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Supreme Court of Canada says internet service providers can recover the costs of helping copyright owners find illegal downloaders. The top court justices sit during a welcoming ceremony for Justice Sheilah Martin, in Ottawa, Mar. 23, 2018.Justin Tang/The Canadian Press

The Supreme Court of Canada says copyright owners must pay the costs internet providers incur to identify customers suspected of illegally accessing movies and other content online, a ruling that adds a hurdle for rights holders hoping to take legal action against thousands of individuals at once.

Canada’s top court ruled Friday that Rogers Communications Inc. is entitled to its reasonable costs for the steps it takes to identify customers associated with internet protocol (IP) addresses alleged to be associated with illegal downloading or uploading of files protected by copyright.

Rogers and other internet service providers (ISPs) will still have to incur costs associated with the “notice-and-notice” system, which allows rights holders to contact the providers about alleged copyright infringement and requires the ISP to pass that notice on to the customer, which they do by e-mail.

Rogers estimates that across Canada, ISPs receive more than 14 million of these requests a year. The notices typically urge users to stop sharing or accessing copyrighted material, but they sometimes include demands for voluntary payment of a settlement (the limit on damages for personal liability in such cases is $5,000). It is difficult to know how many people respond to such demands.

Friday’s ruling means that if the copyright holders want to go a step further and seek a court order to identify specific users and then sue them for copyright infringement, it is the rights holders themselves who must cover the cost to the ISPs of identifying those people.

The applicant in the case was Voltage Pictures, LLC, the Los-Angeles-based production company behind films including The Hurt Locker and Dallas Buyers Club. It tried to sue one person in this instance but said it planned to eventually bring a “reverse class action” against 55,000 people it says used file-sharing services to access its movies.

Rogers said it alone receives more than two million requests a year to send its customers notices from rights holders alleging some sort of infringement. It has an automated system in place to handle that volume of requests.

But it receives far fewer orders compelling it to actually hand over the names and addresses of people who received those notices. Since such identification typically leads to legal action, misidentifying a user can have serious repercussions, and Rogers says its employees use a multiple-step, manual process to ensure accuracy.

The Supreme Court ruled that Rogers is entitled to its reasonable costs of that process, but said it was not a given that the company can recoup the $100 an hour it claimed. The court ordered the Federal Court motion judge who first dealt with the matter to determine what reasonable amount Rogers is actually entitled to.

“This is an important win for our customers and millions of internet subscribers facing open season on their personal information,” David Watt, senior vice-president of regulatory affairs at Rogers, said in a statement.

Ken Clark, who represented Voltage in the case, said his client had no comment on the case or whether it would continue to pursue the reverse class action against 55,000 individuals. In court filings, the company argued that paying the full amount quoted by Rogers to identify each person would cost C$8-million, which Voltage said was likely an “insurmountable barrier."

The Federal Court of Appeal previously ruled that Rogers must incur the entire cost of identifying users and Bram Abramson, a lawyer who represented the Canadian Internet Policy and Public Interest Clinic (CIPPIC), which intervened in the case, said the Supreme Court decision “restores balance” to the system.

He said the ruling was also important because the court expressed a commitment to privacy rights. However, Mr. Abramson noted that much uncertainty remains in the notice-and-notice regime and that one-off court cases will continue to crop up in the absence of a broader solution. The regime came into force in 2015 and the federal government has the right to pass regulations − such as whether ISPs can charge a fee for sending the notices or what the notices can say − but has not done so.

“Creators obviously have a right to make money from their work, but it’s a question of what’s effective and what makes sense. You know, we should all wear seat belts but we don’t station police officers in cars to make sure we do it at all times,” Mr. Abramson said.

Graham Honsa, an intellectual property lawyer with Wilson Lue LLP in Toronto, said it is too soon to tell whether this is truly a win for Rogers and other ISPs because the motions judge could determine that a vast majority of their claimed expenses are not “reasonable” for copyright holders to cover.

However, he said, “I think it does make it harder to sue 55,000 people,” noting that even if the judge allows only a nominal amount such as $1 per subscriber, it would cost at least $55,000 for a party like Voltage to begin a class action.

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