IP addresses were assigned to produce the names, addresses and phone numbers of their clients using those addresses at the relevant times. Most of the ISPs opposed the motion, seeking to keep the identities of their customers private. However, one ISP, Videotron, did not, and some have hypothesized that this was in consideration of interests that it and affiliated companies have in the music industry.

Two public interest groups were granted intervener status to make arguments before the court. The Canadian Internet Policy and Public Interest Clinic (CIPPIC) and Electronic Frontier Canada (EFC) presented their views to the court, providing a number of points regarding public policy.

The court was also faced with considering the Personal Information Protection and Electronic Documents Act (PIPEDA), Canadian federal privacy legislation that had only recently come into force for the bulk of the private sector on January 1, 2004. Though the motion sought the internet file sharers’ identities on the relatively narrow basis of Federal Court Rules designed to compel such disclosure, the wider policy issues of the legality of file sharing played an important role in the court’s consideration of the CRIA’s motion to compel the disclosure of the yet-unnamed 29 file sharers.

The ruling
On March 31, 2004, Mr Justice von Finckenstein of the Federal Court handed down his long-anticipated judgment. In his decision, the Judge refused to order the ISPs to disclose the identities of their customers on the basis that the CRIA had failed to demonstrate that such disclosure was necessary given the lack of evidence and, more importantly, the uncertainty under Canadian law that file sharing was in fact illegal. With respect to privacy, the court specifically held that given the poor quality of the evidence tendered by the CRIA, privacy concerns outweighed public interest concerns in favour of disclosure.

In summary, Justice von Finckenstein held that the CRIA had failed to meet three requirements under the requisite test for an order for disclosure under the Federal Court Rules. The CRIA was obliged to demonstrate that 1) there was a prima facie case of copyright infringement, 2) the ISPs were in some way involved and more than simply innocent bystanders, 3) the ISPs were the only practical source of the identities of the file sharers, and 4) that the public interests in favour of disclosure outweighed any legitimate privacy concerns.

The CRIA was only successful in demonstrating that the ISPs were involved with the alleged infringers and more than mere bystanders, by virtue of their service relationship. It was also held that if compelled to produce the identities of the alleged infringers, the ISPs would have to be reasonably compensated, but given the dismissal of the motion, no order was made in this respect.

One of the most crippling aspects of the judgment to the CRIA’s case was the fact that it was held that their investigations had not even made out a prima facie case of copyright infringement in Canada. This finding was based on three factors. Firstly, the affidavits resulting from the investigations were insufficient and replete with hearsay – the individuals conducting the investigations had not themselves sworn to their activities. Further, the affidavits only referred to the song titles themselves – no one had listened to the files to determine if they were actually infringing copies of works. Secondly, the CRIA had not demonstrated how it had linked the individual file sharers with the IP addresses it had obtained. Thirdly, and most controversially, Justice von Finckenstein held that under Canadian law using such peer-to-peer services was not an infringement of copyright.

In holding that the activities complained of did not amount to a violation of the Copyright Act, reliance was placed on the fact that Canada has in place a Private Copying Tariff. Part VIII of the Copyright Act provides that manufacturers and importers of audio recording media are liable for a tariff payment on items like CDs and audio tapes that are used by consumers for copying music. The tariff is paid to a collective society and ultimately distributed to rights holders. In turn, §80(1) of the Copyright Act provides that making copies for private use on such media is not copyright infringement. As such, Justice von Finckenstein held that downloading songs for personal use, albeit using Kazaa or other similar programs, was not infringement.

With respect to the uploading of material, a recent decision of the Supreme Court of Canada, CCH Canada v Law Society of Canada, was relied on to hold that the act of placing a song into a shared directory did not amount to authorization of infringement or distribution.

Of perhaps greatest significance from the standpoint of an appellate review, Justice von Finckenstein specifically noted that: “I cannot see a real difference between a library that places a photocopy machine in a room full of copyrighted material and a computer user that places a personal copy on a shared directory linked to a P2P service.” In our opinion, it is the presence of this analogy (which was unnecessary) that may cause the Court of Appeal to take a hard look at the Judge’s decision.

The CRIA appealed Justice von Finckenstein’s judgment to the Federal Court of Appeal on April 13, 2004. As such, while the online identity of file sharers in Canada is at present safe from prying eyes, a reversal at the Court of Appeal could quickly align the situation in Canada with that in the US.

Future developments
If the Federal Court of Appeal upholds Justice von Finckenstein’s ruling, the recording industry may face a difficult, if not impossible, task in attempting to shut down the operation of peer-to-peer networks in Canada. This is of course unless technology evolves to the point that a third party can identify a user simply by knowing their IP address.

But given the fact that the court’s reasons only relate to copyright in audio recordings, holders of rights other than those in music are probably still free to sue on proper evidence if their works were shared using peer-to-peer file sharing programs. As anyone who has surfed the internet lately would know, the next battle over computer-related copyright infringement will arise once peer-to-peer software developers learn how to write software that can download a full-length DVD in much less time than is now required.

But should the Federal Court of Appeal order the disclosure of the identities of file sharers, it is likely that Canadians will face rounds of lawsuits as has been the case in the US. However, as is also the case in the US, it remains to be seen whether such a tactic will be successful in protecting the interests of copyright holders in the long run.

If similar actions in the US are any indication, it may take some time before this issue is ultimately disposed of in Canada. Practitioners will be watching each development closely for a hint at the ultimate outcome, which may involve a determination of the ultimate value of copyright in the age of the internet. But that’s not to say that a trip to the South Pacific on a fact-finding mission is out of the question.

Policy considerations
This judgment, coupled with a recent decision of the Supreme Court of Canada on the legality of photocopying for private use under Canada’s fair dealing provisions, demonstrate that Canadian courts now appear more willing than ever to recognize wider public interests in appropriate copyright disputes. In the opinion of the authors, the jurisprudential shaping of intellectual property laws in Canada has recently taken place with significant consideration of policy issues outside the confines of the specific wording of the relevant acts.

While intellectual property was once considered relatively immune from the wide-ranging policy considerations that are more frequently associated with other branches of the law, enforcement of such rights must now be considered in the light of this more recent movement to give significant weight to such ideas.

It is true that much of this movement has also been in response to the difficulty of matching new technologies to the language of older statutes. While it is doubtful that the drafters of Canada’s Copyright Act, sections of which are at least a century old, could ever possibly have imagined a peer-to-peer music file sharing program such as Kazaa and its many brethren freely available for download on the internet, today’s Canadian judges are forced to render decisions on modern issues using statutory language that often has to be moulded and stretched to fit the actual facts before them.

As a result, a legislative response to this decision is warranted. This is a situation where the Parliament of Canada should act quickly before Canada indeed becomes the Vanuatu of the north. Indeed, it has been reported that a response from the Canadian government is on its way once the upcoming federal elections are over and a new government is formed.

It is noteworthy that in the very near future the Supreme Court will hand down a decision with respect to a copyright tariff that has been sought against Canadian ISPs by music rights holders, in the case of Canadian Association of Internet Providers, et al v Society of Composers, Authors and Music Publishers of Canada, et al. The rights holders are seeking to uphold a decision of the Federal Court of Appeal requiring ISPs that cache (maintain copies) of material on their servers to pay a levy.

The most obvious aspect of the BMG judgment is that Canadian courts are not willing to assume infringement on the basis of relatively weak evidence. This was also mirrored in the recent photocoping ruling where the Supreme Court held that without direct evidence of infringement, it was not willing to assume that there had been uses of copyrighted material outside of the scope of Canada’s fair dealing provisions. As such, copyright owners anticipating enforcing their rights would be best served by collecting the most comprehensive evidence that time and cost considerations permit.

This article originally appeared in Managing Intellectual Property's June 2004 issue.