Tuesday, March 11, 2014

Rightscorp Heads North: Will Canadian ISP Subscribers Start Receiving Settlement Demands?

An American rights management company called Rightscorp has decided to break into the Canadian market. Rightscorp has adopted a business model whereby it sends settlement demand letters for relatively small sums to people it believes have infringed the copyright in the works of its clients. It does this through software that identifies the internet protocol (IP) addresses of users that download a (or several) specific media file(s). The software then sends an automated letter to the ISP to which that IP address is associated once the same IP address "repeatedly infringes".

Image by Renjith Krishnan
From a review of its corporate site, Rightscorp appears to operate more or less exclusively in the music industry. One finds it hard to believe, however, that upon demonstration of a viable business model, other rights management companies dealing with film and software will not dive into the fray.
In the US, Rightscorp relies on §512of the Digital Millennium Copyright Act (DMCA) which sets out conditions that an ISP must meet to be eligible for the “safe harbor” exemptions from liability afforded by that Act. 512(i)(1)(A) says that the ISP shall only qualify if it:

“…has adopted and reasonably implemented, and informs subscribers and account holders of the service provider’s system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network who are repeat infringers; …”
By informing the ISP of a subscriber’s repeated infringement, Rightscorp assures that the ISP will pass on the settlement demand backed by the threat of termination of the subscriber’s internet service. If the ISP fails to do so, it risks losing its safe harbor status. 

But Canada’s Copyright Act does not contain an analogous provision to 512(i)(1)(A) of the DMCA. How then does Rightscorp expect its business model to work in Canada? One potential incentive to move north could be the Federal Court's recent decision in Voltage Pictures LLC. v. Does, 2014 FC 161 in which it granted a Norwich order compelling the ISP Teksavvy to turn over the identities of over 2000 subscribers alleged to have downloaded the film "Hurt Locker".

In Voltage, Voltage Pictures relied on Rule 238 of the Federal Court Rules which reads as follows:

Examination of non-parties with leave
    238. (1) A party to an action may bring a motion for leave to examine for discovery any person not a party to the action, other than an expert witness for a party, who might have information on an issue in the action.

Where Court may grant leave
(3) The Court may, on a motion under subsection (1), grant leave to examine a person and determine the time and manner of conducting the examination, if it is satisfied that:

(a) the person may have information on an issue in the action;

(b) the party has been unable to obtain the information informally from the person or from another source by any other reasonable means;

(c) it would be unfair not to allow the party an opportunity to question the person before trial; and

(d) the questioning will not cause undue delay, inconvenience or expense to the person or to the other parties.

In BMG Canada Inc. v. Doe, 2005 FCA 193, the Federal Court of Appeal set out a two prong test to determine if a motion made under Rule 238 should be granted in copyright infringement cases like Voltage where the interest of the copyright holder must be balanced against the privacy interests of individuals: 

1)  The moving party must actually intend to bring an action for infringement based on the information they obtain; and 

2)    There is no other improper purpose for seeking the identity of those persons.

The goal of this test is to assure that the copyright holder has a bona fide claim of infringement before personal information is released.

The Intervener, the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic (CIPPIC) argued that the subscribers' personal information was protected by the Personal Information Protection and Electronic Documents Act (PIPEDA) and Sections 8 and 9 of the Canadian Charter of Rights and Freedoms.

PIPEDA sets out the instances in which an organization may produce personal information of individuals in its possession without the consent of those individuals. S.7(3)(c) says that an organization "may disclose personal information without the knowledge or consent of the individual only if the disclosure is...(c) required to comply with a subpoena or warrant issued or an order mad by a court...". S.7(3)(i) says that the organization may release the information when “required by law”. Voltage Pictures was therefore required to obtain a court order.

Prothonotary Kevin Aalto ruled in favour of Voltage Pictures finding from the case law that while the privacy concerns of individuals must be considered (not only in determining whether the order should be granted, but also in carving out the scope of the order), privacy rights cannot be asserted as a standalone defense against wrongdoing. The Order of the Court in that case was very specific and included court oversight to assure that the wording of the letters sent to Teksavvy’s subscribers were proper. The Order specifically allowed for the subscribers to receive the full reasons for the judgement and required that the letter make clear that the court has neither ruled on infringement nor on the subscriber’s liability therefor.

It is unclear how Rightscorp would fair if it attempted to use the same strategy. Remember that the test in BMG requires the moving party to convince the court that it actually intends to bring an action. Rightscorp’s entire business model has (to date) been predicated on issuing demand letters rather than proceeding with actual litigation. This would seem to imply that Rightscorp would not meet the bona fide standard required by BMG for a copyright holder to obtain subscriber information from an ISP.

Prothonotary Aalto did allude, however, that it may be enough to show that the moving party plans on “enforcing” its copyright. Read broadly, this could include the issuing of demand letters (these being a standard “self-help” remedy).

Rightscorp may also be seeking to rely on the Copyright Act’s yet un-enacted “notice and notice” provisions. Under this regime, a copyright holder believing its rights to be infringed may send a letter to that effect to an ISP. The ISP will in turn forward the letter to its subscriber (without revealing the subscriber’s identity to the copyright holder). 

Since this new regime will come into force by regulations that have not yet been written, it is unclear as to what the content of the notice letters will be. In an article on TorrentFreak, Professor Michael Geist noted that the notice and notice provisions of the Act say nothing about whether settlement information may be included in the notices. It is also unclear whether the content of the notices will be strictly governed by the regulations or whether additional content (i.e. settlement information) will be permitted to be included. 

One thing is certain, IP lawyers, rights holders, public interest groups and academics will all have an eye closely trained on Rightscorp’s Canadian expansion.

Friday, January 24, 2014

US Supreme Court Affirms Burden Of Proof Always On Patentee, Even When Another Party Asks For Declaratory Judgement Of Non-infringement

On January 22, 2014, the US Supreme Court issued a ruling in Medtronic Inc. v. Mirowski Family Ventures LLC sure to garner the interest of the US patent bar. A unanimous Court found that the burden of proving infringement of a patent lies with the patentee; even when the latter is a defendant in a declaratory judgement action for non-infringement initiated by another party. 

The Petitioner Medtronic designs and manufactures medical devices. The Respondent Mirowski owns certain patents relating to “implantable heart stimulators”. The Petitioner and Respondent entered into a license agreement by which the Petitioner would have the right to practice the Respondent’s patents in exchange for royalty payments. 

Image by Stuart Miles
The license contained provisions under which the Respondent could challenge whether certain products manufactured by the Petitioner embodied the patent. The Respondent did make such a challenge; the Petitioner disagreed. 

Upon the breakdown of negotiations, the Petitioner brought an action for declaratory judgement in the Federal District Court in Delaware, asking the Court to declare the disputed products as not infringing the Respondent’s patents. The Trial Judge granted the motion placing the burden of proving infringement on the Patentee, the Defendant in that proceeding. 

This holding was reversed on appeal by Court of Appeal for the Federal Circuit following its own reasoning in MedImmune, Inc.v. Genentech, Inc., 549 U. S. 118, 129. In that case, the CAFC found that specifically in the case of a license, when a licensee brings a claim under the Declaratory Judgement Act, it has the burden of proving non-infringement. 

Writing for a unanimous Court, Justice Breyer reversed the CAFC, agreeing with the Trial Judge that the burden of proving infringement should lie with the patentee in these circumstances. The Court’s ruling in this case effectively overturns the CAFC’s holding in MedImmune

The burden of proof in a regular infringement action lies with the patentee. Justice Breyer found that it would be consistent for that burden to remain with the patentee even when they are not responsible for initiating proceedings. 

The declaratory judgement mechanism is a procedural one. The Court made clear that the substantive law, including which party has the burden of proof and persuasion, should remain unchanged from a full-length proceeding. 

Justice Breyer pointed out another potential (and more practical) issue with forcing the Petitioner to prove non-infringement. He gives the following example:

Suppose the evidence is inconclusive, and an alleged infringer loses his declaratory judgment action because he failed to prove noninfringement [sic]. The alleged infringer, or others, might continue to engage in the same allegedly infringing behavior, leaving it to the patentee to bring an infringement action. If the burden shifts, the patentee might lose that action because, the evidence being inconclusive, he failed to prove infringement.
Justice Breyer therefore found that in addition to there being no legal reason to shift the burden away from the patentee, it is also in the best interest of the administration of justice to maintain consistency across long and short-form infringement proceedings. 

In oral argument back in November of 2013, Justice Kennedy asked counsel for the Petitioner, Mr. Seth P. Waxman, if his argument required that a claim of infringement be made by the licensor in the first place (as was the case here). The Court chose not to address this in its judgement. 

It would appear, however, that since Federal Courts do not have jurisdiction to hear hypothetical cases (See Muskrat v. United States, 219 U.S. 346,362 (1911)) the action would likely have been thrown out for want of jurisdiction. Article III of the US Constitution restricts the Federal Courts to hearing “cases and controversies”. The Petitioner would therefore likely have been precluded from seeking an advisory opinion had the Respondent not made allegations of infringement in the first place.

Tuesday, January 21, 2014

Ontario Superior Court of Justice Offers A Way Around Bad Faith Requirement in CDRP…Kind Of

On December 30, 2013, the Ontario Superior Court of Justice granted an Order forcing the transfer of a domain name back to the original owner. The Plaintiff Corporation, a Toronto area mold removal service, was created by Mr. Sullivan (the Defendant) and Mr. Dalrymple. Sullivan registered the domain name “mold.ca” for the business. 

photo by mikeleeorg
Sullivan and Dalrymple’s business relationship soured. Despite the fact that the website was clearly the property of the Corporation, Sullivan was the named registrant of the domain name and asserted ownership over it. He then sold it to a third-party. 

The Plaintiff undertook CIRA domain name dispute resolution proceedings but was unable to obtain the transfer of the domain because it was unable to prove bad faith on the part of the new owner.

To be successful in a complaint under the CDRP, one must prove that:
  1. The Registrant’s dot-ca domain name is Confusingly Similar to a Mark in which the Complainant had Rights prior to the date of registration of the domain name and continues to have such Rights;
  2. The Registrant has no legitimate interest in the domain name; and 
  3. The Registrant has registered the domain name in bad faith.
 The CDRP further defines Bad Faith at Section 3.5 of the Policy. 

At Common Law, an action for the conversion of property does not require a plaintiff to prove bad faith on the part of the person holding the property. The Superior Court therefore granted the summary motion to have “mold.ca” returned to the Plaintiff. 

Bad faith may be difficult to prove in certain instances rendering the CDRP useless to a trademark holder. At first glance, this seems like a quick and cost effective alternative to a trademark infringement and/or passing off action. 

While this decision is instructive, I am hesitant to hail it as ground breaking. This case was not decided on the basis of ownership of a trademark; the domain name registration itself was found to be personal property owned by the Plaintiff Corporation. Conversion would offer no aid in the case where a cyber-squatter registers domain names that are either identical to or confusingly similar with a trademark. Once again, here we have an actual registration that changed hands in contravention of the Plaintiff’s property rights as established by Ontario law. 

Domain name disputes usually turn around the bad faith and opportunistic registration of one or more domain names by a person with no interest in using those domain names for a bona fide purpose. Instead, the person seeks to contact a business or other entity, usually the owner of a trademark identical or similar to the domain name, to whom the registration may be “of value” in an attempt to obtain a price significantly higher than the cost of registration. 

For example, Fender Guitars Inc. owns the domain name “fender.com”. Suppose that they do not own “fenderguitars.com” (in reality they do and it redirects to their main site) and John decides to register it. John has no intention of using the domain for anything. In fact, all he wants to do is contact Fender and offer them the domain name for a premium. 

In this example, Fender does not, nor did it ever have a registration for fenderguitars.com. It therefore would not be able to prove any rights of ownership without proving its trademark rights. All of a sudden, our simple summary motion for the conversion of personal property has morphed into a full blown action for trademark infringement/passing off. 

Again, this does not mean that the decision was of no real value. It simply means that it is not as revelatory as one may expect. The tort of conversion is old law. All the Court did here was apply it to domain names. While this case certainly stands for the proposition that domain names are personal property and will be treated as such in matters of contract and tort, because of the facts of the case and the relationship of the parties, this by no means establishes an equal and equivalent alternative to CDRP proceedings or trademark infringement actions.