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Copyright - Damages. Bell Canada v. Millennium Funding, Inc.
In Bell Canada v. Millennium Funding, Inc. (Fed CA, 2025) the Federal Court of Appeal allowed an appeal, here from a dismissed Federal Court appeal by Bell, that from a successful Millenium case management "motion brought by the respondents in the Federal Court to strike parts of Bell’s [SS: the defendant] pleadings in an action brought against Bell by the Millennium Producers ... without leave to amend".
Here the court considers the Copyright Act s.41.25 ['Provisions Respecting Providers of Network Services or Information Location Tools'] and 41.26 ['Obligations related to notice'] and how the use of these provisions by the plaintiff Millenium might constitute a ground of statutory damage for 'copyright misuse':[6] In their amended statement of claim, the Millennium Producers allege that Bell, as the internet service provider (ISP), failed to comply with the requirement to deliver notices to potential defendants pursuant to sections 41.25 and 41.26 of the Copyright Act, R.S.C. 1985 c. C-42 [Act] (herein, notice and notice regime, or regime). The notice and notice regime is designed to deter copyright infringement by permitting a copyright owner to provide a "“notice of claimed infringement”" to an ISP. In turn, the ISP must forward the notice to the person associated with the IP address that is alleged to have infringed copyright (Decision at para. 4).
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[10] The impugned pleadings allege that the respondents’ copyright enforcement program (CEP) improperly used the notice and notice regime by, among other things, automatically generating large numbers of notices that were sent to ISPs. Bell alleges that the CEP was not used as a legitimate effort to protect copyright. Instead, the respondents’ conduct had two main purposes: (1) to intimidate alleged infringers into settling claims for amounts much larger than the damages suffered; and (2) to claim exorbitant amounts from ISPs alleged to not be forwarding notices. Bell pleads that the respondents’ use of the CEP constitutes the tort of misuse of copyright, and alleges that this is a viable defence to the Millennium Producers’ action.
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Issue 1: Did the FC judge err in not interfering with the CM judge’s decision to strike the copyright misuse pleadings?
[31] Bell asserts that the CEP is a misuse and abuse of the notice and notice regime, and this constitutes copyright misuse by the respondents. Bell specifically alleges that the respondents used the notice and notice regime for improper purposes, namely, to harass and intimidate alleged infringers, and to make exorbitant claims against ISPs. Bell pleads that it should not be liable for statutory damages in these circumstances.
[32] The FC judge commented that the defence of copyright misuse has not yet been adjudicated under Canadian law, and is developing in the United States. The misuse is said to occur "“when a copyright holder attempts to extend his copyright beyond the scope of his exclusive rights in a manner that violates antitrust law or the public policy embodied in copyright law”" (Decision at paras. 30-31, referring to Euro-Excellence Inc. v. Kraft Canada Inc., 2007 SCC 37 at para. 98).
[33] As mentioned above, the FC judge disagreed with the CM judge as to whether copyright misuse could ever be pleaded as a defence to a section 41.26 action. The FC judge concluded that it could. However, the FC judge also concluded that the CM judge did not err in law or make a palpable and overriding error in striking the copyright misuse pleadings on the ground that insufficient material facts were pleaded. The FC judge explained that "“[t]he pleading does not provide sufficient foundation for what constitutes the alleged improper behavior”" (Decision at paras. 47-48).
[34] As mentioned, this Court can interfere with this finding only if the FC judge made an error of law or a palpable and overriding error in refusing to interfere with the CM judge’s order.
[35] It would be an error of law if the FC judge had applied the incorrect legal test. However, whether the pleading contains adequate material facts is subject to the deferential palpable and overriding error standard of review: Adelberg at para. 39, citing Jensen v. Samsung Electronics Co. Ltd., 2023 FCA 89 at para. 38.
[36] The FC judge determined that Bell’s pleading does not provide sufficient material facts with respect to copyright misuse. In particular, the pleading does not "“set out ‘what’ the misuse is and ‘how’ the conduct complained of is contrary to public policy under the Act”" (Decision at para. 46). The FC judge further explained (at para. 47) that the pleaded facts are deficient with respect to:. how the CEP is set up to intimidate and harass alleged infringers and in turn to claim exorbitant amounts from ISPs (such as Bell);
. how the CEP is used to generate notices to members of the public who do not infringe or who are wrongfully accused of infringing; and
. the basis for asserting that the notices are unreliable and unlawful and what proportion of the notices the allegation relates to. [37] The requirement for material facts was considered in depth by this Court in Mancuso. Justice Rennie, writing for the Court, described that "“the pleading must tell the defendant who, when, where, how and what gave rise to its liability”" (Mancuso at para. 19). This is the test that was applied by the FC judge.
[38] Bell submits that the FC judge made a legal error by effectively requiring evidence to be pleaded. I disagree. In general, the pleadings must "“define the issues with sufficient precision to make the pre-trial and trial proceedings both manageable and fair”" (Mancuso at para. 18). The FC judge found that the pleading did not provide a sufficient foundation for the allegations of improper conduct. Bell was required to succinctly plead what the improper conduct consisted of, and how this was contrary to the public policy in the Act. Bell was not required to plead evidence showing how this foundation would be proved.
[39] In my view, the FC judge made no legal error in identifying the proper test.
[40] The next question is whether the FC judge made a palpable and overriding error in not interfering with the decision of the CM judge that there was a lack of material facts pleaded. The palpable and overriding error standard is a high threshold – the error must be obvious or plain to see, and it must be capable of affecting the outcome.
[41] The high threshold to intervene is accentuated in this case by the fact that the test for adequacy of material facts is not black and white. As stated in Mancuso, "“[t]here is no bright line between material facts and bald allegations, nor between pleadings of material facts and the prohibition on pleading of evidence”" (at para. 18).
[42] I conclude that the FC judge did not make a palpable and overriding error in not interfering with the CM judge’s decision on this issue. Bell pleads that the CEP "“is used for the purpose of extracting disproportionate and unjustified settlements from innocent parties.”" It was not a palpable error for the FC judge to require more justification for this assertion. It was open to the FC judge to conclude that this was necessary in order to make the proceedings manageable and fair.
[43] Bell also submits that the sufficiency of material facts can depend on the relative knowledge of the parties, citing Enercorp Sand Solutions Inc. v. Specialized Desanders Inc., 2018 FCA 215 at para. 36. While this principle may have a bearing on the extent of additional material facts that are required, it is not a sufficient basis to overcome the FC judge’s concern with the existing pleading. . Patel v. Dermaspark Products Inc.
In Patel v. Dermaspark Products Inc. (Fed CA, 2025) the Federal Court of Appeal dismissed an appeal, here where the lower court "decided that the appellants were liable, jointly and severally, in the amount of $45,000, representing statutory damages of $5,000 for copyright infringement, $20,000 for trademark infringement, passing off, depreciation of goodwill and unfair competition, and $20,000 for punitive damages".
The court considered the situation of difficulty in assessing damages, here in an intellectual property context:[25] As the Federal Court noted, the damages in this case are not the sort that can be proven in a concrete way, such as by looking at receipts. They consist of more intangible things but very important things, such as the respondents’ reputation and goodwill. It is trite that the use of counterfeit machines and counterfeit products, alongside the distribution of literature purporting to be that of the respondents, has every potential to harm reputation and goodwill. As a matter of fact, the Federal Court found that harm to be present and added that it is difficult to determine the extent of infringement and the harm it caused.
[26] These findings, factual in nature, cannot be set aside based on the evidentiary record in this case and the standard of palpable and overriding error.
[27] And as a matter of law, the Federal Court correctly concluded that where the extent of infringement and the harm it caused is difficult to establish, lump sum damages (sometimes misdescribed as nominal damages), estimated as best as one can, may be appropriate. See Penvidic Contracting Co. v. International Nickel Co. of Canada, 1975 CanLII 6 (SCC), [1976] 1 S.C.R. 267 at 279-280; Lululemon Athletica Canada Inc. v. Campbell et al., 2022 FC 194; Ragdoll Productions (UK) Ltd. v. Jane Doe, 2002 FCT 918 (CanLII), 2002 F.C.T. 918, [2003] 2 F.C. 120 (and see paras. 49-50 on the misdescription of these damages as "“nominal”"); 101100002 Saskatchewan Ltd. v. Saskatoon Co-operative Association Limited, 2022 SKCA 12. Damages of this sort can only be awarded where there is "“some evidence on which it can be concluded that the claimant sustained damage and some evidence as to the nature of the damage”": 0867740 B.C. Ltd. v. Quails View Farm Inc., 2014 BCCA 252 at para. 46; Saskatoon Co-op at para. 23. That standard is more than met here. . 2424508 Ontario Ltd. v. Rallysport Direct LLC
In 2424508 Ontario Ltd. v. Rallysport Direct LLC (Fed CA, 2022) the Federal Court of Appeal considered a rare copyright statutory damages case.
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