The recent decision of the Federal Court of Canada in Nintendo of America Inc. v. King et. al., 2017 FC 246 (CanLII) [Nintendo v. King] is quite an interesting read. In 2012, Canada amended its Copyright Act with the passage of Bill C-11 (also known as the Copyright Modernization Act [CMA]). One of the main objective of the CMA was to ensure that Canadian copyright legislation remained relevant in today’s digital environment. Thus, the CMA granted owners of intellectual property the legal right to prosecute third parties who circumvent the technological protection measures (TPMs) put in place to protect their works from unauthorized access.
To “circumvent” according to the CMA, means
“(a) in respect of a technological protection measure within the meaning of paragraph (a) of the definition of “technological protection measures”, to descramble a scrambled work or decrypt an encrypted work or to otherwise avoid, bypass, remove, deactivate or impair the technological protection measure, unless it is done with the authority of the copyright owner.”
Section 41 of the CMA defines a TPM as:
“any effective technology, device or component that, in the ordinary course of its operation,
(a) controls access to a work, to a performer’s performance fixed in a sound recording or to a sound recording and whose use is authorized by the copyright owner;
(b) restricts the doing – with respect to a work, to a performer’s performance fixed in a sound recording – of any acts referred to in section 3, 15 or 18 and any act for which remuneration is payable under section 19″
The introduction of anti-circumvention provisions in the CMA legally permitted the restriction of third-party use of creative works as well as the restriction of their ability to make copies of creative works through the use of technological protection measures (TPMs). This effectively acted as a safeguard for creators of intellectual works, prohibiting unauthorized persons from circumventing access control TPMs or from offering services to the public or manufacturing, importing, distributing, offering for sale or rental any technology or devices where such services, technology or devices were primarily for the circumvention of TPMs.
In Nintendo v. King, Nintendo or the Applicant sought, among other things, a declaration that the King and Go Cyber Shopping (2005) Ltd. or the Respondents had circumvented, offered services to circumvent, and trafficked in devices which circumvent the Applicant’s TPMs contrary to s.41.1(1)(a)-(c) of the Copyright Act, thereby breaching the Applicant’s copyright in certain works contrary to s.27(2) of the Copyright Act.
The Applicant sought, upon a finding that the Respondents were jointly and severally liable for the circumvention and/or infringement under the Copyright Act, statutory damages under s.38.1 of the Copyright Act, its costs, as well as an injunction restraining the Respondents from further infringement and circumvention.
About the parties…
Nintendo is a famous video game company which sells and distributes popular and well-known video games and video game consoles in Canada and all over the world. At issue in the case at hand are the handheld video game consoles known as the Nintendo DS and 3DS, and the Wii home video game console. These video games are sold as game cards (in the case of DS and 3DS games) and discs (in the case of Wii games). Purchasers of genuine Nintendo video games can play these games on the appropriate Nintendo console by inserting the game card or disc into the corresponding console. Nintendo never authorized the download of its games onto devices that mimic its game cards or discs and which circumvent its TPMs.
Due to the popularity of Nintendo games, its video game systems have been a target of intellectual property “pirates” who benefit from Nintendo’s investments by making unauthorized copies of its video games or by creating means to enable users to play such unauthorized copies of its video games on its consoles. As a preventive measure, and to safeguard its investments, Nintendo put in place TPMs on its video game systems to protect and control access to its copyrighted works. These TPMs prevent users from playing unauthorized copies of video games and from installing unauthorized software, including counterfeit games and software on its consoles.
In this case, on the Nintendo DS and 3DS, Nintendo had installed at least three distinct TPMs to control access to its copyrighted works – (i) A unique physical configuration of its game cards designed specifically for each respective console; (ii) The presence of boot up security checks on the consoles. Each game card contained the copyrighted Header Data which the console checks before allowing access to play any of the games stored on the game card; (iii) Encryption and Scrambling technology between the console and game card. For its Wii console, two distinct TPMs were used to control access to Nintendo’s copyrighted works: (i) Format TPM which is a proprietary unique data format designed to be used only on Wii discs; and (ii) Wii Copy Protection Code which is a code on Wii game discs which cannot be copied using commercially available tools and which must be present in order for users to access a Nintendo Game.
The Respondents, has since at least 2013, advertised and offered for sale, either through its websites or at its retail store, certain devices which the Applicant contends are designed to circumvent TPMs employed on the Applicant’s Nintendo DS, 3DS, and Wii gaming consoles. These devices were called “Game Copiers”. A user in possession of a Game Copier could use it to play unauthorized copies of Nintendo DS or 3DS video games. The Respondent also offered for sale certain devices, referred to as “mod chips”, which were used to circumvent TPMs employed on the Wii console. The mod chips allow users to play unauthorized copies of Wii video games, such as pirated copies downloaded from the internet. The Respondents also offered mod chip installation services online and at its retail store, whereby a customer may drop off a Wii console to be “modded” (i.e. installed) with a mod chip.
Three issues were presented to the court for determination:
Issue 1: whether the Respondent had infringed the Applicant’s copyrights contrary to s.27(2) of the Copyright Act;
Issue 2: whether the Respondent contravened the anti-circumvention provisions under s.41.1(1) of the Copyright Act; and
Issue 3: if so, what are the appropriate remedies?
In considering Issue 1, the court looked at the Supreme Court decision in CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13 (CanLII) [CCH] where the three-part test for establishing secondary infringement was set out:
(1) the copy must be the product of primary infringement;
(2) the secondary infringer must have known or should have known that he or she is delaying with a product of infringement; and
(3) the secondary dealing must be established within one of the enumerated acts in s.27(2).
The court held that all three elements were satisfied in this case and found the Respondent had infringed Nintendo’s copyright.
With respect to the 3DS Header Data, the court opined that even though the work was not present on the Sky3DS device when sold by the Respondent, the packaging of the Sky3DS device listed the third-party website for downloading the 3DS Header Data. Also, the Respondent’s website directed users to instructions on how to obtain the file containing the copyrighted 3DS Header Data work. This was sufficient to establish the existence of primary infringement. The authorization of infringing acts by providing its customers with instructions on how to copy the 3DS Header Data is sufficient to meet the first element of the secondary infringement test. The Respondent had notice of such facts as could infer actual or constructive knowledge that a breach of copyright was being committed and this was sufficient to establish the second element of secondary infringement.
On Issue 2, the court started with a brief summary of the legislative background to the Circumvention of Technological Protection Measures provisions under the Copyright Act. It looked as the summary section of the CMA, its preamble, contemporaneous papers authorised by the Government of Canada and section 41 of the Copyright Act. The questions which the court sought to answer here was:
(1) whether the Applicant’s technology, device or component is a TPM within the definition of s.41;
(2) whether the Respondent has engaged in circumvention activities prohibited by s.41.1(1);
(3) if raised, whether any exception applies.
On the first question, the court stated that the TPMs installed on the Nintendo DS, 3DS and the Wii are deemed TPMs under s. 41 of the Copyright Act.
On the second question, the court rejected the Respondents’ interpretation of “circumvent” and held that the Game Copiers sold by the Respondents had provided unauthorized access to Nintendo Games. They had also circumvented the Applicant’s Encryption and Scrambling TPMs. The Respondents were held to have trafficked in circumvention devices contrary to s.41.1(1)(c) of the Copyright Act.
The Respondent raised two defences – “Interoperability” and “homebrew” defences. The Interoperability defence is a recognised exception under s.41.12 of the Copyright Act, while the “homebrew” defence is not a recognized exception. After considering the arguments of the Respondent, the court held that its position was “unfounded”. The Respondent failed to meet its burden of establishing that its activities fell within the s.41.12 exception.
In awarding damages, the court adopted the Applicant’s approach which was that statutory damages for TPM circumvention should be calculated on a per-work basis. Its reason for adopting this approach were:
- Actual infringement of copyright is not necessary for an award of statutory damages for TPM circumvention.
- A work-based award is more harmonious with the wording of the Act. (s.41.1(4) and s.38.1(1) of the Copyright Act).
- The economic reality of copyright vis-a-vis TPM circumvention favors a work-based calculation.
- A TPM-based award of damages would likely be ineffective. Parliament recognised the importance of TPMS as tools to prevent piracy and to protect investments made by the creative industry. In order to be effective, those legal tools must reflect the value of the works protected and act as a deterrent to the circumvention industry.
The court awarded statutory damages to the Applicant for each of the 585 Nintendo Games and for each of the 3 Header Data works in the total sum of $11,700,00. The court had deemed an award of $20,000 per work reasonable and justified for the TPM circumvention. A further award of $60,000 was granted for the infringement of the three Header Data works by the Respondents. A punitive damages award in sum of $1,000,000 was also granted by the court. The court also issued injunctions prohibiting the Respondent from circumventing the TPMS and to deliver up for destruction all materials in its possession that offend against the issued injunction.
This case is very important to copyright law in Canada as it is the first case on the infringement of TPMs decided since the CMA was passed in 2012. It has set a strong precedent for future cases and it is hoped that in the near future, we will begin to see more developments in this area of copyright law.
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