Receiving a demand letter alleging that you have infringed copyright can come as a surprise.  An understanding of Canadian copyright law and the contextual background can help you decide what to do next.

Demand letters tend to fall into one of several categories.  Most are legitimate; some are not.  Often the demand letters are received by law-abiding individuals or small businesses that would not knowingly infringe other peoples’ rights.  The first step is determining whether the demand is legitimate. 

Legitimate claims of copyright infringement will typically identify the works in question and the owner(s) of copyright and detail the alleged instance(s) of infringement.  Some come from lawyers; others do not.  Copyright owners will often authorize copyright collectives or other agents to assert rights on their behalf.  Among the better-known entities which fall into this category in Canada are Access Copyright (texts), SOCAN (music) and industry agents such as Business Software Alliance (BSA) and the Entertainment Software Association (ESA).

Common forms of legitimate allegations of copyright infringement relate to the unauthorized reproduction of software, use of photographs or downloading of entertainment content such as music or videos.  Canada’s Copyright Act provides for a “notice-and-notice” regime, where intermediaries such as Internet Service Providers (ISPs) can avoid liability for infringements taking place through their services in exchange for forwarding notices to their customers alleged to have engaged in infringements.  However, such notices may not contain demands for payment or to provide personal information.

Assuming that there is at least some merit to the allegations of infringement, the question becomes to what compensation might the copyright owner be entitled.  A useful analogy can sometimes be found in a motor vehicle accident where liability is not disputed, (i.e. I am sorry that I hit your car in the parking lot) and the question becomes to what compensation is the victim entitled.

Often the amount to which a copyright owner whose rights have been infringed is entitled is more modest than as set out in an initial demand letter.  In most situations, references to the most extreme potential consequences, such as exaggerated claims for damages or even reference to criminal consequences are overblown and inappropriate, particularly when the demand comes from entities outside of Canada.  It can be the equivalent of the driver of the car you bumped in the parking lot showing up wearing the proverbial neck brace and implying catastrophic damages to themselves and their vehicle and suggesting that you could go to jail.

Canada’s Copyright Act provides that, where copyright in a work has been infringed, its owner is entitled to both: (1) the damages it can prove that it suffered; and (2) an accounting of the profits attributable to the infringement.  In cases where the infringement did not result in any profits (as is often the case with individuals and those whose use of the infringing works was internal), the copyright owner must prove their damages, just like the car accident victim.

Since proving specific damages can be difficult, copyright owners often rely on provisions in Canada’s Copyright Act which allow courts to award what are known as “statutory damages”.  Canadian courts can award statutory damages between $100 - $5000 in total if the infringement is for non-commercial purposes; and between $500 - $20,000 per work if the infringement is for commercial purposes.  If multiple works are involved and the infringement is for commercial purposes, the amounts can theoretically add up quickly. 

Sometimes, there is a dispute as to how many “works” are involved, e.g. whether a bundle of software is one work or a collection of individual works.  However, Canadian courts generally have taken a sensible approach and reserved the highest scales of statutory damages for the most extreme cases.  While not stated in so many words, Canadian courts have tried to make the aggregate award of statutory damages have some relationship to the damages that the copyright owner may have suffered.

So, what do you do if you received a demand letter from say, SOCAN or BSA?  First, check out the allegations internally.  Check with employees and contractors who may be responsible for software or the use of images or music in association with the business.  If internal investigations reveal that there may be ongoing infringement, take immediate steps to ensure that it does not continue.

Next, determine when and to what extent the infringement took place. There is generally a three-year limitation period for remedies for copyright infringement in Canada.

Also, determine how many works are involved.  Get a sense as to what the cost would have been had the applicable work been purchased or licensed.  While subsequent acquisition or licensing of the copyright work will not excuse the past infringement, it will give an idea of the range of damages to which the copyright owner may be entitled.

In some cases, ongoing licenses can be obtained for very modest cost.  By way of example, the cost of licenses to play background music for customers at a small retail store in Canada can be a few hundred dollars a year.

The motivations of the opposite party may be purely financial;, the agent being compensated based on how much they can collect, while trying to avoid spending too much on enforcement.  Some entities use whistleblower hotlines where former employees or others can anonymously tip off the copyright owner regarding infringing activities, or identify themselves and potentially share in the proceeds. In other cases, there is a desire to set an example and publicize settlements, with a view to encouraging others to not engage in infringing activities.

Despite the aggressive tenor of many initial demand letters, most copyright owners are willing to negotiate a settlement of their claim.  Just like the parking lot accident victim, while they may be in the legal right, the amount of the actual damages which they can expect to be awarded if they go to Court and win may not merit the non-recoverable costs of doing so.  A reasonable settlement can be achieved if the parties are aware of the facts and of copyright law in Canada.

Note:  This article is intended to provide readers with general information and is not intended to provide legal advice. No person should act or rely upon the information contained in it without seeking legal advice.

Summary By: Gary Daniel


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Disclaimer: This Newsletter is intended to provide readers with general information on legal developments in the areas of e-commerce, information technology and intellectual property. It is not intended to be a complete statement of the law, nor is it intended to provide legal advice. No person should act or rely upon the information contained in this newsletter without seeking legal advice.

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