“Counterfeit and pirated goods are an increasingly global problem that requires a globally coordinated solution,” said Minister Fast. “We all have an interest in combatting counterfeiting and piracy because these activities cost billions of dollars each year in revenue and trade losses, which translates into higher prices, lost income and lost jobs for people employed in a range of industries—from film and pharmaceuticals to electronics. Counterfeit goods also pose a real threat to the health and safety of people because the producers of goods such as drugs and auto parts evade the rigorous rules, standards and guidelines that are in place to protect consumers.”

ACTA will establish new international standards for enforcing intellectual property rights. It will cover three areas: improving international cooperation, establishing best practices for enforcement and providing a more effective legal framework to address the problem of counterfeiting and piracy. It will also give innovators, artists and entrepreneurs enhanced measures to ensure their creations and associated rights are protected. Alongside Canada, Australia, Japan, Morocco, New Zealand, the Republic of Korea, Singapore and the United States also signed the agreement, which was negotiated by 38 parties in total.

Following the signature of ACTA, the Government of Canada will develop and introduce the necessary legislation to implement the agreement. The government has already taken steps to enforce and defend intellectual property rights and help balance the needs of creators and users by reintroducing its Copyright Modernization Act (Bill C-11) in Parliament on September 29. The bill informed and guided Canada’s approach to the ACTA negotiations.

“The signing of this historic international agreement and our government’s reintroduction of copyright legislation demonstrates Canada’s commitment to combatting counterfeit and pirated goods, and protecting innovation- and knowledge-based prosperity, which are key to Canada’s future economic success,” said Minister Fast.

A backgrounder on ACTA can be found here. A summary of the agreement which I prepared when the text of ACTA was agreed to can be found here.

Signing ACTA is a step towards meeting the significant counterfeiting problems identified by the RCMP in A National Intellectual Property Crime Threat Assessment, 2005 to 2008. The porous nature of our borders and the need to upgrade our border controls to world standards to reduce counterfeiting and piracy in Canada has been noted by two parliamentary committees, three Canadian trade associations, and our major trading partners. Parliamentary Standing Committee on Public Safety and National Security, Parliamentary Standing Committee on Industry, Science and Technology, Ontario Chamber of commerce, Canadian Chamber of Commerce, U.S. Trade Representative,  U.S. Congressional Anti-Piracy Caucus, European Union, and Canadian Anti-Counterfeiting Network (CACN).

The report recognized that “The key technology for IP infringement is the internet. Its increasing importance as a medium for infringing copyright and selling fakes raises concerns across all parties. The web is a global marketplace for those wishing to engage in IP crime, just as it is for legitimate traders, and it is often hard for consumers to tell the two apart. It has triggered notable changes in how goods are transported and sold to consumers and presents new challenges for enforcement officers as traders can sell to UK based consumers from across the globe.”

The UK Government expressed its commitment to tackling both piracy (criminal infringement of copyright) and counterfeiting (willful infringement of trade marks). The objectives are to: reinforce the attractiveness of the UK as a place to do business by protecting legitimate marketplaces and providing a strong platform for business growth; make the UK unattractive to criminals seeking to engage in IP crime; and protect consumers from the considerable harms posed by dangerous and untested fakes and by wider criminality. To do this the UK aims to prevent and deter criminality; disrupt trade in fake and pirated goods, online and offline, at various stages of the supply chain; and reduce incentives for IP crime, for example by confiscating criminals’ assets.

One of the significant focuses of the report was on the use of technology to make counterfeits harder to make and easier to detect. The report suggested that technological protection systems could be used to make it harder to copy products and easier to spot fakes.

There may be scope for greater progress. Technology is constantly evolving – with new and more cost effective track and trace technologies, the capacity to check the legitimacy of alcohol using a mobile SIM card or to offer an online service which lets consumers check the legitimacy of retailers. Opportunities may emerge to improve the systems used by rights holders, retailers and to involve consumers more in their use.

Another significant focus involved obtaining improved cooperation from intermediaries such as domain name registries and providers of online services such as marketplaces/ trading platforms, advertising and card payment facilities. Their potential role was described as follows:

Other businesses such as market operators, shipping and courier companies and those who support the infrastructure of the world wide web (like Nominet) and deliver e-services like auction sites and online storage facilities are relevant to IP crime issues. We must make new efforts to bring these parties into effective dialogue…

Improved coordination, including bringing new partners such as Nominet and payment services firms into dialogue on tackling IP crime and better collaborative working on investigations and intelligence flows, both in the UK and internationally. This includes building awareness among partners about which other bodies are involved in tackling IP crime and what is being done…

Providers of online services such as marketplaces/ trading platforms, advertising and card payment facilities have a role in tackling IP crime by reducing the ability of criminals to profit from their crimes…

The report noted that the UK Metropolitan Police’s e-crime Unit are already working with “Nominet and others to remove infringing sites at the domain name level, while the City of London Police have been engaged with rights holders and card payment companies to disrupt sites run by criminals.”

The UK Intellectual Property Office (IPO) is planning to develop an action plan for tackling counterfeiting and criminal piracy online to identify the key threats and bring new industry and enforcement partners into mainstream dialogue with government partners. “This will include work on websites that are predominantly used for digital piracy, sales via auction sites and pop up websites of pirate and counterfeit goods, and the challenges posed by the increased use of small parcels bought online from overseas to import infringing goods.”

The UK’s approaches to combating IP crime are worthy of study here in Canada. According to a recent report published by the RCMP IP crime is a serious problem in Canada. According to the report, the total retail value of seizures reported by the RCMP alone, from 2005 to 2008, was estimated at more than $63.6 million, highlighting that IP crime is a profitable line of business.

Canada has some civil causes of action that can be used against counterfeiters as the recent case Louis Vuitton Malletier S.A. v. Singga Enterprises (Canada) Inc., 2011 FC 776 demonstrates. But, the cases under existing laws are expensive to bring, take a long time to get to court and the awarded damages are frequently uncollectable.

Canadian copyright and trade-mark laws have been criticized by domestic stakeholders and majors trading partners for failing to address IP crime. Among the major criticisms is our failure to upgrade our border controls to world standards. This has been noted by a Parliamentary Standing Committee on Public Safety and National Security, a Parliamentary Standing Committee on Industry, Science and Technology, the Ontario Chamber of Commerce, the Canadian Chamber of Commerce, the U.S. Trade Representative, the U.S. Congressional Anti-Piracy Caucus, the European Union, and the Canadian Anti-Counterfeiting Network (CACN).

In the introduction to the video she says: ”Online piracy isn’t about altruism, it’s about income. Today’s technology allows web pirates to steal content and monetize that content with a click of a mouse. Meanwhile, “legit” companies encourage and facilitate this theft while also profiting from it (ad service providers, advertisers and payment processors). The time has come for reasonable measures to be taken to discourage this theft. Content creators and consumers will benefit. Only the pirates and those who profit from their theft will lose.”

Here is the video:

Who Profits from Piracy? from fastgirlfilms on Vimeo.

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

The report follows on the heels of last week’s submission by the International Intellectual Property Alliance (IIPA) to the USTR recommending that Canada be maintained on the Special 301 Priority Watch List in 2011. The IIPA submission extensively analyzed the piracy and counterfeiting problems in Canada. The rational for its recommendation was summarized as follows:

While we are encouraged by a few examples of improved enforcement responsiveness against physical piracy, overall the piracy picture in Canada is at least as bleak as it was a year ago, and it is cementing its reputation as a haven where technologically sophisticated international piracy organizations can operate with virtual impunity. To underscore U.S. insistence that Canada finally take concrete action to address the serious piracy problem it has allowed to develop just across our border, and that it bring its outmoded laws up to contemporary international standards, IIPA recommends that Canada be maintained on the Priority Watch List in 2011.

Recent Canadian research highlights the adverse impacts and economic losses to the Canadian economy resulting from illicit online file sharing. A study released two weeks ago by Ipsos / Oxford Economics estimated that more than $1.8 billion and 12,600 full-time equivalent jobs were lost across the entire Canadian economy in 2009-10 as a result of movie piracy alone.

A study released earlier today by the Canadian Intellectual Property Council, an arm of the Canadian Chamber of Commerce, concluded that peer-to-peer file sharing of music has a strong negative effect on legitimate music purchases in Canada. The study, entitled The True Price of Peer to Peer File-Sharing, analyzed data which had been previously collected for an Industry Canada study. The analysis found that P2P downloads have strong negative effects on legitimate music purchases. The study found that 75% of P2P downloaders responded that if P2P files were not available they would have purchased music through CDs and pay sites (49%), through paid sites only (9%) or through CDs only (17%). Only 25% of people said they would not have bought the music they downloaded for free if it were not available on P2P networks for free. According to the study, “P2P network availability is reducing the music demand of 75% of music downloaders and that “for some categories of respondents the percentages were as high as 85%.”

The results indicated that removing P2P file-sharing, “for example through stronger copyright laws, would increase music purchasing, music industry sales, artist revenues and, by implication, increase industry employment , economic growth and government tax revenues.” Conversely, according to the finding the “results show that allowing P2P file-sharing through weak copyright law reduces music purchases, music industry sales, artist revenues, industry employment, GDP and government tax revenues.”

An example of this are several widely disseminated blogs written by Prof. Geist purporting to compare “how badly” C-32 stacks up against US law on two key issues in the Bill, digital locks and fair dealing. On these issues he argues that “Canada is far more restrictive than the U.S.” However, in making his arguments, Prof. Geist makes numerous errors in comparing Bill C-32 and US law.

Here are some illustrations from his recent blogs, The U.S. DMCA vs. Bill C-32: Comparing the Digital Lock Exceptions, U.S. Developments Demonstrate Canada’s C-32 Digital Lock Rules More Restrictive Than DMCA,  Bill C-32: My perspective on the key Issues, and CRIA Goes To Washington:

Geist claim: “U.S. rules contain a mandatory review of anti-circumvention exceptions every three years, but Bill C-32 only contains a review of the entire law every five years with no specific examination of anti-circumvention rules or mechanisms for new exceptions.”

Response: Bill C-32 contains two clauses that allow for the creation of new exceptions at any time: (1) regulations can be made any time with broad flexible criteria to exclude new classes of TPMs; and (2) regulations can be enacted to exclude classes of TPMs if they unduly restrict competition. Moreover, the US DMCA has no mechanism such as is available under Article 6(4) of the EU Copyright Directive to require rights holders to take appropriate measures to ensure beneficiaries of an exception can avail themselves of it. However, C-32 permits the enactment of further regulations at any time to require rights holders to provide access to a work to enable individuals to avail themselves of the enumerated exceptions to the TPM provisions.

Geist claim: “U.S. rules now contain an exception for unlocking and jailbreaking a cellphone. Bill C-32 only covers unlocking.”

Response: Under the recent Rulemaking by the Librarian of Congress, a new limited exception was recently established under the DMCA to cover jailbraking cell phones. The exception permits “Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.” Bill C-32 has a generally applicable exception for interoperability of computer programs that would enable circumvention of TPMs for jailbreaking applications that includes but is not limited to cell phones. Bill C-32 also contains a generally applicable exception to permit reverse engineering of computer programs that might be needed to develop applications that can work with jailbroken phones. US law does not have a comparable exception. Reverse engineering a computer program for interoperability purposes can be a fair use in the US in certain circumstances. It would also be a fair dealing for research purposes in Canada where permitted in the US.

Geist claim:  “U.S. rules contain an exception for e-books designed to facilitate access for the sight impaired. The Canadian rules do not contain a similar exception.”

Response: Under the recent Rulemaking, a new limited exception was recently established under the DMCA. It is restricted to “Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.” Bill C-32 contains a much broader generally applicable exception that applies to TPMs that protect all works and subject matter to enable the content to be made perceptible to the person with the perceptual disability. It is not limited to any specific formats or type of perceptual disability.

Geist claim: “… the new YouTube exception in the Canadian bill – trumpted as progressive – is still subject to digital locks, while the U.S. has specific exception for it”.

Response:  Neither the US nor any other country I am aware of has anything similar to the proposed UGC (YouTube) copyright exception that is in C-32. The new proposed UGC exception would expressly exempt copying and other uses of content (such as movies, music, books, computer programs, games, art, architectural and engineering drawings, databases, websites and corporate logos) to create new works (including derivative works) and permit them to be disseminated over networks including the Internet. Since the US has no exception that permits this, it goes without saying that there is no exception for circumventing TPMs to enable individuals to engage in these types of activities.

Geist claim: “U.S. rules contain an exception for everyone to circumvent DVD protection to gather a short clip to create non-commercial videos. Canadian rules include an exception for non-commercial videos, but do not exempt circumvention.”

Response: The US exception for circumventing a TPM to create a non-commercial video, which came into force only after C-32 was tabled in the recent Rulemaking, is much more limited than described by Prof. Geist. The exception for non-commercial videos applies only to (1) motion pictures on DVDs that are lawfully made and acquired, (2) that are protected by the Content Scrambling System (CSS), (3) when the circumvention is accomplished solely in order to accomplish the incorporation of short portions of motion pictures into new works, (4) the purpose must be for criticism or comment, and (5)  the person engaging in the circumvention must believe and have reasonable grounds for believing that circumvention is necessary to fulfill the purpose of the use. As drafted, the Canadian UGC copyright exception applies even if an individual circumvents a TPM to create the UGC work. Bill C-32 does not prohibit individuals from circumventing copy control TPMs in order to create UGC works, only access control TPMs. So if an individual has purchased, licensed, or otherwise lawfully obtained access to original content, the individual can hack a TPM that would prevent copying in order to create a UGC work.

Geist claim: The “digital lock rules effectively trump virtually all other rights in the bill (particularly fair dealing and the new consumer exceptions) and extend far beyond what is required to comply with the WIPO Internet treaties.”

Response: The TPM provisions in the Bill, like those in the DMCA, do not prohibit circumventing copy control TPMs for fair dealing purposes. Prof. Geist’s analysis of what is required to comply with the WIPO Treaties has been utterly rebuffed by the former Assistant Director General of WIPO here, here and here.

Geist claim: “U.S. law contains a flexible fair use provision that covers everything from recording television shows to making backup copies. Bill C-32 contains a series of new fair dealing exceptions that are collectively still more restrictive than the U.S. fair use”.

Response: Bill C-32 would introduce three new fair dealing exceptions, parody, satire and education. The Bill would also create numerous new exceptions covering a myriad of activities engaged in by individuals, researchers, businesses and educational institutions including copying for format shifting purposes, time shifting, making back-ups, creating and disseminating UGC works, reverse engineering computer programs, encryption research, security testing, technical processes, and copying practically any content that is publically available over the Internet for educational purposes. These latter exceptions are not bounded or restricted in any ways that require them to be subject to any “fairness” analysis. However, all US activities that are exempted under fair use are, by definition, required to be fair. So, it is by no means accurate to assert that the Canadian Act with these new exceptions would collectively be more restrictive than US fair use.

Geist claim: “The DMCA prohibits only forms of access that would violate or impinge on the protections that the Copyright Act otherwise affords copyright owners.” This is far less restrictive than Bill C-32.”

Response: Prof. Geist refers to a single US case involving MGE UPS Systems and GE for this unqualified assertion. As I previously pointed out, MGE v GE-what did the 5th Circuit decide about the scope of the DMCA TPM provisions and was it right?, Prof. Geist’s conclusions about this case are neither accurate nor complete. The case does not support the categorical statement that in the US “The DMCA prohibits only forms of access that would violate or impinge on the protections that the Copyright Act otherwise affords copyright owners”.

Geist claim: “Canada is not breaking any international treaties” with respect to copyright.

Response:  Canada signed the WIPO Treaties in 1997 committing this country to implement them, but hasn’t done so. Canada is the only G7 country to have failed to modernize its copyright laws to address the copyright issues associated with the Internet. Canada also lags behind all other G7 countries and international standards in failing to upgrade its laws to target counterfeiting and piracy. This was highlighted in a report just released by the RCMP.

Geist claim: “Bill C-32 adopts the successful notice-and-notice approach that has been used in Canada on an informal basis for many years.”

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

In his latest blog Prof. Geist argues that “Canada needs to reform its laws based facts”.  I agree with this assertion. It is high time the debate about copyright in Canada was based less on hype and misinformation and more on facts.

• Traditionally viewed as being victimless, Intellectual Property (IP) crime has become a source of health and safety concern in Canada. Health, safety, and economic damages from the consumption and usage of counterfeit goods are being reported on an international scale. Victims of IP crime include, among others, people suffering from life threatening diseases who unknowingly use counterfeit medicines containing little or too many active ingredients, or toxins.
• There has been a tangible economic impact not only in terms of lost government revenue, but also on legitimate retailers having to deal with the loss in revenue to online file sharing and the availability of cheaper counterfeit products on Internet websites. Some legitimate retailers have reported difficulty in competing with vendors selling counterfeit goods at unfairly low prices, some having had to lay off staff in order to remain in operation. In more extreme cases, some have had to shut down their business.
• Loss of economic integrity is a threat posed by IP crime to Canadians and the international community. In a knowledge-based economy such as Canada’s, innovation is a key driver of economic growth, productivity and competitiveness. The creative industry has been estimated to encompass 7.4 percent of Canada’s Gross Domestic Product (GDP), and employs more than one million Canadians. The protection of Canadians’ IP Rights (IPR) is therefore vital to support innovation, creativity, and, consequently, to ensure Canada’s long-term economic prosperity.
• The depressed economy and the availability of such goods may play a role in the increasing demand for counterfeit and pirated products.
• Counterfeiting and piracy techniques have become more sophisticated rendering detection more difficult than ever.
• Counterfeiters utilize a variety of methods to evade detection at Canada’s international borders.
• IP Criminals make up an eclectic demographic ranging from organized crime groups, to small-scale retailers who sell small quantities of IP-infringing goods to supplement their income.
• In Canada, the fact that IP crime is difficult to detect, that limited enforcement resources are dedicated to it, and that sentences are not sufficiently significant to deter all serve to generate an attractive criminal undertaking, especially when compared to other crimes such as drug trafficking.
• Given criminals’ increasing awareness of the benefits of counterfeiting, more individuals, criminal networks, and organized crime groups are expected to include IP crimes in their portfolios. Furthermore, given the increasing availability of technology, counterfeiting techniques are expected to improve, rendering detection more difficult than ever.
• Although the RCMP investigated nearly 1,500 cases of IP crime between 2005 and 2008, these numbers are believed to be a fraction of the true IP crime situation in Canada.
• The total retail value of seizures reported by the RCMP alone, from 2005 to 2008, is estimated at more than 63.6 million CAD, highlighting that IP crime is a profitable line of business.
• China (including Hong Kong) is the most common source/transit country for counterfeit goods imported into Canada.
• Canada has been identified as a source of pirated DVD and CD media, primarily for domestic consumption. However, some investigations have revealed Canada as a source country for pirated media found online, as well as a transit country for various IP-infringing goods.
• Current Canadian copyright and trade-mark laws have been criticized by domestic stakeholders and majors trading partners for failing to address IP crime. This criticism stems from the fact that Canada has not implemented an “ex officio” border regime that would enable customs officers to target and detain suspected counterfeit and pirated goods, that Canada has not remedied the perceived ineffectiveness of trademark offences in the Criminal Code, and that Canada has not implemented the World Intellectual Property Organization (WIPO) Copyright Treaty (WCT).
• The notion that current legislative provisions do little to deter IP crime in Canada is generally felt by both private industry and law enforcement. Even after a successful prosecution, penalties imposed are typically mild and reflect, for the accused, the cost of doing business rather than serving as a deterrent. Judges are still faced with sentencing difficulties as there is no precedent, at this time, for imposing stiff penalties.
• International trade has systematically increased the movement and distribution of goods. As a result, border services worldwide, which are the first line of defense in identifying and preventing illicit goods from entering the country, are burdened with increases in transnational shipments.

The RCMP report re-enforces what many who have studied the problem have also concluded. Canada has a significant counterfeiting and piracy problem that is not adequately being addressed by our weak laws and enforcement practices. The porous nature of our borders and the need to upgrade our border controls to world standards to reduce counterfeiting and piracy in Canada has, for example, been noted by two parliamentary committees, three Canadian trade associations, and our major trading partners. Parliamentary Standing Committee on Public Safety and National Security, Parliamentary Standing Committee on Industry, Science and Technology, Ontario Chamber of commerce, Canadian Chamber of Commerce, U.S. Trade Representative,  U.S. Congressional Anti-Piracy Caucus, European Union, and Canadian Anti-Counterfeiting Network (CACN).

Bill C-32 does not specifically address many of the legal shortfalls in our copyright, trademark, criminal, and customs laws that are needed to alleviate the health and safety, economic and criminal problems associated with counterfeiting and piracy. The RCMP report is a further reminder that there is an issue of public importance that needs legislative and other solutions.

“Participants stressed the importance of ACTA as an agreement that will establish an international framework for their efforts to more effectively combat the proliferation of counterfeiting and piracy, which undermines legitimate trade and the sustainable development of the world economy.

While ACTA aims at establishing effective enforcement standards for existing intellectual property rights, it is not intended to include new intellectual property rights or to enlarge or diminish existing intellectual property rights.

ACTA will not interfere with a signatory’s ability to respect fundamental rights and liberties. ACTA will be consistent with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the Declaration on TRIPS and Public Health. Participants reiterated that ACTA will not hinder the cross-border transit of legitimate generic medicines, and reaffirmed that patents will not be covered in the Section on Border Measures. ACTA will not oblige border authorities to search travellers’ baggage or their personal electronic devices for infringing materials.”

Participants in the meeting agreed that the next meeting would be hosted by the United States. They also reaffirmed their commitment to continue their work with the aim of concluding ACTA as soon as possible in 2010.