Canada: Sellers Of Circumvention Devices Beware!

Last Updated: May 17 2017
Article by Lisa R. Lifshitz

On March 1, the Federal Court of Canada awarded Nintendo of America Inc. $12,760,000 in damages for copyright infringement and the circumvention of technological protection measures, or TPMs. The recent decision of Nintendo of America Inc. v. King marks the first time a Canadian court has provided comprehensive guidance on the Copyright Act's prohibition on the circumvention of TPMs and confirms the willingness of Canadian courts to significantly punish organization and individuals that attempt to circumvent TPMs used to protect valuable intellectual property rights.

Nintendo's use of TPMs

In 2012, the Canadian Copyright Act was amended to include provisions that prohibited circumventing TPMs and trafficking in circumvention devices in recognition of the importance of TPMs to protect copyrighted works, particularly in the video game industry.  

TPMs are devices, technologies or components that limit how protected works may be copied, accessed, shared or used. These "digital locks" allow owners to restrict how third parties interact with their works. Nintendo, the well-known video game company and seller of video game consoles such as Nintendo DS, 3DS and the Wii home video game console, uses TPMs to protect the products it manufactures and distributes to control access and use of the various video games that are used with its consoles. These measures include physical configurations, security checks, encryption and scrambling, data formatting techniques and unique tools and copy protection codes.

Go Cyber Shopping (2005) Ltd. runs a retail shop in Waterloo and several websites focusing on "mods and repairs for all major gaming consoles." Nintendo alleged that since 2013 Go Cyber advertised, sold and installed, through its storefront location and online, various devices designed to circumvent TPMs employed on Nintendo gaming consoles. Nintendo refers to these as devices as game copiers, and they allegedly allowed third parties to illegally download pirated versions of games and play them on Nintendo's consoles by mimicking game cards and discs. Additionally, Go Cyber marketed and sold "mod chips" designed to circumvent TPMs on the Wii console by modifying the firmware of the Wii console's disc drive or disabling various security routines so that users could play unauthorized copies of pirated Wii video games downloaded from the Internet.

In the interest of client service, Go Cyber even helpfully offered mod chip installation services where customers could drop off a Wii console to be "modded" with a mod chip. Go Cyber unabashedly promoted its activities through social media, including product announcements, actively engaged in discussions on social media regarding the status of new product shipments and took pre-orders for next-generation devices.

Before the court were three issues: (i) whether Go Cyber's actions had resulted in "secondary infringement" by contravening Nintendo's copyrights contrary to s. 27(2) of the act; (ii), whether Go Cyber had contravened the anti-circumvention provisions under s. 41(1) of the act; and (iii) the appropriate remedies if the court determined that Go Cyber had contravened the act.  

Claim of secondary infringement

The court considered two types of copyrighted words in the decision — the computer code and data used by Nintendo as part of its TPMs (header data) and the video games that Nintendo had developed for its video game consoles (Nintendo games). The header data consisted of three works in which Nintendo had registered copyright and each of the genuine game cards sold by the company contained two of the header data works. The header data contained code that represented Nintendo logos and were used by the consoles to display the logos on the screen when the device is turned on with a genuine card inserted. However, header data is also used by Nintendo as part its TPM system, since the header data must be present on the inserted game card in order for the Nintendo console to play a video game. Nintendo owns copyright in 585 video game works, with copyrights in 217 of the Nintendo Games registered in Canada.

Nintendo alleged that Go Cyber infringed its copyright in the header data contrary to s. 27(2) of the act in that (i) unauthorized copies of the works are either contained in the game copiers when they were sold by Go Cyber or are obtained by following Go Cyber's instructions; (ii) Go Cyber knew (or was willfully blind to the fact) that the game copiers contained such works; and (iii) Go Cyber sold, distributed and possessed the game copiers for the purpose of those activities.

Justice Douglas Campbell found that the game copiers sold by Go Cyber included the header data and that Go Cyber was aware of and had authorized the copying of Nintendo's copyrighted works without Nintendo's consent. Go Cyber was also found guilty of authorizing the infringement of Nintendo's works in providing guidance on how to download the header data. The court awarded Nintendo $60,000 in statutory damages pursuant to s. 38.1 of the act for Go Cyber's copyright infringement of the header data works.

Go Cyber's circumvention of TPMs

Nintendo employs detailed measures on its video game system to protect and control access to its copyrighted works, to prevent users from playing unauthorized copies of video games and from installing unauthorized software, including counterfeit games and software, on its consoles. In fact, the court found that Nintendo uses at least three different measures (physical configuration, boot up security checks and encryption and scrambling) on the Nintendo DS and 3DS consoles to control access, while the Wii console uses at least two different distinct control measures (format TPM and Wii copy protection codes).

In evaluating Go Cyber's circumvention of Nintendo's TPMs, the court outlined in detail the significance and need for TPMs to protect the rights of copyright owners in the digital age. The court recognized the substantial investment made by Nintendo in developing its works and that TPMs were critical in protecting Nintendo's intellectual property from "pirates" who attempt to benefit through unlawfully accessing and copying Nintendo's extensive library of creative works.   

Nintendo argued that the various control measures that it used to protect its video game system fell within the broad definition of "technological protection measures" in the act. Although there was no doubt that Go Cyber distributed various devices used to circumvent Nintendo's control measures, Go Cyber claimed that the control measures adopted by Nintendo did not fall within the TPM provisions of the act. Go Cyber argued that the physical configurations employed by Nintendo, such as the shape of the game card, did not meet the act's definition of a TPM. Go Cyber claimed that a TPM must create a barrier to the work being copied, as was suggested within the obiter dicta of a U.K. high court decision, and that Nintendo's physical configurations did not meet this requirement. Campbell decisively disagreed, finding that the TPM provisions of the Canadian act are broader than its U.K. equivalent, the Copyright, Designs and Patents Act. The court found that the physical configurations used by Nintendo met the requirements of the act for TPMs as they fall within the definition of "any effective technology, device or component that, in the ordinary course of its operation, (a) controls access to a work. . ."  

The court continued to adopt this broad interpretation of the TPM provisions, rejecting Go Cyber's argument that the term "circumvent" should be narrowly interpreted such that Go Cyber had only replicated and not actually circumvented Nintendo's control measures and, thus, avoided the act's TPM provisions.  

Determining the appropriate remedy for the circumvention of TPMs

Nintendo elected to recover statutory damages for both copyright infringement and TPM circumvention and the decision discussed in detail the court's approach to the damages award. Nintendo sought statutory damages for TPM circumvention on a per-work basis, i.e., a separate statutory damage award of $500 to $20,000 for each of the 585 Nintendo games made accessible by Go Cyber's circumvention devices.

Campbell awarded Nintendo the maximum award of $11.7 million in damages, in recognition of the value of the works protected, citing the need to deter future circumventers and also Go Cyber's bad faith (it had advertised itself as the "#1 Modchip Store") and misconduct. In addition to statutory damages, the court also awarded Nintendo $1 million in punitive damages to further deter these activities (and due to the fact that Go Cyber was actively taking pre-orders for TPM circumvention devices designed for the next generation of Nintendo consoles) and as discussed earlier, $60,000 in statutory damages for copyright infringement of the header data works. Nintendo also sought an injunction against Go Cyber to prohibit further copyright infringement in any other work owned by Nintendo and prevent further trafficking in any devices that circumvented Nintendo's TPMs and this was also granted, plus costs.

The Nintendo decision clearly recognizes that TPM's are critical for the protection of copyrighted works in the digital age and for promoting innovation. The mammoth statutory damages award, coupled with the levy of punitive damages, sends a strong signal that Canadian courts are willing to protect and enforce owners' rights and punish those who take steps to circumvent these protective measures.

Originally published by Canadian Lawyer Online - IT Girl Column

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Lisa R. Lifshitz
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