Beware of Loophole In New Copyright Law

Canada's new copyright notification system -- dubbed the "notice-and-notice" approach since it allows rights holders to send notices alleging infringement to Internet providers who are required to forward those notices to subscribers -- took effect at the start of the year.

The launch attracted considerable attention with many Canadians examining their Internet habits and the state of Canadian copyright law.

Supporters of the approach, which has been used informally for over a decade, argue that it strikes the right balance by educating the public about copyright without the threat of lawsuits or lost Internet access. Internet providers do not disclose their subscribers' identity and the government has created strict caps on liability for non-commercial infringement, making lawsuits for individual file sharing unlikely.

Yet despite the good intentions, the notice-and-notice system has already been subject to misuse. Rightscorp, a U.S.-based anti-piracy firm, has been using the system to send notifications to subscribers that misstate Canadian law, citing U.S. damage awards and the possibility of Internet termination to sow fear among Canadians so that they pay a settlement fee.

'Close the loopholes': Peggy Nash

The inclusion of a settlement fee demand within the notices is the consequence of a loophole in the law that arose due to Industry Minister James Moore's desire to implement the system without accompanying regulations. On Friday, NDP industry critic Peggy Nash called on the government to close the loophole, noting "the Conservatives have a duty to protect the public against companies that try to intimidate Canadians by sending them false legal information. They need to close the loopholes now."

The government engaged in a lengthy consultation process on notice-and-notice regulations after passing its 2012 copyright reform package. Internet providers argued that the system transferred significant costs to them in order to process notices and that there should be a fee charged to rights holders. Moreover, they noted that the law specified certain requirements for the notices, but did not establish any limitations on the inclusion of additional information or any penalties for notices that contain false or misleading information.

Most stakeholders expected some regulations, but Moore decided to forge ahead with only the statutory provisions. As a result, companies are free to use the notice system to add information that extends beyond the minimum required by the statute. Although the system is only days old, rights holders have already sent notices that contain inaccurate legal information accompanied by demands for payment.

Subscribers could face liability

For example, the Rightscorp notice claims that Canadian subscribers could face liability of up to $150,000 per infringement. In reality, Canadian law limits liability at $5,000 for all infringements. Moreover, the same notice also warns that subscribers could face suspension of their accounts, though there is no such provision under Canadian law.

Relying on the false information regarding Canadian law, the notice then offers to "settle" the dispute if the subscriber pays a fee of $20. The notice does not mention that the rights holder does not know the identity of the subscriber and would need a court order to proceed with potential litigation.

The misuse of the Canadian system could have been avoided with more detailed regulations that featured explicit limits on the content of copyright notices. Without such limitations, rights holders are free to exploit the loophole by using the system in a manner that was never envisioned by the government, sending millions of demand letters at no cost to unsuspecting Canadians.

Given the current situation, Internet service providers should add their own information to the notices, providing their subscribers with an accurate picture of Canadian law and assurances that they have not disclosed their information to the notice sender. In fact, several providers have started supplementing the notices with additional information to subscribers so that they better understand the context of threats. Interestingly, in the United States, Internet giant Comcast has removed threatening language from Rightscorp notices before forwarding them to subscribers.

Further, Moore should move quickly to implement regulations prohibiting the inclusion of settlement demands within the notices and create penalties for those companies that send notices with false or misleading information. The federal government regularly cites the notice-and-notice system as a balanced approach, but its fairness is being undermined with Canadians now facing the prospect of a barrage of misleading settlement demands.