Canada: TPMs Are Alive And Well: Canada's Federal Court Awards Nintendo $12.7-Million In Damages

Five years ago, Canada enacted legal protection for technological protection measures (TPMs) as part of the Copyright Modernization Act. The Federal Court has now rendered the first decision interpreting these important rights. In short, the court made it clear that legal protection for TPMs were meant to foster innovation in the creative industries and that businesses blatantly engaging in industrial scale TPM circumvention activities will be dealt with harshly by the courts.

In Nintendo of America Inc. v. King & Go Cyber Shopping (2005) Ltd., 2017 FC 246 (docket here; decision available soon on the Federal Court website and CanLII), Mr. Justice Campbell of the Federal Court rendered a decision awarding Nintendo $12.7-million in statutory and punitive damages plus costs and interest against the second respondent, Go Cyber Shopping (2005) Ltd.

Nintendo had protected its game software by employing multiple TPMs on its DS, 3DS and Wii consoles. These included physical configuration TPMs, boot-up security checks, encryption and scrambling technologies, unique data formats, and copy protection codes.

Since 2013, Go Cyber had offered for sale at least 10 devices designed to circumvent one or more of these TPMs which enabled users to play infringing copies of Nintendo's copyrighted games. Each of the devices permitted users to download pirated versions of the games from the Internet, save them onto memory cards, and insert the memory cards into the devices, which could then be inserted into Nintendo's various consoles. Go Cyber also offered "mod chips" and "mod chip kits" enabling users to modify firmware on Wii consoles or disable security routines. It also offered a service to modify consoles to be able to use the pirated content. To drive business, Go Cyber heavily advertised the functionality of the devices on social media, warned customers they may be banned from Nintendo's network for using circumvention devices, and advised customers how to use the devices with certain pirated video games and how to avoid detection.

Based on this uncontroverted evidence, and adopting written submissions of Nintendo as his own reasons, Mr. Justice Campbell found that Go Cyber infringed Nintendo's rights in three ways. The first was through the "secondary infringement" causes of action found in s. 27(2) of the Copyright Act (the "Act"). Nintendo's TPMs contain copyrighted code that cause the Nintendo consoles to boot. This code was copied on the devices sold by Go Cyber to the Canadian public, and Go Cyber was aware of this. Accordingly, Go Cyber's sales of devices containing copyrighted works it knew to be infringing violated this provision.

Second, Go Cyber's website directed users to instructions on how to obtain the file containing another essential piece of Nintendo code to enable one of the devices to work. The Federal Court found this to be an infringement by authorization.

The last and most notable infringements were violations of Nintendo's rights to legal protections for its TPMs. The court started its reasons on this issue by quoting from the preamble to the Copyright Modernization Act and from a government backgrounder that highlighted Parliament's intention to foster innovation and promote investments in the cultural industries by providing effective legal protection for TPMs. It also quoted from the government's fact sheet which stated the following:

Innovative companies, such as video game developers, will have the legal tools to protect the investments they have made in order to reinvest in future innovation and jobs.

Protecting digital locks gives copyright industries the certainty they need to roll out new products and services, such as online subscription services, software and video games, if they choose to use this technology. Not only will this promote investment and growth in Canada's digital economy, it will also encourage the introduction of innovative online services that offer access to content. Such services are increasingly available in other countries.

The Bill recognizes that certain protections, such as restricted content on news websites or locked video games, are important tools for copyright owners to protect their digital works and are often an important part of online and digital business models.

Introducing legal protections for digital locks brings Canada in line with international partners, as it is one of the requirements of the World Intellectual Property Organization Internet treaties.

While the music industry has moved away from digital locks on CDs, they continue to be used in many online music services. Software producers, the video game industry and movie distributors also continue to use digital locks to protect their investments. Canadian jobs depend on their ability to make a return on their investment. Businesses that choose to use digital locks as part of their business models will have the protection of the law.

Based on the legislative history, statutory wording, and the intentions of Parliament, the court made some key findings including the following:

  • The TPM provisions are crucial to the functioning of the copyright system in the digital world. The Federal Court noted that each of Nintendo's video games can take years and millions of dollars to develop, and that Nintendo was "a target of intellectual property 'pirates' who benefit from the Applicant'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".
  • The doctrine of technological neutrality means that physical barriers can serve as TPMs. The Federal Court agreed that the TPM provisions were to be given a technologically neutral interpretation, saying:

    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 its written representations, Go Cyber relied on obiter dicta in a UK decision in which the High Court expressed doubts that a physical configuration could serve as an "effective" TPM. The court, applying the broader language of the Act, ruled that the words "any effective technology, device or component" could enable the configuration of a device to be a TPM. The Federal Court also rejected the argument that an "access control" TPM, to be legally protected, had to be designed to prevent copying of the work it protected. This followed from, among other things, that the Act protects both access control and control TPMs.
  • The term "circumvent" must be read to accomplish the goals of the Act. Go Cyber argued that the specific words "avoid, bypass, remove, deactivate or impair" used in s. 41.1(1)(c) of the Act, should be read narrowly, and that the devices it sold did not therefore "circumvent" the Nintendo TPMs. This argument too was rejected. The Federal Court agreed with Nintendo that this list of activities is exemplary but not comprehensive, meaning that other forms of circumvention may also give rise to rights under s. 41.1(1)(c) of the Act.
  • "Access" must be viewed holistically. Go Cyber contended that, at worst, the scrambling and encryption devices merely provided access to the Nintendo operating system and did not therefore circumvent the TPMs implemented on specific games created by Nintendo. This suggestion was rejected. The functionality of the devices was to permit users to play infringing copies of video games that would otherwise be unplayable without these devices. While they did provide access to the operating system, they also provided access to the games. That is all that is required to make out the cause of action.
  • The "Interoperability" defence and "Homebrew" defences are not credible in context. Go Cyber suggested that it could avail itself of the defence provided under s. 41.12 of the Act, which allow circumvention for the purpose of making computer programs interoperable. It suggested that the devices could allow for "homebrew" programs to be played on Nintendo consoles, those being non-Nintendo-created or licensed games designed for the Nintendo consoles. Noting that Go Cyber had the burden of proof in respect of this defence, the Federal Court agreed with Nintendo's argument that:

    "although homebrew software may be available on the internet and users of the Respondent's devices could theoretically be using them for homebrew, the scale of such activities is dwarfed by the market for illicit and infringing activities... Indeed, most of the websites purporting to make homebrew software available also offer (in far greater quantities) unauthorized copies of the Applicant's copyrighted games... [Indeed], the Respondent's own website belies its submission. The only mention of 'homebrew' on the Respondent's website states 'no homebrew at the moment'. Having effectively advised its customers that homebrew is unavailable, the Respondent is in no position to show that its products and services were for this purpose."
  • Statutory damages are not based on the number of TPMs circumvented. Go Cyber attempted to limit its damages by contending that the up-to-$20,000 statutory damages award available under the Act should be computed by assessing the number of TPMs circumvented, rather than the number of works to which access was provided. The Federal Court rejected this argument based on the specific language of s. 41.1(4), which allows damages not only where a TPM has been circumvented, but where it "could be circumvented" as a result of the defendant's acts.
  • Heightened statutory damages and punitive damages were warranted given Go Cyber's knowledge and "industrial scale operation". As part of its affidavit evidence, Nintendo was able to convince the Federal Court of Go Cyber's clear awareness of the illegality of its activities and its systematic "industrial scale" subversion of the market for authorized copies of video games. In this context, Go Cyber's late attempt to "admit[] its wrongdoing" did not spare it from the brunt of a massive damages award. The Federal Court also drew on the stated objectives of Parliament to "protect investments made by the creative industry, including specifically the video game industry".

The gist of the Federal Court's message is clear. The TPM provisions in the Act were intended to provide legal protection for businesses that invest in 21st-century businesses models. Business built on undermining these models by trafficking in circumventing technologies or services will not be able to operate with impunity in Canada.

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