I commend Messrs. Garneau and Rodriguez for organizing this event. Developing a strategy for Canada’s digital future is a critical component of ensuring prosperity and opportunities for all Canadians.

As noted above, Prof. Geist was on my panel. In his prepared remarks which he posted on his blog and in answers to follow up questions from the audience, Prof. Geist made a number of assertions which should not go unchallenged. Let me go through some of them adding my reflections.

Bill C-60 was good legislation while Bill C-61 was bad

Prof. Geist started his presentation by suggesting that Bill C-60 got copyright policy right. His statements before the Liberal caucus should be compared with what he actually said about Bill C-60 after it was introduced and during the election following the introduction of the Bill. At that time, Prof. Geist repeatedly excoriated Bill C-60 and the then Liberal minority Government over it.

Prof. Geist lambasted Bill C-60 arguing it was a sell out to “special interests” that did “little for individual Canadians.” His criticisms were wide ranging including specific attacks on Bill C-60’s amendments related to protecting technological measures (TPMs) and other provisions such as the exceptions for educational institutions and ISPs. By way of example, he said:

• “I’ll have much more to say in the days ahead but my immediate impression is that the recording industry is the big winner with an enormous basket of new rights and individual Canadians are the big losers as the bill does little to address their interests. Canada Introduces New Copyright Bill…Anyone who has followed copyright reform history will not be surprised to learn that individual Canadians are the big losers today.” Canada Introduces New Copyright Bill

• “there was much to criticize about Bill C-60”. 30 Days of DRM

• “Last week the federal government unveiled Bill C-60, its long awaited digital copyright reform bill. Ottawa kept its promises – the recording industry and Canada’s Internet service providers emerged as the big winners with each securing a lengthy list of new rights, power, and protections.” Canadian Copyright Bill a Missed Opportunity

• “Bill C-60, the copyright reform bill currently before the House of Commons, provides a laundry list of new rights and powers to special interests, but does little for individual Canadians.” What’s The Frequency, Liza?

• “If the Canadian government is serious about supporting education, it needs to move toward a broad fair use provision, to promote policies that help rather than hinder access, and to craft a copyright bill that does more than just cater to the interests of the recording industry while failing to address the needs of millions of Canadians”. Canadian Ministers Respond to Copyright and Education Concern

• “Even where the Canadian model provides some relief in contrast to the U.S. approach, it still does not go far enough. The best example is the anti-circumvention provisions”. Canada Introduces New Copyright Bill

• “does the copy control technology even qualify as a technological measure under Bill C-60? If it does, should it? I don’t think we have a clear answer here. Other jurisdictions focus on the effectiveness of the technological measure…The failure to include an effectiveness standard in Bill C-60 is yet one more reason why Canadians should stand up to the proposed copyright reform package. Stand Up

• “The copyright lobby argued that Bill C-60 did not go far enough in protecting TPMs. It seems to me that this report from independent parliamentarians (no pro-user zealots there) confirms that the opposite is true: the bill did not do enough to provide consumers and the marketplace with adequate protections from TPMs.” Australian Parliamentary TPM Report Accepts User Concerns. See also, 30 Days of DRM – Day 22: Libraries (Circumvention Rights) , 30 Days of DRM – Day 14: Private Copying (Circumvention Rights),  Bill C-60 and Private Copying

• “I focused on the Liberal record during its minority government and this week I posed “big picture” issues that need answering…I view this as a clear acknowledgement that Bill C-60 is not balanced. ….Bill C-60 is about meeting the interests of one side of the copyright balance. Election Answers. See also, The Political Parties on Copyright , The Liberal Tech Law Record

• “Should the outcome of the election be favourable for the morally besieged Liberal Party, perhaps leader Paul Martin should consider rewarding Ms. Bulte’s hard work and loyalty with a different portfolio entirely, if only to show that Canadians won’t dance to every tune the Americans wish to play and charge us for.” Quoting Jack Kapica’s article in the Globe in Cleaning Up Copyright. See also, Campaign Contributions

Prof. Geist was right at the time to point out that Bill C-60 had its flaws. The provisions related to protecting technological measures were one of them. The ISP provisions were another. What is surprising, however, is that Prof. Geist, after repeatedly condemning Bill C-60 would now tell the Liberal caucus that “there are many who would say with hindsight you got it right”.

While C-60 may have had flaws, the expressed goals of Bill C-60 were right then and are still right today. Its goals were to amend the Copyright Act: to meet the challenges and opportunities of the Internet; to help foster an innovative economy based upon the creation, dissemination and commercialization of ideas; to ensure that innovators are rewarded, research is facilitated, and the use of technology is enhanced; to strengthen our creative industries against the unauthorized use of their works on the Internet; to provide creators, intermediaries, and users of copyright material with the certainty and clarity that will allow them to take full advantage of the opportunities of the Internet; to implement the WIPO Treaties; to clarify liability for ISPs; to facilitate the use of new technologies for educational and research purposes; and to harmonize the treatment of photographers with that of other creators; and to strike a balance to serve both our creators and users.

The WIPO Internet Treaties.

At the roundtable, Prof. Geist reiterated his opinion that any new Bill should limit protection for technological measures (TPMs) to acts of circumvention where done for the purposes of infringement. His arguments in support of this were based on the following incorrect positions.

• Claim: The WIPO treaties “offer considerable flexibility” in how to implement its anti-circumvention rules. Response: I have previously addressed Prof. Geist’s incorrect assertion that the minimum standards in the WIPO Treaties, which require that there be adequate legal protection and effective legal remedies against the circumvention of TPMs, can be satisfied in the way he suggests. Dr. Ficsor, an internationally revered copyright scholar and professor and the former Assistant Director General of WIPO, has also twice specifically repudiated Prof. Geist’s assertions about the WIPO Treaties’ minimum requirements. See, Dr. Ficsor: An invitation to Canada to join the international community by ratifying the WIPO Internet Treaties; Only once more – and then Marry Christmas and Happy New Year to everybody, including Professor Geist and his devoted followers: the 1996 WIPO Diplomatic Conference, the WIPO Treaties and the balance of interests.

• Claim: The recently published Conference Board of Canada’s report on intellectual property confirms that there is considerable flexibility in how the WIPO Treaties can be implemented. Response: That report stated “Indeed, there is some room for Canadian customization in how the WIPO provisions would be accommodated in our laws: the implementation models all differ for the U.S., the European Union, Japan, and Australia, although all have ratified the same WIPO treaty.” (at p.56-57). The countries referred to by the Conference Board, however, all had WIPO compliant implementations that provided protection against circumvention of TPMs not linked to copyright infringement and had protections against trafficking in circumvention tools. There were some deviations in how exceptions were handled and whether protection was provided against copy control (versus access control) tools. However, these deviation were variations above the minimum floor required by the treaties, not below them as proposed by Prof. Geist. The Conference Board provides no support for the position taken by Prof. Geist that there is flexibility to implement the treaties in the manner he proposes.

• Claim: Bill C-61 “was lacking in flexibility (beyond WIPO requirements to cover all circumventions – even for fair dealing, to protect privacy, research, etc were prohibited).” Response: Prof. Geist inaccurately describes Bill C-61. Bill C-61 contained exceptions from the anti-circumvention provisions including exceptions to protect privacy, to permit encryption research, to permit security research, to permit research for interoperability purposes, to help persons with disabilities, and for law enforcement and national security purposes. (ss.41.11-41.19) Bill C-61 also had two provisions which flexibly permitted the Government by regulation to broaden the list of proposed exceptions. (s.41.2)

• Claim: Bill C-60 offers a “more balanced” approach to dealing with legislation designed to provide legal protection for TPMs. Response: In fact, Bill C-60 offered a completely ineffective means of providing legal protection for technological measures. For example, Jason Kee from the ESAC who appeared at the roundtable spoke about the challenges faced by the entertainment software industry in combating mod chips. These devices enable infringing copies of games to play on game consoles or computers by effectively circumventing the access control TPMs associated with the games and game consoles. Prof. Geist’s proposal would provide no protection against these technologies. (The infringing copies of the games have already been made and the circumvention of the TPMs in the games consoles to enable them to play is not for the purpose of committing any infringing act.) That is why organizations like the Canadian Coalition for Electronic Rights (CCER), whose members include sellers of circumvention tools such as “mod chips” for video game consoles were so active in the copyright reform process and together with Prof. Geist argued for such ineffective protection for TPMs. Prof. Geist is correct in his contention that “The difference between the Conservative C-61 and the Liberal C-60 is not a matter of legal fine tuning.” Bill C-60’s TPM provisions were the darling of the mod chip manufacturers because they did nothing to stem the use of businesses built around and profiting from infringement or to enable tax-paying, job creating enterprises to grow and thrive in the digital economy.

• Claim: Canada faces great pressure to “implement” the WIPO Treaties. Response: Canada is under domestic and international pressure to RATIFY not merely implement the WIPO Treaties.

Intermediary Liability

Prof. Geist advocated that any new bill implement “notice and notice” and not notice and takedown or graduated response. His reasons were the following:

• Claim: Notice and notice works. Response: Prof. Geist’s assertion that notice and notice works is without foundation. We have had a de facto notice and notice system in Canada for many years and there is no evidence that it changes people’s behavior to stop illicit file sharing and purchase creative products from legitimate services. As I pointed out elsewhere, research by our trading partners shows that while a simple notice may have a temporary effect in reducing online file sharing, only notices that have a threat of some sanction operate as an effective deterrent.

• Claim: Notice and notice avoids having to implement notice and takedown. Response: “Notice and notice” and “notice and takedown” are complementary methods of dealing with online file sharing. They are portrayed by Prof. Geist as mutually exclusive processes when they are not. Graduated response is useful in dealing with P2P file sharing; notice and takedown is necessary to deal with files that are hosted by an ISP.

• Claim: Graduated response “could result in Internet users losing access based on allegations of infringement.” Further, as contended by Prof. Geist in answer to a question, privacy of individuals’ personal information would be violated. Response: Prof. Geist is once again engaging in scaremongering. See, Fear Mongering and Misinformation Used to Slag ACTA; A reply to ACTA critics. Graduated response systems such as those being enacted by the UK and New Zealand are being carefully designed to expressly avoid any such consequences. See, Graduated response and copyright: an idea that is right for the times. Any legislation in the UK, for example, would have to recognize, as the French Hadopi law did, that end-users’ access to or use of the Internet must respect the fundamental rights and freedoms of natural persons, as guaranteed by the European Convention on Human Rights and Fundamental Freedoms and general principles of Community law. Accordingly, any technical measures taken against an individual can only be taken with due respect for the principle of the presumption of innocence and the right to privacy. Further, a prior fair and impartial procedure must be guaranteed, including the right to be heard of the person or persons concerned. A right to an effective and timely judicial review must also be guaranteed. See, Article 1(3)(a), Revised EU Framework Directive, EU Telecoms Reform

• Claim: Graduated response’s costs cannot be justified. Response: This assertion by Prof. Geist was roundly criticized by economist Prof. Bomsel in his recent article The costs and benefits of graduated response in copyright enforcement and by me in another recent blog. Prof. Geist`s cost argument against graduated response essentially is that costs looked at alone and without regard to any economic, social, or other benefits militates against implementing any such system. Using his methodology, we should conclude that no laws can be justified because they all involve costs of administration or enforcement.

• Claim: The Australian iiNet decision shows that graduated response cannot work. Response: The iiNet decision did not consider the effectiveness of state sanctioned graduated response mechanisms. Further, a chief difficulty in iiNet was that there was no industry consensus or policy as to how to deal with multiple infringers.

Fair dealing

Prof Geist argued that Canada should radically change its approach to copyright exceptions by implementing fair use. The arguments against implementing fair use are many. That is why it was rejected by Canada when last studied here and why it was rejected by of our trading partners such as the UK, Australia and New Zealand after they had also thoroughly examined it. See, Why Canada Should Not Adopt Fair Use (2009) 2 Osgoode Hall Rev.L.Pol’y 13

What copyright reforms are needed

I have set out in detail elsewhere what reforms I believe are needed to help build a copyright framework that is right for the 21^st century, that strengthens our creative industries, fosters innovation, enables creators to build markets and to be fairly compensated for their creative efforts and investments, and which recognizes the legitimate needs of consumers. My recommendations consist of 8 guiding principles and 11 specific recommendations. They are as follows:

Principles to guide copyright reform

1. Recognize the importance and the unique characteristics of the creative sector.
2. Establish specific goals for a “Digital Canada” copyright framework.
3. Provide effective digital copyright protection to stimulate intellectual creation and dissemination of cultural products.
4. Provide clear, predictable, and fair rules that support creativity and innovation.
5. Reform and adapt copyright laws to reduce digital piracy and to promote investment and economic growth in creative products.
6. Reform and adapt copyright laws with new exceptions in accordance with international standards and treaties.
7. Do not regard copyright reform as a “zero-sum game” or succumb to the philosophy of unrestricted user “rights.”
8. Regard technology neutrality perhaps as a goal, although this principle has limitations.

Specific recommendations for copyright reform

1. Amend the Act to enable Canada to ratify the WIPO Treaties.
2. Provide protection against circumvention of TPMs that are required by the WIPO Treaties and that comport with international standards.
3. Establish a “making-available right.”
4. Clarify the law related to secondary infringement to help address online piracy.
5. Implement a notice and notice system backed up by a nuanced graduated response process.
6. Implement a notice and takedown system that fully respects due process considerations.
7. Enable rights holders to obtain injunctions against Internet intermediaries to prevent infringements.
8. Implement fair and effective border measures to protect against the import of pirated goods.
9. Clarify that ISPs are not liable for infringement when they act as true intermediaries.
10. Establish new exceptions to facilitate private uses of works where justified, and do not adopt “fair use” or an “expanded fair dealing” provision.
11. Establish new educational and library exceptions in accordance with the three-step test.

I also recently published a shorter summary of my proposals for reform in CBA’s National magazine.

My slides presented at the copyright panel are set out below.

Sookman Digital Canada Presentation Feb 11 2010

He pointed out that “a renewed vision is required for a digital economy”, that the “digital economy will be a defining part of our economy”, that technology “is changing our world” and that we must “evolve if we hope to prosper”.

Mr. Garneau is clearly right. Technology is changing our world and we either have to adapt or suffer the consequences. Just look at the changes the Internet, search engines, smart phones, iPods, and the myriad other innovative technologies have brought to every segment of our lives. 

Mr Garneau is also right that we have a lot to learn from what our trading partners have been doing. The UK with its Digital Britain agenda,is miles ahead of us in identifying the issues, researching the options, and developing and implementing policy proposals. We cannot sit idly by while these countries develop the technical and legal infrastructure to address the complex challenges of the 21^st century.

Last month Industry Minister Tony Clement also noted in an interview with Canwest that ‘”We have to have a strategy for the digital economy in Canada…for doing more things online.’” He also announced in a speech to ITAC on February 2 that beginning this spring,  he intends to launch the next phase in building out Canada’s strategy for the digital economy. He says it will be “A made-in-Canada strategy. One which will stand the test of time and carry Canada forward — not just next year, but for the decade to come.”

In his ITAC speech, Minister Clement also noted that “Updating copyright law is important. In the past decade, digital technology has evolved dramatically, changing the way in which Canadians work, live and get involved both locally and globally. Copyright laws are critical to the digital economy in Canada. They give creators and consumers the tools they need to engage with confidence in the digital marketplace. Updated copyright laws will also help foster creativity, innovation and economic growth.”

But, why the long wait for the strategy? In his article Mr. Garneau asks  “where is the government on various issues including ‘on issues of net neutrality and intellectual property?”

In the IP area, there have been countless government promises for reform. Parliamentary subcommittees have recommended it. Canadian business has been clamouring for it. Yet we seem to be standing still while our EU and other neighbors are moving forward. We cannot slip farther behind in those areas that will give Canadians opportunities for self realization and prosperity.

Todays headlines highlighted Canada’s poor showings in productivity, a factor that is estimated to cost each Canadian 30k. We need a strategy that will foster innovation and creativity in Canada. A digital strategy, as Mr Garneau pointed out, has to be part of that.

Kudos to Mr Garneau for taking up this challenge.

Until now, the roll-out of the Internet, which has contributed to the mass consumption of digital equipment at the end-user level, has ensured that digital information is the universal means through which the whole planet can easily communicate. With billions of mobile phones, hundreds of millions of PCs and tens of millions of iPods,all around the world,  digital information has become the global communication standard. During its expansion, this deployment has generated strong positive externalities, such as reduced transaction costs associated with digital communications.

However, with most people having already gone digital, these positive externalities might not keep growing at the same pace. The lukewarm welcome to the new Apple iPad illustrates that new digital devices have to now compete with a very wide range of existing ones. The positive externalities which were strong in the phase of substituting digital to analogue equipment may now saturate or, at least, enter into a slower growth period.

On the other side, negative externalities associated with the use of digital devices are growing fast. An example of a negative externality is the explosion of identity theft, a crime which costs both victims and society and which increases transaction costs in the online environment. A recent study by Credoc showed that in France the number of identity thefts was over 210,000 a year (double that of car thefts) with an average cost of 2230 euros (only 30% was covered by insurance).

In addition to these costs, there were also the costs associated with legal investigations and lawsuits paid by society. Of course, identity theft is only one example of negative externalities associated with the increased use of the Internet. Fraud, IP infringement, and child pornography are examples of many others.

Confronted with the rise of these negative externalities, there are only two economic options. One is to tax the Internet with the goal to reduce its usage and to compensate for the negative externalities. The other is to internalize the externalities through innovative specific targeted measures.

Copyright infringement is a negative externality. It raises transaction costs and inhibits investment in the creative industries. Avatar would never have been able to attract a 500 million dollar investment if this 3D movie was as easy to freely copy (free-riding) as a standard 2D video.

The question is then: how to internalize copyright enforcement? The cost-benefit analysis which needs to be made is not just comparing the cost of enforcing copyright with the “savings” of not enforcing copyright. It is comparing the cost of enforcing copyright with the cost of leaving copyright unenforced. Indeed, in the phase of the digital roll-out, the benefits of the digitization could temporarily outweigh the costs of not enforcing copyright. But now that digitization is ubiquitous, there is less benefit and much higher cost with not enforcing copyright. Worse, if copyright is poorly enforced at the end user level — with free-riding going unpunished — then incentives are given to innovators to help the consumer to free-ride. The longer this signal lasts, the higher the cost of copyright enforcement.

As I have written in much more detail elsewhere, graduated response whatever its cost be and whoever pays for it is a means to bring disutility to copyright free-riding. This disutility — a fine, a suspension, and even a criminal sentence for the most egregious offenders — affects the customer of both the ISPs and the equipment manufacturers. These will then have to help their customer to avoid this disutility. In other words, graduated response acts as a means to deter free riding at the end user level which creates incentives to enforce copyright at the industry one.

The cost, as Michael Geist rightly points out, is paid the by the digital industry and by the consumer. But frankly, is there any better incentive to innovate in order to reduce it ? And when it happens, the benefits are three-fold: 1) copyright will be better enforced, decreasing the transaction costs in the creative industries and markets; 2) it will ensure that compulsory license mechanisms are not needed to compensate for the creation/ financing gap; and, 3) the cost of copyright enforcement will progressively decrease, thus raising the overall social benefits.

Graduated response restores incentives along the copyright distribution chain, (in the digital networks and equipment), to enforce copyright. Thus, it makes copyright enforcement costs decrease instead of increasing when free-riding is not deterred. The graduated response is a means to internalize in the technical chain the enforcement of the copyright.

The beauty of graduated response is that, as of today, it is the best long term means to internalize the costs of free-riding while decreasing the costs associated with copyright enforcement. Opponents of graduated response like Professor Geist look at only one economic side of graduated response. But, as stated above, the cost-benefit analysis which needs to be made is not just comparing the cost of enforcing copyright with the “savings” of not enforcing copyright. One must compare the cost of enforcing copyright using graduated response with the cost of not implementing such as system. When this analysis is done, graduated response to address copyright infringement can be fully justified from an economic perspective.

With respect to broadband, he outlined that the government had two major broadband projects: a commitment that every home in the country should be able to obtain a 2 Mbit/s broadband service – and so be able to use the applications which most people are using broadband for today; and a next-generation fund to support national scale investment in much higher speed services.

With respect to new business models, he talked about the need for the content industries to come up with new business models – and what government can do to help. He mentioned the importance of rights holders developing new ways to make content available to people in formats that they want and at fair prices to reduce the incentive to break the law. He also mentioned the need to educate people about why creativity deserves to be fairly rewarded.

The Minister for Digital Britain also referred to the government’s £10 million investment in digital test beds to provide low-cost, low-risk opportunities for companies to experiment with ideas and find ways to monetise new online content. The goal of this project is to make progress on understanding how innovations like micropayment can help reduce piracy.

The Minister pointed out that new consumer services are emerging in the UK – like Sky Songs and Youtube’s partnership with Channel 4. The UK government wants services like these to thrive, just as Spotify did when Sweden introduced regulations similar to those the UK is putting in place.

As for copyright, the Minister highlighted the urgent need to enact and implement the Digital Economy Bill to address online infringement which is costing the creative industries hundreds of pounds each year. The Minister had this to say with respect to copyright:

“Nobody here needs any reminder from me about the importance of finding answers to the problem of online copyright infringement. Technological developments that have generated so many new markets, new platforms for content and exciting channels for creative expression have also overturned traditional business models. They’ve made content freely available to people who love what they’re getting but aren’t keen to pay for it.

Copyright infringement has been around for a long time. But in this digital age, it’s on an altogether different scale. And it is costing the creative industries hundreds of millions of pounds every year.

Government has to help in finding a solution. And it requires legislation.

We’ve introduced provisions in the Digital Economy Bill, being debated in the House of Lords at the moment, that will require internet service providers to write to those of their customers who are found by rights holders to be infringing copyright through peer to peer file sharing. Internet providers will also be required to make data available to rights holders, so they can pursue legal action against serious offenders. This approach will be backed by powers to impose technical penalties – like bandwidth capping or temporary account suspension – as a last resort.

It needs to be proportionate. And it needs to be underpinned by a clear and effective appeals mechanism. But the measures will achieve a big reduction in online infringement and – just as important – give rights holders space to develop new business models.

Cooperation from internet service providers is vital…

There’s real urgency here. We need the provisions in the Digital Economy Bill to make an impact quickly. That means putting a code of practice in place quickly. I hope interested parties will work with Ofcom while the Bill is still in Parliament so that the outline code can take shape. And the Bill also contains provisions to address infringement beyond the peer to peer file sharing which accounts for the bulk of the problem at the moment.”

The Minister concluded his speech by highlighting the need for cooperation between all stakeholders to make the Digital Britain initiative a success.

“There’s a long way to go with the Digital Britain programme. I have set out what we are doing in three key areas – broadband, copyright, new business models. And new challenges, as yet unforeseen, will emerge too, and we will have to resolve them.

But we are good at all this in Britain. People who have been denouncing each other should be talking together. What I would ask is that all of us work together in the period ahead, to make the most of the digital economy, and to make a reality of the ambitions that all of us share.”

In mid-2009, the Canadian government launched a nationwide consultation meant to canvass what amendments to the Copyright Act are necessary to support Canada’s participation in the global, digital economy, and to foster innovation, creativity, competition and investment.

There is no doubt that our copyright laws need amending. Amendments are required on a number of fronts. New exceptions are required to meet legitimate user expectations to access and use copyright content without infringement. Amendments are also needed to reduce online piracy and to support making licensed services available to the public.

We propose to focus this article on one of the most needed and most poorly understood processes for reducing online infringement and promoting legitimate sources of online content. It is called “graduated response” or, as critics often derogatorily label it, “three strikes”.

A developing trend among other governments modernizing their copyright legislation is to bring Internet Service Providers (ISPs) and rights holders together in a “graduated response” system to help reduce illegal peer-to-peer (P2P) file sharing.

As the New Zealand government recognized in a December 2009 cabinet paper, illegal P2P file sharing places real strains on conventional copyright law.[1] Many leading P2P technologies break down files into extremely small pieces that are shared dynamically across a network by hundreds or thousands of users. There is no website that “hosts” the file itself, making it difficult for rights holders to get an infringing file to be taken down off the Internet.

Graduated response, which has been implemented in jurisdictions such as France, Taiwan, and South Korea, and which is in the process of being enacted in the UK and New Zealand, is viewed by many policy makers as a fair and effective means of addressing the problem of online unauthorized file sharing. Although each country has adopted or proposes different balances, the key characteristics of these systems are: (1) rights holders monitor P2P networks for illegal downloading activities; (2) rights holders provide ISPs with convincing proof of infringements being committed by an individual at a given IP address; (3) educational notices are sent through an ISP to the account holder informing him or her of the infringements and of the consequences of continued infringement and informing the user that content can be lawfully acquired online; and (4) if the account holder repeatedly ignores the notices, a tribunal may take deterrent action, with the most severe sanctions reserved for a court.  

Graduated response systems such as the ones mentioned above are effective and proportionate. The French system was recently reviewed and approved by a national constitutional council as respecting the country’s constitutional protections and the European Union’s privacy directives. In the United Kingdom, a test of the graduated response system showed that 70% of customers stopped infringing in the six month period after receiving the first notice, with a further 16% stopping after the second notice. Respected authorities on copyright such as Alain Strowel have characterized graduated response as an important evolution of copyright law that will address a real deficiency in the present system without unduly impacting individual liberties.[2] 

Detractors of “three strikes” systems often assert that the termination of an Internet account is the only sanction used in these systems. This is patently false. The UK government, for example, identified a range of less severe sanctions to address the problem of repeated infringements, including blocking specific sites or protocols, capping the speed of a subscriber’s Internet connection or volume of data traffic, and content identification and filtering. These kinds of sanctions would allow for the avoidance of Internet account termination except in the most extreme circumstances, and would not impact on other services such as a telephone or cable television service.

In its cabinet paper, the New Zealand government recognized the critical importance of providing an efficient, low-cost, proportionate, and credible regime to deter individuals from infringing copyright and to support the New Zealand creative industries. It described graduated response as being an emerging international trade standard, whose timely implementation would be beneficial for New Zealand. After holding extensive consultations, the New Zealand government concluded that there was a consensus that the proposed graduated responses system represented a reasonable compromise between the interests of rights holders, ISPs, and consumers.

Graduated responses systems are not intended to be anti-consumer or heavy handed. To the contrary, user interests and their privacy and procedural rights are respected. Instead of being haled into court for copyright infringements, users receive multiple notices before any action is taken by rights holders. These notices provide ample opportunities to change consumer behaviour from unauthorized file sharing to purchasing content legally. When proceedings are taken, there are procedural safeguards to ensure that sanctions are only imposed on the real offenders, and that they are proportionate.

A graduated response system that is proportionate, respectful of privacy, limited to clear cases of infringement, and supervised by the courts or other tribunals, is likely to be a win-win proposition for all stakeholders in Canada as well. It would accomplish the dual goals of reducing online piracy and increasing legitimate sales through consumer education and the knowledge that a deterrent exists if illegal file sharing does not cease.

While graduated response will never eradicate online infringement altogether, it would also give rights holders and ISPs the necessary protection they need to develop innovative business models such as the subscription plans created by European ISPs like Orange and BSkyB, and by mobile providers such as Nokia and Sony Ericsson. Bringing together graduated response with these access-based models would give users a safe, affordable and reliable means to get the creative content they desire while fostering innovation, creativity, competition and investment in intellectual property.

The Canadian government has stated on multiple occasions that it intends to adopt best practices in upgrading Canadian copyright laws. Graduated response systems are now recognized as being critical instruments of copyright policy. Accordingly, we urge the government to critically examine these systems and to include a graduated response system in any new copyright reform bill that is introduced.  

*Note by Barry Sookman:

Since writing this article, I came across an economic analysis of graduated response by Olivier Bomsel and Heritiana Ranaivoson entitled “Decreasing Copyright Enforcement Costs: The Scope of a Graduated Response”,  Review of Economic Research on Copyright Issues, 2009, vol. 6(2), pp.13-29. The authors argue that in the current digital environment the difficulty in enforcing copyright rights online provides incentives to free ride on copyright by consumers. Internet users are not deterred from illegally downloading content because the probability of being caught and the fines associated with being caught are too low. They contend that the behaviour of the internet user is determined by the expected fine — the perceived probability of being caught multiplied by the amount of the fine and that the way to deter infringement is to find a way to create a greater potential sanction that can act as a deterrent to illegal downloading. They argue that graduated response can fulfill this function.

The UK consultation proposal is very relevant for Canadians given the consultation and reform process we are engaged in. We could learn much from the UK process. Here are some thoughts.

Process considerations

The UK government has eschewed an approach which tries to cover all amendments in one Bill. Rather it has decided to move forward on multiple fronts to make as much progress as possible to deal with needed copyright reforms. The government recognized as part of its Digital Britain initiative the need to reduce online file sharing in order to give the copyright industries a stable predictable environment to grow digital business models. So, after consultations on that front, it tabled the Digital Economy Bill proposing a notice and notice system backed up by a process to implement a nuanced graduated response process if the government’s specific objectives of reducing online file sharing were not met. The government also recognized the need to modernise copyright exceptions to adapt them for the digital environment. Hence, the new consultation process.

The UK government also shows leadership by identifying specifically what it proposes to do and sets clear timetables for next steps. In regards to the copyright exceptions, its consultations will end on 31 March 2010 and draft legislation will be laid in Parliament with a view to its coming into force in October 2010.

The UK government expressly recognizes that all exceptions must be subject to the Berne/TRIPs Three Step Test. Accordingly, it has assessed each proposed exception against the requirements of the ‘three step test’. An analysis is provided at the end of each relevant proposal.  The need for compliance with the Three Step Test is described in the consultation document as follows:

“The law of copyright in the UK is governed by the Copyright Designs and Patents Act 1988, (CDPA). It must comply with various international treaties and European Directives13 and must satisfy the “three step test” found within them.

The test has been the subject of a large amount of academic comment but there is very little decided case law. The first step requires an exemption to apply in clearly defined circumstances. The second step requires the normal exploitation of the right to be judged for each exclusive right individually. The underlying aim of the test is to ensure that an excepted use should not enter into competition with the original work. In making this assessment, the potential as well as actual effect of the exception on the market would need to be considered.

The third step involves a balancing exercise between the general interests in protecting the rights holder’s exclusive rights in a copyright work and the public interest in the exploitation of the work. The rights holder’s interests may be but are not necessarily limited to its economic interests. It has been suggested that this step essentially takes on the focal point of the three step test.”

The UK government also expressly acknowledges the balancing  considerations involved in the reform process.

“In seeking to update the copyright framework to try and deliver benefits, we are mindful of the need to retain appropriate rewards for creators as an incentive for further investment in creativity and to ensure the continued growth and success of the creative industries. We have also taken into account a variety of other factors, such as the public interest, the overall benefits to society, economic impact, potentially unintended consequences, and the constraints imposed by International and European legislation by which the UK is bound.”

The proposed exceptions

Educations exceptions

The government proposes to extend sections 35 and 36 of the UK copyright legislation to enable distance learning and the use of interactive whiteboards and to permit access to a broader range of works. In particular, it plans to extend the educational exceptions to permit certain broadcasts and study material (for example handouts of excerpts from copyright works) to be transmitted outside the institutional campus for the purposes of distance learning but only via secure networks. It also plans to extend the exception relating to small excerpts so that it covers film and sound recordings , but this will not cover artistic works. The exceptions will apply only to the extent that licensing schemes are not in place.

Format shifting

The government does not plan to introduce any new format exceptions at this time. It believes, rather than acting unilaterally, that an EU wide harmonized approach to address enforcing rights over personal, non-commercial use of works is the better approach. Accordingly, it plans to raise this at the EU level. According to the government:

“The fundamental issue, as the strategy notes, is that enforcing rights over personal, non-commercial use of works appears disproportionately difficult in the digital age. A case can therefore be made for an exception much broader than simply format-shifting, potentially covering not just the reproduction of legitimately-purchased works but also some degree of sharing of those reproductions in derivative works and/or with family and friends. Such an exception could impact on revenues for rights holders; an element of fair compensation for any loss would be required. Any such exception would have to be developed at the European level. “

Research and private study

The government proposes extending the current research and private study exception under section 29 (fair dealing) to allow the copying of sound recordings, films and broadcasts, but only if the individual is a member of an educational establishment and copying is for the purposes of a course of private study or for research at that establishment. It also proposes to enable librarians to copy sound recordings and films on behalf of individuals providing certain criteria are met.

Libraries and archives

The government proposes to extend the current exception to allow libraries, archives, museums and galleries to copy for preservation purposes films, sound recordings and certain artistic works not already provided for, to enable the transfer of works to different formats and to enable more than one preservation copy to be made; to ensure that legal deposit libraries are put in the same position as other libraries when it comes to copying for preservation purposes.

Parody

The government does not believe that there is sufficient justification to introduce a new exception for parody in the UK now. Overall, the information supplied in response to the first stage of the consultation was not sufficient to persuade it that the advantages of a new parody exception were sufficient to override the disadvantages to the creators and owners of the underlying work.

Earlier this month the government published © the way ahead: A Copyright Strategy for the Digital Age. The report focused on the need to keep copyright consistent with public expectations and explored the desirability of making access to and use of works easier for consumers. It also recommended making orphan works easier to access and suggested extended collective licensing as a means of facilitating making works available to the public.

The Digital Economy Bill implements several copyright initiatives proposed previously by the UK government. A thorough description of the proposed process is in the Explanatory Notes, which accompanied the Bill.

The Bill gives the Secretary of State power to confer extended powers on collecting societies to grant licences over works of non-members, and to make other provision for the granting of licences in respect of orphan works. The Bill also follows through on the Government’s commitment to stem online file sharing through a notice and notice system backed up by a fair and balanced graduated response system should notice and notice prove ineffective.

Anti- copyright advocates often misleadingly characterize graduated response systems as a “three strikes your out” process and attempt to discredit them by using fear mongering tactics telling the public that under these systems a family’s internet connection can be terminated for one year based solely on three unproven allegations of copyright infringement and that their personal information will be indiscriminately shared between ISPs to ensure this happens . See, Fear Mongering and Misinformation Used to Slag ACTA

The graduated response process being enacted by our trading partner such as France, New Zealand and the UK are nothing of the sort. The actual proposed provisions of the Digital Economy Bill show the extent to which the UK government has gone to ensure that if the process is implemented, it will be a completely fair process to all involved.

As explained in the Explanatory Notes, the Bill would amend the Communications Act 2003 (“the 2003 Act”) to impose obligations on ISPs to notify their subscribers if the internet protocol (“IP”) addresses associated with them are reported by copyright owners as being used to infringe copyright; and keep track of the number of reports about each subscriber, and compile, on an anonymous basis, a list of some or all of those who are reported on. After obtaining a court order to obtain personal details, copyright owners will be able to take action against those included in the list.

In case these notice and notice obligations prove insufficient to reduce significantly the level of online infringement of copyright, the provisions also grant the Secretary of State a power to impose further obligations (“technical obligations”) on ISPs. These would be imposed on the basis of reports from OFCOM or any other relevant considerations, and would require ISPs to take measures to limit internet access to certain subscribers. The intention is that technical measures would be used against serious repeat infringers only. Technical measures would be likely to include bandwidth capping or shaping that would make it difficult for subscribers to continue illegal file-sharing, but other measures may also be considered. If appropriate, temporary suspension of broadband connections could be considered.

To safeguard the interests of consumers, the provisions also require two appeal processes to be set up. The appeal would be to a person independent of OFCOM, with a further right of appeal to an independent tribunal (called the First-tier Tribunal). Further, to obtain a remedy, the intention is that copyright owners would be held to the same standards of evidence of copyright infringement as in a copyright infringement action.

The provisions also set out how the costs of operating such a system may be shared. Funding from cost apportionment would enable an underpinning code to be developed by interested parties.

The Explanatory Notes illustrate how the provisions might work in practice, possible processes of notification and court action:

• Copyright owners identify cases of infringement and send details including IP addresses to ISPs;

• The ISPs verify that the evidence received meets the required standard, and link the infringement to subscriber accounts;

• The ISPs send letters to subscribers identified as apparently infringing copyright. They keep track of how often each subscriber is identified;

• If asked to do so by a relevant copyright owner, ISPs supply a serious infringers list showing, for each subscriber who has been identified repeatedly by the copyright owner, which of the copyright owner’s reports relate to that subscriber. The list does not reveal any subscriber’s identity;

• Copyright owners use the serious infringers list as the basis for a large scale “Norwich Pharmacal” court order to obtain the names and addresses of some or all of those on the list. At no point are individuals’ names or addresses passed from the ISP to a copyright owner without a court order;

• Copyright owners send “final warning” letters direct to infringers asking them to stop online copyright infringement and giving them a clear warning of likely court action if the warning is ignored; and

• Copyright owners take court action against those who ignore the final warning.

The “notice and notice” process sets out an obligation for ISPs to notify subscribers of copyright infringement reports (“CIRs”) received about them from copyright owners. To help ensure that the subscriber is made aware that their account appears to have been used to breach copyright, the Bill imposes an initial obligation on the ISP to notify the subscriber if the ISP receives a CIR from a copyright owner. The notification from the ISP must inform the subscriber that the account appears to have been used to infringe copyright, and it must provide evidence of the apparent infringement, direct the consumer towards legal sources of content, and provide other advice such as that information about the apparent infringement may be kept and disclosed to the copyright owner in certain circumstances and that further apparent infringements using the subscriber’s account may result in additional notifications.

ISPs will have to keep a record of the number of CIRs linked to each subscriber along with a record of which copyright owner sent the report. An ISP may be required to provide a copyright owner with relevant parts of those records on request (“copyright infringement lists”), but in an anonymised form so as to ensure compliance with data protection legislation. The intention is for the code to set out a threshold number of CIRs, for example 50, which means that a subscriber will be considered a serious repeat infringer whose alleged infringements must be covered by any copyright infringement lists that the ISP provides to the relevant copyright owner.

The lists would be made available to copyright owners on request in an anonymised form. For example, while a list might (for example) identify subscriber 936 as being linked to the most CIRs, it would not include any personal information about subscriber 936. In order to get this personal data, the copyright owner would need a court order. However, the list would allow the copyright owner to identify subscriber 936 as someone against whom legal action may be appropriate.

The Bill would also enable the Secretary of State to make provision by order to amend the UK Copyright, Designs, Patents Act, for the purpose of preventing or reducing on-line copyright infringement if it appears to the Secretary of State appropriate to do so having regard to technological developments that have occurred or are likely to occur. Illustrative examples of the possible ways in which this power could be used include: adapting the legal process  to allow rights holders to take more effective action more quickly against websites hosting or sharing material in breach of copyright; creating a fast track process; or imposing a duty on a body to report on the prevalence of new or emerging types of online infringement.

The UK Digital Economy Bill is certainly worthy of close consideration by the Canadian Government as a possible model for implementing a much needed graduated response process in Canada. The processes in the Bill also demonstrate just how misleading anti-copyright advocates are when they summarily dismiss graduated response systems as being capricious and heavy handed “three strikes and your out” processes.

Much like the Canadian Government, the UK Government wants a copyright system “that works as well as it can for everyone in the UK, supporting investment and sustaining jobs, as well as underpinning our cultural life, and supporting consumers to get the best from the digital age.”

The report sets out what the UK Government plans to do both domestically and through the EU. The proposed measures reflect the interests of all stakeholders:

• for creators of copyright works: to support fair treatment through new model contracts and clauses and fair returns for use of their work by improving education about and enforcement of rights;

• for rights holders: to help secure a viable future by encouraging the development of new business models, modernising the licensing process and maintaining support for education about and enforcement of rights (including tackling peer-to-peer filesharing);

• for consumers: to allow them to benefit from the digital age by seeking to legitimise non-commercial use of legitimately purchased copyright works and improving access to ‘orphan works’ such as out-of print books;

• for educators and researchers: to support them by improving access to works, resolving issues around copyright and contract and ensuring exceptions to copyright are right for the digital age; and

• for businesses and other users: to work towards a simpler system by looking at the scope to simplify copyright, improving the copyright licensing process and encouraging the development of new business models.

He makes some observations relevant to Canadian copyright reform about the importance of the creative industries and the need to create a proper legal framework to ensure they thrive. He also explains that the graduated response regime the UK is implementing is a carefully nuanced and procedurally fair process.

Why the creative industries matter

“I’m a big defender of an economy based on making things, which is why I often speak about manufacturing. But in terms of added value in a global economy the difference between making a car or a plane and making a TV show or a video game is largely a meaningless one. Especially when you consider how integral and central to the manufacturing process innovative design is.”

The digitalisation of creative industry

“But of course the creative industries are undergoing an immense shift, driven above all by the internet and by digital technology. We now have greater unmediated access to cultural goods than ever before, and in formats that make them easier to appropriate and share than ever before. A world where creative content is conceived, published, distributed, advertised and consumed digitally is revolutionary for the users of cultural goods, and revolutionary for the people who produce them.”

“This means we are going to have to work even harder to make sure the environment for creative industry here is right. At a very basic level that means making sure we have the digital infrastructure in Britain – which is one of the key questions that the Government’s Digital Britain report addressed.
But the big challenge that the digital economy poses for the creative industries, of course, concerns content producers’ control over their ideas and goods. The creative industries are literally built on the idea that it is legitimate to protect the value of creativity through copyright and intellectual property rights. If they don’t retain that, frankly they don’t have a viable business model left.

I was shocked to learn that only one of every 20 tracks downloaded in the UK is downloaded legally. One in twenty. You just can’t have sustainable creative industries under the pressure of this kind of theft – and that’s what it is. So I want to be absolutely clear. The British Government’s view is that taking people’s work without due payment is wrong and that, as an economy based on creativity, we cannot sit back and do nothing as this happens.

The trouble is that too many users of digitised cultural goods simply don’t see it that way. When 15 year old intern Matthew Robson reported back to his bosses at Morgan Stanley in the summer on the attitudes of his peers to digital content his key conclusion was pretty much: they want what they want and they don’t really want to pay for it. That was the view of a 15 year old intern at Morgan Stanley. And, of course, on the internet it’s incredibly easy to get just that. The important cultural and ethical sense that it is an issue of right and wrong is eroding before our eyes. This is not just morally unacceptable: it’s also commercially unsustainable for artists, for investors and producers alike.”

A new business model

“Now, it seems self-evident to me that trying to evolve new business models against these kind of attitudes is very hard, and I take my hat off to those who have tried. Further investment in new business models is important. But the Government also has a responsibility to act. That is why we have decided to intervene and legislate to tackle the problem of file-sharing, and it is why other countries, including France and the United States, are doing the same.

What we will be putting before Parliament is a proportionate measure that will give people ample awareness and opportunity to stop breaking the rules. It will be clear to them that they have been detected, that they are breaking the law and that they risk prosecution. If necessary we have also made it clear that we will go further and make technical measures available, including account suspension. In this case, there will be a proper route of appeal. But it must become clear that the days of consequence-free widespread online infringement are over.

When I reopened this issue back in the summer there was a lot of contentious debate, not surprisingly. But, let me be clear on this point: technical measures will be a last resort and I have no expectation of mass suspensions resulting. If we reach the point of suspension for an individual, they will be informed in advance – having previously received two notifications – and will have the opportunity to appeal. But the threat for persistent individuals is, and has to be, real, or no effective deterrent to breaking the law will be in place.”

“The bottom line for the Government is that the creative industries are and must remain central to a balanced, knowledge economy. They are one of the keys to the recovery now underway and our whole economic future. There is no economy on earth in which the creative industries play such an important part in overall growth and job creation, and that is an immense asset to the UK that we are determined to preserve and strengthen….

I hope that our approach and the stable, predictable framework being put in place will allow good commercial decisions to be taken for the benefit of everyone including consumers, who we are all here to serve.”