Canada: IT Service And Infrastructure Providers Beware: Key Guidance Released By The CRTC Regarding Liability Of Intermediaries For CASL Breaches

Last Updated: December 12 2018
Article by David Schnurr and Celina Hong

Background

On November 5, 2018, the Canadian Radio-television and Telecommunications Commission (CRTC) issued new guidance for assessing intermediary liability under Section 9 of CASL.  This guidance follows Notices of Violation issued by the CRTC on July 11, 2018 to Sunlight Media Network Inc. (Sunlight Media) and Datablocks, Inc. (Datablocks), including monetary penalties totaling $250,000.  In the Notices, the CRTC alleged that each company had committed a violation of Section 9 – a provision which extends CASL liability to any person who aids, induces, procures or causes to be procured the violation of any of Sections 6 to 8.  According to the CRTC, a Section 9 violation may take the form of providing access to the tools or equipment necessary to commit a violation. Alternatively, it may involve facilitating a violation by giving technical assistance or advice.  The following are examples of intermediaries who may be at heightened risk of non-compliance with Section 9: advertising brokers, electronic marketers, software and application developers, software and application distributors, telecommunications and internet service providers and payment processing system operators.

Section 8 of CASL prohibits the installation of a computer program on any other person's computer system without the express consent of the owner or an authorized user of the computer system.

The issuance of these Notices is the first recorded enforcement since the computer installation provisions came into effect on January 15, 2015.

Pursuant to Section 8 of CASL, consent of the computer owner or authorized user must be obtained for the initial installation and for any future updates or upgrades to a computer program. This requirement does not apply where the owner of a computer system installs a computer program on his or her own computer (e.g. an owner buying software on CD and installing it on his computer, an owner downloading software on a website and installing it on her own device, and an owner going to an app store to purchase and download an app). However, when an owner installs the initial program, consent is still required prior to an update or upgrade being installed.

In addition, CASL provides that a person is deemed to have expressly consented to the installation of certain types of computer programs if that person's conduct is such that it is reasonable to believe that he or she consents to the installation. The deemed consent rule applies to computer programs, such as: cookies, JavaScript, HTML code, an operating system, software installed solely to correct a failure in a computer system and software installed by a telecommunications provider to protect network security, upgrade a network and/or prevent the failure of a computer system or program.

As a result of its investigation, the CRTC contended that Datablocks and Sunlight Media were involved in the use of online advertising to deliver malware – online ads presented to computer users that are "booby-trapped" with malicious computer programs, such as ransomware and Trojan horses. In these cases, the ad network redirects a user's web browser to the advertiser's landing page from which an exploit program and second stage malware may be installed. Simply viewing an ad may lead to the installation of an exploit program.

Liability under CASL

The CRTC alleged that both Sunlight Media and Datablocks facilitated the installation of malware by providing the technical means to enable their clients to commit acts prohibited by Section 8 of CASL. The prohibited acts would not have occurred but for the services provided by Sunlight Media and the software and infrastructure provided by Datablocks.

According to the CRTC, the "aid" provided by Sunlight Media and Datablocks consisted of at least the following acts and omissions:

  • Sunlight Media and Datablocks provided the technical means to commit acts prohibited by Section 8 of the Act. The prohibited acts would not have occurred without the services provided by Sunlight Media and software and infrastructure provided by Datablocks.
  • In a context where ad networks, such as Sunlight Media, are very vulnerable to the distribution of malicious computer programs embedded in ads served through their services, Sunlight Media substantially increased the likelihood of Section 8 violations by seeking out, and successfully attracting, a non-CASL compliant clientele. Essentially Sunlight Media:
    • Actively promoted services that foster Section 8 violations;
    • Formed business relationships with clients publicly known for facilitating acts contrary to Section 8 of the Act and other non-recommended practices; and
    • Adopted a set of practices that permitted and encouraged a high degree of anonymity (e.g. accepting unverified aliases and suspicious signups, as well as using cryptocurrency payment methods).
  • Datablocks maintained its business relationship with Sunlight Media, disregarding their non-compliant practices.
  • Neither Sunlight Media nor Datablocks had safeguards in place to prevent the prohibited acts.

As a result of the above-listed acts and omissions, Sunlight Media's clients, in particular, were able to repeatedly violate Section 8 of CASL from February 8, 2016 to May 31, 2016.

Based on their respective remuneration models and evidence gathered, the CRTC further contended that Sunlight Media and Datablocks financially benefitted from the commission of acts prohibited under Section 8 of CASL, and administrative monetary penalties of $100,000 and $150,000 were levied against Datablocks and Sunlight Media, respectively.

What now?

Subsequent to its enforcement decision in July, on November 5, 2018, the CRTC released Guidelines on the Commission's approach to Section 9 of Canada's anti-spam legislation (CASL) (Compliance and Enforcement Information Bulletin CRTC 2018-415) (Guidelines) in order to provide key guidance on the CRTC's interpretation of Section 9 of CASL.

Under the Guidelines, the CRTC takes an openly expansive view of the provision's scope, stating, among other things, that Section 9 liability does not require intent to aid in, or actual or constructive knowledge of, the contravention of CASL. When assessing Section 9 liability, the CRTC advises that it will consider, among other things:

  • the level of control an intermediary has over the activity that violates Sections 6 to 8, including its ability to prevent the conduct;
  • the degree of connection between the actions taken by the intermediary and those that contravene Sections 6 to 8 (e.g. selling a computer, which is then used to violate CASL, indicates a weaker connection, whereas, selling malicious software may suggest a stronger connection); and
  • evidence that reasonable steps were taken, including precautions and safeguards, to prevent or stop violations from occurring.

In the Guidelines, the following are presented as non-limiting examples of activities that could trigger Section 9 liability to an intermediary service provider:

Example 1

Company A specializes in online marketing and sells a bundle of services to Company B, which includes a messaging template and a collection of email addresses and mobile phone numbers for the purpose of mass marketing. The messaging template does not include sender identification information or an unsubscribe mechanism, and no attempt has been made to ensure the express or implied consent of the persons whose contact information appears on the list, all of which are required under section 6 of CASL. In this scenario, Company B may be in violation of section 6 of CASL if it uses the messaging template and contact lists provided by Company A to send commercial electronic messages (e.g. email or SMS). Even though Company A is not the sender of the messages, it could be violating section 9 of CASL by providing the tools that were used to violate section 6 of CASL.

Example 2

Company A offers web hosting services. Its client, Company B, uses Company A's services to launch a phishing campaign that redirects unsuspecting Canadians to a fake banking website created to obtain their personal data – a violation of section 7 of CASL. Company A was alerted to the malicious activity by a cyber security firm, but took no action to stop it. In addition, there is no statement in its web hosting terms of service requiring clients to be compliant with CASL, nor does it have processes to ensure compliance. Therefore, while it was Company B that launched the phishing campaign, Company A may be responsible pursuant to section 9 of CASL for having "aided" the doing of the section 7 violation.

Example 3

An individual visits an online app store and downloads a video game, which comes bundled with a custom browser toolbar. Not all toolbar functions, such as the pushing of advertisements, are described during the installation process, and consent for the toolbar is sought through a pre-checked box – contrary to the requirements of section 8 of CASL. During an investigation, it is determined that several customers had previously complained to the online app store about the toolbar. Although the video game developer may be the responsible party for a section 8 violation, the online app store may have violated section 9 of CASL for having "aided" the doing of the section 8 violation.

Following a determination that a Section 9 violation has occurred, the CRTC's choice of enforcement action will be based on considerations, such as: (i) the likely effect of such action on compliance; (ii) the nature and scope of the violation; (iii) the degree of harm associated with the violation; (iv) the level of cooperation by the alleged violator; and (v) any history of prior violations.

Based on the summary provided above, it can be seen that the new Section 9 Guidelines raise significant questions as to the practicality of the CRTC's expectations regarding compliance with Section 9 of CASL. The broad position taken by the CRTC may open floodgates of liability against businesses in the digital communications and IT service space, including innocent parties who are not acting with ill-intent, having no knowledge that their services are being used for nefarious purposes in contravention of Sections 6 to 8 of CASL. Equally surprising, in the Guidelines, the CRTC further states that it expects such intermediaries to comply with a laundry-list of rigorous compliance practices and procedures that in some instances well exceed industry-accepted standards – making outright compliance very difficult to achieve.

The collective guidance of the CRTC's enforcement against Sunlight Media and Datablocks and new Section 9 Guidelines is that IT service and infrastructure providers, including advertising network and electronic marketing intermediaries, must take CASL compliance seriously.  To minimize the risks of non-compliance, intermediaries should take immediate steps to: (i) vet their customers and their customers' use of their services; (ii) review their customer contracts and contract templates with a view to binding their customers and their customers' downstream clients to comply with CASL; and (iii) develop and implement robust internal CASL compliance policies and procedures.

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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