Copyright Trolls

The term “copyright troll” describes copyright holders who use the threat of litigation to generate revenue rather than actively using or licensing their intellectual property.

Copyright trolls tend to use a ‘scattershot’ approach to litigation. Trolls issue a large number of payment demand letters with the goal of pressuring a substantial number of these potential defendants into agreeing to a settlement rather than proceeding to trials. Trolls play an “arbitrage game” defendants often see settlements as preferable to the likely costs of trials and court-awarded damages, even if they do not believe they’ve infringed copyright, and even if they know that the troll’s settlement demands exceed what a court would likely award. Trolls know that it is cheaper to settle than to fight, and small businesses with an eye to the bottom line will take the most cost-effect route out of the mess.

If enough defendants settle rather than ignore or fight the troll, the approach can prove a profitable business strategy.

While the practice is deplorable, copyright trolls do have a right to claim for copyright infringement if they meet the conditions set out in the Copyright Act. Under section 3 of the Copyright Act, copyright owners hold exclusive rights over the reproduction of their work. Unauthorized reproduction, outside the exceptions allowed by law, will give rise to a claim for copyright infringement. If a defendant has reproduced a work - such as a digital image, for example - without the permission of the copyright owner, and no defence or exception applies, the defendant may be liable for infringement.

Under section 13 of the Copyright Act, a troll must own the copyright in a work or have an exclusive licence to use it in order to claim infringement. Trolls most often enjoy conditional assignments or license agreements that they claim gives them an interest in the copyright that meets these requirements. A non-exclusive licensee cannot sue for copyright infringement. If in doubt, you can ask for proof of title to the copyrighted work in question. A troll will have to produce these if they are going to sue anyway.

Copyright trolls must either own the Canadian copyright in the work, or be an exclusive licensee of the Canadian copyright, in order to sue for copyright infringement.  An American copyright registration proves neither of these things. To understand the troll's position, you need to review the troll's agreement with the original author of the work in question. Consider, for example, a digital photograph: the troll will usually have some kind of representation agreement with the photographer (usually the first owner of copyright). If you receive a payment demand from a troll, demand to review this agreement. If the Agreement does not either assign copyright to the troll, or grant the troll an exclusive license to the copyright in the photograph, then the troll cannot sue. An agreement that gives the troll a non-exclusive license to exploit the work does not give the troll the right to sue for copyright infringement.

Some trolls refuse to share these agreements with their targets. This is plainly bad faith: it is entirely correct for someone who has received a demand to pay large sums of money for copyright infringement to make sure that this money will be paid to the right person. You should ensure that the troll has the right to demand compensation for infringement.  You wouldn't buy a car from someone unless they could show you its title and registration, would you? You will be entitled to review these agreements if the matter goes to court.

The troll should demonstrate its good faith by showing that it enjoys an interest in copyright that permits it to make these demands.

Note that some controversial agreements provide for a "conditional assignment" of copyright in the event of a lawsuit being filed. In other words, these agreements provide that a copyright owner continues to own copyright, but are deemed to assign copyright for the purposes of the troll bringing an action, and on completion of the action copyright is "re-assigned" to the "original" owner. These arrangements are extremely controversial and it is far from clear that such documents are sufficient to give a troll an interest in the copyright that permits it to sue.

There is no need to register copyright in a work to sue for infringement. Copyright protection is automatically granted to all works that meet the criteria outlined in section 5 the Copyright Act. A Canadian copyright registration provides a copyright claimant certain procedural advantages, but otherwise there is nothing magical about them.

Many trolls have registered works in the United States, and provide copies of these registrations to Canadian victims to "prove" that they own copyright in Canada. US copyright registrations are irrelevant in Canada - only Canadian registrations have any relevance.

Some courts have recognized the potential chilling effect of the copyright troll phenomenon on individual freedom of expression and public discourse on the Internet. The threat of litigation should not be used to prohibit what are otherwise permissible uses of another’s work (see below, on Fair Dealing).

There remains an ongoing need to balance the legitimate economic interests of copyright holders with the public policy considerations that inform Canadian copyright law. This may give rise to an evaluation by courts as to whether an infringement claim constitutes an abuse of intellectual property rights. Some courts in the United States have explicitly criticized copyright trolls’ tactics – using the threat of litigation to extract settlements on a large scale with no real intent to go to court – as an abuse of the judicial process.

Copyright trolls also clog Canadian courts, which are funded at taxpayers' expense. The vast majority of trolls' lawsuits are filed with no intent whatsoever to adjudicate a dispute, but instead to pressure potential victims into settling. This is most likely an abuse of process.

Not all demand letters are of equal merit. To determine if a demand is valid, it is important to verify whether the troll actually owns the copyright in the work and/or whether the work was properly licensed. Copyright trolls seek to exploit the price difference between their initial licence fee and an inflated retroactive licence fee. In this sense, the amount of payment demanded seldom reflects the actual licence fee for a copyrighted work.

Demand letters are also a scare tactic. By coupling the payment demand with a threat of imminent litigation, these letters are designed to pressure people into an immediate settlement before proceeding to court.

Even if - through the victim's oversight, ignorance, or larceny - the troll's accusation of copyright infringement is true, that does not mean that the amount claimed is owed. A settlement may be negotiated that is less than the amount initially demanded. Indeed, this is a common troll tactic: "You owe us $2,000, but if you settle right now, we'll cut you a deal for $1,500". The "deal" seldom reflects the troll's actual expectations of a damages award, and is invariably above market licensing rates.

A copyright holder must sue for infringement under the Act in order to enforce its rights. A demand letter alone is not enforceable by courts and is in no way equal to a court order for damages.

In addition, section 41 of the Copyright Act limits the time period of infringement claims to 3 years from the date that the copyright holder knew, or ought to have reasonably known, of the infringement.

Trolls typically target smaller businesses that do not have the time or resources to engage in lengthy trials. Still, recent cases in both Canada and the United States have shown that trolls may also target non-profit organizations and individuals.

So far, trolls have mostly targeted works that can be easily identified in online searches, such as stock images and news articles. In Canada, Getty Images and Masterfile are the most active companies engaged in this scheme. Increasingly, film production companies, especially in the adult entertainment industry, target movies downloaded using peer-to-peer software such as BitTorrent clients. While trolls in this area are most active in the United States, one company issued demand letters in Canada before dismissing its claim.

The best way to protect yourself is to only use another’s copyrighted work with their authorization.

It is also important to maintain detailed records of all licensing agreements in order to prove authorization. If you have contracted the services of a third party - for example, to design your website - you should also ensure that they have secured the proper authorization prior to using another’s work. Include in your agreement a representation and warranty to that effect, and indemnification in the event that a third party comes after you claiming infringement.

In cases where authorization is not required, such as in fair dealing for purposes such as news reporting or criticism, it is still important that the use be “fair” and properly attributed to the original source.

This is a particular problem in the case of stock image trolls. Stock images are very cheap - often only a couple of dollars each. It is possible that an image has been properly licensed by a victim, but the proof of purchase not retained. In other cases, copyright trolls have actually rejected receipts, essentially saying that the party who licensed the image to you didn't enjoy that right in the first place.

The truth is that stock image companies themselves are not always the most organized businesses. They acquire an enormous number of images and portfolios - even whole companies. There is a very good chance that the stock image company's records are not accurate. It is even possible that the photographer herself has engaged multiple entitles to license her photographs.

In any event, the proof of purchase is a very good defense in the event of an action. You are unlikely to be sued in these circumstances (but it is, of course, possible).

No. Like other property rights, copyright is a strict liability regime. This means that if the act of unauthorized reproduction occurs, individual intentions will not affect a finding of infringement.

Courts may consider intention, however, when evaluating the amount of damages to award for infringement.

“Innocent” infringement describes situations in which you were unaware and had no reasonable grounds to believe you were infringing copyright. Individual misunderstanding or ignorance of copyright law is not considered innocent infringement.

Typically, innocent infringement involves actions by third parties without your knowledge or consent. For example, if you hired someone to build a website and they used copyrighted images without getting the necessary authorization, you may have a claim of innocence.

Again, lack of awareness will not affect the finding of infringement but does allow the court to reduce the amount of damages awarded (see Question below on Damages).

Yes. Under section 29 of the Copyright Act, the fair dealing defense provides an exhaustive list of exceptions where authorization is not required for use: private study, research, review, criticism and news reporting.

Note that the fair dealing provisions are not an automatic defence to an infringement claim; the defendant must prove fair dealing at trial. Courts determine on a case-by-case basis whether a particular use is protected as fair dealing.

Publicly oriented uses of another’s work (e.g. review, criticism and news reporting) must include information about the source of the work and author (where available) to qualify for the defense.

Under section 35(1) of the Copyright Act, claimants can ask for compensatory damages, which are based on the losses they suffered, and the defendant’s profits, due to the infringement.

Losses may include the amount of a lost sale based on the "standard" licensing fee. Courts may look for a reasonable royalty based on actual market practices when determining the amount of compensatory damages.

Under section 38.1 of the Copyright Act, claimants can choose statutory damages, which can range from $500-$20,000 per infringement (although it can be lower - keep reading). With statutory damages, claimants don't have to prove actual damages.

In the vast majority of cases, trolls will not be able to show any actual losses. Instead, trolls try to show that they have lost a licensing fee. Trolls will demand a "retroactive licensing fee" that is several times (in some cases, thousands of times) the standard fee had you sought a license in the first place. This is a large part of the dispute between trolls and their victims: What is reasonable for the victim to pay the troll under the threat of litigation? However, this is where trolls are trying to stretch the law: what someone is willing to pay to get out of litigation has absolutely nothing to do with what they would have paid to license a work absent the threat of litigation. This is an enormous problem in this area of copyright law: stock images are licensed for just a few dollars; movies are "rented" online for $3.00-$5.00. That is the "lost fee". Yet the cost of even starting to defend a copyright action is in the tens of thousands of dollars. That is the troll's leverage.

If a troll elects statutory damages in Canada, things are different. Courts consider the following factors when determining the amount of statutory damages to award under section 38.1:

*(a) the good faith or bad faith of the defendant;

(b) the conduct of the parties before and during the proceedings; and

(c) the need to deter other infringements of the copyright in question.* Generally, the courts in Canada will try to equate statutory damages with actual damages. This means in the case of most trolls that, once again, a reasonable royalty will be the correct measure of damages. Accordingly, in most cases, courts will be unlikely to award more than the minimum amount of $500 per work infringed. Courts have the discretion to reduce damages to $200 per infringement, or for a series of infringements, in cases of innocent infringement, or to reduce damages further where a single medium such as a website contains multiple infringing works and the total award would be “grossly out of proportion to the infringement”.

In addition, under section 39 of the Copyright Act, courts may simply order an injunction to remove the infringing work rather than awarding damages in cases where the infringer “had no reasonable grounds for suspecting that copyright subsisted” in the infringed work. Note, however, that this is a narrow exception as courts assume that most of us are aware that copyright subsists in photographs, movies and other similar works.

Bill C-11 recently became law in Canada, and lowered the amount of statutory damages available to a copyright owner in cases of infringement for non-commercial purposes. Bill C-11 made two fundamental changes to these sorts of damages. First, the set amount of statutory damages is now applicable to *all* infringing works, rather than to *each* infringing work. This is true even in the infringement involves different copyright owners. Once the copyright owner of any one work elects recovery of statutory damages, all other copyright owners are barred from recovering further statutory damages. This removes the possibility of multiple plaintiffs each claiming separate statutory damages. Second, statutory damages are capped at between $100 and $5000 for ALL infringements. The effect of this provision is to discourage copyright owners from engaging in US-style file-sharing lawsuits by making statutory damages reflect actual losses rather than fantastic sums. A finding of non-commercial infringement should not be akin to winning the lottery, and statutory damages should not provide incentives to engage in consumer lawsuits for profits.

Recall, however, that a copyright owner can always elect to claim actual damages and profits, rather than statutory damages. This is the amount of money that the copyright owner has lost as a result of the infringement, as well the amount of any profit that the infringer has gained from the infringement.

The best option is to gather more information in order to make a fully informed decision.

Specifically, you should determine whether your use of the copyrighted work was in fact unauthorized, and whether the company sending the letter owns the copyright or has an exclusive licence. Only a copyright owner or an exclusive licensee can bring an action for infringement.

If you do have a licence to reproduce the work, it is important to communicate this fact to the copyright holder. If, on the other hand, you did not have the authorization to use the work, you still have options on how to proceed.

These options include:

• Accept & pay the fee demanded.
• Negotiate for a lower fee.
• Offer a fee in line with what the company could expect for statutory damages (in Canada, $500 per work).
• If you qualify as an innocent infringer, offer the company $200 per work as an equitable settlement offer.
• Tell the company that the work has been removed and say that ends the matter (and risk being sued).
• Ignore the company (and risk being sued).

The option you select depends on how much risk you are willing to tolerate and how much time you are willing to invest in resolving the matter.

You should be aware that trolls are not interested in low settlement fees. You can expect a troll to reject what you might consider a fair offer to settle, or a proposed settlement fee that is equal to what you would have paid to use the image had you sought a license at the time. That does not mean that you have to pay the outrageous fees demanded by the troll. Again, it is a matter of risk: are you likely to be sued? Do you want to incur the expense and bother of protracted demands?

In Canada, at the time of writing, only Masterfile is active in actually filing lawsuits against their victims (note that the last suit filed in the Federal Court of Canada was in July, 2011). Masterfile has not brought one of these suits to trial - they have all settled prior to going to trial. Getty Images is not at the time of writing actively suing Canadian victims.

Note that this could change without notice. It is worthwhile performing a search of the Federal Court of Canada's Court Index and Docket, using as "Party Name" the name of the troll who has contacted you, to see if that troll is currently litigating in that court. Note that this search is not exhaustive - trolls may litigate copyright infringement in provincial courts as well.

No. A troll's demand is just that - a demand, an unsubstantiated allegation of copyright infringement. It is not until the demand turns into a successfully concluded lawsuit with a judgement against you that this demand turns into a debt. At this point, if you refuse to pay the award of damages - the judgement debt - your credit may be threatened.

If you look carefully at the troll's "collections" communications, you will see that it is not really a collections agency. Usually, this is just a division of the troll's business model, a part of the process of squeezing money from victims. It is deliberately deceptive and potentially unlawful.

If you decide to retain a lawyer to get specific advice on your situation, be aware that lawyer fees can be prohibitive. However, you can often find a lawyer and get an initial consultation for free or a small fee.

Law societies in each province offer information on finding a lawyer and sometimes provide a lawyer referral service:

• Ontario
• Quebec
• British Columbia
• Nova Scotia
• All provinces

You should try to find a lawyer specialized in copyright or at least in intellectual property. A specialized lawyer is more likely to represent you in an efficient manner.

A search of the Federal Court of Canada's Court Index and Docket under the names of common litigants (e.g., Masterfile) will show you the names of lawyers who have acted for defendants in the past.