laude Théberge, an internationally regarded Quebec painter, agreed in the 1990s to license posters featuring some of his works to Galerie d’Art du Petit Champlain Inc. The gallery proceeded to develop an innovative technology that allowed it to transfer the images from paper to canvas. The gallery’s technology was state of the art: it used a process that lifted the ink off the poster and transferred it to the canvas. The gallery did not actually create any new images or reproductions of the work, since the poster paper was left blank after the process was complete. Théberge was nevertheless outraged — he believed he had licensed paper posters, not canvas-based reproductions — and he proceeded to sue in Quebec court, requesting an injunction to stop the transfers, as well as the seizure of the existing canvas-backed images.
Although the Quebec Court of Appeal ruled in favour of the seizure, the majority of the Supreme Court overturned that decision in 2002, finding that the images were merely transferred from one medium to another and were not reproduced contrary to the Copyright Act. In reaching its decision, the court emphasized the dangers of copyright law that veers too far toward copyright creators at the expense of both the public and the innovation process. The majority noted that “[e]xcessive control by holders of copyrights and other forms of intellectual property may unduly limit the ability of the public domain to incorporate and embellish creative innovation in the long-term interests of society as a whole, or create practical obstacles to proper utilization.”1
The link between copyright and innovation raised by the Supreme Court of Canada has become increasingly clear in the years since the Théberge decision. While some have argued that innovation is best facilitated by more restrictive copyright rules, experience increasingly points to the need for greater flexibility in copyright to allow for innovation to flourish. Canada is now home to some of the toughest anti-piracy rules in the world, but the focus on infringement has come at a cost. Canadian copyright law is unquestionably supportive of cracking down on piracy, but it lacks the flexibility needed for new creativity and innovation.
As the Liberal government sends a clear signal that innovation is a top policy priority, Innovation, Science and Economic Development Minister Navdeep Bains and Canadian Heritage Minister Mélanie Joly should be working to tweak the law to address concerns involving misuse and restrictions on innovation. This essay identifies some of the key areas for copyright reform.
Intellectual Property Flexibility
While the specifics of the Canadian innovation policy have yet to be revealed, a recent Australian government-backed study provides a potential road map. The Productivity Commission, which functions as an independent think tank for the Australian government, released a 600-page report (Government of Australia 2016) that proposes myriad changes to its intellectual property (IP) system.
The Australian government tasked the commission with reporting on whether its current legal frameworks “ensure that the intellectual property system provides appropriate incentives for innovation, investment and the production of creative works while ensuring it does not unreasonably impede further innovation, competition, investment and access to goods and services” (ibid., iv). The result is a comprehensive report based on hundreds of submissions and consultations representing a broad range of views.
Canada and Australia may be geographically distant, but the similarities between the two countries on innovation and IP are unmistakable. Both countries are net importers of IP, meaning that current policies may benefit foreign companies and rights holders far more than domestic enterprises. With that in mind, the report recommends significant reforms to encourage innovation and strike a better balance.
For example, Australia faces the same problem as Canada with respect to patents and pharmaceutical drug innovation. The report notes that patent reforms designed to provide longer protections and encourage more innovation within the country have actually failed to increase investment in research and development. Canada has experienced much the same problem, with steadily declining research and development investment ratios, despite promises from the industry that legal reforms would do the opposite (Geist 2015).
In light of these results, the report recommends moving away from increased patent protections (as envisioned by trade agreements such as the now-stalled Trans-Pacific Partnership) and focusing instead on greater data sharing. The changes to pharmaceutical patents are just part of a wider series of proposed reforms designed to limit patents that may inhibit new innovations.
The report’s copyright recommendations similarly find fault with overly restrictive rules that limit new innovation. It concludes that the term of copyright is too long, in particular since the commercial viability of most work largely ends years before copyright protection expires. It calls for a reduction in the term of copyright and the adoption of a “fair use” provision, similar to that found in the United States.
Many technology and Internet companies rely on the flexibility of fair use to create new businesses, and the report expresses concern that Australian businesses are placed at a disadvantage with their country’s fair dealing system. Canada’s fair dealing approach is more flexible than the current Australian law, but remains more restrictive than the fair use model found in the United States and recommended in the report.
As Canada crafts its innovation strategy, the Australian report points to the benefits of evidence-based policies that move beyond conventional rhetoric. When combined with bold thinking — the commission did not feel constrained by established practices — the report highlights how Canada and Australia share a discouraging record of adopting restrictive laws that may ultimately hamper domestic innovation, and provides some innovative solutions to address the problems.
IP Abuse and Misuse
Given that Canada already meets or exceeds international standards on IP, one of the pressing links with innovation is to address the abuse of IP rights that may inhibit companies from innovating or discourage Canadians from taking advantage of the digital market. The Canadian government could address the issue through an innovative anti-IP abuse law that could touch on the three main branches of IP: patents, trademarks and copyright.
Leading technology companies have issued repeated warnings about patent trolling, which refers to instances when companies that had no involvement in the development of a patent seek payments from legitimate companies by relying on dubious patents. Patent trolls have a negative impact on economic growth and innovation, with millions spent on unnecessary litigation. Groups have urged the Canadian government to enact reforms to “limit the ability of non-practicing entities [a euphemism for patent trolls] of exploiting patents to make unreasonable demands of productive companies and prevent crippling damage awards” (Geist 2014b).
There is no shortage of policy possibilities, including a prohibition against legal demands that are intentionally ambiguous or designed to induce a settlement without considering the merits of the claim. Other reforms could include requiring public disclosure of the demand letters, reforming the Competition Act to give the Competition Bureau the power to target anti-competitive activity by patent trolls, and giving courts the power to issue injunctions to stop patent trolls from forum shopping.
Canadian trademark rules would also benefit from anti-abuse provisions. In 2014, the government quietly overhauled the law by removing long-standing “use” requirements for trademark protection. Legal decisions dating back decades emphasized the importance of use in order to properly register a trademark, since trademark law is primarily designed to protect consumers from marketplace confusion. Without use, there is unlikely to be confusion.
The 2014 reforms dropped the strict requirement for use in a trademark, however, creating considerable concern within the legal community. Canada may see a spike in “trademark trolls,” who could register unused trademarks with plans to pressure legitimate companies to pay up in order to release the trademarks for actual use. Anti-trademark troll rules would block efforts to register unused trademarks for the purposes of re-selling them to businesses seeking to innovate and use them (Geist 2014a).
Copyright law would also benefit from anti-troll safeguards. Canada’s 2012 digital copyright reforms featured an innovative “notice-and-notice” system designed to balance the interests of copyright holders, the legal obligations of Internet service providers (ISPs), and the privacy rights of Internet users. The law allows copyright owners to send infringement notices to ISPs, who must forward the notifications to their subscribers.
Despite the promise of the notice-and-notice system, it has been misused since it took effect, with copyright owners exploiting a loophole in the law by sending settlement demands within the notices. The fix is easy: implement anti-copyright troll regulations that ban the inclusion of settlement demands within the notices and create penalties for those companies that send notices with false or misleading information.
IP and innovation are often linked in policy discussions, but the abuse of IP rules has garnered less attention. As Bains and Joly consider potential policy reforms, a world-leading anti-IP abuse law would send a much-needed message that Canadian law will not support misuse of IP rights.
IP and Innovation
Canada last overhauled its copyright law in 2012, bringing to a conclusion more than a decade of failed bills and lobbying pressure. The public debate over the Copyright Modernization Act was often framed by disputed claims that Canada was weak on piracy, with critics arguing that updated laws were needed to crack down on copyright infringement. The law now reflects the enforcement priority, leaving the need to ensure that copyright does a better job of promoting innovation.
Recent Canadian cases illustrate the potential for copyright to be used to stifle innovation. In March 2017, the Federal Court of Canada ruled on a case involving the sale and distribution of “modchips,” which can be used to circumvent digital controls on video game consoles.2 Nintendo filed a lawsuit against a modchip retailer in 2016, arguing that the distribution of modchips violated the law, even without any evidence of actual copying.
The federal court agreed, pointing to the 2012 anti-circumvention rules that largely mirror legal restrictions on bypassing copy and access controls found in the United States in awarding $12.7 million in damages. The court adopted an aggressive approach in interpreting the digital lock provisions, while also taking a narrow view of exceptions that were designed to safeguard legitimate reasons to circumvent such as interoperability of computer programs. If followed by other courts, the ruling could similarly restrict the applicability of privacy, security research and access for the blind exceptions found in the law.
The decision was the latest in a growing line of cases in which Canadian courts have used the law to shut down cutting-edge technologies that have both infringing and non-infringing uses. In 2016, the federal court issued sweeping injunctions against multiple distributors of set-top boxes that turn standard televisions into “smart TVs” by enabling users to access a wide range of video content found online.3 This includes authorized content such as YouTube, Netflix or other online video providers, as well as unauthorized streaming services that offer access to unlicensed content.
There are several easy steps that could be taken to restore the innovative potential of Canadian copyright law. For example, the absence of fair use may hamstring innovation as it leaves Canadian companies at a disadvantage when compared with innovative, fair use-based economies such as Israel, Singapore, South Korea and the United States. As noted above, the Australian government is currently considering similar reforms.
The restrictive digital lock rules that suffer from narrowly interpreted exceptions should also be addressed. The Conservative government established several narrow exceptions to the general prohibition on circumventing digital locks, but even they seemed to acknowledge that the exceptions are unnecessarily restrictive. In 2016, the government introduced a copyright bill to enhance access to materials for the blind, which loosened the language in the digital lock exception for the visually impaired. Similarly restrictive language can still be found in another exception for privacy protection.
While the Canadian exceptions were narrowly constructed and limited to a handful of circumstances, the United States has actually been expanding its digital lock exceptions. It recently introduced exceptions for car security research, repairs and maintenance, archiving and preserving video games, and for remixing videos from DVDs and Blu-ray sources. In other words, the US digital lock rules now better facilitate innovation than those in Canada.
Canada has the power to introduce new digital lock exceptions, but has yet to do so. During the final stages of the copyright reform process in 2012, the Liberals supported an amendment to expand the digital lock exceptions to cover circumventions for all lawful purposes. As Liberal MP Geoff Regan, now Speaker of the House, noted when speaking in support of the change, “what the government seems to want to do is preserve old models and ignore the fact that we have moved into a digital world.”4 Regan cited comments from software developers, librarians and archivists who all warned of the dangers of overly restrictive digital lock rules.
If Canadian copyright law is to fulfill its potential to support innovation, the government should consider starting by adding much-needed flexibility to better support new creativity and innovation. A fair use provision, digital lock flexibility and reforms to IP misuse would combine with some of the world’s toughest anti-piracy rules to create a legislative framework that facilitates innovation and cracks down on infringement.
4 House of Commons, Legislative Committee on Bill C-11, 41st Parl, 1st Sess, No 11 (13 March 2012), online: <www.parl.gc.ca/HousePublications/Publication.aspx?Language=e&Mode=1&Parl=41&Ses=1&DocId=5448625>
Government of Australia. 2016. Intellectual Property Arrangements. Productivity Commission Inquiry Report No. 78, September 23. www.pc.gov.au/inquiries/completed/intellectual-property/report/intellectual-property.pdf.
Geist, Michael. 2014a. “Trademark overhaul promises to please no one.” The Toronto Star, April 18. www.thestar.com/business/tech_news/2014/04/18/trademark_overhaul_promises_to_please_no_one_geist.html.
———. 2014b. “How Canadian business chilled patent-troll reforms.” The Toronto Star, October 17. www.thestar.com/business/tech_news/2014/10/17/how_canadian_business_chilled_patenttroll_reforms.html.
———. 2015. “Why Canada’s high drug prices are about to soar higher.” The Toronto Star, December 21. www.thestar.com/business/2015/12/21/why-canadas-high-drug-prices-are-about-to-soar-higher-geist.html.