Update on Allarco Litigation – Allarco’s Potential Exit Costs in the Federal Court

As I wrote earlier on January 29, 2020,  Allarco is liable to pay costs arising from its discontinuance of its “unusual” (as I described it) Federal Court action. Moreover, Allarco is liable to pay costs of the lengthy motion hearing of January 23, 2020 supported by a reportedly very large amount of documentation in which is sought unsuccessfully to punt on the Federal Court costs issue and kick it over to Alberta or, alternatively. to adjourn or stay the costs matter and a “laundry list” of other requests for relief. As the Case Management Judge Furlanetto noted in an unusually blunt order dated January 27, 2020:

The evidence that the Plaintiff filed on the adjournment motion was lengthy and included five affidavits, including two from experts, the vast majority of which was not relevant to the requested adjournment and related to issues involving the merits of the proceeding. None of the affidavits were previously filed in the proceeding, although one asserted it was in support of a motion for interlocutory injunction, which had never been brought in the proceeding and was not pending before the Court.

As I noted, Allarco has discontinued its Federal Court action and started a new one – including an application for an interlocutory injunction – in the Alberta Court of Queen’s Bench. This is presumably because the Alberta court in theory has a wider jurisdiction to rule on some of the more unusual claims being advanced, such as conspiracy, intentional interference, etc.

Pursuant to the Order of the Case Management Judge, the “4Stores” retailers (as they are being called), have submitted material on February 3, 2020 to substantiate their costs demands. Here is my summary of the bottom line of the amounts they are seeking:

Allarco adjournment etc. motion heard January 23, 2020 – costs sought by 4Stores:                       $74,123.70
Costs following discontinuance sought by 4Stores:	$453,033.03
Total Costs sought by 4Stores in Federal Court as of February 3, 2020:	$527,156.73

Here is the 4Stores complete submission as filed in the Federal Court on February 3, 2020.

Allarco will have until February 13, 2020 to respond and the 4Stores will have until February 18, 2020 to reply.  The Court indicated that “The Defendants’ motion for costs shall thereafter be dealt with based on the written record filed. Should the parties be of the view that additional oral submissions are needed, such request shall be dealt with through case management.”

This is an unusually large amount of costs being sought upon discontinuance at such an early stage of litigation in the Federal Court. That said, this is very “unusual” litigation and the proceedings to date have been very unusual. All the parties are sophisticated, and all the counsel are experienced. So, this is bound to be interesting and potentially important.

I’ll update as soon as I have further useful information.

HPK

PS - May 14, 2020

Here's the Federal Court Docket entry  from May 13, 2020.

Order dated 13-MAY-2020 rendered by Angela Furlanetto, Prothonotary Matter considered without personal appearance The Court's decision is with regard to Motion Doc. No. 19 Result: 1) Defendant Staples Canada awarded costs of $19,700.28; 2) defendant Best Buy Canada awarded costs of $19,978.50; 3)defendant Canada COmputers awarded costs of $2,066.93; 4) defendant London Drugs awarded costs of $17,671.16; 5) Costs shall be paid by plaintiff within 60 days of end of suspension period under 29-APR-2020 Practice Direction (re: Covid-19). Filed on 13-MAY-2020 copies sent to parties entered in J. & O. Book, volume 1453 page(s) 386 - 402 Interlocutory Decision

That's a total of $59,416.87‬ - much less than the total amount sought. I am trying to determine whether there's still more to come and to obtain any written reasons that the Court may have provided. This is not easy at this time due to COVID.

PPS - May 20, 2020

Here's the Court's Order of May 13, 2020 regarding costs. 

Update on Allarco’s “Unusual” Litigation

Here’s an update on the Allarco’s copyright + countless other alleged causes of action and claims against four of Canada’s most prestigious retailers and 50,000 John Doe Customers for selling unspecified devices from unspecified suppliers and somehow infringing copyright in unspecified works and trademark rights in unspecified trademarks, conspiracy, circumvention, stealing, intentional interference, etc., etc., etc…. Here’s my earlier post on how the retailers had predictably attacked Federal Court pleading. Here once again is the Federal Court docket.

Allarco (aka Super Channel) discontinued its lawsuit in the Federal Court on January 6, 2020. Meanwhile, Allarco had started a similar action in the Court of Queen’s Bench in Alberta on December 6, 2019. Here’s that newer Statement of Claim, which adds unspecified John Doe suppliers as defendants and seeks $50,000,000 in damages and has a few other differences from the Federal Court action.

Although this litigation was at an early stage in the Federal Court in terms of procedural steps, the retailers have clearly already been put to considerable trouble and expense and are understandably seeking substantial costs arising on a solicitor and client (i.e. substantial indemnity) basis arising upon the discontinuance. Motions and countermotions were heard on this on January 23, 2020 which resulted in this lengthy and unusually blunt order dated January 27, 2020 which suggests that the retailers will indeed be awarded substantial costs arising from the discontinued Federal Court action.

As the Court correctly noted:

Rule 402 expressly provides that the Defendants are entitled to their costs payable forthwith upon discontinuance. Pursuant to Rule 412 these costs may be assessed upon filing of the notice of discontinuance. The Plaintiff has not displaced this presumption.

Meanwhile, back in Alberta, Allarco had scheduled an injunction hearing on January 22, 2020 – the day before the long-scheduled January 23, 2020 Federal Court hearing mentioned above. That injunction hearing has now been adjourned to May 7 and 8, 2020 and a schedule has been set for cross examinations, etc.

It will be interesting to see what happens in the Alberta Court of Queen’s Bench. While the Alberta court in principle can cast a wider jurisdictional net than the Federal Court in terms of weird causes of action such as conspiracy, intentional interference with business, contractual and economics interests, relations, etc., that won’t make any difference if the underlying facts, particulars, and ultimately the evidence, if it gets that far,  are just not there.

Among the more inexplicable aspects of the first pleading was a reference to s. 420 of the Criminal Code – which refers to buying, receiving, or detaining …”any military stores that are owned by Her Majesty or for which the member, deserter or absentee without leave”. That is now gone from the new pleading. Some of the colourful language in the earlier pleading that reappears in the new one includes: 

59. The actions of the 4Stores constitute a public nuisance in that they encourage a culture of dishonesty and theft within the general public in Canada which is promoted by 4Stores. The 4Stores fashion and promote themselves as industry leaders and educators in the promotion, education, and guidance of Canadians in the electronic devices market while acting to the contrary.60. The actions and omissions of the 4Stores as pleaded herein are high handed and advertently misleading in the pursuit of profit and unreasonably interfere with the public's interest in questions of honesty, conscience and morality and preservation of Canadian Culture., including ethnic and indigenous Canadian culture. As such they merit the award of punitive damages or the maximum level of statutory damages prescribed in the Copyright Act.(highlight added)

I said in my earlier blog that “I can safely say that in nearly four decades of being an intellectual property lawyer, I have never seen a more unusual Statement of Claim.” That may have been an understatement. If anything, I would say that the new Statement of Claim with its addition of the “John Doe Suppliers” as defendants seems even more “unusual”.

Allarco is asking for “costs of this action on a solicitor and client basis, plus GST, or HST, including all disbursements and costs of tracking and communicating with Customers”. Of course, there’s an old adage about "Live by the sword, die by the sword". If this new litigation goes badly for Allarco and Allarco becomes liable for solicitor and client costs, it is not difficult to imagine such costs rather quickly amounting to six or even seven figures.

Meanwhile, let’s keep tabs on how much Allarco will be on the hook for costs to date in the Federal Court, including the costs of its apparently forceful and lengthy but predictably unsuccessful attempt to punt on the Federal Court costs issue and kick it over to Alberta or, alternatively. to adjourn or stay the costs matter and a “laundry list” of other requests for relief. As for Allarco’s motion of January 23, 2020, the Court ordered that “Costs of this motion are awarded to the Defendants in an amount to be fixed and payable forthwith with the remainder of the costs for the action.”

I’ll post more about the forthcoming injunction proceeding and/or other developments when I get copies of the basic publicly filed documents. It would hardly be surprising if the defendant retailers attack this highly “unusual” Alberta Statement of Claim for the similar reasons that they were poised to proceed with in the Federal Court. Indeed, it would be surprising if they do not do so.

It’s too early to speculate about what Allarco will attempt do and what the Court might let it do about the 50,000 John Doe Customers or the now added John Doe Suppliers and how their interests will be represented if things ever get anywhere near that far.

HPK

The War on Piracy and the Attacks on Privacy in Canada: Copyright and Collateral Damage

A new lawsuit was launched on September 11, 2019 in the “Federal Court of Canada” [sic] by an entity known as ALLARCO, a.k.a. Super Channel, against four of Canada’s best known, most successful and most prestigious electronics retailers, i.e. Best Buy, Computers Canada, London Drugs and Staples. Here’s the Statement of Claim.  The suit is also against Does 1 to 50,000, presumably some of the customers of these retailers whose privacy could be at stake if Allarco gets its wishes. I can safely say that in nearly four decades of being an intellectual property lawyer, I have never seen a more unusual Statement of Claim. It refers to copyright infringement in unspecified works, circumvention, making available, unspecified “pirate devices”, trademark infringement, the Criminal Code, the Radio Communications Act, circumvention, theft, stealing, interference with the economic and business relations of the Plaintiff, and conspiracy, etc. (I may have missed some of the very many allegations in the very lengthy Statement of Claim), without getting very specific about anything. For those who wish to track this case, Here’s the docket.

The Statement of Claim alleges, inter alia,  that the stores “have offered for sale, sold, leased and continue to sell or lease Pirate Devices to John Doe Customers and advised, educated, counseled, encouraged, directed, induced, enabled and authorized John Doe Customers to achieve, download, install and operate services that result in the operation of the Pirate Devices and/or that enable and allow the John Doe Customers to access the Infringing Content”.

This is not the time or the place to comment in any detail on this Statement of Claim. Suffice it to say that it would hardly be surprising if it were to be tested vigorously pursuant to Federal Courts Rule 221 on such issues as lack particulars, lack of Federal Court jurisdiction, failing to state a cause of action, etc. Most challenges to pleadings at this stage result in leave to amend to some extent. However, this pleading is, as I said, very unusual indeed. If it is attacked, it will be interesting to see how much if any of it survives and whether leave to amend is granted and in what respect. That said, it should be noted that the lawyer behind this pleading has an interesting background. His name is Bill McKenzie and he’s been practising for ~40 years. Here’s his law firm. He does have one Supreme Court of Canada victory to his credit involving copyright  to some extent on behalf of Bell ExpressVu from 2002 that is sometimes cited. See Bell ExpressVu Limited Partnership v. Rex, [2002] 2 SCR 559, 2002 SCC 42 (CanLII). Allarco has also engaged in a systematic and apparently expensive publicity campaign involving a press release and a dedicated website that interestingly enough includes a cross reference to the controversial FairPlay campaign launched by Bell, Rogers and others. The Allarco litigation website entitled “A Culture if Theft” also includes a video replete with dire and demonic “musical” sound effects and the trademarks of the corporate retailers apparently alleging illegal activity by them. It will be interesting to see whether this video may result in counterclaims in the Federal Court or one or more separate actions in the superior courts of one or more provinces.

Speaking of Bell and Rogers, they started a lawsuit in the Federal Court earlier this year in the GoldTV case aimed at site blocking and pursued unsuccessful aspirations to date in persuading the CRTC or the government to enable through means short of an actual court proceeding. Bell and Rogers have managed to get an interim injunction essentially against themselves. However, it looks like Teksavvy is involved here and may resist the sweep of this litigation. Why it is apparently the case that Bell and Rogers are unable to determine who is behind GoldTV is an interesting question. In the absence of the involvement of GoldTV, this case is effectively proceeding by default unless TekSavvy is able to resist the momentum of Rogers and Bell. Bell and Rogers, lest we ignore the obvious, are highly vertically integrated entities with substantial content owner interests that have historically shown little if any regard for their customers privacy in this kind of litigation.

Whether or not the above two initiatives are somehow related or merely coincidental remains to be seen, although the reference by Allarco to the FairPlay initiative may raise eyebrows.

There has also been litigation under way for some time against some small operators for selling Kodi boxes.

Not to mention the 19 or so mass litigation lawsuits against thousands of individual Does in the Federal Court launched by Voltage and related actions – and above all the so-called “reverse class action” against ~55,000 or so individuals who have no idea whatsoever that they are being sued and whose worst sin may be that of paying for internet service so that they can do their banking online and their children can do their homework.

What I will say now is to remind my blog readers of some extremely fundamental IP principles that are too easily forgotten in the Crusades against piracy, theft, stealing and all of the other alleged sins of many if not most consumers of electronic products and users of the Internet.

The first fundamental principle is that of the “staple item of commerce” doctrine. This was set forth in the landmark 1984 decision of the United States Supreme Court in Universal v. Sony. In that case, the Hollywood studios tried to make the VCR illegal. The US Supreme Court in a landmark opinion written by the recently deceased iconic Justice Stevens ruled that a device should not be declared illegal merely because it is possible to use it illegally. If it has a substantial noninfringing use, the courts should not intervene. An obvious down to earth example is that of a kitchen knife. It can be used to slice vegetables or carve a turkey. It can also be used as a murder weapon. Nobody would dream of bringing a court case to outlaw the sale of kitchen knives.

Another iconic principle is that providers of services and equipment are entitled to presume that such services and equipment will be used legally. This was the key aspect of the landmark CCH v. LSUC decision of the Supreme Court of Canada in 2004. It will be recalled that the law publishers were incensed that the Law Society of upper Canada provided a library full of books along with self-service photocopiers. Needless to say, that argument failed.

That case also emphasized in Canada that “Absent primary infringement, there can be no secondary infringement.” (CCH v. LSUC)

And even more recent principle as enunciated by the Supreme Court of Canada in Rogers v. Voltage and at the appellate level in the United States which is consistent with the foregoing is that those who merely pay for an Internet service account are not thereby liable for that reason alone for any infringing activities that may take place by those who use such accounts, who are typically children, visitors, babysitters or even customers of businesses that provide Wi-Fi. Could it be seriously argued that a hotel, library or coffee chain is liable for the bit torrent activity of one of its guests or patrons?

Above all, it must be remembered that that war on piracy seems inevitably to lead to a war on privacy in which there can be a lot of collateral damage. I was involved in one of the first landmark Canadian decision, namely BMG Canada Inc. v. Doe, 2005 FCA 193 (CanLII), < > which Judge Von Finckenstein, as he then was, and the Federal Court of Appeal established that:

“...[T]he public interest in favour of disclosure must outweigh the legitimate privacy concerns of the person sought to be identified if a disclosure order is made”.

See a balanced and still timely – indeed VERY timely - analysis of this case by Richard Naiberg and myself (we were opposing counsel) here.

Unfortunately, the general understanding of what constitutes both piracy and privacy is getting murkier rather than clearer as time goes by. This is the case even by some judges, though they can hardly be completely blamed in view of the often absent or inadequate presence of the “public interest” in these types of cases.  The appointment of “amicus curiae” may be appropriate in in some of these instances. Even Voltage has so suggested.

“Piracy” is not be encouraged and, in some cases, may require vigorous enforcement by courts to stamp it out. But the piracy drift net must not cause collateral damage to the innocent, who can suffer both serious financial and indeed emotional consequences.  Being sued in the Federal Court and being served with lengthy and complex legal documents merely for paying for internet service is not something any normal Canadian would reasonably expect. Many people are rightly terrified by Federal Court lawsuits and should not suffer any emotional or financial distress in the vast majority of cases in having to deal with them. There is an immense access to justice chasm here.

Above all, it must always be remembered that “piracy” is not an absolute concept. If anything, it is arguably rather like “obscenity” or “pornography”  – i.e. Justice Stewart’s famous statement in the US Supreme Court in  Jacobellis v Ohio 378 U.S. 184 (1964)

I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"], and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that. [highlight added]

Nobody should forget that only a few years ago, YouTube was sued by Viacom for a billion dollars. The lawsuit alleged that “that the site had engaged in "brazen" copyright infringement’… The rest is history.

HPK