Tuesday, June 06, 2017
Voltage Pictures Canadian Reverse Class Action - An Update to June 6, 2017
In the USA, an attempt by Voltage to use a “reverse class action” was tossed by a federal district court judge in Oregon in 2013. According the AP report as carried in US News and World Report:
A federal judge has dismissed a movie company's Internet piracy complaint against 34 Oregonians, saying the company was unfairly using the court's subpoena power in a "reverse class-action suit" to save on legal expenses and possibly to intimidate defendants into paying thousands of dollars for viewing a movie that can be bought or rented for less than $10.
The judge said cases such as Voltage's allow plaintiffs to "use the courts' subpoena powers to troll for quick and easy settlements." She cited a letter sent to defendants that asks $7,500, saying that amount would increase up to $150,000 without prompt payment.
The case is Voltage Pictures LLC v. Does, 2013 WL 1907059. The judge uses some blunt language to point out the potential for prejudice to defendants in joining together all users at once in a “reverse class actin”
The court agrees that technological advances have resulted in anonymous and stealthy tools for conducting copyright infringement on a large scale. The court further agrees peer-to-peer sharing technologies, such as BitTorrent, have a serious impact on the profitability of the commercial production of films and music. But, the need to discover copyright infringers, who conduct their activities relatively anonymously, through peer-to-peer networks, must be balanced against the rights of Doe defendants who share no more of a connection than merely committing the same type of act in the same type of manner. While these are indeed the type of cases in which discovery, pre-service, is merited, the use of a reverse class action is not. This is especially true given the proliferation of the use of the courts’ subpoena powers to troll for quick and easy settlements.
Thus, it is apparent that plaintiff seeks to place all users with the same degree of culpability regardless of intent, degree of sharing or profit. For instance, the grandparents whose young grandchild used their computer to download what looks like an entertaining Christmas movie, to his innocent mind, through their IP address, are the same as an organization intentionally decrypting and duplicating DVDs en masse while planting stealth viral advertising, or more nefarious Trojan horses, into the upload stream. By being lumped together, the Doe defendant who may have a legitimate defense to the allegedly infringing activity is severely prejudiced.
Accordingly, plaintiff’s tactic in these BitTorrent cases appears to not seek to litigate against all the Doe defendants, but to utilize the court’s subpoena powers to drastically reduce litigation costs and obtain, in effect, $7,500 for its product which, in the case of Maximum Conviction, can be obtained for $9.99 on Amazon for the Blu–Ray/DVD combo or $3.99 for a digital rental.
The court will follow the majority of other courts in declining to condone this practice of en masse joinder in BitTorrent cases and orders all Does beyond Doe one severed and dismissed from the cases. While the ease with which movies can be copied and disseminated in the digital age no doubt has a deleterious effect on the paying market for such entertainment, just as a mass of plaintiffs harmed through separate, but similar acts of one defendant must generally seek redress individually, so should a plaintiff seek redress individually against a mass of defendants who use similar tactics to harm a plaintiff.
Even though it makes a good deal of sense to start these cases initially by joining all Does so that the process of discovering them can be economized,2 it has now become apparent that plaintiffs’ counsel seeks to abuse the process and use scare tactics and paint all Doe users, regardless of degree of culpability in the same light. This practice does not “comport with the principles of fundamental fairness.”
Footnote 2: I, however, note that even this justification is muted because it is not clear if the account holders of a given IP address is the actual infringer. Moreover, mere participation in a given swarm may not result in a full download.
However, even before the current Canadian reverse class action certification motion can proceed, Voltage must come up with $75,000 to pay into court as security for costs to get through to the certification motion following the Federal Court’s curiously unreported order of February 2, 2017 requiring the payment of the $75,000 amount for security for costs “forthwith”. In my view, this is not really very much money for such a novel and potentially very complicated matter and is barely more than half of what Salna asked for. Ironically, there likely would not have been a security for costs order if Voltage were a Canadian entity. The rule that was used applies to non-resident entities. Therefore, this begs the question of what might happen in a hypothetical future case when a technically Canadian entity tries to force one unlucky soul into defending a potentially abusive reverse class action trolling case.
Despite the “forthwith” aspect, Voltage has apparently not yet paid the money into Court. Indeed, it has appealed. There is also a cross appeal underway, which would suggest that Mr. Salna wants even more money for security of costs, which is not surprising. This all may suggest that this entire effort will fizzle, as did Voltage’s previous effort against Teksavvy’s customers. It appears that the certification motion that had long been scheduled for June 7 and 8, 2017 has been postponed pending determination of the appeal and cross appeal as to the security for costs order.
This time, Voltage is going after Rogers’ customers. Once again, Rogers has apparently shown no interest in defending its customers’ privacy or resisting the controversial concept of a “reverse class action”, or in challenging the adequacy of the evidence that led to the disclosure order – as Shaw and Telus did successfully in the first of these cases back in 2004, in which I was very much involved. Rogers sole interest seems to be is in getting paid for its efforts in complying with the order to disclose the identities of the customers that Voltage wants to sweep into the reverse class action.
However, a decision of May 9, 2017 from the Federal Court of Appeal in the Voltage reverse class action litigation holds that, absent regulations, ISPs cannot require any reimbursement for the costs of forwarding notices or disclosing the identity of allegedly infringing subscribers pursuant to a court order. The Court concluded:
 Again, if Rogers and other internet service providers consider this level of compensation for their work to be unfair, they can ask the Minister to pass a regulation setting a maximum fee. As explained, this would permit them to charge a fee not just for the act of delivery, but also for the discharge of their subsection 41.26(1) obligations.
Even though some were “shocked” by the ruling and are predicting “floodgates” of trolling activity, the decision is not really surprising given the wording of the statute and the legislative history as described by the Court.
Nevertheless, CIPPIC’S Director, David Fewer, has been quoted by the Financial Post on May 26, 2017 as criticizing this decision in unusually outspoken and even strident language:
“It’s a horrific decision from a policy perspective and it’s bad news for consumers, it’s bad news for Internet service providers, it’s bad news for Canada,” said David Fewer, director of the Canadian Internet Policy and Public Interest Clinic.
“Your costs of engaging in trolling activity have just plummeted to the floor. This is the Federal Court of Appeal throwing the floodgates wide open.”
The ruling misconstrued the purpose and the function of Canada’s “notice and notice” regime, he said. The system, introduced in 2015, enables copyright owners to alert Internet providers of alleged infringement and requires providers to send notices to subscribers. While most copyright owners use these as an educational tool, some use them to demand sums around $3,500. Others, such as Voltage, take the next step to identify offenders in order to launch lawsuits.
Other than this reported media comment, CIPPIC has had very little visible role in this case. It was notably absent in this appeal in which it could have applied for leave to intervene , which would likely have been granted in view of CIPPIC’s intervener role below. Indeed, it appears that CIPPIC did not even follow up on its earlier stated intention in a letter to the Federal Court of December 13, 2016 that it “anticipates” seeking leave to intervene in the certification motion – for which the hearing dates of June 7 and 8, 2017 are now “vacated” for the time being. In view of Mr. Fewer’s dire assessment of the implications of this ruling, one would have thought that CIPPIC would have intervened as forcefully as possible at every appropriate opportunity in this case, which indeed does have the potential to further facilitate aggressive trolling litigation in Canada. CIPPIC has also not sought leave to intervene in the security of costs appeal.
The good thing about this current FCA decision is that it should – and clearly is intended to – get the immediate attention of the Government and ISPs such as Rogers who presumably know their way around Ottawa. Ironically, if the decision is correct, then regulations should solve the ISPs problem, at least going forward. However, “A regulation can take effect before it is made (i.e., be retroactive) only if the enabling act clearly authorizes the retroactivity and the text of the regulation specifies the date”Whether the Supreme Court of Canada would even grant leave in this case or whether a legislative amendment is needed are questions that are no doubt being urgently considered.
There may be an interesting “Catch 22” problem here. If the FCA is right that the Government could implement regulations to provide for payment to Rogers and other ISPs for the costs of complying with Norwich disclosure orders, then the Government presumably can and should do so. However, if the FCA is wrong, as Rogers apparently argued in court and CIPPIC is arguing in the media, then the Government may have no authority to implement such regulations. New legislation would be required, which would open up the entire “notice” regime. No doubt, the lobbyists representing the American film and music industries would salivate at the opportunity to turn our made-in-Canada (albeit incomplete) "notice & notice" regime into an American style "notice and takedown" regime.
However, unless and until the Supreme Court grants leave to appeal and ultimately overturns this FCA decision, it has the status of “stare decisis”, i.e. binding precedent. In principle, the Minister thus has the authority, though the Governor in Council, to implement regulations giving Rogers what it wants – at least on a going forward basis. Thus, Rogers, CIPPIC and others who may want to try to get this case to the Supreme Court of Canada may wish to be careful what they wish for.
In any event, it would be somewhat surprising if the SCC were to grant leave in this case, since the FCA decision is only interlocutory and there is an apparently simple solution in sight to the issues raised – which is that of implementing regulations.