The UK process was introduced expressly to address the rise in unlawful peer-to-peer file sharing, “which can reduce the incentives to invest in the development, production and distribution of new content by preventing investors in the creative industries from fully appropriating the returns on their investment.” The DEA’s grauduated response process purpose is to reduce online infringement of copyright “by introducing a system of mass notifications designed to educate consumers about copyright and bring about a change in consumer behaviour”.

Graduated response is viewed by many policy makers as a fair and effective means of addressing the problem of online unauthorized file sharing. Its key characteristics 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, some sanction may follow. See, Graduated response and copyright: an idea that is right for the times.

Some critics of graduated response contend that it is flawed because it results in unreasonable or arbitrary sanctions against innocent individuals. The Full Court of Australia in the recent iiNet case backed the reasonableness of graduated response to stop illegal file sharing. Last year the Irish High Court in EMI Records & Ors -v- Eircom Ltd, [2010] IEHC 108 held that a graduated response solution to illegal file sharing involving “detection, notification and termination” “is viable and proportionate”. The documents released by Ofcom last week highlight the processes including appeals processes used in these systems to build in procedural fairness for those identified as repeat copyright infringers.

United Kingdom

The online copyright provisions inserted into the UK Communications Act 2003 by the DEA place obligations on ISPs, when informed by copyright owners, to notify subscribers of their unlawful behaviour by generating copyright infringement reports (CIRs”). Each CIR includes a description of the apparent infringement along with supporting evidence, including the subscriber’s IP address and the time at which the evidence was gathered. The ISP matches the IP address to a subscriber and sends them a letter notifying them of the CIR(s). The ISP records the number of CIRs made against subscribers in an anonymised copyright infringement list. The copyright owner can request this list in order to see which of the reports it has made are linked to the same subscriber. It can then seek a court order to reveal the details of the subscriber, with a view to taking court action against them.

The subscriber can, however, choose to appeal each notification and each CIR within a notification. The DEA sets out the minimum grounds for appeal to an independent appeals body appointed by Ofcom. (Ofcom has discretion to add further grounds for appeal and must approve the procedures of the appeals body.)

The minimum grounds for appeal are to be set out in a code to be developed by Ofcom and which must have the following elements:

The code must provide that an appeal on any grounds must be determined in favour of the subscriber unless the copyright owner or internet service provider shows that, as respects any copyright infringement report to which the appeal relates or by reference to which anything to which the appeal relates was done (or, if there is more than one such report, as respects each of them) the apparent infringement was an infringement  of copyright, and the report relates to the subscriber’s IP address at the time of that infringement.

The code must provide that, where a ground mentioned…is relied on, the appeal must be determined in favour of the subscriber if the subscriber shows that the act constituting the apparent infringement to which the report relates was not done by the subscriber, and the subscriber took reasonable steps to prevent other persons infringing copyright by means of the internet access service.

The powers of the person determining subscriber appeals must include power to secure so far as practicable that a subscriber is not prejudiced for the purposes of the copyright infringement  provisions by an act or omission in respect of which an appeal is determined in favour of the subscriber; to make an award of compensation to be paid by a copyright owner or internet service provider to a subscriber affected by such an act or omission; and where the appeal is determined in favour of the subscriber, to direct the copyright owner or internet service provider to reimburse the reasonable costs of the subscriber.

France

As the Ofcom report describes, France has implemented a regulated ‘three strikes’ scheme for tackling online copyright infringement.

The HADOPI law also enables copyright owners to have notices of infringement sent to allegedly infringing customers. There is no specific appeal from the correctness of each notice, but there are broad rights to dispute the information in notices before any sanction can be applied. Ofcom descibes the procedural safeguards in the French process as follows:

It is not possible to appeal subscriber notifications alleging infringement under the French ‘three strikes’ regime, as these are considered ‘reminders’ of the law, without legal effect in themselves. However, Hadopi (the government agency created to administer the Hadopi law) has chosen to accept contact from subscribers and we understand that around 10% of those who received first notifications have contacted them. Often this may often be with a view to securing more information about the allegation, rather than as a precursor to a claim of innocence.

There is a right to an administrative hearing before Hadopi, as part of Hadopi’s consideration of a case before deciding whether to forward it to the judiciary, who may decide to apply sanctions. It is a private hearing before three magistrates from the Hadopi Board. No conditions or payment for accessing the hearing are envisaged…

Based on its findings, Hadopi may choose not to pursue a case further, or to refer the file to the public prosecutor…

Two routes are available to the public prosecutor, where he considers there is sufficient evidence to prosecute:

A new, streamlined procedure before a single magistrate in the criminal courts, introduced as part of the Hadopi laws (where there is considered to be ‘no significant harm’)…

Under this procedure, the magistrate considers the file prepared by Hadopi. He has no powers to investigate further, and decides the case without a hearing…  The magistrate may dismiss the case or issue a criminal order imposing sanctions…

If the subscriber does not challenge the decision, it becomes final. If he wishes to challenge the decision, the public prosecutor may bring the case before the magistrate (sitting alone) for a hearing…

A standard procedure before a single magistrate in the criminal courts under general copyright law (used where there has been ’significant harm’, e.g. a high number of downloads or history of infringing)….

The magistrate may dismiss the case or [impose] sanctions…

Alternatively, if the prosecutor considers there is not sufficient evidence to prosecute, he may refer the file to the Police for criminal investigation.

The decision of the magistrate in the streamlined procedure (following a challenge) or of the criminal court in the standard procedure may both be appealed to the Court of Appeal.

New Zealand

The New Zealand Copyright (Infringing File Sharing) Amendment Act 2011 was enacted into law on 18 April 2011 and is due to become in force on 1 September 2011. The Act provides “copyright owners with a fast-track civil law alternative to existing remedies under general copyright law in order to enforce their rights against infringing file sharing by internet account holders.”

The New Zealand process was summarized by Ofcom as follows:

The 2011 Act provides for a three notification process, with the possibility of sanctions in the form of a fine or Internet suspension. The latter remedy requires secondary legislation in order to enter into force. All notifications may be challenged and sanctions may be appealed.

When a copyright owner provides an ‘internet protocol address provider’ (IPAP)  with information identifying an IP address at which copyright infringement is alleged to have occurred as a result of file sharing, the IPAP must match the IP address and send an ‘infringement notice’ to the subscriber. The subscriber can challenge the notification by contacting the IPAP, which forwards the challenge to the rights holder for consideration.

The rights holder responds to a challenge via the IPAP. A challenge is deemed to be accepted if it has not been rejected by the rights holder within 28 days from the date of the notice. In this case, the notice is cancelled and treated as if it had not been issued, unless the infringement subject to challenge did not itself trigger a notice, in which case the notice remains valid but the infringement is treated as if it were not included.

If the rights holder rejects the challenge, the subscriber may raise it again in any enforcement proceedings…

The Act provides for a fast-track system of enforcement, to sit alongside existing copyright enforcement provisions. Once a subscriber has been issued with a third notification, the rights holder may seek an order from the Copyright Tribunal for a sum of up to $15,000 (c. £7,000) and/or an order from a District Court for the IPAP to suspend the account holder’s internet account for up to six months (civil remedy). The provisions on suspension do not come into effect immediately but only following secondary legislation (‘Order in Council’) by the Governor General, specifying the date after which applications may be made to the District Court…

In order to take a complaint to the Tribunal, the loss must be quantified as under $15,000. Claims for over $15,000 may be pursued in the District Court under existing law.

Proceedings before the Copyright Tribunal will take place without a hearing, unless the account holder requests a hearing or the Tribunal considers that one should be held. It is presumed that each incidence of filesharing identified in an infringement notice constituted copyright infringement, the information in the notification is correct, and the notice was issued in accordance with the Act. A subscriber may submit evidence or give reasons why any of those presumptions do not apply to any of the identified infringements. It is then up to the rights holder to satisfy the Tribunal that the relevant presumptions are correct.

Appeals of the decisions of the Copyright Tribunal and the District Court are to the High Court.

As can be seen, all three of the legislated graduated response systems provide for extensive procedural protection to ensure that sanctions are only able to be imposed after consecutive notices are sent to alleged file sharers and such notices are not effective to prevent repeat infringements. Further, these protections also provide one or more appeals to independent entities to ensure that sanctions are only imposed on those responsible for online file sharing.

The UK, France, and New Zealand graduated response processes all involve legislative solutions to online file sharing. In other countries, graduated response systems have been implemented voluntarily by ISPs under agreements with copyright holders. An example is the Irish ISP Eircom which voluntarily implemented a graduated response process.

In the US, leading ISPs reached agreements with rights holders in July 2011 to implement a new a common framework for “Copyright Alerts”. The new Copyright Alert System provides a series of early alerts — up to six — in electronic form, notifying the subscriber that his or her account may have been misused for online content theft of film, TV shows or music. It will also put in place a system of “mitigation measures” intended to stop online content theft on those accounts that appear persistently to fail to respond to repeated Copyright Alerts. The system will also give subscribers the opportunity for an independent review to determine whether a consumer’s online activity in question is lawful or if their account was identified in error. Termination of a subscriber’s account is not part of this agreement. Further, under the Copyright Alert System, ISPs will not provide their subscribers’ names to rights’ holders under this agreement.

Canada’s Bills C-60, C-61 and C-32 would have implemented a less effective “notice and notice” system. Unlike any of the processes set out above, this process did not build in any deterrent for those repeatedly found to engage in online copyright infringement.

The UK Government also simultaneously published a series of  other reports including: Next steps for implementation of the Digital Economy Act, “Site blocking” to reduce online copyright infringement, Draft-Sharing-of-Costs statutory-instrument, Impact Assessment for the Sharing of Costs Statutory Instrument, Digital Economy Act Appeals Process: Options for reducing costs, International Strategy, and IP Crime Strategy.

The Government response makes it clear that intellectual property is of fundamental importance to economic growth, and that maximising its contribution relies on both enabling use of intellectual property and protecting it. The Government endorsed the Review’s view that it must  “not put our hugely important creative industries – or  any other IP-led business sector – at risk by what we do.  Managing that risk includes not only responding effectively to the challenges posed by technology, such as issues around enforcement of IP rights, but also seizing the opportunities for  growth that technology opens up.”

Several important plans are to:

• Bring forward proposals for an orphan works scheme that allows for both commercial and cultural uses of orphan works, subject to satisfactory safeguards for the interests of both owners of ‘orphan rights’ and rights holders who could suffer from unfair competition from an orphan works scheme.
• Bring forward proposals for extended collective licensing to benefit sectors that choose to adopt it, and look to maximise the benefits it could bring to smaller creative firms and individual creators in particular.
• Create “a limited private copying exception”; to widen the exception for noncommercial research, which should also cover both text- and data-mining to the extent permissible under EU law; to widen the exception for library archiving; and to introduce an exception for parody. These will be implemented “in ways that do not prejudice the provision of appropriate incentives for creation of works through the copyright system”.  No private copying levies are contemplated.

Following the successful defence of the Digital Economy Act provisions in judicial review, the Government is moving forward with the DEA initial obligations including plans to move ahead with the DEA notification system.

The Government decided not to bring forward regulations on site blocking under the DEA, at this time. Contrary to what has been widely reported, Ofcom did not rule out site blocking in the future and the Government stated it was “keen to explore the issues raised by Ofcom’s report and will be doing more work on what measures can be pursued to tackle online copyright infringement.”

Ofcom’s report concluded that blocking of infringing sites could potentially play a role in tackling online copyright infringement, but that the approach set out in the DEA was unlikely to be effective because the slow speed that would be expected from a full court process would provide site operators with the opportunity to change the location of the site long before any injunction could come into force. The Government noted that Section 17 and 18 of the DEA would not be faster than what is already available under section 97A of the UK CDPA. This process, which is required under Article 8(3) of the EU Copyright Directive, was just successfully used to obtain an order against BT to block access to the Newzbin file sharing web site in Twentieth Century Fox Film Corp & Ors v British Telecommunications Plc [2011] EWHC 1981 (Ch) (28 July 2011) (summarized here).

The Government canvassed additional measures that could be used to block access to content besides those contemplated by sections 17 and 18 of the DEA. It concluded that additional effective measures include those available under section 97A of the UK CDPA, notice and takedown, domain seizures, squeezing site revenues, and search engine delisting.

According to the Ofcom report: Site blocking” to reduce online copyright infringement, the following additional processes are available:

Blocking injunctions: section 97A of the Copyright Designs and Patents Act 1988 (CDPA) gives the Court power to grant an injunction against a service provider “where that service provider has actual knowledge of another person using their service to infringe copyright.” Such an injunction exists in addition to the power of the Court to grant an injunction in the context of an action for breach of copyright by a particular person.

Notice and take-down: where content is hosted in the UK copyright owners may ask the hosting service provider to take down the content at source. Where this happens the service provider can review the material and take its own view as to whether the content is infringing. YouTube offers a particularly interesting model of this. Where copyright owners identify content which they believe to be infringing, YouTube offers them tools to allow for the content to be taken down or actually monetised. The copyright owner can take a share of the advertising revenue on the page or use the page to promote the copyright owner’s own videos on YouTube. If the service provider chooses to remove the content then the party who has posted the content will typically be informed and given the opportunity to challenge the decision, with access to the content being re-instated if the service provider is persuaded that it is not infringing.

Under US law, there is a formal legal process for such a scheme, operated under the Digital Millennium Copyright Act (DMCA). Service providers are provided with a safe-harbour, which grants them immunity from prosecution (under secondary infringement rules) where they operate within a specific framework in considering requests from copyright owners to block access to sites or to remove content where they are hosting it….

A notice and take-down scheme could provide a valuable complement to a technical blocking measure, essentially offering the service provider the opportunity to remove the content in question prior to a formal block being put in place. The opportunity for the site operator to remove infringing content ahead of a block being implemented could be helpful where the blocking technique carried a risk of over blocking. In this context, it is worth noting that the Italian communications regulator (AGCOM) is consulting on proposals for regulated notice and take-down scheme under which the regulator would have powers to require service providers to remove infringing content. That the removal of content was at the request of the regulator would, we assume, protect the service provider from liability.

De-listing from search index: some search engines, most notably Google, will de-list particular sites following the submission of evidence from a copyright owner that the site is infringing copyright. Application to de-list is submitted to Google via post or fax. Google will attempt to contact the site hosting the alleged infringing content and provide them with an opportunity to engage in the process before Google reaches its decision. De-listing can be an effective measure in so far as it makes it more difficult for users to find unlawful sites and it makes it easier to locate lawful alternatives, as they will appear higher on the search rankings than would otherwise be the case.

De-listing of infringing sites could increase the effectiveness of a blocking scheme. Whilst the operator of a site which has been blocked can move the site to an alternative IP address, URL or domain, if it cannot secure a listing for the new location on search engines then it will prove harder for users to find it and for the operator to effectively re-build its business.

Squeeze revenues: infringing sites can often appear legitimate to users and some are alleged to be successful at generating significant revenues. Some infringing sites charge a subscription fee, carry banner advertising for legitimate brands and often look more attractive to consumers than their lawful alternatives. It can be difficult for a consumer to know whether the site is indeed infringing. Many brand owners are unaware that their adverts are appearing on such sites until it is brought to their attention by copyright owners. Copyright owners have reported some success in persuading those brands to instruct their advertising agencies to withdraw ads from such sites. Similarly, credit card companies are reported by copyright owners as having been put under pressure to withdraw payment platform services from such sites. In addition to helping make the service appear less legitimate, the removal of payment platform services and advertising may make such sites less attractive to operate given the costs of bandwidth and storage required for operation, as well as the inconvenience caused by the disruption and from having to secure alternative payment platform services.

Domain seizures: a recent development in the U.S. has been the seizure of websites which were allegedly illegally streaming live content. In February, the U.S. Immigration and Customs and Enforcement (ICE) department executed a federal Court order in the Southern District of New York, seizing 10 websites. The websites were streaming coverage of National Football League, National Basketball Association and National Hockey League events. ICE has said publicly that further seizures will occur. Visitors to those sites were redirected to a banner advising that the domain name had been seized by the New York office of ICE because of criminal copyright violations. There may be a greater attraction to domain seizures in the US than would be the case in the UK, given that there are more significant domain registries with the US jurisdiction. We believe that such a measure, if implemented in the UK, would only be capable of a limited effect, given that it would only affect domains using “.uk” country code top-level domains. Site operators can respond to a seizure by registering their site in a different country. Whilst this is an inconvenience, it is not a significant barrier to the operation of unlawful sites. The approach could be made more effective through improved international cooperation amongst enforcement agencies, limiting the number of countries to which those subject to seizure orders can switch.

The Ofcom report concluded:

We believe that the measures outlined above could potentially play a role in support of a site blocking scheme, complementing the more technical approaches and, in some cases, helping to compensate for weaknesses inherent in the blocking techniques. A bill has been introduced in the US which would see many of these measures adopted to help the enforcement agencies and copyright owners to tackle infringing web sites based outside of the US. It is too early to predict the outcome for that proposal, but we believe there is value in considering further how such measures could be deployed to enhance the effectiveness of site blocking within the UK.

“alarmed by proposals to disconnect users from Internet  access if they violate intellectual property rights. This also includes legislation based on the  concept of “graduated response”, which imposes a series of penalties on copyright  infringers that could lead to suspension of Internet service, such as the so-called “three strikes-law” in France  and the Digital Economy Act 2010 of the United Kingdom.”

The report has since been subject to widespread comment and considerable criticism. Some of my views about the report were published in an article in The Wire Report last week. (My comments in brackets)

Barry Sookman, a copyright lawyer with McCarthy Tetrault in Toronto who represents the content industries [among others], said in an interview that the report expresses the view of one human rights advocate.

He said it is not the official position of the UN or the human rights council and that it is not binding on UN member states.

Sookman added that the report lacks analysis of the regimes and the legislation it criticizes, and it ignores the balance between reconciling competing values.

“The right to be able to protect your property, including your intellectual property, is actually a fundamental right under the Universal Declaration of Human Rights,” he said.

“The right to protect your copyright has actually been considered to be a constitutional right in a number of countries.”

France’s three-strikes system relies on a series of steps and a tribunal ruling, and the U.K.’s digital economy legislation  doesn’t [currently] empower ISPs to disconnect users, he said.

Sookman pointed to four court decisions—one each in Australia and the U.K., and two in Ireland—that deemed graduated response initiatives a reasonable and proportionate response to file sharing. [See, Roadshow Films Pty Limited v iiNet Limited,[2011] FCAFC 23, EMI Records & Ors -v- Eircom Ltd, [2010] IEHC 108, EMI Records [Ireland] Ltd & Ors -v- UPC Communications Ireland Ltd [2010] IEHC 377, and British Telecommunications Plc & Anor  v The Secretary of State for Business, Innovation and Skills [2011] EWHC 1021]

“One would have thought that somebody who was going to express an opinion would perhaps not only know about these regimes but also know about the case law that has looked at these regimes and found them to be proportionate. I think it didn’t fully consider all of the jurisprudence on this topic,” he said.

Sookman added that while he and most ISPs consider the right to Internet access “fundamentally important,” he doesn’t believe it trumps other rights such as not paying service bills or using Internet service to spam [or transmit pornography, commit criminal or civil offenses, or otherwise violate laws].

“I don’t think it will change Canadian public policy because I think in Canada we recognize that there’s a requirement to do a balancing. Under the Canadian Charter of Rights, individuals have certain Charter rights, but the Supreme Court has made it clear that, even if you have a Charter right, the next question is whether or not legislation that might impinge on it is justified for a good public policy reason,” he said.

Other commentators made these and other observations.  Jakomi Mathews in an article for The Music Void asked the question:

If disconnecting repeat offenders from an Internet connection who are stealing content is a breach of Human Rights where does the right of content owners stand in relation to their human rights? So is the UN stating that breaking the law and stealing rights owner’s content whether that be; music, films, games or software is a Human Right? So this must now mean by default that the UN has legalised stealing content via file sharing and other similar technologies? No? Well then how can sanctions for repeat file-sharing offenders be a breach of human rights?…

The key point I’m trying to get across here is that if content owners cannot sanction people who are repeatedly infringing on their copyrighted works then what rights of protection for their assets do they have in the eyes of the UN? What are the rights of artists to earn a fair and equitable income from their art? Is the UN stating there can be no sanctions for breaking the law? Because that is how their report reads…

James Gannon, a colleague of mine, in a post also questioned the analysis in the report.

IPKat, in a recent post also provided a critical assessment of the report:

The report makes bold statements on the protection of fundamental rights in the digital age, including in the context of cybercrime, data protection, personal privacy and the ‘digital divide’ between the developing and developed world. In those countries where online freedom of speech is restricted on political grounds, the UN’s concerns may be valid. However, on the issue of Internet disconnection for violations of IP rights, sweeping generalisations are made, without any further analysis or evidence, that this legislation is necessarily bad because it may lead to Internet users’ disconnection from the Internet. There is no acknowledgment that

(i)  violations of IP rights are against the law, and therefore that appropriate punishments are warranted;

(ii)  measures leading to temporary suspension from the Internet may be a proportionate attempt to stymie the widespread online piracy that has led to severe job losses and created barriers to innovation;

(iii) the DEA only proposes to cut off a user’s Internet access as a last resort after that person has repeatedly flouted copyright law despite multiple warnings; or

(iv) under international law, rightsholders have a human right to property and a right to an effective legal remedy following infringement of the law.

The UN makes recommendations without attempting to balance the competing rights of the various stakeholders (copyright owners, intermediary service providers and end users). As such, the UN’s approach runs contrary to recent jurisprudence [C-275/06 Promusicae v Telefonica], literature from the US [Obama’sInternational Strategy for Cyberspace] and the European Commission [Strategy on a Single Market for Intellectual Property Rights]. Finally, the report fails to suggest any alternative approaches to tackling online infringement of IP rights. It seems a shame that a document that is clearly intended to identify genuine global concerns about freedom of expression and related human rights in the online environment has taken such a one-sided approach, arbitrarily drawing a connection between unjustifiable State censorship on the Internet and the legitimate protection of intellectual property in the face of prolific online piracy.

The Official YouTube Blog says the following:

If we receive a copyright notification for one of your videos, you’ll now be required to attend “YouTube Copyright School,” which involves watching a copyright tutorial and passing a quiz to show that you’ve paid attention and understood the content before uploading more content to YouTube.

YouTube has always had a policy to suspend users who have received three uncontested copyright notifications. This policy serves as a strong deterrent to copyright offenders. However, we’ve found that in some cases, a one-size-fits-all suspension rule doesn’t always lead to the right result. Consider, for example, a long-time YouTube user who received two copyright notifications four years ago but who’s uploaded thousands of legitimate videos since then without a further copyright notification. Until now, the four-year-old notifications would have stayed with the user forever despite a solid track record of good behavior, creating the risk that one new notification — possibly even a fraudulent notification — would result in the suspension of the account. We don’t think that’s reasonable. So, today we’ll begin removing copyright strikes from user’s accounts in certain limited circumstances, contingent upon the successful completion of YouTube Copyright School, as well as a solid demonstrated record of good behavior over time. Expiration of strikes is not guaranteed, and as always, YouTube may terminate an account at any time for violating our Terms of Service.

Here is the YouTube copyright education video:

* Amended Apr. 17, 2011.

The three-notice regime involves ISPs sending warning notices to their customers informing them they may have infringed copyright. The legislation extends the jurisdiction of the NZ Copyright Tribunal to provide an efficient, low-cost process to hear illegal file-sharing claims. The tribunal will be able to make awards of up to $15,000 based on damage sustained by the copyright owner.

The bill includes a power for a district court to suspend an internet account for up to six months, in appropriate circumstances. However, this element of the legislation will not be brought into force unless the notice process and the remedies by the Copyright Tribunal are ineffective.

The Bill will come into force on September 1 2011. It will not apply to mobile networks until October 2013.

New Zealand’s law follows efforts in France, the UK, South Korea,  Ireland, Australia and elsewhere through legislation, litigation or voluntary agreement to implement a regime to deter online file sharing. Other countries such as the Netherlands, Spain, and the U.S. have enacted, or have proposals to enact, legislation that would give courts or other bodies the power to block file sharing sites, shut down pirate websites, or to seize their domain names to prevent or inhibit access to such sites to reduce online file sharing.

On March 22, 2010 – before the federal election was called- TELUS, Bell and Rogers appeared before the Special Legislative Committee studying Bill C-32. The ISPs continued to endorse notice and notice asking that this process be formalized in C-32. Studies around the world have shown that notice and notice by itself-without any real threat of a sanction- is not the most effective way of reducing online peer-to- peer file sharing. TELUS, Bell and Rogers which have, to some extent, been voluntarily passing on notices from rights holders for about decade, were asked by the Parliamentary Committee whether notice and notice was effective. As it turns out, after a decade of experience, it became clear from their testimony that the ISPs could not show to what extent notice and notice (without any real threat of a sanction) deters online file sharing.

The MPs on the Committee were keenly aware that the ISPs had advocated for notice and notice and rejected any form of graduated response to provide further assistance in reducing online file sharing. So, the MPs on the Committee, lead by Mr. Marc Garneau and Mr Pablo Rodriguez, asked the ISPs to provide evidence that notice and notice without the possibility of sanctions is effective. Mr. Garneau squarely challenged Canada’s leading ISPs to provide data to support their positions:

Mr. Marc Garneau: The question that comes up – because I hear from a lot of groups – is whether notice and notice is effective. There are consumer groups and others that say, yes it is effective, it’s working, and we don’t need to ramp up to notice and takedown, or some other hybrid version of a more proactive approach, if you like. What’s missing for me as an engineer is the data. I believe you have that data because you have been providing notice on a voluntary basis to people who are stepping over the line. I’m really interested in it, because some people say that notice and notice is not discouraging those who know it has no teeth while other people are saying, yes as soon as you get a notice and notice in your home from your ISP provider, it sends a chill through you and you realize you’d better not do it again.

You have the data to tell us whether repeat offenders are in large numbers, or whether 95% of people who have received their first notice cease and desist. I would like to hear from each of you if you have that data. If not I’m going to ask you to present it to this committee, because we really do need that data. If you have it, it would be great to hear from each of you, perhaps starting in the way you spoke about whether it is actually effectively working, and I’d like to see some statistics to support that.

The ISPs, who had claimed to be engaging in notice and notice for almost 10 years, did not provide the Committee with any study, survey or independent evidence whatsoever to establish the effectiveness of notice and notice.

Mr. McTaggart who appeared for TELUS told the Committee that TELUS had no data whatsoever to establish the effectiveness of  notice and notice. TELUS, which according to Mr McTaggart has been forwarding notices to its subscribers for 9 years, had only “anecdotal” stories.

Mr. Craig McTaggart: For TELUS’ part my answer is a very short one. We don’t actually have that data. We only forward the notices. We don’t retain any further data about how many messages were sent to a certain customer in a certain period, because we have no business reason to retain that data. We only have the anecdotal stories, as you referred to, that often a household receives a notice, the parent reads it, doesn’t know anything about what it’s about, talks to a child, and gives the strong message not to do it anymore…

Mr. Marc Garneau: So if John Smith gets a notice from you today or in the past, we and you don’t know whether in fact you’ve sent John Smith 25 notices over the course of time because John Smith is clearly ignoring the notice and notice.

Mr. Craig McTaggart: At TELUS we don’t know that.

Ms. Suzanne Morin, who appeared for Bell, said that Bell was in the same position as TELUS. She said that Bell “thinks” it’s effective and has an educational impact … “But at the end of the day it still needs something and so we’re waiting for legislation to be passed so that users know specifically that downloading illegally is not to be tolerated in Canada.”

Ms. Pam Dinsmore appeared for Rogers. She presented some data on Rogers’ experience. Here is what she said:

Ms. Pam Dinsmore: I would like to tell you what happens at Rogers. We can actually track the number of notices that go to an individual household. What we can’t track is how many Sony notices went to a particular household. In terms of the actual processing and sending on of a notice, we do have, at a very high level, those numbers.

Let me put it in perspective for you. On a Rogers customer base, for argument’s sake, of 1.5 million Internet customers, about 5% of that customer base will receive a notice. As I said, in 2010 we processed 207,000 notices.

If I go down the pipe to the next level, of that group, of that 5% of our customer base getting a notice, which is in the area of about 70,000 customers, the next number of households to get a second notice will be somewhere in the area of—, I don’t know—, 20,000 notices. So about a third of those who got the first notice will actually get a second notice.

As I get to the third level, I’m down a third again. So as I go down the list, the number of notices drops in accordance with the times the notices are received.  In our view, the notice and notice routine is effective at discouraging those people who are alleged to have infringed — only alleged to have infringed — from infringing again. We think it does put the fear of God into them and it is effective in doing that.

That’s based on the information that we are able to track.

Anti-copyright advocate Michael Geist argues that these statistics “provides solid evidence that notice-and-notice is effective in countering repeat infringement”. He concludes that “the Rogers data suggests that 67% of recipients (which is already only five percent of subscribers) do not repeat infringe after receiving a notice and 89% cease allegedly infringing activity after a second notice. Within two notices, about 99% of Rogers subscribers are not receiving infringement notifications.”  But, the data does not establish this. What can we conclude from Rogers’ data?

First, the data does not tell us anything about what percentage of Rogers’ customers actually use its systems to illegally share files. According to Rogers, 5% of its customers got notices of claimed infringement in 2010. But, Rogers admitted it has no idea what percentage of its customers actually use its systems to infringe. This information was disclosed in response to questions from MP Pablo Rodriguez:

Mr. Pablo Rodriguez: Okay. Ms. Dinsmore, you said that roughly 5% of your clients get a notice. Does that mean that 95% of your clients comply with all the regulations?

Ms. Pam Dinsmore: They simply don’t get notices that are directed towards their households.

Mr. Pablo Rodriguez: Do you think that 5% is the actual number of people who download things illegally, or are there many who get away with it, without receiving anything?

Ms. Pam Dinsmore: I have no way of knowing that.

Second, Rogers’ data suggests there is an enormous file sharing problem occurring through the use of the ISPs’ networks. Rogers’ data suggests that at least 70,000 of its account holders were engaged in illegal downloading in 2010. The number could be far higher because Rogers says it has “no way of knowing” how many of its account holders are using its systems to infringe. Worse there appear to be at least 20,000 households who recommit infringing acts after being caught.

The existence of an enormous problem was confirmed by testimony from Ms. Suzanne Morin from Bell. She testified that in 2010 Bell received over a million notices of claimed infringement from copyright holders. Bell received so many that it was not able to process them all. To do so Bell “would have to fill a whole floor with individuals in order to process them all.”

Third, there are repeated copyright infringements by Rogers’ subscribers. Rogers’ testimony is that some of its account holders are getting 6 or more notices of claimed infringement. Rogers appears to be saying that it issued 70,000 first time notices (about 5% of Rogers 1.5 million customers which is 75,000 not 70,000 customers); 20,000 second notices (less than a third of 70,000, its 28.5%) and a reducing similar number of notices as Rogers continues to send notices to alleged repeat infringers. Based on the testimony, there are notices being sent at least 6 times to around 133 account holders. The table below extrapolates Rogers’ numbers to the 6th notice. 

Fourth, Rogers’ evidence doesn’t tells us the effectiveness of notice and notice. What the Parliamentary Committee wanted to know was to what extent individuals who received a notice stopped online file sharing after getting the notice. But, Rogers’ data doesn’t answer this critical question.

It is conceivable that receiving a notice deters 2 customers out of 3 to stop infringing. But the figures don’t prove this. We cannot assume that 100% of account holders who get a first notice and who keep infringing are detected by rights holders and sent a second notice. Surely a large number of infringers don’t get second or follow on notices simply because the probability of getting caught is not 100%. If the probability for an infringer to get caught and warned is less than 100% one would expect a declining number of notices to the same account holder.

So did the number of second and follow on notices decline because the notices had an effect on illegal activity or because the continued file sharing was not detected, for some other reason, or for some combination of reasons? The notices may have had some effect as it is logical to conclude that some people would be discouraged from further illegal file sharing when receiving a notice of claimed infringement. But, we cannot ascertain how much of an effect it had from the disclosed data. It seems fair to assume that if Rogers does not know how many of its customers that infringe for the first time are sent notices of claimed infringement, Rogers also does not know how many of its customers who received a first notice continue to infringe but are not caught and so are not sent a second or follow on notice. Accordingly, there is no basis in the data disclosed by Rogers to draw any conclusions about how effective the notice and notice routine is at discouraging those people who are alleged to have infringed from infringing again.

To determine the effectiveness of Rogers’ notices, one would need to follow the perpetrating households through time to determine the extend to which receipt of a notice has actually lead to a reduction in online file sharing. One would also want to go further and focus on the question of the relevant counterfactual[1].  One would want to compare the effect of a notice against the results under a different regime. Rogers’ data doesn’t answer  the real questions the Committee was concerned to learn about, namely: (a) has notice and notice been effective on changing behaviour compared to no notice at all, and (b) would notice and notice with a real potential sanction or threat of a real sanction generate a better effect than a notice and notice not backed-up by a realistic threat of a sanction  to deal with repeat infringers?

On counterfactual (a), if there was no notice and notice regime, one might have recorded the account holders’ behaviour and seen some decline in repeat infringements. In such event, the notices would not be the only circumstance impacting on the flow of notices.

On counterfactual (b) Rogers’ data does not reveal whether the threat of a real sanction being carried out would result in less recidivism. If the counterfactual is a regime with a real threat of a sanction being carried out– simple economics predicts people make cost/benefit decisions and that a real threat would change behavior, but that no real threat is unlikely to do so to the same degree. (Having a speed limit that is never enforced or which has no sanction even if enforced will not have as much effect on reducing speeding than one that has a sanction that is enforced.)

Rogers’ data also does not tell us which category of its account holders are causing the most damages. It may be the recidivisits who are ignoring the notices are causing a disproportionate amount of the harm.

In the end, after a decade of notice and notice, the three ISPs were unable to provide the Committee with any reliable data or studies to back up their claims that notice and notice is a good policy choice because it is an effective deterrent or at least as good a deterrent as other means. MP Pablo Rodriguez summarized his interpretation of the ISPs’ testimony at the Committee as follows:

Mr. Pablo Rodriguez: That’s the crux of the problem. You are telling us that notice and notice is enough, but, on the one hand, you have no data, and, on the other hand, you are not able to tell me whether the 5% is representative or not…

Yet you insist that notice and notice is enough. I am not an engineer, but I would like to have data to rely on, and we don’t.

Bill C-32 is behind us. We now need to start thinking about what policies will work best to stem online file sharing to help foster the legal market for digital products. In doing this we need to understand that the threat that rights holders will sue their customers in Canada is not and has not been a deterrent to illegal file sharing. Further, one cannot expect that simply sending notices to account holders when there is no realistic expectation of a penalty to be imposed by someone will be as effective a means to deter illegal online file sharing as one that has a substantial deterrent. Reducing statutory damages for either non-commercial or private purposes would also send a signal that there will be fewer sanctions for engaging in illegal file sharing. From an economic standpoint, the deterrence relies on the expectancy of the sanction.[2]

The Full Court of Australia in the iiNet case recently unanimously found that notices are likely to be effective in reducing infringements when coupled with potential action such as suspension or termination of accounts of customers that fail to heed such notices. The judges also expressed the unanimous opinion that taking steps to adopt and implement a graduated response system would be reasonable and likely effective to prevent repeat infringements by its subscribers.

Canadian ISPs have pushed for notice and notice to be in the previous copyright reform amendments, Bills C-60, C-61, and C-32. However, after a decade of notice and notice, the ISPs have not produced evidence of the effectiveness of notice and notice or its relative effectiveness against other options including some form of graduated response such as what countries like France, UK, and South Korea have implemented. It is now time to examine alternatives that would have the intended effects which presumably everyone wants to achieve.

*Note blog amended April 4, 2011.

[2] 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.

A main issue in the appeal was whether iiNet had an obligation to have and implement a policy to transmit notices of claimed infringement to its subscribers and to terminate the accounts of repeat infringers who used its systems and services to engage in file sharing. The trial judge had held that iiNet was not liable for infringement for refusing to do so. The appeal was rejected by a 2 to 1 majority, with Emmett and Nicholas JJ concurring in separate opinions that the appeal should be dismissed, and with Jagot J, who would have allowed the appeal.

All three judges were of the opinion that iiNet could have established and implemented a policy to forward notices of claimed copyright infringement to subscribers that could have included suspending and terminating the accounts of repeat infringers to avoid being liable for authorizing copyright infringement under Australia’s copyright laws. All three judges also held that iiNet’s obligation to act was premised on copyright holders providing cogent evidence of the alleged primary acts of infringement which took place using its services.

The main disagreement between the judges was whether iiNet had been provided with sufficient information to trigger the obligation to act. Jagot J. was of the opinion that iiNet was given everything required and in any event would not have acted irrespective of the information provided to it. Emmett and Nicholas JJ expressed the opinion that sufficient information had not been supplied. Nicholas J found that the fact that iiNet may not have acted irrespective of the information was “not to the point”.

Accordingly, while iiNet was exonerated on the facts, the opinions rendered in the case leaves it open for copyright holders in Australia to hold ISPs liable for authorizing infringement unless they take available steps to deal with infringements by their subscribers.

The decision is an important one for ISPs and rights holders in Australia. However, the decision also has global implications for policy makers that are concerned with finding practical and efficacious means of reducing the scourge of illegal online distribution of copyright content. I say this because in the course of giving reasons for decision, the judges of Australia’s appeal court canvassed the effectiveness of sending out notices of claimed infringement with warnings of potential account terminations and found they would be effective in reducing online file sharing. They also reviewed the reasonableness and practicality of requiring ISPs to implement a graduated response system including sending out these types of notices and adopting and implementing a process to terminate accounts of repeat infringers. They found such a process reasonable and workable.

As noted above, the main issue in the iiNet case was whether iiNet was liable for the authorizing infringement of its subscribers who used its systems and services to engage in illicit peer-to-peer file sharing. To make this determination the court canvassed a series of issues including whether its subscribers were liable for copyright infringement when they used the BitTorrent protocol to share movies and television programming and whether failing to implement a graduated response system rendered iiNet liable for authorizing infringement.

Liability of subscribers for copyright infringement

The first issue in the case was the extent of infringement by iiNet subscribers using BitTorrent to engage in file sharing of movies and TV programming. While iiNet had admitted that users had infringed copyright, it claimed that they only ever did so once and that there were no further infringements for iiNet to prevent. The trial judge had agreed. The trial judge had found that users of BitTorrent had infringed copyright, however the parties disagreed on the extent of infringements taking place and this was potentially relevant to the obligations that iiNet would be under to act on the infringements. The trial judge had also found that users of BitTorrent only ever infringed copyright once, the first time the file was shared with other users, irrespective of the duration the file was available to other BitTorrent users.

All of the appeal judges reversed the finding and found that the uploaders were liable for multiple infringements of copyright.

Australia has implemented the WIPO Internet Treaties. Accordingly, unlike Canada, its copyright laws include a right of making available a work to the public. All judges of the court accepted that when an individual uploads a file to make it available for sharing over a BitTorrent network, the person is liable for infringement under the making available right. The court also held that each time an individual connected to the internet, a separate act of making the work available to the public occurred.  All of the judges also agreed that the electronic transmissions made by subscribers as part of a BitTorrent swarm involved transmissions that were “to the public”. However, the judges disagreed as to whether the evidence before the court established that files or substantial parts of files were communicated to the public when transmitted by the BitTorrent protocol.

Authorization

The main issue in the case was whether iiNet was liable for the illegal file sharing of its customers under the theory of authorization. Section 101(1) of Australia’s copyright law establishes liability for authorization in Australia:

101 (1)  Subject to this Act, a copyright subsisting by virtue of this Part is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright.

The Australian Act was amended in 2000 by inserting into s. 101 a new subsection 1(A) to provide a practical enforcement regime for copyright owners and to promote access to copyright material online.  Universal Music Australia Pty Ltd. v. Sharman License Holdings Ltd., [2005] FCA 1242 (5 September 2005); Universal Music Pty Ltd. v. Cooper, [2005] FCA 972 (Aust. F.C.). The provision states that in deciding whether a person has authorized the doing in Australia of any act comprised in the copyright, the matters that must be taken into account by the Court include:

(a) the extent (if any) of the person’s power to prevent the doing of the act concerned;

(b) the nature of any relationship existing between the person and the person who did the act concerned;

(c) whether the person took any other reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.

In the course of analyzing the above factors, and in particular factors (a) and (b), the judges canvassed whether iiNet had the power to prevent illegal file sharing by its subscribers and could take reasonable steps to prevent or avoid these infringements by implementing a graduated response system. The judges of the court expressed the unanimous opinion that iiNet had such a power and that taking steps to adopt and implement a graduated response system would be reasonable and likely effective to prevent repeat infringements by its subscribers – even though two judges found that on more limited grounds it was not unreasonable for iiNet not to act in this case (based on the knowledge iiNet had before the case had been filed).

Effectiveness of a notice and notice regime coupled with a threat of account termination

iiNet had argued in the appeal that it should not be required to send its subscribers notices of claimed infringement with warnings of potential account terminations because such notices would not be effective in stemming online file sharing. Some Canadian ISPs have had a de facto notice and notice system in Canada for years. Despite this, there is no evidence that it changes people’s behavior to stop illicit file sharing and purchase creative products from legitimate services. However, as I and others have pointed out elsewhere, research by our trading partners shows that a notice with a threat of some sanction will operate as an effective deterrent. Opinions rendered by the iiNet court provides added support for the that fact that notices are likely to be effective in reducing infringements when coupled with potential action such as suspension or termination of accounts of customers that fail to heed such notices.

Emmett J. expressed this opinion as follows:

There was no finding by the primary judge that infringing acts engaged in by iiNet users were engaged in, in circumstances where the customer whose account was being used knew, or had reason to suspect, that infringement was involved. It may well be that an iiNet user would not know that, by downloading the Films by means of the BitTorrent System, there was infringement. It may be that an iiNet customer was unaware that the service provided to that customer was being used for infringement. A warning, coupled with reference to the entitlement of iiNet to terminate the service, may well be sufficient to persuade a customer to desist from engaging in such conduct or to take steps to ensure all users of that customer’s service desist. It is one thing to be aware of a prohibition on infringement of copyright. It is another thing to be aware that specific acts engaged in actually constitute infringement.

It may be possible that some, or indeed many, customers would disregard a warning given by iiNet. However, it does not follow, from that possibility, that all customers would disregard a warning or even that most customers would do so. Even if many customers may disregard a warning, compliance by others would prevent further infringement involving the accounts of those customers from taking place. Every time a user of the internet leaves a BitTorrent swarm, the supply of copyright material made available online within the swarm would be reduced and the opportunity for other internet users to infringe copyright would therefore also be reduced.

Giving clearly worded and accurate warning to a customer whose account was thought to be involved in acts of infringement is a reasonable step that could have been taken by iiNet, regardless of whether the warning would have been heeded by every customer. There is no basis for concluding that all, or even a substantial proportion, of iiNet’s customers would permit their accounts to continue to be used for acts of infringement if they were properly warned that the acts constituted infringement and their attention was drawn to their contractual obligations and iiNet’s contractual right to enforce those obligations by suspension or termination.

Nicholas J expressed a similar opinion:

The primary judge seems to have come to the conclusion that the giving of a warning could not be a reasonable step for the purposes of s 101(1A)(c) because the mere giving of a warning is not a power to prevent. I would accept that the ability to give a warning is not in itself a power to prevent for the purpose of s 101(1A)(a). However, s 101(1A)(c) is concerned with a different matter namely, what “reasonable steps” the alleged authoriser might have taken to prevent or avoid any of the relevant acts of copyright infringement.

I am satisfied that the primary judge erred in holding that the giving of a warning could not be a reasonable step that might be taken to prevent or avoid the relevant acts of copyright infringement. If the ability to give a warning is supported by a power to terminate or suspend a subscriber’s account then there can be no doubt that the giving of a warning is capable of amounting to a reasonable step for the purpose of s 101(1A)(c).

So did Jagot J:

It is also difficult to accept that most people when notified of copyright infringement by them or a person using their service would simply ignore the notice unless threatened with termination. Not all people would be aware of the risk of acting unlawfully in downloading films and television shows from the internet. Not all people would be aware that their downloading activities can be monitored both by third parties (such as copyright owners using software like the DtecNet agent) and internet service providers. When confronted by a mere notice or warning with evidence both of copyright infringement (either by them or another person they permitted to use their internet service) and the ease with which it can be detected by third parties, it is difficult to accept that there would be no deterrent effect whatsoever. To the contrary, it could readily be assumed that many people on receipt of a mere notice or warning would be deterred from future infringements irrespective of termination. The fact is that by receipt of a mere notice or warning people would realise that activities they might have thought innocent or at least undetectable were in fact unlawful and open to scrutiny.

The judges also commented on the reasonableness of an ISP with a contractual right to terminate an account doing no more than merely posting a policy on a website warning customers about this policy. They did not view taking these steps as being sufficient to constitute a reasonable response to the infringements. Emmett J, for example, stated the following:

The language of s 101(1A)(c) requires an enquiry as to any steps that were taken by iiNet and whether there were reasonable steps that were not taken. The Infringement Notices specifically invited iiNet to cancel, suspend or restrict the accounts of the customers identified in the spreadsheets enclosed with them. Merely having a contractual provision relating to copyright infringement and drawing attention to the contractual provision on its website is hardly an effective step to prevent infringement, in circumstances where iiNet does not enforce the contractual provision.

Reasonableness  of account termination

The judges of the Full Court also canvassed in detail the reasonableness and practicality of iiNet adopting and implementing a policy to terminate the accounts of repeat infringers. The primary judge had held that implementing such a system would not be reasonable, apparently under any circumstances. Critics of effective enforcement of copyright like Prof. Geist have relied on this holding to argue against requiring ISPs to ever take steps to suspend or terminate accounts of repeat infringers. However, the Full Court expressly disagreed with the primary judge on this issue and delivered a strong endorsement of such steps in order to prevent continuation of copyright infringement.

Emmett J. pointed out that iiNet terminated user accounts for other reasons. He also pointed out that terminating a user’s account where the user uses the account in violation of contractual terms of service to infringe copyright is reasonable and was exactly the step contemplated by the safe harbour provisions of the copyright law.

Even where a service provider such as iiNet has the benefit of the Safe Harbour Provisions, the Court is specifically empowered, under s 116AG(3)(b), to order termination of a specified account. It can hardly be concluded, therefore, that termination was, per se, unreasonable. Rather, the Copyright Act itself contemplates such a step. Accordingly, it must be regarded as a reasonable step, at least in some circumstances, including circumstances involving repeat infringements, to terminate or suspend an account of a customer.

Thus, iiNet had the capacity to control the use of its services by its customers and to take steps to prevent acts of infringement by the use of services provided to them. In some circumstances, iiNet did in fact exercise control over the provision of its services. The presence of such provisions amounted to a degree of power to prevent further acts of infringement that was significant, for the purposes of s 101(1A)(a). That power arose from the relationship between iiNet and its customers under the customer relationship agreements, the nature of which is significant for the purposes of s 101(1A)(b).

There is no reason to conclude that sending warnings would be unreasonable, given that iiNet’s business routinely involved sending warnings to users in a variety of circumstances, such as when fees were overdue. There is no reason to view a temporary suspension as unreasonable, particularly when iiNet had the right to terminate the service altogether. The period of a temporary suspension would be a matter for consideration in any given case. A very long suspension for a very minor infringement may be unreasonable. However, that is not a reason for concluding that no suspension could ever be reasonable…

iiNet says, nevertheless, that termination of an account was not a reasonable exercise of a power to prevent because it would involve disconnection of the customer from the internet. Disconnection would not, in itself, prevent infringement because of the possibility of the customer obtaining access to the internet through another carriage service provider. On the other hand, disconnection would do much more, in that the whole relationship between iiNet and its customer would be ended, thereby foreclosing all internet activity by that customer by means of iiNet’s service.

However, it is difficult to see why that consequence is unreasonable, if the customer, having been warned that the service being provided to the customer by iiNet was being used to engage in infringing acts, that to do so was a breach of contract and that continuing to do so may result in termination, nevertheless chooses to continue to permit the iiNet service to be used to engage in infringing acts. It may be unreasonable to terminate an account without warning. However, that is not the question.

Jagot J reached the same conclusion rejecting the contention that adopting and implementing a graduated response system was unreasonable.

Despite this, iiNet adopted and maintained thereafter a clearly stated position that the AFACT notices did not identify any actual infringing user and, in any event, that iiNet had no obligation to do anything in response. This first aspect of iiNet’s position was adopted despite iiNet knowing not only that it could match IP addresses to customer accounts but also that its policies for dealing with other forms of unlawful or abusive activity assumed that it would do so and thereby hold customers responsible for all use on their accounts…

Another reason I take a different view is that iiNet’s position on the use of its service in a manner infringing copyright was not only inconsistent with its approach to other management issues (such as customers not paying bills or exceeding their quota), but also inconsistent with its approach to other types of internet abuse (such as spamming). The unavoidable inference is that when its own interests were at stake, iiNet exhibited no hesitation in: – (i) using IP addresses to identify the relevant customer accounts, (ii) treating the customer as responsible for all use of the iiNet service on the customer’s account, and (iii) promulgating a regime of warnings, suspension and termination (albeit discretionary) of the customer’s account. However, when its own interests were either not at stake or, at worst, might have been adversely affected by taking action, iiNet adopted a contrary position…

…it is feasible for an internet service provider to respond to the receipt of credible evidence of copyright infringements by users of its service…there is no particular difficulty with an internet service provider holding a customer responsible for the use of that customer’s service (consistent, in this case, with iiNet’s CRA and other policies about internet use)…

An internet service provider is confronted by precisely the same problems when dealing with spamming and other forms of internet abuse. iiNet has been able to formulate (and presumably implement) its policy for dealing with network abuse…

I do not see the expense and complexity of implementing a policy or scheme of warnings and suspension or termination as insuperable difficulties rendering the taking of such steps as unreasonable. The trial judge considered that the complexity and expense of such a scheme “manifestly militates against the conclusion that such scheme is a relevant power to prevent” (at [435]). For the reasons given, I consider that this conclusion does not accord with either the factual reality (that iiNet was capable of implementing equivalent schemes to deal with other issues such as network abuse and spamming) or the legislative scheme (which, by the safe harbour provisions, contemplates schemes of this very kind at least for repeat offenders).

Nicholas J. reached a similar conclusion.

Nor do I think that the difficulties involved in establishing a system for giving warnings and, if necessary, termination or suspension of accounts, were likely to be as great as Mr Malone’s evidence might suggest. It is true that the respondent, if it was to take the step of issuing warnings in particular cases, would need to decide when it would be appropriate to do so. To that end, the respondent would need to decide, among other things, whether the available material was sufficient to satisfy itself that it was appropriate for a warning to be issued or for an account to be terminated. It is also true that the respondent would need to decide how many warnings should be given (unless it decided that no warnings need be given) before terminating or suspending service to a particular subscriber. These and like questions involve matters of judgment and degree. As I have already acknowledged, the decision as to whether or not to terminate a particular account may not be a simple one. But I do not accept that the adoption of some system providing for the issuing of warnings followed by termination or suspension is not a reasonable step which the respondent could have taken for the purpose of preventing or avoiding copyright infringement by users of its network.

Nicholas J, also expressed the opinion that in the absence of a industry code of conduct that iiNet had considerable flexibility as to how to design an effective and fair graduated response process.

Nevertheless, in the absence of applicable regulations or access codes which might guide an ISP’s decision making in relation to such questions, it seems to me that an ISP should be given considerable latitude when working out the detail of such a system. It is always possible to argue that a system for the issue of warnings and termination could be tougher than it is. But it would be difficult to criticise an ISP on that account if it acted in good faith to devise and implement a system that involved taking such steps against subscribers who the ISP was satisfied had used (or permitted others to use) its facilities for the purpose of committing flagrant acts of copyright infringement.

The knowledge of infringement requirement

All of the judges accepted that the reasonableness of iiNet being required to take steps to forward notices of claimed infringement and to terminate accounts depended on its having reliable evidence that an account was being used to infringe copyright. On the facts of the case, two out of the three judges expressed the opinion that the information given to iiNet was not adequate to meet the required standard. In the final analysis that was the chief (possibly sole) reason why the appeal was dismissed.

Nicholas J. stated that to trigger a graduated response by an ISP, a notice of claimed infringement sent to the ISP must contain an explanation of how the information about the subscriber infringement was collected. He also suggested that a notice addressed to an ISP should contain a statement verifying the accuracy of the data or the reliability of the methods used to collect it. Emmett J, stated that what is required is

unequivocal and cogent evidence of the alleged primary acts of infringement by use of the iiNet service in question. Mere assertion by an entity such as AFACT, with whatever particulars of the assertion that may be provided, would not, of itself, constitute unequivocal and cogent evidence of the doing of acts of infringement. Information as to the way in which the material supporting the allegations was derived, that was adequate to enable iiNet to verify the accuracy of the allegations, may suffice. Verification on oath as to the precise steps that were adopted in order to obtain or discern the relevant information may suffice but may not be necessary.

Emmett J, would also have imposed two additional requirements on copyright owners before requiring them to voluntarily adopt and implement a graduate response process. First, that the copyright owners had undertaken “to reimburse iiNet for the reasonable cost of verifying the particulars of the primary acts of infringement alleged and of establishing and maintaining a regime to monitor the use of the iiNet service to determine whether further acts of infringements occur. Second, that the copyright owners had also undertaken to “indemnify iiNet in respect of any liability reasonably incurred by iiNet as a consequence of mistakenly suspending or terminating a service on the basis of allegations made by the Copyright Owner.” Emmett J, was the only judge to have added these two requirements.

The issue of whether iiNet had sufficient knowledge of the infringements to act was a hotly disputed issue. However while the trial judge had held that even though iiNet did not have a complete understanding it had decided from the second notice that it would never act on the notices irrespective of the information supplied to it.  Despite the fact that this finding was unchallenged, the majority judges (Emmett J and Nicholas J) did not consider the decision of the ISP not to act was determinative.  In a strong dissent, Jagot J reached the opposite conclusion.

Some reflections on the iiNet case

Online file sharing is a major problem in Canada. Recent research in Canada and elsewhere demonstrates the adverse impacts and economic losses that result from illicit online file sharing in the film and music industries.

The findings of the Full Court in the iiNet case show that graduated response processes can be effective, reasonable, and fair mechanisms to reduce illegal file sharing. In fact, although not referred to in the decision, last year the Irish High Court in EMI Records & Ors -v- Eircom Ltd, [2010] IEHC 108 reach a similar conclusion. The Irish court held that a graduated response solution to illegal file sharing involving “detection, notification and termination” “is viable and proportionate”. Other academic research supports this view as well. See, Prof.Bomsel Decreasing Copyright Enforcement Costs: The Scope of a Graduated Response, Prof.Strowel, Internet Piracy as a Wake-up Call for Copyright Law Makers—Is the ‘‘Graduated Response’’ a Good Reply?, See also, Barry Sookman and Dan Glover Graduated response and copyright: an idea that is right for the times.

The iiNet decision provides useful guidance on how Bill C-32 could be amended to better achieve the stated objectives of the Government and the opposition parties. Bill C-32 already contains a notice and notice regime which requires online service providers to forward notices of claimed infringement to end users. The current proposed notice and notice process lacks efficacy, however, because the notices do not carry any threat of sanction for repeat infringers. The iiNet decision suggests that an additional requirement to mandate online service providers to adopt and implement a policy to terminate the accounts of repeat infringers would be an efficacious and reasonable way to reduce online file sharing in Canada.

* Links updated Mar. 13, 2011

Here are some of the important findings made by Justice Charleton, the same judge who presided over the EMI Records & Ors -v- Eircom Ltd, [2010] IEHC 108 case :

• The business of the recording industry is “being devastated by internet piracy”. Internet piracy undermines their business but also “ruins the ability of a generation of creative people in Ireland, and elsewhere, to establish a viable living. It is destructive of an important native industry.”
• The “scourge of internet piracy” strongly affects Irish musicians. Internet piracy is an economic and a moral problem.
• Surveys show a loss of between 20% to 30% as a proportion of decline in sales to what is illegally downloaded. The ratio of unauthorized downloaders per broadband internet line is 1:0.42.
• ISPs “have an economic and moral obligation to address the problem”. In the case UPC it did not do so, fully knowing it facilitated infringing conduct, to increase its levels of profits. UPC’s attitude towards illegal file sharing by its subscribers was neither reasonable nor fair. UPC had “no interest in doing anything other than making deceptive noises by reference to its acceptable usage policy”. UPC intended to do nothing about copyright piracy.
• Norwich orders are available to identify persons sharing files illegally, as was recognized by the Canadian Federal Court of Appeal in the BMG case. However, this process “is burdensome and, ultimately, futile as a potential solution to the problem of internet piracy”.
• A graduated response solution involving “detection, notification and termination” “is viable and proportionate”. According to Justice Charleton “The evidence analysed in the course of this judgment also establishes that detection, warning, and discontinuance are, each of them, proportionate to the vast scale of the problem established in evidence”.
• A graduated response solution comprising detection and three warning notices with the threat of account termination “will succeed in strongly alleviating the problem of internet piracy”. “There is a strong probability that a graduated response would yield a majority level of desistence from the practice of illegal downloading on a first warning”.
• Privacy considerations  would be no bar to granting the form of relief requested.
• The evidence convinced the trial judge that “there is no just or convenient solution open to the record companies other than seeking injunctive relief against the” ISP, in this case UPC.
• The record labels had also asked the court to grant an injunction requiring UPC to block access to the Pirate Bay. The court was willing to do so, but could not because Irish law did not authorize such relief, although it was available in other European jurisdictions.

A lot has been written about graduated response solutions to the problems of illegal file sharing over the internet. See, Prof.Bomsel Decreasing Copyright Enforcement Costs: The Scope of a Graduated Response,Prof. Bridy, Graduated Response and the Turn to Private Ordering in Online Copyright Enforcement, Prof.Strowel, Internet Piracy as a Wake-up Call for Copyright Law Makers—Is the ‘‘Graduated Response’’ a Good Reply?, Barry Sookman and Dan Glover Graduated response and copyright: an idea that is right for the times. The EMI v UPC case adds further reflections on the issue. This case is a must read for anyone concerned about internet piracy and the legislative solutions needed to help curb it.

The judgment in full is set out below.

EMI v. UPC

Reasonable people should be able to discuss civilly what should be done about the problem of digital piracy in Canada. Attacks against CRIA and Minister Moore by Prof. Geist this week suggest, however, that the debates over copyright reform this spring are not going to turn out that way.

The IFPI report and the Heritge Committee

According to the IFPI, digital piracy remained one of the biggest obstacles for the recording industry in its efforts to grow the online music business. The availability of free unauthorised music undermined the incentive to buy legal products. Nearly one in four people who download music illegally never buy music. This has lead to significant losses in revenues and jobs.

According to the IFPI, weak IP protection in Canada has limited the development of new business models here. It claims that Canada has seen one of the biggest declines in music sales among the major music markets, with sales more than halving since 1998. This decrease is higher than that of any other top 10 market during this period, except for Spain. The major reason given for the decline is the inability of the digital sector to offset the drop in the CD business with digital sales. According to the report:

“Canada has one of the most advanced broadband markets and one of the highest per capita GDP rates in the world. Traditionally, the value of Canada’s physical market has been the equivalent of around 10% of the US physical market. Yet, its digital music market is only around 4% of the size of the US digital market and less than a third of the UK’s digital market size. This unfulfilled potential in the digital sector is a direct result of the lack of new entrants in the market, an extremely high online piracy rate and the lack of modern and robust IP protection for the digital space.”

The IFPI claims that Canada’s digital piracy rate is estimated at 96%, one of the highest levels of online piracy in the world. This translated into much lower per digital capita revenue than in other countries. It also claimed that Canada is a major source of the world’s digital piracy problem, with a disproportionate number of illegal sites being in Canada. The IFPI attributes this, in large part to, the fact that Canada has weak and ineffective laws to protect creative products including our failure to enact legislation to enable Canada to ratify the WIPO Treaties.

The IFPI also linked Canada’s weak IP frameworks to the failure of digital retailers to launch innovative services desired by consumers in Canada such as AmazaonMP3, MySpace Music, Nokia Come with Music, Spotify and Deezer.

The IFPI report echoed many of the submissions made to the Heritage Committee last week by Darlene Gilliland director of business development for Universal Music Canada, Charlie Millar the director of digital business development for Warner Music, Loreena McKennitt a world famous artist and an owner of a Canadian independent label, and Graham Henderson the president of CRIA.

Darlene Gilliland told the committee about the problems that digital piracy were causing to the Canadian music business:

“Despite our efforts, despite managing to grow our digital business slightly every year, our digital marketplace in Canada is on track to cap out well below our market potential, and well below the level that other developed markets will reach…

We attribute it, in large part, to the lack of a robust copyright regime and protection for creators’ works in our country, especially when we stack Canada up beside our international peers. Our peers have had these protections for a long time.

When technology companies see the piracy that flourishes here in Canada, and the uncertainty in our laws, they are apt to invest elsewhere-and they do. The result is that Canadian creators and consumers miss out on innovative music services that are launching elsewhere in the UK, in France, in Sweden, and in the United States. We miss out on the jobs, revenue, taxes, and consumer choice that come with them.”

She also pointed out that her label invests in music and in Canadian talent and culture. But our laws create a climate in which the product of our investment competes with “free”. She stressed that the industry can’t compete without the government assistance in “making sure creators’ work product receives the same level of protection through copyright as a technology company receives through the patent on its touch screen on their phone.” That is because “All intellectual property industries depend on mechanisms put in place by government to foster innovation, encourage investment, and protect creators. We are no different.”

Charlie Millar advocated for creating a legal environment to deter piracy and to facilitate doing business digitally. He said:

“In summary, how can government help? From a sales perspective, from a digital business development perspective, assistance with deterring pirate lean forward behaviour. Two, implementing ubiquitous government deterrent measures so that Canada and all its provinces can become an environment for digital entrepreneurship and service. Specifically, creating a location for foreign direct investment and/or domestic next generation technology. And I hope we can do it so it’s export ready.

From a free market perspective, industry is willing and able to sell Canada to the world, but it is essential for government to set up appropriate ground rules for the digital business, the digital music business, to be successful.” He also told the Committee that “Because of the lack of copyright reform in this country we’re watching foreign direct investment diminish. We’re watching technology at the next generation level go elsewhere.”

Loreena McKennitt discussed the difficulties with making investments in Canada given our weak copyright laws and described the impacts of piracy on the cultural industries and the wider economy. Talking about her own personal experience she stated:

“In my company, we confront the new realities every day, and we have been hard at work trying to offer new products in new ways and fully leverage the new technologies, but I am here to tell you that making predictions and investments is impossible without some stability in the fundamental recognition and protection of intellectual property.

And it is not just my own revenue stream that is affected, but the jobs of many talented people I have employed over the years. I would like to just give you a sample. They include many recording studios that no longer exist, engineers who specialize in recording classical or acoustic instruments, technicians, their suppliers and administrative staff, graphic artists, photographers, makeup artists, mastering companies, CD manufacturers such as Americ Disc in Quebec, retailers large and small, many now defunct such as Sam the Record Man, or printers such as the Stratford Beacon Herald, publicists, travel agents, airlines, musical equipment suppliers, insurance companies, and local media advertising outlets, caterers, and on it goes….

It may be fashionable in some corners to say the arts don’t really provide much employment or revenue to society, but when I look at my small company which once had 15 employees and now has 5, and then extrapolate that to the whole industry, the scope of this calamity which presently exists cannot be underestimated.”

She also warned against buying into the “free culture” mentality being advocated by those sitting in ivory towers and creating public confusion about what really is at stake:

“It is essential that Canada not be considered a pirate nation when it comes to both regulating and realizing the full advantage of all the advantages of new media…

Nor must we allow clever manipulation of language and media to create confusion in the minds of the public as to what the real issues are, especially by those who have hidden vested interests, or who operate in theory and not in the reality of actual business.

The watchdogs must be able to see through the smokescreen created by those who operate, not by permission, not even by forgiveness, but from a strategy of taking what they can get away with before someone gives notice and takes them down.”

Graham Henderson also criticized the view espoused by opponents of effective copyright reform that we don’t need new or effective measures to help our digital businesses. He called for the Government to support “the sort of rule based environment that practically everybody else in the world has.”

Attacks against CRIA and Minister Moore by Prof. Geist

In response to Mr. Henderson’s appearance before the Heritage Committee, Prof. Geist posted a blog in which he accused CRIA of refusing “to actually specify what reforms it supports” and that it said “virtually nothing specific about what it actually seeks”at the Committee.

This is an unfounded claim since Mr Henderson actually did discuss what reforms CRIA believed are needed at the Committee. He talked about notice and notice, graduated response, notice and takedown, implementation of the WIPO Treaties, and the pros and cons of further copyright levies. For example:

Expanded Copyright Levies: Mr Henderson stated that his members were not against an expanded levy, but did not want to see it expanded in a way that would undermine “a thriving, legitimate digital music market in Canada in which everybody can be fairly compensated.” He stated that “We do not support levies that have the effect of laundering illegally acquired music into legal copies which would have the effect of destroying our marketplace.”

WIPO Treaties: Mr Henderson advocated that Canada should implement the WIPO Treaties. He said, referring to the World Intellectual Property Organization Treaties, “One solution–the best solution… is to implement a set of laws or rules which will provide an environment that will encourage creation and investment.That is what the intellectual property organization treaties were designed to do,and when you see them implemented then you very clearly see a migration from illegal back to legal”. (emphasis added) He reiterated the need to implement the WIPO Treaties again when discussing graduated response. (See below)

Notice and Notice: Mr. Henderson stated that notice and notice is useful as an educational tool, but is not effective by itself to stem online piracy. He said: “So do I like notice and notice regimes? I think they could be a fantastic educational tool. Are they the solution? Do they work? Practice has shown that they simply don’t work.” What is needed is a system of giving notices that have consequences for not stopping illegal behaviour: “Notice and notice can be a fabulous educational tool, but without consequences it can pose a long-term problem”.

Graduated Response: Mr Henderson stated that we are “at a stage in our copyright evolution that contemplating something like a graduated response” is necessary. He specifically referred to the developments in other countries like France, South Korea, and England which “are taking very aggressive stances to protect their creators.” He then stated that the first step is to complete the agenda started with Bills C-60 and C-61. “We’re nowhere near taking the steps that France has to protect its creative class and, in fact, its business community. But I would argue that to simply, as a very baseline, implement the intellectual properties treaties as contemplated by, for example, C-61, or before that Bill C-60 is the first step on that road.”

Notice and Takedown: Mr Henderson also endorsed notice and takedown as an important tool for dealing with infringing content hosted by service providers. He said: “As for notice and take-down…everybody else in the world seems to have it and they don’t seem to have a problem with it.”

Based on his claim that CRIA was not forthcoming before the Committee, Prof. Geist then accused CRIA of relying “on the sort of backdoor, lobbyist-inspired meetings that are the talk of Ottawa due to the Rahim Jaffer situation.” Comments on this statement on his blog expressed amazement at the offensiveness of the allegation. One commentator said “Wow, a mudslide.” Another said “I think the Rahim Jaffer/backroom deal reference in Mr. Geist’s piece is sleazy.” Chris Castle also did a specific blog post on the statement ,Geist goes after Canadian labels group for “access”.

This week Prof. Geist also launched a broadside against Minister Moore suggesting he might be called the The iPadLock Minister. This attack was supported by nothing more than his claim that “according to the scuttlebutt throughout the copyright community, Moore may be less iPod and more iPadlock”. No particulars were given as to what lead Prof. Geist to come to this conclusion or the source of the scuttlebutt.

The attack on Minister Moore also is also unfounded. Minister Moore along with Minister Clement worked tirelessly throughout the copyright reform consultations last summer to understand the issues and listen to Canadians. They attended rountables and townhalls. They were genuinly engaged. After such devotion to the process does Minister Moore deserve to be attacked based on mere “scuttlebutt”?

If the attacks on CRIA and Minister Moore this week are any indication, it sure looks like the dialog about copyright this spring is going to be unpleasant.

The abstract of the article states the following:

“Legal context: The prohibitively high cost of civil litigation is inefficient against millions of online infringers; it is virtually impossible to stop online infringement. The establishment and maintenance of a social norm which makes people willing to conform to pro-copyright norms independent of any consideration of legal incentives is indispensable in the fight against online infringers. It requires a credible enforcement mechanism to tell people that online infringement will not be socially acceptable and to increase copyright compliance; but the efficiency of such an enforcement mechanism is a function of transaction costs of copyright enforcement. The debate on the three strikes law should be viewed from its potential impact on our social and economic well being. I suggest that the infringing subscribers, not copyright owners or OSPs, should bear the cost of enforcement. Reducing transaction costs of enforcement is the key factor in designing any three strikes law if there is any reasonable chance that it will work.

Key points: To find a least cost solution to online infringement requires a good understanding of the relationship between the principles of externality and of ‘least cost avoider’. The concept borrows from Tort Law.

Practical significance: The reduction of transaction costs of copyright enforcement in the networked environment increases the credibility of the copyright system, if any design of copyright rule such as three strikes law takes the transaction costs of enforcing copyright in the networked environment and the principle of least cost avoider into consideration, it will change the way we formulate copyright policy.”

The article is one of several recent ones to argue that graduated response systems can be justified on economic as well as other grounds. Other articles include: Prof. Bomsel Decreasing Copyright Enforcement Costs: The Scope of a Graduated Response, Prof. Bridy, Graduated Response and the Turn to Private Ordering in Online Copyright Enforcement, Prof. Strowel, Internet Piracy as a Wake-up Call for Copyright Law Makers—Is the ‘‘Graduated Response’’ a Good Reply?, Barry Sookman and Dan Glover Graduated response and copyright: an idea that is right for the times.