Canada: Game Over For Canadian Game Copier And Mod Chip Seller

For the first time, the Canadian Federal Court has applied provisions of Canada's Copyright Act  ("Act") that were enacted in 2012 to prevent circumvention of digital locks, which are also known as technological protection measures ("TPMs"). The Court's decision is a reminder that: 1) copyrighted works and the TPMs that control access to and copying of them are separately protected in Canada, 2) TPMs in Canada are not limited to electronic measures, and can include the physical features of game cards and other media used to store works, and 3) in appropriate circumstances statutory damages, punitive damages, and injunctive relief are all available to rightsholders when their copyrights are infringed and TPMs circumvented.

Nintendo of America Inc v. Go Cyber Shopping (2005) Ltd et al, 2017 FC 246

The Applicant, Nintendo, is the manufacturer of the Nintendo DS, 3DS and Wii video game consoles. Nintendo's claims were based on two types of copyrighted works: 1) the computer code and data used by Nintendo as part of its TPMs ("Header Data") and 2) the video games developed by Nintendo for use with its video game consoles ("Nintendo Games"), a library of some 585 copyrighted works.

Each DS and 3DS game card manufactured by Nintendo contains two works from the Header Data. The Header Data contains code to display Nintendo's logo (the "Nintendo Logo Data File") and code that must be present in order for the Nintendo DS or 3DS to play the inserted video game (the "DS Header Data" and "3DS Header Data").

The corporate Respondent, Go Cyber Shopping Ltd. ("Go Cyber"), advertised and offered for sale through its website and retail stores "Game Copiers" for Nintendo DS and 3DS consoles that allowed owners to play unauthorized copies of Nintendo DS and 3DS video games. Go Cyber also offered for sale "Mod Chips", an after market internal component installed in Nintendo Wii systems to play unauthorized copies of Wii video games.

Nintendo claimed that the Respondent, by selling the Game Copiers, had circumvented a number of TPMs relating to the Nintendo DS and 3DS devices including: 1) the physical configuration of the DS and 3DS game cards, 2) the boot up security checks via the Header Data, and 3) the encryption and scrambling between the console and the DS or 3DS game card.

On the Wii console, Nintendo claimed circumvention of two TPMs through the sale of the Mod Chips including: 1) a proprietary unique data format for Wii discs, and 2) copy protection code found on Wii discs.

Nintendo brought an application for a declaration that the Respondent had: 1) infringed the Applicant's copyright, and 2) had circumvented, offered services to circumvent, and trafficked in devices, which circumvented the Applicant's TPMs contrary to Sections 27(2) and 41.1(1)(a)-(c) of the Act, respectively.

Respondent Liable for Copyright Infringement

The Federal Court found that the Respondent had infringed the copyright in the Header Data, contrary to Section 27(2) of the Act, by selling the Game Copiers, which contained unauthorized copies of the Header Data. The Respondent admitted infringement of the DS Header Data although denied infringement of the Nintendo Logo Data File. As the evidence established that Game Copiers containing the Header Data would also contain the Nintendo DS Logo File, the Court inferred that the Respondent knew, or ought to have known, that the Game Copiers contained both sets of data.

With respect to the 3DS Header Data, although the Game Copiers for the 3DS offered by the Respondent did not contain the Header Data as sold, the packaging for the copier provided information on a third party website where the 3DS Header Data could be downloaded. As the Respondent authorized the infringing acts by providing instructions to its customers via the packaging, the Court held that the sale of the Game Copiers for the 3DS amounted to infringement of the 3DS Header Data.

Respondent Liable for Circumventing TPMs

In assessing whether the Respondent had circumvented Nintendo's TPMs, the Federal Court had to first determine which of the TPMs asserted by Nintendo fell within the definition under Section 41 of the Act.  The Respondent only contested Nintendo's assertion that the physical shape of the DS and 3DS cards was a TPM, asserting the shape of Nintendo's game cards did not create a barrier to the work being copied.

The Court found that the wording "any effective technology, device or component that, in the ordinary course of its operation (a) controls access to a work..." of Section 41 did not restrict TPMs to any particular means of access control and that the definition extended beyond descrambling and decryption to include "anything else that otherwise avoids, bypasses, removes, deactivates or impairs the technological protection measure".  The shape of the DS and 3DS cards and arrangement of electrical pins was effective in controlling access to genuine Nintendo Games found on the DS and 3DS cards.

Based on the Court's interpretation of "effective", it concluded that each of the asserted TPMs, for all of the DS, 3DS and Wii consoles, fell within the statutory definition.

The Court continued on to find that the Respondent was liable under Section 41.1(1)(c) of the Act as the sale of Game Copiers and Mod Chips fell within the definition of "circumvent" and thus the Respondent, by selling or/and installing the devices, had trafficked in circumvention devices contrary to s. 41.1(c)(ii) of the Act.

In its defense, the Respondent raised the exception of "interoperability" under Section 41.12 of the Act. The Respondent argued that the sale of circumvention devices and installation services allowed for Nintendo's game consoles to be interoperable with "homebrew" software (e.g. third party software not licensed or owned by Nintendo but nonetheless compatible with Nintendo consoles).

The Court dismissed the Respondent's interoperability defense noting that the primary purpose of the Respondent's devices was to enable users to play pirated games, and that homebrew activities were "dwarfed" by illicit and infringing activities. The evidence also established that the only mention of homebrew on the Respondent's website was a statement, "no homebrew at the moment".

Statutory and Punitive Damages, Injunction, and Delivery Up

On the issue of damages, the Applicant elected to recover statutory damages for both copyright infringement and TPM circumvention subject to Sections 38.1 and 41.1 of the Act, respectively. 

In awarding statutory damages for the TPM circumvention, the Federal Court concluded that the language, "a technological protection measure has been or could be circumvented" of Subsection 41.4(4) does not require actual infringement of copyright in order for an award of statutory damages relating to TPM circumvention. The Federal Court further found that the Applicant was entitled to a statutory damages award for each of the works for which TPM circumvention provided unauthorized access to, namely, the 585 Nintendo Games. 

As the evidence before the Court was sufficient to establish bad faith and misconduct on the part of the Respondent, the Court awarded the maximum award of $20,000 per work for a total of $11,700,000 for the Nintendo Games and $60,000 for the three Header Data works. The Court awarded an additional $1,000,000 in punitive damages, an injunction, and delivery up of the circumvention devices.

Conclusion

This decision reassures Canadian rightsholders, and in particular video game developers and publishers, that Canadian courts will respect and protect the investments they make in developing and commercializing software. In this case, the Court was not persuaded by claims that the mod chips and game copiers at issue should escape liability because they had theoretical non-infringing uses. Instead, the Court was pragmatic and awarded Nintendo significant monetary damages and injunctive relief. This confirms that Canada is on similar footing as other jurisdictions, such as Australia1, the United Kingdom2, and the United States3, when it comes to offering protection for TPMs.

Footnotes

1 See, e.g., Kabushiki Kaisha Sony Computer Entertainment v. Stevens (2005), 224 C.L.R. 193, [2005] HCA 58 (AUSTLII).

2 See, e.g., Kabushiki Kaisha Sony Computer Entertainment v. Ball et al., [2004] EWHC 1738 (BAILII)(Ch.) and Sony Computer Entertainment v. Paul Owen & Others, [2002] E.C.D.R. 27, [2002] EWHC 45 (BAILII) (Ch.).

3 See, e.g., Davidson & Associates, Inc. v. Internet Gateway, 2004 U.S. Dist. LEXIS 20369 (E.D. Mo. 2004), aff'd 2005 U.S. App. LEXIS 18973 (8th Cir. Mo. 2005) and MDY Industries, LLC v. Blizzard Entertainment, Inc., 2009 U.S. Dist. LEXIS 9898 (D. Ariz. 2009).

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