October 4, 2021
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In Salna v. Voltage Pictures, LLC, 2021 FCA 176, the Federal Court of Appeal (“FCA”) allowed a cross-appeal, in part, regarding the Federal Court’s (“FC”) decision to deny the certification of a reverse class action for pursuing copyright infringement claims. In its reasons, the FCA held that “the novelty of the proposed class action is not, contrary to what the Federal Court held, a reason to deny an application to certify the proceeding.”
Background
Voltage Pictures LLC (“Voltage”) filed an application in the FC against Mr. Robert Salna, an internet account subscriber, alleging that its film copyrights had been infringed online. Voltage alleged three different acts of infringement:
making a film available for download by means of the BitTorrent network offering the file for uploading, or actually uploading a film (pursuant to subsection 27(1) of the Copyright Act);
advertising by way of the BitTorrent protocol that a film is available for download (contrary to subsection 27(2) of the Copyright Act); and
authorizing the infringement by failing to take reasonable steps to ensure that the first and second unlawful acts did not take place in respect of an internet account controlled by an Internet Account Subscriber.
For the purpose of their application, Voltage classified individuals into two categories: “Direct Infringers” committing acts (1) or (2), or “Authorizing Infringers” committing act (3).
Voltage then brought a motion for an order to certify its application against Mr. Salna as a respondent class proceeding (“reverse class action”) pursuant to Rules 334.14(2), 334.14(3) and 334.16 of the Federal Courts Rules. The proposed class description comprised of “Direct Infringers and/or Authorizing Infringers who are also internet account subscribers that had received a notice of certification from their Internet Service Provider (“ISP”) in the last six months.”
Federal Court decision
The FC held that Voltage had not met its onus in demonstrating that four of the five criteria for certification of a class action were met pursuant to Rule 334.16(1) of the Federal Courts Rules. As a result, it concluded that the joinder of multiple individual actions was preferable over certifying a class proceeding.
The five criteria that must be met to certify a class proceeding pursuant to Rule 334.16(1) are:
the pleadings disclose a reasonable cause of action;
there is an identifiable class of two or more persons;
the claims of the class members raise common questions of law or fact, whether or not those common questions predominate over questions affecting only individual members;
a class proceeding is the preferable procedure for the just and efficient resolution of the common questions of law or fact; and
there is a representative plaintiff or applicant who:
would fairly and adequately represent the interests of the class;
has prepared a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members as to how the proceeding is progressing;
does not have, on the common question of law or fact, an interest that is in conflict with the interests of other class members; and
provides a summary of any agreements respecting fees and disbursements between the representative plaintiff or applicant and the solicitor of record.
The FC held that Voltage had not disclosed a reasonable cause of action as it had not proven its claims of copyright infringement with respect to “Direct Infringers” or Authorizing Infringers.” It also found that there was no evidence of an identifiable class of two or more persons, finding that the fact there were thousands of other IP addresses was only a “bare assertion” of other members of the class. The FC also found that only two of the nine common questions proposed by Voltage satisfied the third criterion of whether the class members raised common questions of law or fact.
The FC held that the fourth criterion, preferability, was not met for three reasons. First, the action raised more individual issues than common issues. Second, it inappropriately relied on using public resources since it would require Internet Service Providers to send continuous updates on the class proceeding via the notice regime, and third, there was a concern that if all class members opted-out, the class proceeding would evaporate. Lastly, the FC held that the fifth criterion was not met because Voltage did not demonstrate that there was a suitable representative respondent, with financial means and interest in defending the application on behalf of the class.
After denying certification, the FC awarded costs to the respondent, but refused to release the $75,000 posted by the appellant, Voltage, as security for costs.
Federal Court of Appeal decision
The Federal Court of Appeal (“FCA”) allowed the appeal of the costs awards and set aside the order. It also allowed the cross-appeal, in part, regarding the certification of the reverse class proceeding, and set aside the FC decision. There were two issues on appeal.
i) Did the Federal Court make a reviewable error in refusing to certify the class action?
The FCA found that the FC made reversible errors in relation to the five criteria for certification of a class proceeding. Due to insufficient reasons provided by the FC, the FCA remitted the fourth and fifth criteria for certification back to the FC for re-consideration.
First, the FCA held that the FC erred in the application of the test for the first criterion, a reasonable cause of action, as the FC considered the merits of the causes of action rather than considering whether Voltage should be precluded from advancing the argument. The FCA found that Voltage pled the necessary facts to support both a claim for direct infringement, as well as a reasonable interpretation of authorizing infringement. However, Voltage did not successfully plead the material facts necessary to support a claim for secondary infringement.
Regarding the second criterion, an identifiable class of two or more persons, the FCA held that the FC erred in its application of the evidentiary standard, “some basis in fact.” The evidence put forth by Voltage, indicating that there was more than one IP address identified, was sufficient to demonstrate that there was more than one internet account subscriber in the proposed class.
The FCA also held that the FC erred in law when assessing the third criterion, common issues, as it focused on how the outcomes of the various questions may be different for various proposed class members, rather than assessing the correct test, which is whether the resolution of a question is common to the proposed class members. The FCA also noted that the Federal Courts Rules class proceeding rules are flexible, allowing for numerous avenues to resolve individual issues such as the creation of sub-classes or a court-supervised individual assessment process.
The FCA remitted the fourth and fifth criteria back to the FC for re-consideration.
With respect to the fourth criterion, preferability, the FCA held that the FC failed to conduct a proper analysis as it merged concerns with the litigation plan (which should be assessed under the fifth criterion) with considerations of the preferability test. The FC also erred in stating that the joinder of multiple actions was the preferable procedure without providing any reasons. In addition, the FC also erred in stating that the ability to opt-out is a reason not to certify the proceeding as the ability to opt-out is codified in Rules 334.17(1)(f) and 334.21 of the Federal Courts Rules. Overall, the FCA concluded that there must be some evidence on which a court can conclude that a class proceeding is the preferred approach, however, this evidence was not provided.
Finally, the FCA held that the FC erred in analyzing the fifth criterion because it held that Mr. Salna would have no incentive to defend due to his financial burden. The assumption that it is less expensive to defend the proceeding, if it were not certified, is not justified as class proceedings allow for the splitting of costs between class members, which lessens the financial burden. The FCA also held that the FC’s conclusion that the use of the notice regime as being overly burdensome was premature and speculative.
ii) Did the Federal Court err in its decision to award costs and refusal to release the security for costs?
The FCA held that the FC erred in its costs ruling as it awarded costs contrary to the presumption that a class proceeding is a no-cost regime unless one of the circumstances in Rule 334.39 is met, without providing any reasons.
The FCA found that the $75,000 in security for costs should have been released following the outcome of the FC motion. However, the court held that, since the certification motion is being returned to the FC, the question of security for costs will be decided subsequent to the certification motion.
Authors: Rebecca Ro and Mark Leonard