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Deciphering the U.S. NAFTA Digital Demands, Part Two: Digital Economy, Services and Transparency

Michael Geist Law RSS Feed - Thu, 2017/04/06 - 09:20

Last week I posted on the leak of the draft notice from the Trump Administration on the NAFTA renegotiation, which identifies at least 40 issues, will serve as the starting point for discussions once talks begin. The post unpacked some of the general language to decipher what the U.S. has in mind on intellectual property issues. This second post examines some of the digital issues that U.S. officials have indicated will form a key part of the updated trade agreement.

Restrictions on Data Localization and Data Transfers

USTR notice http://www.bilaterals.org/?draft-nafta-notice


The core provisions in a future NAFTA e-commerce chapter will undoubtedly focus on rules requiring data localization and restricting data transfer. The TPP included a data localization provision which stated:

No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.

The provision came in response to the emergence of data localization as an increasingly popular legal method for providing some additional assurances about the privacy protection for personal information. Although heavily criticized by those who fear that it harms the free flow of information, requirements that personal information be stored within the local jurisdiction is an unsurprising reaction to concerns about the lost privacy protections if the data is stored elsewhere. Data localization requirements are popping up around the world with European requirements in countries such as Germany, Russia, and Greece; Asian requirements in Taiwan, Vietnam, and Malaysia; Australian requirements for health records, and Latin America requirements in Brazil.

Canada has not been immune to the rules either with both British Columbia and Nova Scotia creating localization requirements for government data.  Moreover, the federal government’s 2016 cloud computing strategy prioritizes privacy and security concerns by mandating that certain data be stored in Canada. In response, leading technology companies such as Microsoft, Amazon, and Google have established or committed to establish Canadian-based computer server facilities that can offer localization of information. The U.S. will use NAFTA to restrict the use of data localization requirements.

The draft notice also cites restrictions on data transfers. As I noted in a recent column, those rules are important to preserve online freedoms in countries that have a history of cracking down on Internet speech, but in the Canadian context, could restrict the ability to establish privacy safeguards. In fact, should the European Union mandate data transfer restrictions as many experts expect, Canada could find itself between a proverbial privacy rock and a hard place, with the EU requiring restrictions and NAFTA prohibiting them.

Trade in Services

USTR notice http://www.bilaterals.org/?draft-nafta-notice


The trade in services issues could focus on several issues. First, the reference to telecommunications suggests that any lingering restrictions – including investment restrictions – could face pressure under the NAFTA renegotiation. Second, the TPP included provisions with implications for sharing services such as Uber and online gambling. Both could be up for review as part of the NAFTA talks.

Regulatory Transparency

USTR notice http://www.bilaterals.org/?draft-nafta-notice


Regulatory transparency seems like an uncontentious issue, yet the TPP provisions on transparency ventured into issues such as medical device approval and the prospect of a pharmacare program. For example, Annex 8-C 7bis of the TPP required each party to makes its determination on whether to grant marketing authorization for a specific pharmaceutical product on the basis on factors such as clinical data, manufacturing quality, and labelling information. However, it also states that:

no Party shall require sale or related financial data concerning the marketing of the product as part of such a determination. Further, each Party shall endeavour not to require pricing data as part of the determination

Annex 8-E for the approval of marketing of medical devices was similar:

no Party shall require sale, pricing, or related financial data concerning the marketing of the product as part of such a determination

The TPP also included detailed provisions on the creation of a national pharmacare program (including the possibility of creating one in the future), all under the guise of transparency.

The post Deciphering the U.S. NAFTA Digital Demands, Part Two: Digital Economy, Services and Transparency appeared first on Michael Geist.

Why Warrantless Access to Internet Subscriber Information is Back on the Legislative Agenda

Michael Geist Law RSS Feed - Tue, 2017/04/04 - 10:06

The federal government has yet to release its response to last year’s national security consultation, but at least one thing is increasingly apparent. Lawful access, the regulations that govern police access to Internet and telecom subscriber information, will be back on Public Safety Minister Ralph Goodale’s legislative agenda. My Globe and Mail column notes that the details of the complex new rules that would grant warrantless access to some telecom and Internet information system are still a work-in-progress, but the final outcome is sure to raise concerns with the privacy advocates as well as telecom and Internet providers.

A cybercrime working group comprised of senior officials from federal, provincial and territorial governments have spent months developing the new lawful access framework.  It recently held two invitation-only consultations on the issue with Canadian telecom and Internet companies as well as civil society groups and academic experts. I participated in the latter event, which was held under Chatham House rules that allow for disclosure of the content of the meeting without attribution to specific commentators.

Many in the privacy and telecom fields had assumed that the lawful access issue was settled in 2014. The government established several new warrants that opened the door to preserving subscriber information and granted law enforcement additional access to the data. When combined with the Supreme Court of Canada Spencer decision that affirmed a reasonable expectation of privacy in subscriber information, Canadian law enforcement was seen to have the necessary legal tools to combat cybercrime with court-approved access to Internet and telecom information.

The consultation meetings left no doubt that law enforcement is not satisfied with the current system, however. It is seeking significant reforms that would require telecom and Internet companies to disclose some subscriber information without court oversight. Police officers point to a sizable jump in the number of warrant requests following the Spencer decision as the justification for easing the rules of access.

Working group officials emphasized that no final decisions have been made, but much of the internal debate has shifted from whether more reforms are needed to what information could be mandatorily disclosed without court oversight and what should be subject to a warrant.

Warrantless access would be subject to an administrative procedure that would allow for disclosures without the need for prior court review or approval. These disclosures are characterized as involving “precursor” or confirmatory data that law enforcement insists does not have a reasonable expectation of privacy. The specific data points are still to be decided, but could include the subscriber’s city or province, whether a particular person has an account with a telecom provider, and whether the account was active on a particular date. The administrative procedure would also be used to grant access to subscriber information without a warrant in emergency situations and to information in non-criminal policing situations such as missing persons or property.

The warrantless administrative procedure would be accompanied by the creation of a new production order that would allow courts to order the disclosure of subscriber information. The specific information subject to a court order could include IP addresses and other Internet and telecom identifiers. The order might be subject to a lower threshold of “reasonable grounds to suspect” rather than the stricter “reasonable grounds to believe.”

Officials maintain that the current system has created serious investigative barriers, but have yet to provide concrete data of the extent of the problem. Moreover, the shift away from court oversight, which would likely face court challenges, appears driven in part by the increased costs associated with the current system. Indeed, the use of a warrantless administrative process is consistent with the view that full court oversight over Internet disclosures is too expensive for the police and the courts.

Yet warrantless access would come at a high price to the privacy of Canadians and the cost savings may be illusory since telecom companies are likely to seek new fees for responding to administrative disclosure requests.

Law enforcement officials argue that the Supreme Court’s Spencer decision “broke the system”, claiming that a lawful access framework premised on universal court oversight is too cumbersome and expensive for the reality of today’s Internet. Canadians who want their privacy will therefore have to fight for it, since it would appear that proposals striking a new privacy-security balance may be only months away.

The post Why Warrantless Access to Internet Subscriber Information is Back on the Legislative Agenda appeared first on Michael Geist.

Access Copyright Channels Sean Spicer in Comments on Copyright Fair Dealing Ruling

Michael Geist Law RSS Feed - Mon, 2017/04/03 - 09:05

Access Copyright issued a release on a 2016 Copyright Board decision on March 31st that might have been mistaken for an April Fool’s joke had it been issued a day later. Channeling White House spokesperson Sean Spicer’s penchant for implausible spin, the copyright collective commented on the board decision involving copying in K-12 schools by arguing the decision confirmed that “fair dealing does not encompass all of the copying in education.” Leaving aside the fact that no one has said that it does (hence paid access remains by far the most important method of access), the Access Copyright decision will come as a surprise to anyone who read its response to the decision when it was first released, when it called it a “deeply problematic decision for creators and publishers.”

Access Copyright filed a judicial review of the ruling only to lose badly at the Federal Court of Appeal, which upheld virtually all of the Board’s decision (the only exception was a minor issue on coding errors in its repertoire, which is the source of the reconsideration referenced in the release). Access Copyright presumably issued the announcement on a year-old decision in response to the fact that the deadline has passed for an appeal of the Federal Court of Appeal ruling to the Supreme Court of Canada. What stands – and what Access Copyright seemingly endorses with its latest spin – includes:

1.    The Board reducing its proposed tariff due to fair dealing decisions from the Supreme Court. Note that the 2012 reforms are not cited in the following from the Board:

The main reason for that decrease is the fact that as a result of the decision of the Supreme Court in Alberta v. Access Copyright, 2012 SCC 37, copies made for student instruction, assignments or class work, that were not included in the fair-dealing analysis in the preceding decision, were now included. This resulted in the Board’s finding that a significant proportion of copying by elementary and secondary schools was fair under the fair-dealing provisions of the Copyright Act. These copies therefore do not generate remuneration.

2.    The Board re-affirming the insubstantial copying doctrine, concluding that 1 – 2 pages from a book is insubstantial and not subject to any compensation.

3.    The Board largely upholding the framework of education fair dealing guidelines:

For longer works, such as books, guided by the Supreme Court’s decisions in CCH, Alberta, and Bell, we use the following approximation: where the amount of a work copied was less than or equal to 5 per cent of the work, we conclude that the amount copied tends to make the dealing fair; where the amount copied was more than 5 per cent but no more than 10 per cent of the work, we conclude that the amount copied did not affect the fairness of the dealing; where the amount copied was greater than 10 per cent of the work, we conclude that the amount copied tends to make the dealing unfair.

4.    The Board rejecting virtually all of Access Copyright’s fair dealing arguments:

    •    Access Copyright argued that since copies replace the purchase of works being copied, they are unfair. The Board rejected the argument.
    •    Access Copyright argued that a fair dealing analysis should consider “a just reward” for creators as part of the analysis. The Board rejected the argument.
    •    Access Copyright argued that the Board should consider whether the copying is transformative with the view that non-transformative copying tends to unfairness.  The Board rejected the argument.
    •    Access Copyright argued that the aggregate volume of copying – said to be 300 million pages – should be factored into the analysis. The Board rejected the argument, noting that what matters is a specific copying transaction, not the aggregate amount of copying.
    •    Access Copyright argued that distribution of multiple copies of works that are not destroyed tend to unfairness. The Board rejected the argument.
    •    Access Copyright argued that there were reasonable alternatives available. The Board rejected the argument, concluding that alternatives for “non-consumables” tended toward fairness.
    •    Access Copyright argued that the copying had a negative effect on the market and for the creation of future works. The Board found that there could be some effect on the market, but concluded that the effect on future works was small.

The Federal Court of Appeal hinted that it would have gone even further than Board as part of its review. For example, on the fair dealing guidelines it stated:

Although both parties were clearly disappointed by the fact that the Board did not offer any detailed comments on their evidence relating to those Guidelines, Access did not challenge this finding, which was based on its assessment of the weight of the evidence. This was a wise decision, for indeed, the Board’s conclusion was clearly open to it on the evidentiary record.

Similarly on the Board’s fair dealing analysis, the court stated:

It may well be that the Board’s methodology is not perfect, but again, given the particular circumstances of this case, I have not been persuaded that its overall determination that a large portion of the exposures were fair (again this was much less than the numbers proposed by the Consortium using a similar statistical approach) was unreasonable because of the method it chose to weigh the evidence in forming its overall impression of the fair dealing factors.

The near-total loss helps explain why Access Copyright had chosen not to appeal to the Supreme Court, relying instead on spin that requires readers to ignore its own prior reaction to the decision and the words of the Copyright Board and Federal Court of Appeal.

The post Access Copyright Channels Sean Spicer in Comments on Copyright Fair Dealing Ruling appeared first on Michael Geist.

CRTC: Indigenous peoples underrepresented on Commission

Sara Bannerman - Fri, 2017/03/31 - 15:18
CRTC Chairman Jean-Pierre Blais this week launched a set of hearings regarding applications to operate radio stations serving Indigenous Canadians in five major Canadian cities.  However, the panel for the hearing, Blais noted, "does not include Indigenous members."  Governments past and present, Blais noted, have failed to appoint CRTC Commissioners "for almost 20 years."

After calling on Elder Monique Renaud, Métis of Algonquin and Huron-Wendat descent, to open the hearings, Blais noted, referring to the findings of the Truth and Reconciliation Commission:
The Canadian broadcasting system plays an important role in the reconciliation of Indigenous peoples with Canadian society. The Commission also raised the immediate need to serve the Indigenous community as a whole since vital questions of importance to Indigenous Canadians are not completely covered, or not covered at all, by non-Indigenous media.The National Post noted, earlier this week:
This isn't the first time Blais has criticized the lack of diversity.  He previously chastised telecoms for not including a representative number of women at the public hearings. Currently, only seven of a possible 13 commissioner spots are occupied. Two are women.Two more seats will be vacant by June, leaving five commissioners unless the government speeds up its hiring process. In 2015, the CRTC had revoked the licences of Aboriginal Voices Radio in Toronto, Vancouver, Calgary, Edmonton and Ottawa for licence non-compliance and called for new applications, of which twelve have been received.

Along with the current set of licencing hearings, the CRTC has promised a review of its policies on Indigenous Radio. A conference in Ottawa is planned to set stage for this review, to take place June 15-17 2017.

The review of the Canadian Broadcasting Act, promised in the Liberal's 2017 Budget, should work to  correct the inadequacy with which the Act addresses Aboriginal media.  The Government should also address the inadequacy of representation of indigenous peoples among the CRTC's Commissioners.

Deciphering the U.S. NAFTA Digital Demands, Part One: Intellectual Property

Michael Geist Law RSS Feed - Fri, 2017/03/31 - 09:05

The leak of the draft notice from the Trump Administration on the NAFTA renegotiation, which identifies at least 40 issues, will serve as the starting point for discussions once talks begin. Coverage of the U.S. interests has emphasized tariff issues, rules of origin, and tax treatment, but the digital issues should not be overlooked. The U.S. starting position looks a lot like the TPP, which suggests that we already have a very clear understanding of the text that U.S. negotiators will propose. This post unpacks some of the general language to decipher what the U.S. has in mind on intellectual property issues. A second post will review the other digital issues, including privacy and e-commerce rules.

Exceed international standards on IP

USTR notice http://www.bilaterals.org/?draft-nafta-notice


The key words in this paragraph on “build on the foundations” of several international agreements and IP treaties. This indicates that the U.S. will not be seeking that Canada and Mexico meet international standards, but rather exceed them. This could involve copyright term extension for Canada (to life plus 70 years from the current international standard of life plus 50 years) and digital lock rules that far exceed requirements under the WIPO Internet treaties.

Block Netflix Regulation via Market Access Rules

USTR notice http://www.bilaterals.org/?draft-nafta-notice


This provision sounds harmless, but the references to fair and non-discriminatory access are likely to lead to demands that Canada re-open the NAFTA culture provisions. The TPP included two exceptions to the typical Canadian carve out of culture from trade deals which are both likely to resurface in NAFTA. The TPP exception stated:

Canada reserves the right to adopt or maintain any measure that affects cultural industries and that has the objective of supporting, directly or indirectly, the creation, development or accessibility of Canadian artistic expression or content, except:

a) discriminatory requirements on services suppliers or investors to make financial contributions for Canadian content development; and 

b) measures restricting the access to on-line foreign audiovisual content. 

The first provision appears to be a permanent ban on a “Netflix tax” or virtually any expansion of Cancon contributions to currently exempt services. In fact, the scope of the provision goes far beyond just online video: the music industry and publishing industry would face similar restrictions. The exception may be limited to “discriminatory” Cancon payment requirements, but currently exempt providers (such as online video services) will argue that any Cancon payments would be discriminatory against them, because they do not enjoy many of the protections and benefits that go to the Canadian companies that make Cancon contributions as part of a regulatory quid pro quo (Netflix raised the concern when it appeared before the CRTC in 2014 and in its submission that was removed from the record).

There are similar concerns with measures restricting access to online foreign audiovisual content. Given its popularity, few would want to restrict access to Netflix (indeed, the opposite is true as many want access to more Netflix). But what if foreign services have unfair advantages over Canadian-based competition? What if a foreign music service (with videos) targets the Canadian market in a manner that raises legal concerns? The provision would seem to block the ability to take action, since new rules may restrict access to foreign content or constitute the discriminatory requirements.

New Border Measures and Seizure Powers

USTR notice http://www.bilaterals.org/?draft-nafta-notice


Canada significantly changed it border measures and anti-counterfeiting rules several years ago (doing so was a condition of entry into the TPP negotiations), but the U.S. is still seeking further changes to the rules. For example, Article 18.76 of the TPP sought to expand the power of customs officials by granting them the right to initiate border measures without court oversight, even for goods that are in-transit (ie. not destined to stay within the country). The in-transit issue was a major source of U.S. lobbying during the debate over Bill C-8, Canada’s anti-counterfeiting bill. Canada ultimately excluded in-transit shipments from the ambit of the bill with the government arguing that “our government doesn’t believe taxpayers should be on the hook for the cost of seizing counterfeit products that are destined for the United States that do not threaten health or safety.” The U.S. hoped to reverse Bill C-8 through the TPP and seemingly intends to revisit the issue in the NAFTA renegotiation.

The reference to stronger enforcement may also speak to expanded border measures without court oversight. The TPP required Canada to create a system to allow for the detention of goods with “confusingly similar” trademarks, a change that may be replicated in the NAFTA talks. Article 18.76 of the TPP established “special requirements related border measures” which includes allowing for applications to detain suspected confusingly similar trademark goods as well as  procedures for rights holders to suspend the release of those goods.  The required change is striking since Canada just overhauled its rules for border measures under pressure from the U.S. The Canadian approach did not include “confusingly similar” trademark goods, recognizing that such goods are not counterfeit and require border guards (who rarely have legal training) to make exceptionally difficult judgments about whether imported goods violate the law. Canada opposed the extension to confusingly similar trademarks throughout the TPP negotiations, but ultimately caved on the issue.

Expand Criminal Penalties and Damage Awards

USTR notice http://www.bilaterals.org/?draft-nafta-notice


The criminal penalties requirement would require changes to Canada’s already overbroad digital lock rules, which covers both rights management information and technological protection measures. The TPP required Canada to add criminal liability for rights management violations. This marked a significant change from the 2012 copyright reform package, reflecting U.S. desire for increased criminalization of copyright law. Canada opposed the change during the TPP negotiations, but ultimately caved in the final draft (Canada remained opposed as late as the Hawaii TPP round in August 2015). The draft letter suggests that the U.S. will renew its demand that Canada add criminal penalties to the law.

The reference to criminal penalties may also speak to trade secret law. Article 18.78 of the TPP included requirements for criminal penalties and procedures for trade secret violations. The inclusion of criminal penalties for trade secret violations came directly from lobbying by the U.S. Chamber of Commerce, which made the issue a top priority. Agreement was presumably reached by creating some flexibility for TPP countries. The provision contained a mandate to include penalties for at least one of three forms of trade secret breach involving at least one of five different types of harm (commercial advantage or gain, intent to injure an owner, etc.). The flexibility led some to argue that countries like Canada were already compliant with the bare minimum in the provision given the existence of an economic espionage provision in the Security of Information Act (Canada). Yet with the issue re-opened in NAFTA, the U.S. may be seeking a broader extension of the criminal penalties in such cases.

The reference to strengthening compensation for rights holders may refer to two Canadian issues. Outside of the TPP framework, it may signal a desire to re-examine Canada’s statutory damages rules, which include a cap on non-commercial infringement.  Rights holders are still entitled to seek actual damages, but the U.S. may seek to reverse the 2012 change by requiring uniform statutory damages rules for all infringement.

The reference may also revive demands that Canada create damages for individuals who break digital locks for personal purposes. Section 41.1(3) of the Copyright Act states:

The owner of the copyright in a work, a performer’s performance fixed in a sound recording or a sound recording in respect of which paragraph (1)(a) has been contravened may not elect under section 38.1 to recover statutory damages from an individual who contravened that paragraph only for his or her own private purposes.

This was an important provision during the copyright reform process since it sought to assure concerned Canadians that they would not face the possibility of statutory or significant damages for private circumventions. Since statutory damages are not available for a person that circumvents the digital locks on their DVD collection, the Canadian private purposes circumvention rule could be challenged with U.S. demands that Canada implement new damages requirements for individuals who circumvent a digital lock, even for personal purposes.

The post Deciphering the U.S. NAFTA Digital Demands, Part One: Intellectual Property appeared first on Michael Geist.

With U.S. Retreat from Online Privacy, Canada Needs to Safeguard the Internet in NAFTA Talks

Michael Geist Law RSS Feed - Wed, 2017/03/29 - 08:58

The North America Free Trade Agreement renegotiation is likely to start within the next few months as the U.S. triggers provisions that will re-open Canada’s most important trade deal.  With U.S. Secretary of Commerce Wilbur Ross emphasizing the need to address digital economy issues, I wrote about a digital economy-era NAFTA in last week’s Globe and Mail, noting that there were some issues (including online contract enforcement and consumer protection) that should relatively uncontroversial.

In light of yesterday’s U.S. Congressional decision to overturn online privacy rules, it is worth revisiting the NAFTA renegotiation issue and consider whether Canada will need to safeguard its Internet policy. I noted last week that the U.S. was already likely to target two Internet-related privacy measures: data localization and data transfers. Data localization, which could mandate retention of personal information on computer servers located in Canada. has become an increasingly popular policy measure worldwide as countries respond to concerns about U.S.-based surveillance and the subordination of privacy protections for non-U.S. citizens and residents. The Trans Pacific Partnership included restrictions on data localization requirements at the insistence of U.S. negotiators and those provisions are likely to resurface during the NAFTA talks.  Similarly, limitations on data transfer restrictions could surface, restricting the ability to establish privacy safeguards and placing Canada in a difficult position with the EU requiring restrictions and NAFTA prohibiting them.

The U.S. telecom policy changes under the Trump Administration may cause additional areas of contention. The U.S. retreat from online privacy rules will make it easier for telecom companies to track and sell subscriber online activity by lifting an opt-in requirement to use and sell such information. Canada faced a similar issue in 2013 when Bell introduced its “Relevant Advertising Program” that sought to use subscriber information for targeted advertising purposes. The program sparked hundreds of complaints focused on concerns that Bell was planning for an opt-out approach that would allow it use the information unless customers specifically requested otherwise.

The Privacy Commissioner of Canada ruled that Bell’s plans violated Canadian privacy law in 2015, concluding:

we remain of the view that Bell cannot rely on the opt-out consent of its customers in order to implement the RAP. Both the sensitivity of the information at issue and the reasonable expectations analysis lead us to the conclusion that such consent is not appropriate in the circumstances. In our preliminary report, we recommended that Bell provide its customers with the opportunity to make an express opt-in choice regarding whether or not they consent to Bell’s use of their personal information for the RAP

Bell initially refused to comply with the decision, but later agreed to abide by the opt-in requirement. The case places Canada and the U.S. on opposite tracks when it comes to the commercialization of online tracking by telecom companies. The concern from a NAFTA perspective is the potential for the U.S. to want Canada to match its approach, arguing that Canadian law makes it more difficult for its marketers to conduct business in Canada. In this case, as with data localization and data transfer, the issue should be off the negotiation table.

The Trump Administration has also shifted away from its open Internet policies with changes to ISP transparency and the closure of net neutrality inquiries into zero rating arrangements. Canada takes a different approach with transparency a core requirement of the Internet Traffic Management Practices and zero rating currently under consideration at the CRTC. A renegotiated NAFTA could see the U.S. seek to stop Canadian net neutrality rules from restricting potential “zero rating” agreements between large U.S. rights holders and Canadian Internet providers.

Canada once adopted a trade approach that excluded culture from the ambit of U.S. trade negotiations, arguing that each country was entitled to its own policies. The strict “off-the-table” approach on culture was abandoned in the TPP, but the NAFTA renegotiation may bring a new requirement that negotiators ensure that the U.S. keep its hands off the Canadian Internet.

The post With U.S. Retreat from Online Privacy, Canada Needs to Safeguard the Internet in NAFTA Talks appeared first on Michael Geist.

Fixing PIPEDA: My Appearance Before the Access to Information, Privacy & Ethics Committee

Michael Geist Law RSS Feed - Tue, 2017/03/28 - 09:07

Last week I appeared before the House of Commons Standing Committee on Access to Information, Privacy and Ethics as part of its review of PIPEDA, Canada’s private sector privacy law. The ETHI study is expected to last several months and may provide the foundation for potential reforms. My opening remarks are posted below:

Appearance before the House of Commons Standing Committee on Access to Information, Privacy & Ethics, March 21, 2017

Good afternoon. My name is Michael Geist.  I am a law professor at the University of Ottawa, where I hold the Canada Research Chair in Internet and E-commerce Law. My areas of specialty include digital policy, intellectual property, and privacy.  I served for many years on the Privacy Commissioner of Canada’s External Advisory Board and I have been privileged to appear before multiple committees on privacy issues, including appearances on PIPEDA, Bill S-4, Bill C-13, and this committee’s earlier reviews of social and media privacy and the Privacy Act.

I appear today in a personal capacity representing only my own views.

There is much I’d like to discuss: stronger enforcement through order making power, the example of Canadian anti-spam legislation as a model for tougher enforcement and consent standards, and the mounting concerns with how copyright rules may undermine privacy. Given limited time, however, I’d like to use my opening remarks to focus on three issues: privacy reform pressures, consent, and transparency.

1.    Need for Reform

I had the honour of appearing before both the House and Senate committees on Bill S-4, which was ostensibly the effort to update PIPEDA by implementing recommendations first made in 2006. At the time, it was obvious that further changes were needed. In fact, the ongoing delays in implementing aspects of that bill – security breach notification for example – shows how painfully slow the process of updating Canada’s privacy laws has been.

I believe that there is now an increased urgency to address the issue. The committee has already heard about developments in Europe with the GDPR that could threaten Canada’s adequacy standing with European privacy officials.  There is another international development that could have a significant impact on Canadian privacy law that bears attention: trade deals.

The upcoming NAFTA renegotiation seems likely to include U.S. demands that Canada refrain from establishing “data localization” rules that mandate retention of personal information on computer servers located in Canada. Data localization has become an increasingly popular policy measure as countries respond to concerns about U.S.-based surveillance and the subordination of privacy protections for non-U.S. citizens and residents under the Trump Administration.

In response to the mounting public concerns, leading technology companies such as Microsoft, Amazon, and Google have established or committed to establish Canadian-based computer server facilities that can offer localization of information. These moves follow on the federal government’s 2016 cloud computing strategy that prioritizes privacy and security concerns by mandating that certain data be stored in Canada. The Trans Pacific Partnership included restrictions on data localization requirements at the insistence of U.S. negotiators. Those provisions are likely to resurface during the NAFTA talks.

So too will limitations on data transfer restrictions, which mandate the free flow of information on networks across borders. Those rules are important to preserve online freedoms in countries that have a history of cracking down on Internet speech, but in the Canadian context, could restrict the ability to establish privacy safeguards. In fact, should the European Union mandate data transfer restrictions as many experts expect, Canada could find itself between a proverbial privacy rock and a hard place, with the EU requiring restrictions and NAFTA prohibiting them.

2.    Consent

Privacy laws around the world may differ on certain issues, but all share a key principle: the collection, use and disclosure of personal information requires user consent. The challenge in a digital world where data is continuously collected and can be used in a myriad of previously unimaginable ways is how to ensure that the consent model still achieves the objective of giving the public effective control over their personal information.

Rather than weakening or abandoning consent models, Canadian law needs to upgrade its approach by making consent more effective in the digital environment. There is little doubt that the current model is still too reliant on opt-out policies in which businesses are entitled to presume that they can use their customers’ personal information unless they inform them otherwise. Moreover, cryptic privacy policies that leave the public confused about how their information may be collected or disclosed creates a notion of consent that is often based on fiction, not fact.

How to solve the shortcomings of the consent-based model?  Four proposals:

First, Canada should implement opt-in consent as the default approach. At the moment, opt-in is only used where strictly required by law or for highly sensitive information such as health or financial data. The current system means that the majority of information is collected, used, and disclosed without informed consent.

Second, since informed consent depends upon the public understanding how their information will be collected, used, and disclosed, the rules associated with transparency must be improved. Confusing negative-option check boxes that leave the public unsure about how to exercise their privacy rights should be rejected as an appropriate form of consent.

Moreover, given the uncertainty associated with big data and cross-border transfers of information, new forms of transparency in privacy policies are needed. For example, algorithmic transparency would require search engines and social media companies to disclose how information is used to determine the content displayed to each user. Data transfer transparency would require companies to disclose where personal information is stored and when it may be transferred outside Canada.

Third, effective consent means giving users the ability to exercise their privacy choices. Most policies are offered on a “take it or leave it” basis with little room to customize how information is collected, used and disclosed. Real consent should also mean real choice.

Fourth, stronger enforcement powers are needed to address privacy violations. The rush to comply with the Canadian anti-spam law was driven by the inclusion of significant penalties for violation of the rules. Canadian privacy law is still premised on moral suasion or fears of public shaming, not tough enforcement backed by penalties. If privacy rules are to be taken seriously, there must be serious consequences when companies run afoul of the rules.

3.    Transparency and Reporting

In recent years, the stunning revelations about requests and disclosures of personal information of Canadians – millions of requests, the majority without court oversight or warrant – points to an enormously troubling weakness in Canada’s privacy laws. Most Canadians have no awareness of these disclosures and have been shocked to learn how frequently they occur.

Recent emphasis has been on private sector transparency reporting.  Large Internet companies such as Google and Twitter have released transparency reports and they have been joined by some of Canada’s leading communications companies such as Rogers and Telus.

Despite the availability of a transparency reporting standard approved by the government and Privacy Commissioner, there are still some holdouts.  The problem lies with the non-binding approach to transparency disclosures. After an industry-wide meeting organized by the privacy commissioner held in April 2015, Rogers noted that “it was indicated at this meeting that any guidelines adopted would fall short of regulation, but would regarded as more substantive than voluntary guidelines.” Yet if the non-regulatory approach does not work, it falls to either the federal privacy commissioner or the government to take action.

The most notable company to refrain from meeting these transparency standards is Bell, Canada’s largest telecommunications company.  While Bell initially claimed that it was waiting for a standard from the Privacy Commissioner, it has still not met those standards. Simply put, millions of Canadians still do not know when, under what circumstances, and with what frequency Bell discloses subscriber information.

This, in my view, is unacceptable.  If the current law does not mandate such disclosures, there is a problem with the law. A reform requiring disclosure with real penalties for failure to do so is needed.

Scarcely a day goes by without some media coverage of a privacy-related issue.  The public is concerned with their privacy and the business community recognizes the value of personal information.  It is time for the law to catch up.  I look forward to your questions.

The post Fixing PIPEDA: My Appearance Before the Access to Information, Privacy & Ethics Committee appeared first on Michael Geist.

What Would a Digital Economy-Era NAFTA Mean for Canada?

Michael Geist Law RSS Feed - Fri, 2017/03/24 - 09:45

U.S. Commerce Secretary Wilbur Ross is expected to file a notice of renegotiation of the North American free trade agreement within weeks, paving the way for talks that could reshape the Canadian economy. It became clear last week that the renegotiation will involve much more than just a few “tweaks”, as a U.S. congressional hearing saw officials trot out the usual laundry list of demands including changes to agricultural supply management, softwood lumber exports, and anti-counterfeiting measures.

Those issues will undoubtedly prove contentious, yet my Globe and Mail article notes that more interesting were comments from Mr. Ross about the need for new NAFTA chapters to reflect the digital economy. The emphasis on digital policies foreshadows a new battleground that will have enormous implications for Canadian privacy laws and digital policies.

Some of the digital economy policies, including online contract enforcement and consumer protection, should be relatively uncontroversial. Moreover, online sellers can be expected to renew their call for increases to the de minimis customs threshold from the current C$20 to C$200. The measure would prove popular with consumers who would be free to import bigger ticket items tax-free, but is sure to face stiff opposition from Canadian retailers who fear heightened competition from U.S.-based Internet sellers.

Even more difficult will be U.S. demands that Canada refrain from establishing “data localization” rules that mandate retention of personal information on computer servers located in Canada. Data localization has become an increasingly popular policy measure as countries respond to concerns about U.S.-based surveillance and the subordination of privacy protections for non-U.S. citizens and residents.

In response to the mounting public concerns, leading technology companies such as Microsoft, Amazon, and Google have established or committed to establish Canadian-based computer server facilities that can offer localization of information. These moves follow on the federal government’s 2016 cloud computing strategy that prioritizes privacy and security concerns by mandating that certain data be stored in Canada. The Trans Pacific Partnership included restrictions on data localization requirements at the insistence of U.S. negotiators. Those provisions are likely to resurface during the NAFTA talks.

So too will limitations on data transfer restrictions, which mandate the free flow of information on networks across borders. Those rules are important to preserve online freedoms in countries that have a history of cracking down on Internet speech, but in the Canadian context, could restrict the ability to establish privacy safeguards. In fact, should the European Union mandate data transfer restrictions as many experts expect, Canada could find itself between a proverbial privacy rock and a hard place, with the EU requiring restrictions and NAFTA prohibiting them.

The NAFTA digital economy implications extend beyond privacy issues. The U.S. and Canada have begun to move in opposite directions on network neutrality rules, which ensure that all content and applications are treated equally online. Canada has had net neutrality rules in place since 2009 and many believe that the Canadian Radio-television and Telecommunications Commission will expand them later this year.

Since the election of President Donald Trump, the U.S. has shifted away from its open Internet policies. The TPP included general net neutrality obligations, but a renegotiated NAFTA could see the U.S. seek to stop net neutrality rules from restricting potential “zero rating” agreements between large U.S. rights holders and Canadian Internet providers.

The updated trade agreement could also touch on digital cultural policies. The TPP departed from longstanding Canadian policy by not containing a full cultural exception and creating unprecedented restrictions on policies to support the creation of Canadian content. Those included a ban on access restrictions to online video services and a limitation on requirements on foreign providers to make financial contributions in support of Canadian content production.

Those provisions were seemingly designed to support the unregulated entry of services such as Netflix with trade-based restrictions on creating a so-called “Netflix tax.” There is little support for a cultural Netflix tax within the government, but cultural policy has traditionally been treated as a hands-off area for Canadian trade negotiators. Having opened the door to new regulatory restrictions in the TPP, those provisions can be expected to resurface during the NAFTA renegotiation.

Many of these digital provisions went largely unnoticed during the TPP talks, but will garner far tougher scrutiny in the spotlight of NAFTA trade negotiations. Indeed, the initial U.S. signals suggest that the renegotiated agreement could have a profound impact on Canadian law and policy, creating an enormous challenge for Foreign Minister Chrystia Freeland and International Trade Minister François-Philippe Champagne, who must simultaneously bring the U.S. onside and sell the deal to the Canadian public.

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C’mon Uber: Sales Taxes on Uber Rides Are Not a “Tax on Innovation”

Michael Geist Law RSS Feed - Thu, 2017/03/23 - 17:03

Yesterday’s federal budget included plans to amend the law to ensure that GST/HST is applicable to ride sharing services such as Uber. The budget states that the government will:

Amend the definition of a taxi business under the Excise Tax Act to level the playing field and ensure that ride-sharing businesses are subject to the same GST/HST rules as taxis.

This change should not be particularly controversial. No one likes paying taxes, but equal application of sales taxes ensures appropriate revenue collection and a level-playing field for all businesses in the sector. As I noted in an earlier post, I expect that this is a first step toward extending requirements to collect and remit sales taxes on foreign digital services such as Netflix and Spotify.  Applying sales taxes to all foreign digital services is complicated – there needs to be thresholds implemented to ensure that administrative costs do not outweigh revenues collected – but Uber is well established in Canada with many local jurisdictions establishing a regulatory framework for the service.

Moreover, Uber already collects and remits sales taxes in some Canadian jurisdictions. For example, the Uber page for drivers in Montreal explains that drivers are required to obtain sales tax registration numbers. It adds:

After you have provided your tax numbers, Uber will collect and pay the sales tax (GST and QST) for every trip on your behalf. However, you will need to report your sales tax once per year.

In fact, Uber promotes the sales tax collection by promising drivers a six percent rebate on the sales tax collected to account for offsetting business expenses. In other words, Uber promotes sales tax collection as a benefit to drivers in Montreal. When sales tax questions have been raised elsewhere, Uber has also claimed that drivers are expected to collect GST/HST (which is totally unrealistic given that it uses cashless transactions).

Given its position on sales taxes in Montreal, Uber might have welcomed the announcement in yesterday’s budget. However, it is apparently opposed, implausibly claiming that it is a “tax on innovation.” The company states:

This new tax on innovation would hurt over a million Canadians who use ridesharing to earn income and get around their cities.

It continues by claiming that Uber doesn’t even compete with taxis. Rather, it says its competition is with car ownership and that the tax will make Uber less price competitive with buying a car (last time I checked, cars were subject to sales taxes). Uber has enough regulatory fights on its hands. It doesn’t need another one based on weak claims about innovation that are directly contradicted by its own business practices in one of Canada’s largest cities.

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Budget 2017: Why Canada’s Digital Policy Future Is Up For Grabs

Michael Geist Law RSS Feed - Wed, 2017/03/22 - 18:02

Canadian Finance Minister Bill Morneau released his government’s 2017 budget today and while the spending promises may be underwhelming for some, the documents sets out an ambitious agenda for digital policy review. In fact, with changes to copyright, patent, broadcast, telecom, net neutrality, digital taxes, fintech, Canadian media, and Cancon all under consideration, the coming year will have enormous implications for the future of Canada’s digital policies.

The budget does include several spending promises, including $13.2 million over five years to support an affordable Internet access program, $50 million for kids coding programs, $29.5 million over five years for digital literacy, and $14.9 million for digitization of Indigenous language and materials. There is also new money for the growth of artificial intelligence sector and the much-anticipated revamping of innovation funding programs.

Yet the biggest digital implications may ultimately come from the policy reforms. First up may be new digital sales taxes. The budget includes a commitment to extend sales taxes to ride sharing companies such as Uber, a move that seems likely to ultimately lead to a broader extension of sales taxes to digital services such as Netflix.

A review of the Copyright Act was already planned for November 2017 as required by the law. However, the government is throwing open an even bigger review of intellectual property laws as it seeks to develop a new IP strategy:

In recognition of the importance of a well-functioning intellectual property regime, Budget 2017 announces the Government will develop a new intellectual property strategy over the coming year. The strategy will help ensure that Canada’s intellectual property regime is modern and robust and supports Canadian innovations in the 21st century.

Canada already meets international standards on IP and has some one of the world’s toughest anti-piracy measures. As I noted earlier today, what has been missing are rules to better support innovation and the need for Innovation, Science and Economic Development Minister Navdeep Bains to assume the policy lead on the issue. The review and strategy exercise offers the chance to adopt fair use rules that have been critical for innovative economies such as the United States, Israel, South Korea, and Singapore. When coupled with the restrictive digital lock rules that suffer from narrowly interpreted exceptions, the Canadian copyright law environment is supportive of cracking down on infringement but lacks the flexibility needed for new creativity and innovation.

The review of Cancon in a digital world conducted by Canadian Heritage Minister Melanie Joly also makes its way into the budget with a promise for policy reforms that could dramatically alter the Internet in Canada. The budget places all the big issues up for grabs:

To ensure that Canadians continue to benefit from an open and innovative Internet, the Government proposes to review and modernize the Broadcasting Act and Telecommunications Act. In this review, the Government will look to examine issues such as telecommunications and content creation in the digital age, net neutrality and cultural diversity, and how to strengthen the future of Canadian media and Canadian content creation. Further details on the review will be announced in the coming months.

This guarantees that the major policy fights of the past year will continue into the next, with some viewing this as an opportunity for an ISP or Netflix tax, reform to net neutrality rules that prioritize Canadian content, new Internet regulations as the Internet is folded into broadcast regulation (as opposed to bringing broadcast into the Internet to better reflect what is actually happening), a reshaping of how telecom and broadcast are regulated in the Internet age, and new schemes to support mainstream media. I’ve written a lot about these issues in recent weeks:

Budget 2017 leaves no doubt that digital policy will be a major issue in the coming year (a consultation on fintech retail payments followed by regulation is also promised).  When twinned with the digital policy implications of the NAFTA renegotiation, Canada’s digital policy future will hang in the balance.

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How Navdeep Bains Can Get His #Innovation Groove Back

Michael Geist Law RSS Feed - Wed, 2017/03/22 - 10:06

The release of today’s federal budget is expected to include a significant emphasis on innovation, with the government revealing how it plans to spend (or re-allocate) hundreds of millions of dollars that is intended to support innovation. Canada’s dismal innovation record needs attention, but spending our way to a more innovative economy is unlikely to yield the desired results. While Navdeep Bains, the Innovation, Science and Economic Development Minister, has talked for months about the importance of innovation, Toronto Star columnist Paul Wells today delivers a cutting but accurate assessment of those efforts:

This government is the first with a minister for innovation! He’s Navdeep Bains. He frequently posts photos of his meetings on Twitter, with the hashtag “#innovation.” That’s how you know there is innovation going on. A year and a half after he became the minister for #innovation, it’s not clear what Bains’s plans are. It’s pretty clear that within the government he has less than complete control over #innovation. There’s an advisory council on economic growth, chaired by the McKinsey guru Dominic Barton, which periodically reports to the government urging more #innovation.

There’s a science advisory panel, chaired by former University of Toronto president David Naylor, that delivered a report to Science Minister Kirsty Duncan more than three months ago. That report has vanished. One presumes that’s because it offered some advice. Whatever Bains proposes, it will have company.

Wells is right. Bains has been very visible with plenty of meetings and public photo shoots but no obvious innovation policy direction. This represents a missed opportunity since Bains has plenty of policy tools at his disposal that could advance Canada’s innovation framework without focusing on government spending.

For example, Canada’s communications system – wireless and broadband Internet access – falls directly within his portfolio and is crucial for both business and consumers. Yet Bains has been largely missing in action on the file. He gave approval for the Bell – MTS merger that virtually everyone concedes will increase prices in the province and make the communications market less competitive. There are potential policy measures that could bring new competitors into the market (MVNOs and municipal broadband) and that could make it easier for consumers to switch providers (ban on unlocking devices). Some of this falls to the CRTC, but government direction and emphasis would make a difference.

Even more troubling has been his near total invisibility on issues relating to new fees or taxes on Internet access and digital services. Canadian Heritage Minister Melanie Joly has taken control of the issue with the possibility that Canadians could face increased costs for their Internet access or digital services through mandatory fees to contribute to Canadian content.  Leaving aside the policy objections to such an approach (reducing affordable access and the fact that foreign sources now contribute more toward Canadian English language TV production than Canadian broadcasters and distributors), Internet access and e-commerce are supposed to be Bains’ issue and they have a direct connection to the innovation file. How is it possible for the Innovation, Science and Economic Development Minister to have remained silent for months on the issue?

Bains has been largely missing on trade related innovation issues as well. My Globe and Mail column today focuses on a digital-era NAFTA, pointing to likely U.S. demands on data localization, data transfers, e-commerce rules, and net neutrality.  These are all issues that fall under Bains’ portfolio and will impact investment in Canadian networks and digital services. There are innovation opportunities for Canada here, but Bains has been content to leave the policy issues to others, who will be willing to sacrifice potential gains in those areas.

Intellectual property policy is yet another area that falls directly under Bains’ mandate with an obvious link to innovation, but he has done little on the file. Canada won a huge NAFTA victory late last week involving the Canadian patent system, which was challenged by pharmaceutical giant Eli Lilly. Why has Bains not promoted the decision as an affirmation of how Canada’s intellectual property rules?

On the copyright front, the government is scheduled to conduct a review of the Copyright Act later this year, but it is not clear whether Bains will take the lead or again cede responsibility to Joly. The Copyright Act is statutorily under the Industry Minister and reform offers the chance to kickstart innovation. For example, Canada could adopt fair use rules that have been critical for innovative economies such as the United States, Israel, South Korea, and Singapore. When coupled with the restrictive digital lock rules that suffer from narrowly interpreted exceptions, the Canadian copyright law environment is supportive of cracking down on infringement but lacks the flexibility needed for new creativity and innovation. This represents an enormous opportunity for Bains to create a policy framework that supports innovation without new taxes or public expenditures.

There are no shortage of other opportunities that fall within the ISED mandate: leveraging government-funded research with open access policies, improving open data, and addressing cyber-security opportunities among them. In fact, many of these issues were included in Bains’ mandate letter.  Nearly 18 months after the release of that letter, Canadians are still waiting for the promised “real change”.

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Panel Rejects Eli Lilly Claim Over Canadian Patent Law, Orders Company to Pay Millions in Costs

Michael Geist Law RSS Feed - Tue, 2017/03/21 - 08:05

In the early 1990s, Eli Lilly applied for patent protection in Canada for two chemical compounds, olanzapine and atomoxetine. The company had already obtained patents over the compounds, but asserted that it had evidence to support new uses for the compounds that merited further protection. The Canadian patent office granted the patents based on the content in the applications, but they remained subject to challenge.

Both patents ultimately were challenged on the grounds that there was insufficient evidence at the time of the applications to support the company’s claims. The Federal Court of Canada agreed, invalidating both patents. Eli Lilly proceeded to appeal the decision to the Federal Court of Appeal and later to the Supreme Court of Canada. The company lost the appeals, as the courts upheld the decision to invalidate the patents.

Under most circumstances, that would conclude the legal story as several Canadian courts reviewed Eli Lilly’s patent applications and ruled that they failed to meet the standards for patentability. Yet in June 2013, the company served notice that it planned to use the ISDS provisions in the North American Free Trade Agreement to claim that in light of the decisions, Canada was not compliant with its patent law obligations under the treaty. As compensation, Eli Lilly sought at least $500 million in damages.

The fear for many was that if the pharmaceutical giant succeeded, it would have effectively found a mechanism to override the Supreme Court of Canada and hold Canadian taxpayers liable for hundreds of millions in damages in the process. Last week, however, the Tribunal hearing the case rendered its verdict, rejecting Eli Lilly’s claims and ordering it to pay millions of dollars to compensate the Canadian government for its costs.

There are several key takeaways from the decision. First, the Tribunal emphasized that overruling national courts should only occur in exceptional circumstances. The potential for any such cases will still be a cause for concern, but the standard it set is quite high:

the Tribunal emphasizes that a NAFTA Chapter Eleven tribunal is not an appellate tier in respect of the decisions of the national judiciary. It is not the task of a NAFTA Chapter Eleven tribunal to review the findings of national courts and considerable deference is to be accorded to the conduct and decisions of such courts. It will accordingly only be in very exceptional circumstances, in which there is clear evidence of egregious and shocking conduct, that it will be appropriate for a NAFTA Chapter Eleven tribunal to assess such conduct against the obligations of the respondent State under NAFTA Article 1105(1).

On the substance of the case, the Tribunal found that Eli Lilly did not demonstrate a fundamental change to Canadian patent law that might trigger a NAFTA claim:

For all of the reasons in subsections (1) to (5) above, the Tribunal finds that, on the record in this arbitration, Claimant has not demonstrated a fundamental or dramatic change in Canadian patent law. For the interrelated reasons in subsection (6) above, the Tribunal finds that Claimant has not demonstrated, as a factual matter, that its legitimate expectations were violated by the application of Canadian patent law to the Zyprexa and Strattera Patents.

The reasons behind the conclusion include a finding that Canadian patent law did not change dramatically as the courts addressed questions of patent utility:

the Tribunal recognizes that the outcome in AZT was unexpected for some practitioners and even judges who had understood the language of the Court of Appeal in Ciba-Geigy to mean that utility could be demonstrated through post-filing evidence (most notably commercial success). Still, having considered all of the evidence, the Tribunal cannot conclude that the Supreme Court effected a dramatic change from previously well established law when it clarified this rule in AZT.

Further, the statistical data raised by Eli Lilly on invalidating patents was not persuasive (indeed, the Tribunal was troubled by what appeared to be cherry-picking of dates to try to make their case):

Without having been presented with any strong indication toward a single factor, the Tribunal considers it most likely that a combination of developments, including those in patent litigation procedures, the application of substantive patent law, and the pharmaceutical sector, has led to a rise in challenges directed at pharmaceutical patents and more invalidations.

Interestingly, the Special 301 process, which I wrote about earlier this month, made it into the decision as Eli Lilly used it to argue that Canada was out-of-step with international IP standards. The Canadian government response will be familiar:

Respondent challenges the reliability of the 2014 and 2015 editions of the USTR Special 301 Report cited by Claimant, in which the United States expresses “serious concerns” over Canada’s utility requirement. 403 According to Respondent, “the Special 301 Report is based not on empirical evidence and analysis, but on industry allegations made to USTR, including representations made by the Claimant and its industry associations”. In addition, these reports were not issued contemporaneously with the changes in the law that Claimant alleges, but rather at the time of the commencement of this arbitration. Thus, Respondent supposes that the reports were the result of Claimant’s own lobbying efforts to bolster its claims in this arbitration.

The Tribunal was not completely dismissive of the Special 301 Report, but instead concluded that it was an outlier given that there was no other evidence of complaints from other countries:

The Tribunal has paid particular attention to the 2014 and 2015 editions of the Special 301 Report of the USTR. In these documents, USTR notes that the United States “has serious concerns about the lack of clarity and the impact of the heightened utility requirements for patents that Canadian courts have applied recently”. This comment cannot be dismissed outright as a lobbying effort by Claimant, as suggested by Respondent. However, the Special 301 Report stands alone in the record as a complaint regarding Canada’s utility doctrine from any other State, including Mexico, in the decade since the promise utility doctrine was allegedly adopted. For the Tribunal, that silence speaks louder than the single, brief criticism contained in the USTR’s Special 301 Report.

The Tribunal decision represents an enormous win for the Canadian government and for the supremacy of Canadian law and the judicial system more broadly. The real fears that dispute settlement could be used to override Supreme Court of Canada decisions lies at the heart of concern with ISDS provisions that have found their way into trade agreements such as CETA and the TPP.

While Eli Lilly failed in its efforts to use the dispute settlement system to extract hundreds of millions from Canadian taxpayers, the dangers of the system remain a reality. The Canadian government tried to address some of the concerns with the reworked provisions in CETA (rules that are not mirrored in TPP), but as new trade deals are negotiated or renegotiated, should rethink the need for investor-state dispute settlement provisions in agreements with countries with respected court systems that offer investors sufficient protections and reliable legal recourse.

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Scare Tactics Down Under: The Ongoing Global Effort to Mislead on Canadian Copyright

Michael Geist Law RSS Feed - Mon, 2017/03/20 - 10:16

Last month, I traveled to Australia and New Zealand as part of a group of experts to discuss copyright fair use and fair dealing. The trip included several public talks, meetings with government officials, a book launch on Reimagining Copyright, and the chance to discuss copyright policy directly with publishers, educators, and librarians. Videos of some of the panels are available online, including a New Zealand forum on copyright and innovation and a panel on comparative copyright limitations and exceptions at the Australian Digital Alliance annual conference.

Among the most notable aspects of the trip was the revelation of efforts by publishers and copyright collectives to mislead policy makers on the state of copyright law in Canada. While not everyone is buying it – this keynote from the Australian Productivity Commission’s Deputy Chair Karen Chester was a mic drop moment that eviscerated the publisher arguments against fair use – the efforts to mislead on the impact of Canadian copyright reform was unmistakable. For example, at one event with many publishers in the audience, I was approached by one representative who told me she was embarrassed by what her company had submitted to the Australian policy process after learning about the reality of the situation in Canada. Similarly, another Australian publisher executive who had spent years with one of Canada’s largest educational publishers, openly acknowledged that fair use and fair dealing had little to do with the challenges faced by the industry.

During many of the talks and the discussions that followed, it was striking how few people were aware that paid access remains the primary source of materials in Canada, that educational copyright policies in Canada were primarily a function of court decisions not copyright reform (the emphasis on fair dealing came before the 2012 reforms), that global publishers were reporting marketplace challenges that have nothing to do with copyright, that Canadian publishers that supposedly stopped publishing were still in business, that court affidavits from Canadian publishers focus on many concerns other than copyright, and that a study from one Canadian publisher association highlighted issues such as open access and used book sales.

Notwithstanding the facts, the scare tactics will no doubt continue. Last week, the International Authors Forum put out a release that inaccurately claimed that Canadian educational policies were based on a “one word expansion” of fair dealing and tried to link Concordia’s copyright error with fair dealing despite the fact that everyone agreed it was infringement and the university has a collective licence. These efforts make it crucial that government pursue balanced policies based on fact, not fiction. In Australia, that should mean adoption of a fair use provision after years of debate and multiple independent studies confirming its value. In Canada, the 2017 review process should focus on issues such as notice-and-notice reform, Copyright Board changes, restrictive digital lock rules and fixing the fair dealing gap, and the removal of unnecessary barriers to innovation and copyright fairness by shifting from fair dealing to a fair use approach.

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The Netflix Effect?: Foreign Sources Outspend Canadian Broadcasters and Distributors for English TV Production

Michael Geist Law RSS Feed - Thu, 2017/03/16 - 09:15

The Canadian Media Producers Association recently released its annual report on the state of screen-based media production in Canada. Despite the doomsayers who fear that the emergence of Netflix will result in less money for production in Canada, the report confirms that financing of Canadian television production continues to grow, reaching its highest point in the last five years. With $2.6 billion spent on Canadian television production, the sector remains healthy with support from licensing fees, tax credits and funding from a variety of sources.

More notable, however, is the growth of English-language Canadian television production, which has been backed with a major increase of foreign funding over the past three years. Foreign financing of Canadian English-language television production hit $335 million, which now exceeds all other sources of funding, with the exception of the combination of all provincial tax credits (both represent 18% of total financing). In other words, foreign financing now contributes more toward English-language television production than the licensing fees paid by private or public broadcasters, federal tax credits, Canadian distributors, and the Canadian Media Fund.

As recently as 2013-14, foreign funding represented 10% of total financing ($187 million), far less than Canadian distributors and roughly the same as the Canadian Media Fund. No longer.  In 2014-15, foreign financing jumped by $100 million (to 16% of total funding) and added another $46 million in 2015-16 (to climb to 18% of total funding). By comparison, financing from Canadian distributors and the Canada Media Fund have remained flat with both now easily exceeded by foreign support.

CMPA Profile 2016, Page 55, http://www.cmpa.ca/sites/default/files/documents/industry-information/profile/Profile%202016%20EN.pdf

When viewed by genre, the importance of foreign funding for fictional programming becomes even more apparent. Foreign financing is easily the top source of financing for fictional English-language television programming, now comprising 22% of all funding.  By comparison, private broadcasters contribute only 7% of financing for fiction.

The CMPA does not break down the source of foreign funding (its sources for the numbers come from CAVCO and the CMF), but it is worth noting that Netflix began investing in original television production in 2013 and significantly ramped up its investment in 2015. The timing of Netflix investment coincides with the sharp Canadian growth in foreign spending. In fact, Netflix says that Canada ranks as one of the top three locations worldwide for its commissioned original productions. Last year, I blogged that given that the company spends billions each year on content, the spending in Canada is likely larger than all but a handful of regulated sources (the Netflix submission provides a full sense of the scope of its support for Canadian content).

The precise amount of Netflix spending in the Canadian market remains unknown, but the CMPA’s own data calls into question demands for regulations for over-the-top video providers. The data suggests that Canada has created a world-class production environment that is capable of attracting significant investment without new regulation. With foreign financing growing faster than any other source of funding and comprising nearly one of every five dollars spent on English-language television production, the notion of cramming old policies into a new, successful marketplace would represent a step backward for Minister Joly’s vision of a confident, export-driven, future-focused Canadian cultural policy.

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Yes We Scan: Why Concordia Should Not Shelve Its Book Scanner

Michael Geist Law RSS Feed - Tue, 2017/03/14 - 09:07

The copyright mistake at Concordia – a poetry centre scanned several books and posted them on the Internet without permission – has attracted considerable attention in the press and social media. Kate Taylor wrote a Globe and Mail column placing much of the blame at the feet of fair dealing, while I responded with a post yesterday that noted that no one claimed that the posting of the full-text books was permissible and that Concordia was an ill-advised target for fair dealing criticism given that it has a copyright collective licence with Copibec that compensates for copying on campus.

While the focus of the Taylor column and my response was on fair dealing and collective licensing, the Taylor column also included several references to the use of a scanner to digitize books. In particular, it concludes by stating that “Ottawa needs to plug that education loophole good before somebody tries to drive a $10,000 book scanner right through it.”

The inclusion of education as a fair dealing purpose is clearly not a loophole – fair dealing is a user’s right and adding education as a purpose in 2012 only marginally expanded it – but the inference that scanning books is an activity to be stopped requires a response. As I wrote last year, Canada has unveiled a modest digitization goal that calls for the digitization of 90 per cent of all published heritage dating from before 1917 along with 50 per cent of all monographs published before 1940 within ten years. It also hopes to cover all scientific journals published by Canadian universities before 2000, selected sound recordings, and all historical maps. The Canadian targets pale by comparison with other countries. For example, the Netherlands plans to digitize 90 per cent of all books published in that country by 2018 along with many newspapers and magazines that pre-date 1940.

Digitization initiatives often raise legal fears, but the experience in other countries demonstrate that the legal challenges are frequently overstated. For example, U.S. courts have ruled that massive digitization programs such as those undertaken by Google qualify as fair use. The Google Book Search initiative rightly distinguishes between the act of digitization or scanning (a data mining and non-consumptive use of the work that qualifies as fair use) and the making available of those works to the public. This means that millions of books can be freely digitized without fear of copyright infringement, though full access to the text is limited to public domain works (where the copyright has expired) and licensed materials where the copyright owner has granted permission. Partial access (often referred to as snippets) may be granted consistent with fair use.

Canadian law features fair dealing rather than fair use, but a similar approach could be adopted. It goes without saying that all public domain works – which could reasonably be estimated to include anything published before 1940 – could be digitized and made immediately accessible in full text. This appears to be part of what Concordia had in mind with respect to its poetry digitization plans. In addition to the materials that are almost certainly in the public domain, educational institutions, archivists, and the government could launch a crowdsourcing initiative where Canadians help identify additional public domain works of authors who died more than 50 years ago. This would include many books published in the 1940s, ’50s, and ’60s.  Those works could also be digitized and made accessible in full text without the need for permission or further licensing payments. Such efforts should be welcomed by supporters of Canadian culture as a way to breath new life into long-forgotten Canadian works and as a means of raising new awareness of Canadian history.

The situation for in-copyright works is more complicated and requires separate legal analysis for digitization of the works and the manner in which they are made available. The first part – digitizing or scanning the works by educational or research institutions – likely qualifies as fair dealing as it meets the research purpose (and therefore the 2012 reforms to fair dealing have little impact on the issue) and the six-factor fair dealing analysis would likely treat the act of digitizing for full text search purposes as more fair. It may involve a large amount of copying, but the other factors – including alternatives and effect on the work – would tend toward fairness. Enabling full-text searching for Canadian books would increase their “discoverability” without negatively affecting their commercial value. Indeed, it would likely increase their value.

The more challenging legal issue, however, would involve the public availability of the text of scanned or digitized books. Much like the Google Book Search approach, fair dealing and/or de minimis would likely permit a snippet of the work be made available without the need for further permission. For full text, authors would be entitled to specify how, if at all, their works should be accessible. This could involve licensing arrangements or strict limits on the amount of the scanned text that is publicly available. The digitization would create new opportunities for publishers and authors, while opening the door to heightened interest in Canadian works.

In the Concordia case, full-text of poetry books were briefly made available without permission, which would not qualify as fair dealing. However, the act of digitizing works already purchased by Canadian libraries for the purposes of full-text search is consistent with current law and if combined with the availability of full-text of public domain works and snippets of other books (or full-text with permission), would provide an enormous boost to Canadian culture where discoverability has emerged as one of the biggest barriers to commercial and cultural success.

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Who is on the Wrong Side?: Why the Copyright Mistake at Concordia Highlights the Problems with Collective Licensing

Michael Geist Law RSS Feed - Mon, 2017/03/13 - 09:38

Globe and Mail columnist Kate Taylor published an article on Friday titled Concordia University Caught on the Wrong Side of Copyright, which focused on a copyright violation at the Montreal-based university. While Taylor thinks that the Concordia incident demonstrates the problems with copyright and fair dealing (she writes “scofflaws in the universities have been egged on in Canada by the 2012 amendments to the Copyright Act that included a vaguely worded, broad-brush education exemption), a closer look suggests that the case actually says far more about the problems with collective licensing.

The issue at Concordia involved unauthorized scanning and online posting of several poetry books (I will have a follow-up post on the scanning issue). Once the publishers complained, the books were quickly removed. The director of the centre responsible for the posting acknowledged the error and indicated that he planned to purchase five copies of each book, which is equal to the number of graduate students who attend a weekly reading group. That would seem to be the end of the issue as no one suggests that the posting of the entire books were permitted or consistent with university policy, the issue was addressed immediately, and there was an attempt to compensate for the perceived losses.

But wait, argues Ms. Taylor. The case itself surely stems from the state of Canadian copyright law and therefore reforming the law would reduce the likelihood of future incidents. Taylor argues that the law is uncertain (with fair dealing for education described as a “loophole”) and that courts might decide on the appropriate limits “if publishers and writers weren’t too busy creating books to spend their days policing the Internet and too poor to lawyer up.”

Yet the law is not uncertain and the myriad of copyright cases in Canada involving education have all been launched by publishers and authors, often represented by copyright collectives such as Access Copyright and Copibec. Indeed, as I noted last month, the widely used fair dealing guidelines within education are based primarily on decisions from the Supreme Court of Canada, the Federal Court of Appeal, and the Copyright Board of Canada. Despite claims that fair dealing guidelines go beyond the law, the copyright collectives have lost every legal attempt to challenge them and the widely accepted interpretation of fair dealing. This is not a case of uncertainty nor one of publishers and writers shying away from legal action. Quite the opposite, in fact, as copyright collectives have frittered away millions of dollars in litigation costs that could have been allocated to publishers and authors.

But even leaving aside the arguments about fair dealing, Taylor’s decision to focus on Concordia is particularly ill-advised since the university has a copyright licence with Copibec, choosing to pay the collective hundreds of thousands of dollars every year. That is in addition to the massive investment it makes each year in paid access to thousands of content databases, including through membership in the Canadian Research Knowledge Network. In fact, Concordia has been a poster child for Copibec as the first Quebec institution to also use a service that involves additional transactional licences for publications not covered by the licence. In other words, this is not an example of confusion at the university involving the scope of fair dealing. If there is any confusion, it involves the scope of the licence from authors and publishers through their copyright collective since the university paid for the right to copy and distribute portions of the books to students.

Taylor surprisingly does not disclose the fact that Concordia pays for a copyright collective licence, but by raising the issue she succeeds in highlighting the real limits of collective licensing on campuses. Copyright collectives frequently suggest that their licence permits widespread copying, but the reality is that their licences are fairly narrow in scope. For years, university copying practices may even have exceeded those limits, but the collectives were happy to collect fees from every student enrolled in the institution and look the other way. Today, universities are far more conscious of respecting copyright, employing full-time copyright officers and providing extensive guidelines. While mistakes can obviously happen, university spending on licensed access to digital materials runs into the hundreds of millions of dollars annually, far outpacing declines in copyright collective revenues. Moreover, transactional licences (Copibec alone garners nearly $500,000 per year from pay-per-use licences) provides more compensated access alongside open access materials, fair dealing, and de minimis copying.

That the copying in this case involved several poetry books for five students is also relevant.  Poetry and other fictional works are often cited as the type of uncompensated copying that collective licences seek to address. The problem is that Access Copyright and Copibec want all students to pay annual copying fees, not just social science and arts students. That means collecting from students in the sciences, math, engineering, law, medicine, dentistry, and others who simply don’t copy these kinds of works. These disciplines represent millions of Canadian students, who access materials by purchasing books, using licensed databases, or reading works under open access licences. Yet copyright collectives would argue that all students should pay these fees, which under their earlier proposals could have run into the hundreds of dollars per student over the course of their education. That is not a case of “society paying for what it truly values”, but rather an instance of authors and publishers trying to force students to pay for materials they don’t even use.

Moreover, the involvement of works of poetry is notable since for years Canadian poets have been vocal about the need for greater transparency at Canadian copyright collectives. The League of Canadian Poets has called for formal audits of Access Copyright and expressed concern about how the millions generated by the collective are distributed. Those concerns remain relevant as the latest Access Copyright annual report shows that one in every four dollars it collects goes toward operational expenses rather than authors and publishers and for every dollar collected from foreign collectives, Access Copyright sends $2.50 out of the country.

Copyright mistakes, whether by authors, publishers or educators, will inevitably happen from time to time. Rather than demonstrating a link between a quickly corrected error and the state of the law, the Concordia incident actually shows that copyright collective licensing was never the panacea its advocates suggest. Instead, emerging alternatives offer a far better approach for all copyright stakeholders with a mix of paid access, open access, and fair dealing.

The post Who is on the Wrong Side?: Why the Copyright Mistake at Concordia Highlights the Problems with Collective Licensing appeared first on Michael Geist.

Freeland on the TPP: Taking the U.S. Out Changes a Delicately Balanced Deal

Michael Geist Law RSS Feed - Thu, 2017/03/09 - 10:10

The Trans Pacific Partnership effectively died with the election of U.S. President Donald Trump, who wasted no time in announcing that the U.S. would not move forward with the agreement. Since the TPP cannot legally take effect without U.S. ratification, the decision to withdraw effectively kills the deal. The remaining TPP countries will meet in Chile next week to discuss what comes next. In advance of that meeting, Foreign Affairs Minister Chrystia Freeland appeared before the Senate on Tuesday and was specifically asked by Senator Joseph Day about the possibility of trying to salvage the agreement.

Freeland’s response:

On the TPP, it’s important for people to understand that that agreement had a very specific architecture. The architecture of the TPP is such that it can only come into force if it is ratified by a minimum of six countries equal to a minimum of 85 per cent of the economic activity covered by the TPP countries. In practice, what that means is the TPP can only come into force if it is ratified by both the U.S. and Japan. So there can be no TPP without U.S. ratification.

It is absolutely the case that some sort of other combination of TPP interested countries could happen. Chile is convening a meeting of TPP countries next week, and Canada will be there. China has been invited and the U.S. has been invited also, so different combinations are being discussed.

But I do want to caution honourable senators from thinking that it would be as simple as just taking the United States out. These agreements are very delicately balanced deals, and everyone makes different concessions based on the concessions they’re getting. If the U.S., with its huge market, is taken out of that picture, then a new calculus would apply to everyone. So reconstituting the TPP11 would be a complicated thing to do.

While Freeland is no longer the Minister of International Trade, her response strikes at the heart of the issue.  The U.S. was an integral part of the TPP and the willingness of countries to compromise on key issues was a function of gaining access to the U.S. market. Without the U.S., the agreement as currently structured makes no sense. I made much the same argument earlier this year:

The need for U.S. and Japanese ratification for the TPP to take effect is no accident. For most of the countries in the TPP, access to those two markets were the reason they were willing to sign in the first place. For example, Canada came late to the TPP negotiations in part because it saw limited value in better access to markets such as Australia, Vietnam, Malaysia, and New Zealand. Trade with those countries is relatively minor and would not justify making significant policy concessions. The decision to join the negotiations was sparked by concern that preferential access to the U.S. would be undermined if Canada was left out of the TPP and by a desire to strike a trade agreement with Japan. Once Japan shifted its focus from bi-lateral discussions to the TPP, Canada pushed for inclusion in the deal. With the U.S. out, one of the foundational arguments for joining the TPP is gone.

Moreover, the TPP text reflects the power of the U.S. in the negotiations. For example, the extension of the term of copyright stems from  a U.S. demand, since many TPP countries have terms that mirror Canada’s life of the author plus 50 years. For Canada to move forward with an agreement that does not offer the benefits of better access to the U.S. market, cannot be enforced (since it cannot take effect), and which involves provisions of little interest to many other TPP members does not make sense.

Canada will attend the meeting in Chile next week, but no one should expect that a “TPP11” is the likely outcome.  Rather, the question is whether to go back to the drawing board with the same partners (less the U.S.) or start from scratch in a series of bi-lateral trade negotiations.  Either way, the TPP in its current form is dead and with Canada facing a significant challenge with the NAFTA renegotiation, it should not be working to revive it.

The post Freeland on the TPP: Taking the U.S. Out Changes a Delicately Balanced Deal appeared first on Michael Geist.

Canadian Government on U.S. Special 301: We Don’t Recognize Validity of Flawed Report

Michael Geist Law RSS Feed - Wed, 2017/03/08 - 11:46

The U.S. Trade Representative is conducting a hearing today on the Special 301 report, its annual list of countries it claims have inadequate intellectual property protections. Several countries will appear alongside many lobby groups. I’ve previously posted on how the report from the IIPA, which represents the movie, music, software and publishing industries, badly misstates Canadian law.  Indeed, with recent court decisions, Canada now has one of the toughest anti-piracy rules in the world.

I recently obtained documents under the Access to Information Act that confirm the Canadian government’s rejection of the Special 301 process.  Canada will not bother appearing today largely because it rejects the entire process. According to a memorandum drafted for Canadian Heritage Minister Melanie Joly after last years’ report:

The Government of Canada does not recognize the validity of the process as the findings tend to rely predominantly on allegations from U.S. industry stakeholders rather than on objective analysis.

Media lines go even further:

Canada does not recognize the validity of the Special 301 and considers the process and the Report to be flawed. The Report fails to employ a clear methodology and the findings tend to rely on industry allegations rather than empirical evidence and objective analysis.

The full ATIP document can be accessed here.


The post Canadian Government on U.S. Special 301: We Don’t Recognize Validity of Flawed Report appeared first on Michael Geist.

Why Canada is Now Home to Some of the Toughest Anti-Piracy Rules in the World…And What Should Come Next

Michael Geist Law RSS Feed - Tue, 2017/03/07 - 10:02

Canada last overhauled its copyright law in 2012, bringing to a conclusion more than a decade of failed bills and lobbying pressure. The public debate over the Copyright Modernization Act was often framed by disputed claims that Canada was weak on piracy, with critics arguing that updated laws were needed to crack down on copyright infringement. As the government prepares to conduct a statutorily-mandated review of the law later this year, the landscape has shifted dramatically with court cases and industry data confirming that Canada is now home to some of the toughest anti-piracy rules in the world.

My Globe and Mail column notes that the change in Canadian law is best exemplified by a ruling last week from the Federal Court of Canada involving the sale and distribution of “modchips”, which can be used to circumvent digital controls on video game consoles. Nintendo filed a lawsuit against a modchip retailer in 2016, arguing that the distribution of modchips violated the law, even without any evidence of actual copying.

The federal court agreed, pointing to the 2012 anti-circumvention rules that largely mirror legal restrictions on by-passing copy and access controls found in the United States in awarding $12.7 million in damages. The court adopted an aggressive approach in interpreting the digital lock provisions, while also taking a narrow view of exceptions that were designed to safeguard legitimate reasons to circumvent such as interoperability of computer programs. If followed by other courts, the ruling could similarly restrict the applicability of privacy, security research, and access for the blind exceptions found in the law.

The decision is the latest in a growing line of cases in which Canadian courts have used the law to shut down cutting-edge technologies that have both infringing and non-infringing uses. Last year, the federal court issued sweeping injunctions against multiple distributors of set-top boxes that turn standard televisions into “smart TVs” by enabling users to access a wide range of video content found online. This includes authorized content such as YouTube, Netflix or other online video providers, as well as unauthorized streaming services that offer access to unlicensed content.

Canadian copyright law has also been used to shut down websites whose primary purpose is to enable infringement with rights holders relying on a first-of-its-kind “enabler provision” contained in the 2012 reforms. The provision appears to have worked as the U.S. government’s most recent report on notorious online markets makes no reference to Canada. Moreover, the Business Software Alliance reports that Canada is at its lowest software piracy rate ever, well below global and European averages.

Canadians have also demonstrated a willingness to pay for content online. Netflix had not even entered the Canadian market when the bill that led to the 2012 reforms was introduced, but it has since enjoyed explosive growth in Canada with more than half of English-language households subscribing to the video service. SOCAN, Canada’s largest music copyright collective, recently reported a 460 per cent increase in earnings from Internet music streaming services. In fact, even in the education sector, where critics have expressed frustration with fair dealing rules, spending on licensed access to digital materials runs into the hundreds of millions of dollars annually, far outpacing declines in copyright collective revenues.

If anything, the experience of the past five years suggests that the two ministers responsible for copyright – Innovation, Science and Economic Development Minister Navdeep Bains and Canadian Heritage Minister Melanie Joly – should be working to  tweak the law to address concerns involving misuse and restrictions on innovation.

The notice-and-notice system deployed by copyright owners to alert Internet users of alleged infringements has been widely misused with the inclusion in email notices of demands for settlements that were never envisioned by policy makers. Long overdue regulations to crack down on misleading notices would be an obvious step to address the problem.

Further, the absence of fair use may hamstring innovation as it leaves Canadian companies at a disadvantage when compared with innovative, fair use-based economies such as the United States, Israel, South Korea, and Singapore. When coupled with the restrictive digital lock rules that suffer from narrowly interpreted exceptions, many may find the current Canadian copyright law environment supportive of cracking down on infringement but lacking the flexibility needed for new creativity and innovation.

The post Why Canada is Now Home to Some of the Toughest Anti-Piracy Rules in the World…And What Should Come Next appeared first on Michael Geist.

Canadian DMCA in Action: Court Awards Massive Damages in First Major Anti-Circumvention Copyright Ruling

Michael Geist Law RSS Feed - Fri, 2017/03/03 - 09:04

The Federal Court of Canada has issued a massive damage award in the first major Canadian digital lock copyright ruling involving circumvention of technological protection measures.  The ruling, which is the first to conduct an extensive examination of the anti-circumvention rules established in 2012, adopts expansive interpretations to the digital lock protections and narrow views of the exceptions. The case confirms that Canada has tough anti-piracy laws with one of the most aggressive digital lock laws in the world and will fuel calls to re-examine the effectiveness of the anti-circumvention exceptions in the 2017 copyright review.

The case stems from a lawsuit launched by video game maker Nintendo against Go Cyber Shopping, a modchip seller that operated a retail store in Waterloo, Ontario and several online stores. Go Cyber Shopping offered a wide range of products that allow users to circumvent the digital lock controls on the Nintendo gaming console (such as the Wii) and play unauthorized games including “homebrew” games.  Go Cyber Shopping argued that it provided other services but the court says that it did not tender any evidence in that regard.

The court concluded that the modchip seller engaged in copyright infringement and circumvented technological protection measures. In fact, it went out of its way to emphasize the importance of TPM protection. It adopted a broad interpretation of a technological protection measure – rejecting a UK case that used a narrower interpretation – in favour of an approach that covers access controls that go beyond restrictions on copying.  It states:

having regard to Parliament’s express intent to give copyright owners the power to control access to works, the principle of technological neutrality, the scheme of the Act, and the plain meaning of the definitions for TPM and “circumvent”, it is clear that access control TPMs do not need to employ any barrier to copying in order to be “effective”.

In other words, Canadian copyright law is no longer just about copying as the digital lock rules create legal rights to limit access even without any actual copying.

The court also resoundingly rejected defences to the circumvention claims, concluding that circumvention should also be broadly interpreted while adopting a restrictive approach to the anti-circumvention exceptions. For example, Go Cyber Shopping argued that its modchips allowed users to play “homebrew” games that are designed for use on Nintendo consoles but not owned or licensed by the game maker.  Canadian copyright law includes an exception for interoperability, which conceivably could be applied to such games.  However, the court rejected the argument, concluding that homebrew usage was dwarfed by infringing activity.

Of considerable concern is the court’s conclusion that the availability of a Nintendo-approved interoperability approach would be enough to eliminate the availability of the anti-circumvention interoperability exception.  The court stated:

the Applicant’s evidence establishes that there are legitimate paths for developers to develop software on its consoles without circumventing the Applicant’s TPMs. There is no need for any TPM circumvention to achieve interoperability

Much like fair dealing – which Canadian courts have ruled is still available even where a licence is available – the anti-circumvention exceptions should be available even if there are other mechanisms to address the concern. For example, there are currently anti-circumvention exceptions for access to materials for the visually impaired, to protect personal information, and for security research. Those exceptions should not be dismissed simply because there may alternate ways to safeguard privacy or conduct security research. Indeed, the use of circumvention may be a necessity given the possibility that companies could offer opportunities for third-party security research but subject to restrictions or conditions that limit the effectiveness of the research activity.

With the court clearly concluding that Go Cyber Shopping was a bad actor, it proceeded to lower the boom with massive damages.  It concluded that statutory damages can be applied to circumvention, ruling that the $20,000 maximum per infringement should be applied for a total of $11.7 million.  Moreover, it concluded that there was a need for further deterrence and it awarded another $1 million in punitive damages.

The case is a big win for Nintendo and an exceptionally aggressive application of the new anti-circumvention rules.  It leaves no doubt that Canada has one of the most restrictive and potentially punitive digital lock rules in the world, with the court adopting expansive interpretations to the digital lock protections and dangerously narrow views of the exceptions. The government emphasized that the digital lock exceptions would help maintain the copyright balance, but the court pays little regard for balance in the ruling. With the government set to conduct its review of the Copyright Act later this year, the decision reinforces that Canada already has some of the most powerful anti-piracy laws in the world and that the government must now work to address the ineffectiveness of the anti-circumvention exceptions, most notably by closing the fair dealing gap.

The post Canadian DMCA in Action: Court Awards Massive Damages in First Major Anti-Circumvention Copyright Ruling appeared first on Michael Geist.

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