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Sony Rootkit Settlement Leaves Canadian Consumers Unsettled

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Monday September 18, 2006

Appeared in the Toronto Star on September 18, 2006 as Rootkit Settlement Gives Canadians Short Shrift

The Sony rootkit controversy generated enormous public attention last year after it was disclosed that the company inserted faulty copy-protection software onto dozens of CDs, rendering hundreds of thousands of personal computers vulnerable to attack by hackers and viruses.  

It was no surprise that the case resulted in more than a dozen class action lawsuits in both the United States and Canada. The U.S. class action suits settled quickly with Sony compensating consumers for the harm they suffered with a copy-protection free replacement CD as well as the choice of either US$7.50 plus one free album download or three free album downloads.  Moreover, Sony consented to limits on its future use of copy-protection technologies.  The U.S. limitations, which run until 2008, focus on improved disclosure requirements, security precautions, and privacy safeguards.

The U.S. settlement was also made subject to any additional measures that might result from ongoing investigations and lawsuits launched by government agencies.  Those cases continue – last week the Texas State Attorney General revealed that his investigators have found that some Internet users are still at risk – and could lead to yet further limitations on Sony.

Canadians were excluded from the U.S. settlement, forcing thousands of consumers to wait for the resolution of the Canadian class action lawsuits.  Last month, Sony quietly announced that, subject to court approval, it had reached a settlement agreement.  Settlement documents were posted on a Sony website (http://cdtechsettlement.sonybmg.ca) and a court hearing is scheduled for later this week.

While the Canadian settlement cost is significant - the total value could approach $25 million for a company that released only 16 new Canadian records last year - close examination reveals that Canadian consumers will receive considerably less than their U.S. counterparts.

From a compensation perspective, Canadians get approximately ten percent less as U.S. consumers receive US$7.50, while Canadian consumers will be entitled to C$7.50.

The Canadian settlement is also missing many of the disclosure requirements and security precautions found in the U.S. settlement, which requires security testing before new copy-control technologies are used as well as explicit consumer disclosures.  The Canadian settlement merely requires Sony to notify the Canadian court in the event that it releases a copy-controlled CD without independent testing.

Most problematic, however, is the absence of injunctive relief linked to the actions brought by the U.S. government agencies.  The potential for injunctive relief was a critical component to the U.S. settlement since it enabled consumers to benefit from the outcome of those actions aided by the prospect of further court ordered constraints on Sony.

For reasons that only became apparent last week, the Canadian settlement does not include injunctive relief.  The settlement agreement indicated that the reasons for the omission were contained in "Exhibit C", a legal document that accompanied the broader agreement.  Sony published all settlement documents on its website with one exception - the mysterious Exhibit C.

Last week the document, which is an affidavit from Christine J. Prudham, Sony's Canadian Vice President of Legal and Business Affairs, surfaced on the Internet (Sony posted it after it became widely available from other sources).  In the affidavit, Prudham provides three reasons for the exclusion of injunctive relief.

First, she argues that Sony only agreed to the provision in the U.S. due to the ongoing investigations of the government agencies.  Since there are no such investigations currently underway in Canada, she argues that the provision is unnecessary.  The Electronic Frontier Foundation, a U.S. civil liberties group that negotiated the U.S. settlement, has reacted angrily to this claim, characterizing it as “inaccurate” and suggesting that "it appears to be an attempt to mislead the Canadian courts."

Second, Prudham expresses concern that copyright is a federal matter, while this class action suit is being heard by a provincial court.  This argument makes little sense, since Canadian federal and provincial courts have concurrent jurisdiction over copyright.  Moreover, the Sony case is not about copyright but rather consumer protection, contractual issues, and privacy.

Third, the affidavit claims that there is currently a "legal vacuum around TPMs [technological protection measures] in Canada," concluding that "Sony BMG Canada is not willing to potentially prejudice itself by agreeing to the Injunctive Provisions in the Canadian Agreement."  Further, it suggests that incorporating the U.S. settlement provisions into a Canadian agreement would bind Canadian policy makers who have yet to address this policy issue.

This argument is utterly without merit - the Canadian parliament would not be limited in any way by the settlement agreement and no legal vacuum around TPMs exists in Canada.

The prejudice that Prudham refers to is not legal prejudice, but rather the "political prejudice" that is likely to arise should Sony appear before a parliamentary committee discussing anti-circumvention legislation and is asked about the rootkit case and the fact that the company is subject to a potential injunction over the use of the technologies for which it is seeking legal protection.

The Sony rootkit case has been marked by a series of corporate missteps that have consistently failed to gauge the damage to Sony's reputation.  This latest twist - shrouded for weeks in secrecy - only serves to cause further harm to Sony and to cast doubt about its sincerity in addressing a major mistake that has affected thousands of Canadian consumers.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at mgeist@uottawa.ca or online at www.michaelgeist.ca.

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