The Federal Court of Canada has issued a massive damage award in the first major Canadian digital lock copyright ruling involving circumvention of technological protection measures. The ruling, which is the first to conduct an extensive examination of the anti-circumvention rules established in 2012, adopts expansive interpretations to the digital lock protections and narrow views of the exceptions. The case confirms that Canada has tough anti-piracy laws with one of the most aggressive digital lock laws in the world and will fuel calls to re-examine the effectiveness of the anti-circumvention exceptions in the 2017 copyright review.

The case stems from a lawsuit launched by video game maker Nintendo against Go Cyber Shopping, a modchip seller that operated a retail store in Waterloo, Ontario and several online stores. Go Cyber Shopping offered a wide range of products that allow users to circumvent the digital lock controls on the Nintendo gaming console (such as the Wii) and play unauthorized games including “homebrew” games. Go Cyber Shopping argued that it provided other services but the court says that it did not tender any evidence in that regard.

The court concluded that the modchip seller engaged in copyright infringement and circumvented technological protection measures. In fact, it went out of its way to emphasize the importance of TPM protection. It adopted a broad interpretation of a technological protection measure – rejecting a UK case that used a narrower interpretation – in favour of an approach that covers access controls that go beyond restrictions on copying. It states:

having regard to Parliament’s express intent to give copyright owners the power to control access to works, the principle of technological neutrality, the scheme of the Act, and the plain meaning of the definitions for TPM and “circumvent”, it is clear that access control TPMs do not need to employ any barrier to copying in order to be “effective”.

In other words, Canadian copyright law is no longer just about copying as the digital lock rules create legal rights to limit access even without any actual copying.

The court also resoundingly rejected defences to the circumvention claims, concluding that circumvention should also be broadly interpreted while adopting a restrictive approach to the anti-circumvention exceptions. For example, Go Cyber Shopping argued that its modchips allowed users to play “homebrew” games that are designed for use on Nintendo consoles but not owned or licensed by the game maker. Canadian copyright law includes an exception for interoperability, which conceivably could be applied to such games. However, the court rejected the argument, concluding that homebrew usage was dwarfed by infringing activity.

Of considerable concern is the court’s conclusion that the availability of a Nintendo-approved interoperability approach would be enough to eliminate the availability of the anti-circumvention interoperability exception. The court stated:

the Applicant’s evidence establishes that there are legitimate paths for developers to develop software on its consoles without circumventing the Applicant’s TPMs. There is no need for any TPM circumvention to achieve interoperability

Much like fair dealing – which Canadian courts have ruled is still available even where a licence is available – the anti-circumvention exceptions should be available even if there are other mechanisms to address the concern. For example, there are currently anti-circumvention exceptions for access to materials for the visually impaired, to protect personal information, and for security research. Those exceptions should not be dismissed simply because there may alternate ways to safeguard privacy or conduct security research. Indeed, the use of circumvention may be a necessity given the possibility that companies could offer opportunities for third-party security research but subject to restrictions or conditions that limit the effectiveness of the research activity.

With the court clearly concluding that Go Cyber Shopping was a bad actor, it proceeded to lower the boom with massive damages. It concluded that statutory damages can be applied to circumvention, ruling that the $20,000 maximum per infringement should be applied for a total of $11.7 million. Moreover, it concluded that there was a need for further deterrence and it awarded another $1 million in punitive damages.

The case is a big win for Nintendo and an exceptionally aggressive application of the new anti-circumvention rules. It leaves no doubt that Canada has one of the most restrictive and potentially punitive digital lock rules in the world, with the court adopting expansive interpretations to the digital lock protections and dangerously narrow views of the exceptions. The government emphasized that the digital lock exceptions would help maintain the copyright balance, but the court pays little regard for balance in the ruling. With the government set to conduct its review of the Copyright Act later this year, the decision reinforces that Canada already has some of the most powerful anti-piracy laws in the world and that the government must now work to address the ineffectiveness of the anti-circumvention exceptions, most notably by closing the fair dealing gap.