Labrecque c. Trudel – The Tale of a Copyright Infringement Action Gone Wrong

In Canada, a copyright infringement action may be brought before either the Federal Court or the Superior Court of a province. The Federal Court is generally favoured by litigants given its experience with copyright law. The Superior Court of Quebec’s decision in Labrecque (O Sauna) c. Trudel (Centre Bellaza, s.e.n.c.) exemplifies why that is, and also why it is prudent to assure that your lawyer is up on his or her copyright law. 

One of the photos in question

Plaintiff, a sauna manufacturer and distributer, entered into negotiations with Defendant who was seeking to purchase a sauna for a beauty/wellness center (which ultimately never opened). The deal went sour and resulted in litigation. Defendant had registered a domain name where it posted images of saunas belonging to Plaintiff; Plaintiff was posing in the photos (pictured to the left). Defendant found the images in a Google image search.

Plaintiff sued Defendant asking for $1,500 in compensatory damages and $5,500 in punitive damages. The claim was based on provisions of the Quebec Charter of Human Rights and Freedoms (Quebec Charter) and Civil Code of Quebec (C.c.Q.) dealing with the right to privacy:

Article 5 – Quebec Charter

 “Every person has a right to respect for his private life”

Article 35 C.c.Q.

 

Every person has a right to the respect of his reputation and privacy.

No one may invade the privacy of a person without the consent of the person unless authorized

by law.

Article 36 C.c.Q.

 The following acts, in particular, may be considered as invasions of the privacy of a person: 

…

(5) Using his name, image, likeness or voice for a purpose other than the legitimate information of the public.”

Gervais J. did not accept Plaintiff’s arguments based on these provisions. He found that since Plaintiff posted the images online herself, they could hardly be considered “private”. The Court did find that Defendant infringed Plaintiff’s copyright. 

In addition to more minor errors, such as equivocating between a domain name registrar and internet service provider (para. 22), or imputing a Canadian citizenship requirement for an author’s work to be protected in Canada (para. 44), the Court conflated the legal analysis for calculating damages and accounting of profits. Of course, none of this mattered in the end as the Court decided to, seemingly arbitrarily, award Plaintiff $400 in damages without justifying that calculation. The Court also cited repealed provisions of the Copyright Act (“Act”) to determine whether Plaintiff actually owned rights in the photographs, though Gervais J. did acknowledge his awareness that the provisions had been repealed. 

Since Defendant never launched a business, Plaintiff was unable to prove that it suffered losses resulting from the infringement. This would have been a perfect occasion for Plaintiff to take advantage of the Act’s new statutory damage provisions. Since these were arguably “commercial” infringements, Plaintiff would have been awarded $500-$20,000 per image, at the court’s discretion (s. 38.1(1)(a)). Electing statutory damages would also not have prevented Plaintiff from seeking punitive damages (s. 38.1(7)), though none appear to be merited in this case. 

Counsel for Plaintiff also curiously failed to ask the Court for an injunction forcing Respondent to remove the images from the website. This would have been appropriate given that Plaintiff only found out about the images from other customers asking whether Plaintiff was affiliated with the website. Plaintiff has an interest in ending that confusion.

This appears to be a case in which nearly everything that could go wrong did. While the Court rightly found that Defendant infringed Plaintiff’s copyright, the $400 damage award was entirely baseless. Gervais J. noted that Plaintiff did not prove that it suffered any damages or that Defendant made any profits. However, he states that even though he could find no quantifiable harm, the jurisprudence gives judges broad discretion on whether and how much to award a successful party in a copyright claim. Gervais J. fails to cite any authority for this statement. Upon a finding of infringement, the court does not have any discretion to refuse proven damages. Accounting of profits is an equitable remedy and it is therefore at the court’s discretion whether it should be granted; but once the court decides to allow an accounting, the manner in which the accounts are calculated should not be seen as discretionary. 

Counsel for Plaintiff’s reliance on Article 5 of the Quebec Charter and Articles 35-36 C.c.Q. was misguided. As Gervais J. rightly pointed out, the right to privacy under Article 35 C.c.Q. and Article 5 of the Quebec Charter cannot be engaged when the information (or in this case image) is already in the public domain. This is consistent with the Supreme Court of Canada’s 2004 decision in Gilles E. Néron Communication Marketing Inc. v. Chambre des notaires du Québec.

The Court found as a matter of fact that Defendant had no malicious intent in using Plaintiff’s images and that they were not trade competitors. The claim for punitive damages was therefore rightly recognized by the Court as unwarranted. 

Failing to ask for statutory damages was a major oversight. It was obvious that no real injury occurred. Since Defendant never launched a business, it is debatable whether it was truly a “commercial infringer”. In any event, Plaintiff would have been entitled to damages under s. 38.1(1) of the Act. 

By far the funniest paragraph in the decision (para. 22) is where Gervais J. relays Defendant’s testimony regarding its domain name registration. Defendant testified that since it signed a three-year contract with the “internet service provider”, it could not remove the content before that time was up. Such a counter-factual argument did not, however, noticeably diminish Defendant’s credibility with the Court considering Gervais J.’s low damage award.

One Broadcast = One Infringement: Leuthold v. CBC et. al. (FCA)

On June 27, 2014, the Federal Court of Appeal affirmed a decision of the Federal Court denying the Plaintiff's appeal on the quantum of damages for the CBCs admitted infringement of the copyright in five of the Plaintiff’s works.             
 

Catherine Leuthold, a professional photo-journalist, sued the CBC for multiple acts of copyright infringement stemming from its use of her photographs of the September 11, 2001 terrorist attacks in a documentary. In 2002, the CBC wanted to use five of the Plaintiff’s photos for a documentary to be aired on its network. The parties entered into negotiations. 

There was some ambiguity as to whether the license negotiated by the parties allowed the CBC to use the images on its “Newsworld” specialty channel in addition to the CBC network. The CBC and Leuthold re-entered negotiations in which the CBC was granted the right to broadcast the images for “…one broadcast on CBC’s Network and Regional TV stations.” However, the CBC broadcasted the documentary containing the images on September 10 (on CBC and Newsworld) and September 11 (on Newsworld alone), 2002. Despite the limited nature of the license, and a CBC official’s direction to remove the images form the documentary, a version of the documentary including the Plaintiff’s images was broadcast again in 2003 and 2004. 

At the Federal Court, CBC admitted to infringing Ms. Leuthold’s copyright. The difference of opinion between the parties turned on the number of infringements committed and the quantum of damages due.

The Plaintiff asked for $22,000,000 in damages. She argued that the licenses only permitted CBC to broadcast the images once, on only one network, and in only one time-zone. The Federal Court disagreed and awarded her $22,000. Scott J. found not only that the licenses agreements implied the right to broadcast the images in multiple time-zones, but also that the language of the agreements included the right to broadcast on both CBC and Newsworld. This determination was based on the following: 

1) CBC’s practice was to always include Newsworld when it was clearing rights;

2) It was not commercially sensible to conclude that CBC would have agreed to terms which ran counter to its normal usage; and

3) The contra proferentum rule does not apply because any ambiguity can be resolved with reference to industry practice.

The Federal Court of Appeal determined that the standard of review of the Trial Judge’s decision should be the more deferential “palpable and overriding error” standard. As to whether the Newsworld broadcasts were contemplated by the license, the Court found that the Trial Judge “reached a conclusion that was reasonably open to him”. 

With regards to the number of infringing broadcasts that took place, the Court did not disturb Scott J.’s finding that there were only six such broadcasts. The Plaintiff argued that each transmission to a Broadcast Distribution Undertaking (BDU) by the CBC amounted to a discreet act of infringement. This argument was based on s.2.4(1)(c)(i) if the Copyright Act:

For the purposes of communication to the public by telecommunication,

(c) where a person, as part of:

(i) a network, within the meaning of the Broadcasting Act, whose operations result in the communication of works or other subject-matter to the public

…

transmits by telecommunication a work or other subject-matter that is communicated to the public by another person who is not a retransmitter of a signal within the meaning of subsection 31(1), the transmission and communication of that work or other subject-matter by those persons constitute a single communication to the public for which those persons are jointly and severally liable.

The Court, rejecting the Plaintiff's argument, read this to mean that when a work is transmitted by the network to the public by way of an intermediary (the BDU), a “single network-wide infringement” for which both the broadcast and the BDU are jointly and severally liable. In other words, one communication to the public equals one instance of infringement, regardless of whether the transmission is direct or via an intermediary.

Thoughts

The Court’s decision with reference to the number of infringements that took place seems to be sound. s.2.4(1)(c) states unambiguously that when a broadcaster transmits a work to a BDU which then communicates the work to the public, a single communication of the work has occurred. The Plaintiff’s argument is clearly unsupported by this provision.

The finding that the license agreements should be read to include use on the Newsworld Network is another matter. I will deal with each of the three grounds listed above in turn:

1) The relevant part of the license agreement granted to CBC the “right… to broadcast the [images] on Canadian television for one broadcast on CBC’s Network & Regional TV stations (emphasis added). 

The evidence at trial showed that Mr. Leuthold was unaware of Newsworld at the time the agreements were negotiated. The fact that it was CBC’s practice to clear rights for Newsworld and the CBC Network simultaneously is irrelevant. To illustrate this, take the following example:

 Jimmy contracts with Stevie Ray to lend the latter his cream colored 1967 Fender Stratocaster for a show. The terms of the contract read “Jimmy grants Stevie Ray the right to use his cream colored 1967 Fender Stratocaster to play one show on one stage”. Stevie Ray meets his friend Slash from the band opening for him. Slash asks him if he can use Jimmy’s guitar for his set; Stevie Ray agrees.

When Jimmy sues Stevie Ray for breach of contract, Stevie Ray argues that it is and has always been his practice to share guitars with his fellow musicians. He proffers compelling evidence to that effect. If the evidence shows that Jimmy was not only unaware of this practice of Stevie Ray’s, but also that he did not even know Slash existed, can it really be said that the contract has not been breached? 

A fundamental principle of contract law is that there must be a “meeting of the minds” between the parties to the contract. It is apparent from this example that Jimmy and Stevie Ray had entirely different things in mind regarding the use of the guitar. Since that is the case, the objective intent of the parties must be construed through the words of the contract (with the help of legal interpretive principles to resolve ambiguities). Since the contract makes no mention of allowing others besides Stevie Ray to use the guitar, that permission cannot be implied simply because “that’s just the kind of guy that Stevie Ray is”. 

As the Court noted, the Plaintiff holds an exclusive right. A license grants an individual the right to do a select category of things that, but for the agreement, would constitute infringement. Ms. Leuthold’s failure to exclude Newsworld from the terms of the license does not mean Newsworld can therefore use the images simply because CBC is in the habit of clearing rights for both networks at the same time. By the terms of this license, they failed to do so here. 

Finally on this point, I would argue that the Trial Judge’s choice to favour CBC’s common business practices over the evidence that the Plaintiff did not know Newsworld existed at the time the agreements were being negotiated is an error of law. An error of law would have been reviewed on the non-deferential correctness standard.  This could have entirely changed the outcome given that the Court it did not endorse the Trial Judge’s decision as correct, only as reasonable. 

The Court wrote that since Ms. Leuthold had the wherewithal to sue CBC for the Newsworld infringement, she herself considers them to be a common entity: “…the fact that Ms. Leuthold seeks damages form the CBC for unauthorized broadcasts of the image by Newsworld suggests that she does not view Newsworld as a separate legal entity”. 

With deference to the Court, this is a misleading statement. It is true that at the time she brought the Action before the Federal Court, Ms. Leuthold had become aware of the connection between CBC and Newsworld. This does not lead to the conclusion, however, that she knew of that connection at the relevant time (the negotiation of the license agreements in 2002). 

2) This reason rests heavily on 1) above. While considering the commercial viability of a transaction to determine the intent of the parties can often be a valuable tool, it is the incorrect approach here for the reasons set out above. Ms. Leuthold cannot be expected to have been aware of CBC’s practices. Since she didn’t know of Newsworld at the time, it would be impossible for her to assess the “commercial reasonableness” of CBC’s licensing practices. 

3) I agree with the Court’s finding that the contra proferentum maxim should not apply in this case based on Ms. Leuthold’s apparent bargaining power. However, to say that contra proferentum should be trumped by industry practices (as a matter of law) I think misses the point of that interpretive tool. 

The contra proferentum maxim of interpretation is meant to protect the weaker party to a contract when there is a serious imbalance in bargaining power between the parties. The evidence showed that this was not in fact a contract of adhesion and that the Plaintiff was able to negotiate to some degree with the CBC. However, this rule exists to prevent the injustice that may result from “industry practices”, such as writing ambiguous and confusing terms in a contract to the detriment of the adhering (weaker) party. To say that industry practice trumps this principle in all cases renders it nugatory.

Cyber-insurance: Limiting liability in the cloud

Cyber-security has become a stock-value influencing issue.  With the seemingly periodical reports of data breaches occurring, companies that have an online presence or make use of online cloud computing services are reassessing the manner in which they protect their data. 

Photo by Renjith Krishnan

What happens, however, when the security fails?  The answer: cyber-insurance.  This relatively new form of insurance (being offered for approximately five years now) makes available coverage for liability resulting from any number of possible scenarios including misappropriation of data, hacker/virus infiltration, data corruption etc.  

Considering the amount of damages resulting from a data breach can rise into the millions (or potentially billions), cyber-insurance presents itself as a sober contingency in the event that an entity’s security or the security of their third party provider fails.

Though businesses that make use of third-party cloud vendors for the storage and/or processing of their data should look into acquiring cyber-insurance, it is a common practice in the industry that cloud vendors themselves have insurance policies in the event that they are found to be liable for damages.  

Take the case of a law firm utilizing a third-party cloud provider to store valuable information containing case strategy, financial information and so forth.  The standard rules of professional liability apply in that the data owner (in our scenario the law firm) is ultimately responsible for the safety and integrity of the data entrusted to them.  This means that if the client is going to sue someone it will most definitely be the law firm, not the cloud service provider.  

What if it is found out that in storing the data, the third-party cloud service provider committed some act of gross negligence in being reckless or careless with the firm’s data? In such a case, the cloud service provider is open to liability and would be able to make use of insurance coverage that extends to this sort of situation.

A 2009 estimate placed the cyber-insurance business at $450 million. Some have put forth research however, that though the cyber-insurance industry is growing in size, its long term sustainability is in question. The logic behind this claim has to do with the trend in online tech of everyone gravitating towards the big fish.  This makes it considerably easier for hackers to affect a large number of people with a single attack.  An effective attack on Facebook for example would have a profound effect due to the sheer amount of personal data in play. Those who make use of smaller competitor software solutions will ultimately be safer even though these smaller firms cannot afford to spend the same amount on security as larger firms. 

Insurance companies may see the size of the “big fish” and decide that the risk of taking them on as a client is simply too high and that the companies potential for growth is insufficient to justify taking on such a high risk.

At the 2010 Gartner's Catalyst Conference, Bob Parisi said that the common practice in the cyber-insurance industry is for businesses to purchase a main policy and then layer that policy with additional coverage from other providers to form a single mega policy that will offer an acceptable level of coverage.  This seems to be the current practical response to the theoretical quagmire mentioned above.

At the same conference, Drew Barkowitz pointed out that at one point, any business will see a diminishing return on security expenditures.  He explains that if you spend 12% of your capital on security and are at a certain level, spending 36% will not necessarily make you three times more secure. From this perspective, cyber-insurance seems like an almost obvious contingency measure and one that makes the most financial sense. 

The fact of the matter is that we haven’t reached the point yet where insurance providers are categorically shying away from offering large firms cyber-insurance coverage.  Cyber-insurance is still a viable way for businesses to mitigate risks associated with storage and processing of data online. 

The industry is still growing and learning about itself and will likely become a lot bigger before it gets any smaller.  

Considering the increase in both intensity and frequency of data breaches, cyber-insurance may be the only true financial back-up plan amenable to a business in the event of a massive security failure.  It will be interesting to see how this up and coming domain of insurance flourishes in the world of high volume cloud computing and how the former will be influenced by it.