Movie Companies Cannot Use Piracy Notice Scheme to Facilitate Class Action

Movie companies known for aggressively tracking down alleged pirates in pursuit of settlements have been denied permission to proceed in a reverse class action in Canada. A Federal Court judge said the plaintiffs' plan, which envisaged using ISPs and the country's notice-and-notice scheme to communicate with alleged BitTorrent pirates, would be illegal.

Rightsholders operating business models that attempt to turn piracy into revenue are always looking for ways to streamline their work to reduce costs and maximize profits. Identifying infringers in bulk is one of the favored options.

In 2016, a group of movie companies known for their pursuit of alleged BitTorrent pirates attempted something rare in Canada. Voltage Pictures, Cobbler Nevada, Ptg Nevada, Clear Skies Nevada, and several other companies filed an application at Federal Court requesting certification of a reverse class action.

Their targets were an unspecified number of BitTorrent users who allegedly shared movies, including The Cobbler, Pay the Ghost, Good Kill, Fathers and Daughters, and American Heist.

Building a Case Around Single Defendant

The plaintiffs (collectively ‘Voltage’) built their case around a single customer of ISP Rogers, initially known only as John Doe #1. Voltage claimed the subscriber had uploaded all five movies and after obtaining his personal details via a so-called Norwich disclosure order (which included a trip to the Supreme Court), Robert Salna became the plaintiffs’ point of focus.

Salna owns several rental properties and provides internet access to his tenants. Salna said that they must be responsible for the alleged infringements, something they denied. Voltage subsequently added the tenants to the case but then discontinued the action against them.
Significant Opposition, Federal Court Denies Certification

Schemes targeting large numbers of internet subscribers are fraught with difficulties and rarely popular beyond the plaintiffs. Interveners in the case included Canadian Internet Policy & Public Interest Clinic (CIPPIC), Bell Canada, Cogeco Connexion, Rogers Communications, Sasktel, Telus Communications, Videotron, and Xplore.

All opposed the class action approach and in November 2019, the Federal Court supported their position. The Court found that since a file-sharing case involving many alleged infringers would require multiple individual fact-findings for each class member, class certification would be denied on all grounds.

Voltage’s Successful Appeal

Voltage and related plaintiffs have a reputation for exhausting every option before conceding defeat, a track record maintained in Canada. In 2021 at the Federal Court of Appeal, Justice Rennie set aside the 2019 Federal Court ruling, reversing it on all grounds.

The Court noted that while a reverse class action could benefit the plaintiffs, those accused of infringement could also take advantage by pooling their resources. The case was then referred back to the Federal Court with two questions: was a reverse class action the preferable procedure in this case, and did Voltage have a workable litigation plan?

In deciding the latter, the Federal Court would be required to revisit Voltage’s proposal to use Canada’s ‘notice-and-notice’ infringement warning program to communicate with alleged infringers. The system was put in place to allow rightsholders to notify subscribers, via their ISPs, that their connections had been monitored sharing copyrighted content.

The Federal Court previously ruled that the system could not be used to facilitate communication in a class action, a point on which the Court of Appeal subsequently disagreed.

Federal Court Again Weighs Arguments

In a process over six years old, Voltage’s goal of targeting more than 55,000 subscribers in a class action has faced deterioration over time. As of September 16, 2022, potential class members (internet account subscribers who allegedly infringed Voltage’s copyrights during the previous six months) had been reduced to less than 1,000.

According to the Federal Court’s estimate in its order handed down June 26, the figure is now ‘just’ 874 subscribers. Justice Fothergill said that even if the class comprised 874 members, he was satisfied that Voltage had demonstrated “some basis in fact” for the conclusion that a class proceeding is indeed the preferable procedure in this matter.

“A class proceeding will permit the determination of common issues based upon a single set of pleadings. The common issues will be decided on the basis of common evidence, including expert evidence. Respondent Class Members may pool resources to fund the defense, and may advance a coordinated position with the assistance of Class Counsel. This in turn alleviates the risk of inconsistent judgments,” his order reads

“A class proceeding may permit Respondents to benefit from a higher degree of anonymity. They may choose to identify themselves only to Class Counsel. By contrast, individual applications, including those commenced against multiple respondents, will require identification of each respondent by name unless the Court grants a confidentiality order.

“Another major advantage of a reverse class proceeding is that any settlement must be approved by the Court. This is an important safeguard against ‘copyright trolling’, where respondents are pressured to settle unmeritorious claims under threat of significant litigation costs.”

ISP Interveners Object

As is often the case when rightsholders target large numbers of internet users, ISPs are expected to assist in processes that involve their subscribers and their data. In this case the ISPs objected to Voltage’s plan, which would require them to send a class action “Certification Notice” to the alleged infringers and “retain data on identities of their subscribers until following final determination of the hearing on the merits (including any appeals).”

The ISPs said that retaining subscriber data would mean the unrealistic proposition of storing all data for all customers for years, redesigning their software and databases to automatically preserve only data retroactively selected by Voltage, or manually saving data for potentially tens of thousands of customers.

Inevitably the ISPs would face other subscriber-related issues, including customers calling for legal advice and the need to train staff to deal with these sensitive discussions. Some customers may choose to complain or blame their ISP for their predicament, or even leave to join another ISP. Others may be tempted to sign up with bogus contact information to avoid legal liability, preventing ISPs from contacting their own customers in relation to their accounts or developing business with them.

More fundamentally, the ISPs said that using the “notice-and-notice” system to communicate with class members would be illegal under Canadian law. The Federal Court agreed and said that would not happen.

“[V]oltage’s proposed use of the notice-and-notice regime to advance this class proceeding is inconsistent with the Copyright Act, and is contrary to law,” Justice Fothergill’s order reads. “It is therefore unnecessary to reach definitive conclusions regarding the ISPs’ concerns about cost, inconvenience and the potential disruption of their relationships with their subscribers.”

Federal Court Again Denies Class Certification

In conclusion, the Federal Court found enough deficiencies in Voltage’s litigation plan to deny class certification, at least for now.

“Voltage remains at liberty to present a revised litigation plan that does not depend on the notice-and-notice regime in the Copyright Act to identify and communicate with Class Members, and that makes adequate provision for the funding of Class Counsel,” the order reads.

How the case will progress from here is unclear. In very basic terms, the settlement model favored by Voltage is no different from any other business; costs of doing business are weighed against anticipated revenue (via settlements) and if the difference represents an acceptable return, there’s a reason to press ahead.

Since free use of the notice-and-notice has now been ruled out, costs appear to be going in the wrong direction, something particularly problematic in Canada. Unlike most other regions where Voltage is active, Canada places a $5,000 cap on non-commercial infringement, something that significantly dampens the psychological pressure to settle “or else”.