In a precedent-setting decision issued yesterday, Nintendo of America Inc v King et al, 2017 FC 246, the Federal Court awarded $12,760,000  in damages for circumvention of technological protection measures (TPMs) and copyright infringement under the Copyright Act.

Mark Biernacki and Kevin Siu of Smart & Biggar acted as counsel on behalf of Nintendo of America Inc., the successful applicant.

This is the first time the Federal Court has considered circumvention of TPMs on the merits. Although the anti-circumvention provisions of the Copyright Act have been in force since 2012, the Court acknowledged that they have never been substantively considered to date. This case addresses several novel and important issues in Canadian copyright law, including the scope of TPM protection and remedies available to copyright owners.

The case concerned TPMs used by Nintendo on three of its popular video game consoles (Nintendo DS, 3DS, and Wii) to control access to its copyrighted video games. The Respondent, Go Cyber Shopping (2005) Ltd. sold and installed various circumvention devices including Game Copiers that mimicked Nintendo 3DS and DS game cards and mod chips designed to circumvent Wii consoles. These devices enabled users to play potentially hundreds of illegally downloaded video games without having to purchase a genuine copy.

There were three main issues in the proceeding: whether there was "secondary" copyright infringement under s. 27(2) of the Copyright Act; whether there was TPM circumvention under s. 41.1(1) of the Copyright Act; and the appropriate remedies for circumvention and infringement.

Secondary copyright infringement

The copyright infringement issue related to "header data" stored on each Game Copier sold by Go Cyber or which could be downloaded by following instructions on the packaging. Nintendo owned three separate copyrights in the header data, which were also used as part of a TPM to verify that the DS and 3DS game cards are genuine Nintendo products.

In particular, with respect to the downloadable header data, the Court found that by providing instructions to download the header data, Go Cyber "authorized" copying without Nintendo's consent, which constituted an act of primary infringement under the test set out in CCH Canadian Ltd v Law Society of Upper Canada, 2004 SCC 13. This was also sufficient to establish knowledge of infringement. Thus, the Court held that Go Cyber was liable for secondary copyright infringement under s. 27(2).

Circumvention of technological protection measures 

On the issue of TPM circumvention, the Court recognized the importance of TPMs to the creative industry and copyright owners. Several novel points of law were discussed, including the scope of the TPM provisions, the applicability of the "interoperability" exception, and whether "replicating" a TPM amounts to "circumvention. The Court found in favour of Nintendo on each point:  

  • TPM includes physical configuration: the Court held that the physical shape and configuration of Nintendo's game cards and corresponding slots on its DS and 3DS consoles were "effective technologies" within the definition of TPM in s. 41, since they were specially designed by Nintendo for its consoles and acted like a "lock and key". The Court also accepted that the principle of technological neutrality is relevant to defining a TPM. Go Cyber did not dispute that the other TPMs employed by Nintendo were "effective" TPMs.
  • Circumvention includes replication of TPM: The Court rejected the Respondent's argument that its Game Copier devices merely "replicated" (and did not "circumvent") Nintendo's TPMs, for example by copying the physical shape or the encryption circuits from a genuine Nintendo game card. Instead, the Court accepted that the definition of "circumvention" is broad. The words "to otherwise avoid, bypass, remove, deactivate or impair" in s. 41 are exemplary, non-exhaustive, forms of circumvention. Thus, akin to a burglar duplicating a key, "replication" of a TPM also constitutes "circumvention". 
  • Interoperability defence not established by mere existence of "homebrew" software: Go Cyber raised the "interoperability" defence to TPM circumvention under s. 41.12 of the Act, by alleging that its devices could be used for "homebrew" software (non-licensed third-party software in which Nintendo did not own copyright). However, the Court found that Go Cyber had not met its evidentiary burden, as it could not prove that any user in fact used the devices for "homebrew". To the contrary, Court found that the primary purpose of the devices was for circumvention, and the alleged market for "homebrew" software was dwarfed by the availability of unauthorized video games.

The Court therefore held that Go Cyber was liable under s. 41.1 of the Act for trafficking and installation of TPM circumvention devices.

Remedies

Nintendo elected statutory damages for both copyright infringement and TPM circumvention. The key issue was whether the amount should be calculated on a "per work" or "per TPM circumvented" basis. The Court held that a "per work" basis should be adopted, recognizing that value in copyright (and therefore the harm of circumvention) was derived from each work. In the result, the Court awarded the maximum $20,000 for each of the 585 Nintendo video games in which the circumvention enabled access, for a total of $11,700,000. The Court also awarded $20,000 for each of the three header data works infringed.

In addition, the Court awarded punitive damages in the amount of $1,000,000, granted a wide injunction, and ordered delivery up of the impugned devices.

Impact of decision 

This case will be of significance to copyright owners, particularly in the creative industry, who employ specialized platforms for distributing content. The Federal Court has shown that it is willing to enforce technological protection measures, and will award appropriate damages to recognize the severity of TPM circumvention in the digital age.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.