It’s Only a Northern Troll

Canadian trollThe New York Times yesterday published an excellent op-ed, by Chief Judge Randall Rader and Professors Colleen Chien and David Hirick on the issue of patent trolls. It follows an announcement by President Obama regarding measures against patent trolls made the day before.

The authors explain that the problem of patent trolls stems largely from the fact that in the current legal system “trolls have an important strategic advantage over their adversaries: they don’t make anything.” Therefore, “they need not fear a counterclaim for infringing some other patent. They need not be concerned with reputation in the marketplace or with their employees being distracted from business, since litigation is their business.”

The problems with patent trolls are not unlike some of the problems associated with copyright collectives, and the NY Times op-ed reminded me of my recent conversation with John Locke, where I distinguished between normal, or productive, monopolists, and monopolists like Access Copyright. Productive monopolists face a trade-off between investing in productive activities and dedicating resources to baseless litigation and other rent-seeking activities. In contrast, Access Copyright, like patent trolls, has become nothing but a fancy rent-seeking and rent-collection shop. As I wrote, “this is the only thing it knows how to do, and this is the only function that it is coded to perform. Its sole mission has shrunk to collecting rents from the productive activities of others, and pursue legal rules that would enable it to collect higher rents more easily.”

Rader, Chien, and Hirick offer another relevant point of comparison between trolls and Access Copyright. This point relates directly to the litigation process. Because they don’t produce anything, they explain, trolls “have far fewer documents to produce, fewer witnesses and a much smaller legal bill than a company that does make and sell something.” They argue, however, that courts have the authority to curtail the practice, by shifting the “cost burden of litigation abuse from the defendant to the troll.”

Unfortunately, the Copyright Board of Canada, the raison d’être of which is preventing market and litigation abuse by collective such as Access Copyright, has adopted the opposite approach. The way the Board conducts its tariff proceedings gives copyright collectives huge strategic advantages over users, far more than the advantages that patent trolls enjoy in the American legal system. Unfortunately, the procedural aspects of the Board’s operations go largely unnoticed (except by a small group of lawyers who specialize in Copyright Board’s proceedings).

Let me offer a few examples. Normal litigation typically begins with a statement of claim. The statement of claim should contain a concise statement of the material facts on which the plaintiff relies. It will often explain how those facts establish the plaintiff’s legal claim, and will end with the nature of the relief sought by the plaintiff. The statement of claim defines the issues that the defendant has to answer in its statement of defence. Those statements allow the parties and the court to define and narrow the issues of controversy. From there, the parties may proceed to discovery of relevant evidence that each of the parties may possess. The Board’s proceedings, however, commence with the filing of a proposed tariff, which is simply the equivalent of a plaintiff’s proposed relief order. At this stage, the Board does not require collectives to state any material facts or file anything that explains or support their case and the parties moves directly to the process of “interrogatories”, the equivalent of discovery in civil litigation. But since there are no statements of claim and defence that narrow down to issues of controversy, the scope of discovery is extremely broad, and covers anything that might potentially be relevant to questions that have not been identified yet. Essentially, this procedure is a huge fishing expedition sponsored by the Board.

In theory, and setting aside the question of the costs to the parties (and the boon for their lawyers), the ability to embark on fishing expeditions does not necessarily favours collectives over users. In practice, however, the Board applies its rules unevenly. A recent routine decision from the Board demonstrates how the Board uses its considerable discretion over procedural issues to protect collectives and their members and impose increasing costs on objectors. In a short decision regarding objections to interrogatories, the Board made two general comments: one regarding information held by a member of a collective society (i.e., copyright owners), or a member of an organization representing users, and the other regarding claims of privilege.

Regarding information held by members of copyright collectives, or members of an organization representing users, the Board held that when users who object to a proposed tariff are represented by a representative organization, their representative organization “must answer on behalf of its members because its standing before the Board is solely as representing prospective users.” In contrast, the Board held, “no collective is required to obtain information held by rights holders”. “That being said,” the Board continued, “reasonable efforts from Access to gather a reasonable amount of relevant information from rights holders would be appreciated.”

In other words, information held by users is fair game, but information held by copyright owners is untouchable. Access Copyright may be entitled to obtain valuable information in order to make it easier for it to charge ever-increasing fees. In contrast, information held by copyright owners–even when relevant to objectors’ case–is beyond reach. The Board will appreciate if Access Copyright gathers it, but it will not require it or its members to provide it.

Regarding privilege, the Board held that “From a collective’s perspective, privilege extends to documents exchanged in the course of preparing to file proposed tariffs. In civil litigation, what is exchanged in the process of preparing the statement of claim is privileged. Before the Board, the proposed tariff acts as statement of claim. The only exception would be information that a collective maintains or collects as a matter of course; that information is not subject to litigation privilege even if its main purpose is to “defend” subsequent tariffs.” The problem is that for an organization whose entire business is filing proposed tariffs and litigating them, there is very little relevant information that may not arguably be subject to litigation privilege.

The combination of these two “general comments” and the Board’s procedure is that the Board is using its power to determine its procedures to force users to disclose to their opponent valuable information to help the collective society to set its monopoly prices, but information that users might need to effectively oppose the tariff is shielded by the Board and remains beyond reach. In many cases, the mere threat of being exposed to these intrusive interrogatories has been sufficient to scare users away from the Board proceedings. The very tribunal created by Parliament to prevent the abuses by collective societies has morphed into their loyal servant. As Michael Geist wrote, it’s time to admit that the Copyright Board is broken.



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