Lost bid to block set-top box sales upholds notion that neutral technology can’t infringe copyright

Alberta Court of Queen’s Bench rejects Allarco Entertainment’s case that retailers promote piracy

Lost bid to block set-top box sales upholds notion that neutral technology can’t infringe copyright
An Alberta judge ruled against Allarco’s bid to block the sale of set-top boxes at four major retailers

Edmonton-based Allarco Entertainment has lost its initial bid to block the sale of certain TV set-top boxes by four major retailers. It’s a decision that experts say upholds the principle that neutral technologies do not infringe copyright and that those who supply such technologies are presumed to do so for lawful purposes.

David Fewer, an intellectual property lawyer and Director of the University of Ottawa’s Canadian Internet Policy and Public Interest Clinic (CIPPIC), says Alberta Court of Queen’s Bench Justice Michael Lema also “did a very good job of understanding the limits a retailer has over the actions of employees — who are not authorized to promote piracy — or of consumers — who will use equipment for their own purposes.”

 “Allarco was seeking to impose a standard of liability on intermediaries that could have had a significant chill on technology providers in a range of settings and with a startling range of devices.”

In Allarco Entertainment 2008 Inc v Staples, Justice Lema rejected Allarco’s argument that the retailers in question — Staples, Best Buy, London Drugs and Canada Computers — were encouraging customers to use the devices to access pirated material. He denied the injunction to stop sales.

Allarco owns and operates Super Channel Entertainment Network. It’s seeking $50 million in damages from the retailers named in the suit.

“Allarco has not shown a serious case to be tried or that any of the other injunction factors favour it,” Lema wrote in a decision released April 30.

He also found that “the units in question have legitimate uses” and that Allarco can’t blame any post-purchase misuse by consumers on the retailers.

“I find no material evidence of encouragement and guidance or at least any causing harm to Allarco and, in any case, no evidence of any continuing such conduct or any material risk of it.

Fewer says the Copyright Act includes specific provisions that address services offered primarily to enable copyright infringement. “This provision reflects Parliament’s desire that copyright holders go after the parties that are actually providing piracy services, not intermediaries, and not neutral, open-source technologies.

“KODI boxes, the devices in question, in this case, access content from many sources, including lawful sources.  We should be extremely wary of closing down avenues for non-traditional creators to access the public.”

Justice Lema wrote in his ruling that KODI is a software application installed on electronic devices and that allows users to play various types of multimedia content (video, music or pictures, for example). It can read physical digital media (such as CDs, DVDs or Blu-ray) and digital files (such as MP3 or QuickTime). It is an “open source” software application and is available for download for free on the Internet.

When used in conjunction with add-ons, those who use the KODI media player can access and stream multimedia content hosted on the Internet, “he wrote. “These add-ons fall into two categories: non-infringing add-ons, which direct users towards legitimate websites, and infringing add-ons, which direct users towards copyrighted content where the user has no authorized access.

“In other words, KODI is a neutral application. I see it as a ‘finder,’ which can be used to find both legitimate and pirated content (and the latter only after adding certain add-ons).”

Justice Lema also stayed Allarco’s legal action until it added the copyright owners of the alleged pirated material to the case.

“No evidence shows that the copyright owners obliged or even authorized Allarco to bring proceedings or defend copyright.”

Fewer says that the decision “does something basic but crucial - it identifies that copyright exists to support rightsholders, and so it is actual rightsholders who have to come before the courts to enforce their rights.

As an intermediary, Fewer says, Allarco’s interests are insufficient to support the action.  He adds: “I would have thought that they might have a pleading for infringement of their communications signals, but that does not appear to have been what they argued.  They claimed an interest in copyright in cinematographic works.”

In an affidavit prepared for the case, Allarco CEO Don McDonald said piracy using set-top boxes such as the ones sold by the retailers in question was eroding the company’s business.

“Where Super Channel would, in the ordinary course of business, earn income from subscribers, that legitimate model is undermined and circumvented by the sale and use of the pirate devices,” he said in his affidavit. “As a result, Super Channel is effectively robbed of income.”

McDonald, who became CEO of Allarco in 2017 after the company had filed for creditor protection, said it had become apparent that Super Channel had lost many subscribers in a relatively short period.

“Subscription revenues were falling significantly and, most important, the rate of subscriber loss was increasing,” he stated in his affidavit.

“The very reason that Super Channel filed for CCAA [protection] in May 2016 was that our subscriber erosion was overwhelming. This was strange to me because Super Channel was broadcasting a number of very successful and popular programs.”

Allarco launched a 19-month undercover investigation of in-store sales practices by the four retailers. It claimed that staff at the stores encouraged customers to purchase the set-top boxes and even showed some customers how to access the pirated content.

Investigators from the company went into the stores posing as a customer wanting to buy one of the boxes to access illegal content. Said McDonald in his affidavit: “In light of Super Channel’s and other investigations in the last two years, it is now apparent that the last six or seven years have seen a massive growth in content piracy — fueled by the promotion and increasingly widespread availability of pirating technologies, and the promotion and normalization of a culture of stealing copyright content in Canada.”

He added, “the impact of content piracy and this new culture of stealing content has been devastating to Super Channel.”

However, Justice Lema ruled that “while there were “leading questions” from investigators, “there is not a single example” of an employee approaching promoting these products for these purposes.”

“Allarco provided no evidence of the retailers’ employees’ dealings with any other customer, let alone dealings about set-top boxes and their uses, let alone about the potential use of some of boxes (after post-purchase modification or programming) for pirating content.”

He added the investigator’s actions in trying to prove staff were promoting piracy “tell me nothing about how often customers ask for assistance with set-top boxes, what they typically ask about, how often they ask for information about the capacities of different set-top boxes, how often they raise their intended uses of such products and, in such cases, how often they disclose their intention to use them to access pirated content.”

As well, Allarco did have to identify “every instance” of piracy, Justice Lema wrote, ‘but it had to provide, at minimum, some evidence of an actual link between the retailers’ activities and Allarco’s claimed losses.”

Lema also noted there are many options to access illegal content and that the retail employees from specific stores aren’t in a position to sway a consumer to purchase a box or not.

“One way or another, such people are going to find out about set-top boxes, they are going to buy the kind of set-top box they need, and they are going to use it as they see fit.”

Justice Lema ruled that Allarco hadn’t proven piracy was responsible for its declining subscriber base. He noted that the company couldn’t produce “even one current Super Channel subscriber who has decided to cancel or is considering cancelling because he or she has purchased a set-top box.”

Justice Lema also addressed copyright, writing that Allarco “has not joined, sought or obtained consent from the copyright owners . . . in this action nor has it discharged the onus of showing that it is in the interests of justice that the copyright owners not be added as parties to this action.”

Justice Lema noted Allarco’s CEO admitted that the company had not approached some of the copyright owners to determine whether they would be a plaintiff in this litigation or assist Allarco with its claims.

“Allarco purports to know who the copyright owners are and deliberately failed to advise them or add them. This is fatal to Allarco’s claim since . . . the Copyright Act states that the copyright owners ‘shall be made a party.’”

Lawyers for Best Buy and Staples both replied to emailed questions that their only comment is that the decision of Justice Lema speaks for itself, and they have nothing further to add at this time. Allarco says it is reviewing the decision.

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