In the United States, Europe, the UK, Australia, Japan, and many other countries respectful of copyright, rightsholders have a fundamental right to take action against alleged infringers.
How that takes place in practice has been source of friction, especially when rightsholders target thousands of individual infringers, aiming to collect cash settlements of thousands of dollars from as many as they possibly can. Such schemes place significant pressure on internet bill payers, who are not necessarily those responsible for the actual infringement, and in turn cause a major headaches for ISPs.
A decade ago Canada attempted to strike a compromise with its ‘Notice and Notice’ regime, which requires ISPs to forward rightsholders’ copyright infringement notices to subscribers. Warnings that aggressive rightsholders would likely find a way to use the scheme to obtain settlements were well-founded, but not the only opportunity they have to get paid. Several repeat infringer liability lawsuits against ISPs, VPN providers, hosts and other intermediaries in the U.S. are proof of that.
Movie Companies Demand CAD$400m / US$291m in Damages
When companies including Millennium Funding, Outpost Productions, Bodyguard Productions, Hunter Killer, and Rambo V Productions sought to enforce their rights in Canada, they reportedly had some early success obtaining customer identities from Bell, at least until things went sour.
In their lawsuit targeting Bell, the movie companies claimed that they sent over 81,000 notices to Bell between February 2019 and June 2021, but Bell failed to forward almost 40,000 of them. Since in theory intermediaries could face a bill of between CAD$5,000 and CAD$10,000 for failing to meet their ‘notice and notice’ obligations, the plaintiffs filed a claim against Bell demanding CAD$400 million in damages.
Bell’s Defense and Counterclaim
In a counterclaim Bell accused Aird & Berlis LLP, the law firm hired by the studios to send the notices, of misuse of copyright and abuse of process.
Bell alleged that the scheme abused the notice and notice regime by automatically generating large numbers of notices to 1) intimidate alleged infringers and 2) claim huge damages from ISPs for not forwarding them.
On top, Bell alleged champerty and maintenance, where a third party pays litigation costs in return for a share of the eventual spoils, or assists in a lawsuit without having a legitimate interest.
Struck Out, Leave to Amend Denied
A case management judge largely sided with the plaintiffs; Bell’s complaints concerning the notice-and-notice regime was a matter for Parliament, the judge said. Claims that Aird & Berlis intimidated alleged infringers lacked supporting evidence, likewise there were “no material facts” to show that Aird & Berlis and Millennium were not in a solicitor-client relationship.
Allegations of copyright misuse, champerty and maintenance, abuse of process and unlawful means conspiracy, were therefore struck out by the judge without leave to amend.
Bell fought back against the order but had only limited success on appeal. On copyright misuse, Federal Court Judge Angela Furlanetto concluded that it could be a defense to a section 41.26 action, but agreed that Bell had provided insufficient evidence.
Ultimately the Federal Court dismissed the appeal and upheld the decision to strike portions of Bell’s pleadings without leave to amend. That denial was justified, the judge wrote, because Bell had previously amended its pleading without curing deficiencies raised by the movie companies.
Federal Court of Appeal’s Decision
A subsequent appeal launched by Bell against the Federal Court’s decision – that in turn had upheld the case management judge’s decision – was reviewed by the Federal Court of Appeal. The judgment, with reasons written by Justice Woods alongside Justices Laskin and Justice Locke, was handed down on August 29.
The core of Bell’s appeal was that several of its pleadings should not have been struck, and it should’ve been given leave to amend. Bell’s allegations of champerty or maintenance did not appear in the appeal.
On the misuse of copyright claim, the Federal Court said that Bell’s pleading did not provide sufficient information to support its allegations of improper conduct. It failed to “specify ‘what’ the misuse was and ‘how’ the conduct was contrary to public policy.” The decision to strike due to insufficient material facts was therefore correct.
Bell’s ‘secondary allegations’ against Aird & Berlis LLP also lacked sufficient material facts to support allegations of improper conduct, with the Court of Appeal noting that the described actions were consistent with a solicitor-client relationship.
The ‘abuse of process’ and ‘unlawful means conspiracy’ claims failed for similar reasons. The Court affirmed the striking of these allegations, noting that Bell had not provided sufficient information on the ‘illegal purpose’ or how that had caused Bell to suffer damage.
On the alleged violations of the notice-and-notice provisions, the Court of Appeal agreed that these should be struck from Bell’s defense and counterclaim because a statutory breach does not give rise to an independent cause of action.
Denial of Leave to Amend Was an Error of Law
The Court of Appeal found that the Federal Court judge misapplied the legal test for denying leave to amend.
“The legal test to deny leave requires that the judge conclude that the defects are not curable. This high bar highlights that denying leave is a very serious consequence for the party whose claim is dismissed and is a step that should not be taken lightly,” the judgment reads.
A recent Court of Appeal decision found that leave to amend should be granted unless many chances to amend had been given already. The Court also describes Bell’s ‘copyright misuse’ allegation, concerning alleged misuse of the notice-and-notice regime, as “a viable defense.”
“The [Federal Court] judge determined that the pleading does not provide sufficient detail to support these allegations, but it is not plain and obvious that these defects cannot be cured,” the judgment notes.
The Federal Court of Appeal allowed Bell’s appeal in part without costs, and set aside the decision that denied leave to appeal. That means Bell has an opportunity to submit an Amended Statement of Defense and Counterclaim, but where that will leave the case is still unclear.
The Federal Court of Appeal judgment in Bell Canada v. Millennium Funding, Inc. is available here (pdf)
From: TF, for the latest news on copyright battles, piracy and more.
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