The ability to record television programs is a feature that most consumers take for granted today, but when the Sony Betamax was first introduced in the 1970s, it revolutionized television and sparked high profile lawsuits by the major Hollywood studios who wanted to block its availability. The battle between Universal Studios and Sony ultimately made its way to the U.S. Supreme Court, which ruled that Sony was not liable for contributing to copyright infringement since its product had substantial non-infringing uses.
My weekly technology law column (Toronto Star version, homepage version) notes that the battle between established players and distributors of disruptive technologies has since played out many times in courtrooms and legislatures around the world. From the introduction of the portable MP3 player (which the recording industry tried to stop in a 1999 case) to disputes over the availability of virtual private network services, judges and policy makers often return to the U.S. Supreme Court’s recognition that stopping the distribution of new technologies merely because they are capable of infringing copyrights would create an enormous barrier to new products and services that have many different uses.
While there have been fewer Canadian cases, the federal government has understood the need for an innovation balance that provides effective copyright protection and ensures that the law does not unduly inhibit new innovation. For example, the 2012 copyright reforms included a provision that targets Internet services that “enable” infringement, but limited its applicability to services that are “primarily” provided for the purpose of copyright infringement.
A recent federal court ruling could alter the innovation balance, however, by targeting a disruptive technology that everyone agrees has both legitimate and infringing uses. The case was launched by three of Canada’s largest communications and media companies – Bell, Videotron, and Rogers – against several distributors of the television set-top boxes that compete with the broadcasters’ own services and technology.
The set-top boxes turn standard televisions into “smart TVs”, enabling users to access a wide range of video content found online. By all accounts, this includes authorized content such as YouTube, Netflix or other online video providers, as well as unauthorized streaming services that offer access to unlicensed content. The set top box providers do not make the content available themselves, but rather sell a device preloaded with software that can be used to access both infringing and non-infringing content.
According to the ruling, Bell, Videotron, and Rogers have become increasingly concerned with the emergence of competing set top boxes, claiming that the pre-loaded software makes it easy to access infringing streaming content. Although the same could be said of most personal computers, they argue that the set top boxes increase the likelihood of consumers cancelling their cable or satellite service (often referred to as “cord cutting”) and infringing their copyrights.
Given their concerns, the companies asked the court to issue an injunction banning several companies from distributing any set top boxes with pre-loaded software, characterizing the technology as an “existential” threat to their business models.
The federal court surprisingly issued the injunction, ruling that the companies met the legal standard of demonstrating “irreparable harm.” Since recent data indicates that cord cutting is still a small part of the Canadian market and the competition from authorized services such as Netflix is widely viewed as a far greater competitive threat, the ruling is difficult to square with marketplace realities.
The set top box distribution companies have unsurprisingly appealed the ruling on those grounds, but the bigger issue revolves around the court’s willingness to block technologies with substantial non-infringing uses. Indeed, the court acknowledges that the set top boxes “display numerous legal applications and generally have the effect of turning a standard television into a ‘smart TV’.”
If the decision stands, the case has the potential to create a Canadian chill over new, disruptive technologies leaving courts to decide what can and cannot be preloaded onto computers and other electronic devices. With Minister Navdeep Bains launching a major new initiative last week on innovation, he will need to keep a close eye on a court case that could alter the innovation balance and convince some companies to stay out of the Canadian market.