Court Slams Allarco ‘Pirate Device’ Lawsuit, Refuses to Ban Sales at Staples & Best Buy

[Scarlet Witch]

Super Channel operator Allarco claimed that major retailers including Staples and Best Buy are selling and encouraging the use of "piracy devices" that undermine its business. However, the company's application for an injunction banning sales has now been denied, with the judge slamming Allarco's application and investigative actions from every conceivable angle.

In September 2019, Super Channel owner Allarco Entertainment filed a lawsuit in Canada’s Federal Court targeting Staples Canada, Best Buy Canada, London Drugs, Canada Computers, several related companies and up to 50,000 ‘John Doe’ customers.

Allarco accused the retailers and their staff of promoting and instructing in the use of ‘pirate devices’, set-top boxes that could enable customers to access infringing content. The complaint was supported by 100 hours of undercover recordings which, according to Allarco, showed prospective customers being instructed how to use software such as Kodi for piracy purposes.

Allarco demanded an injunction restraining these alleged behaviors but after the retailers fought back, in January 2020 Allarco discontinued its Federal Court lawsuit. However, Allarco had already filed a similar lawsuit in December 2019, this time at the Court of Queen’s Bench of Alberta (Alberta’s superior court), and earlier this year demanded an injunction preventing the retailers from offering ‘pirate devices’ for sale to the public.

This has now failed in the most spectacular way with the Court tearing apart large swathes of Allarco’s evidence and allegations.

What Could Go Wrong? Pretty Much Everything

The standard position for a copyright infringement lawsuit in Canada is that the copyright holders themselves are party to an action. While Allarco is a licensee of programming, it is not a copyright holder, so was required to join the relevant copyright holders in the matter. The broadcaster presented two TV shows as “proxies” for its action but not only did it fail to add the copyright holders, it did not even notify them of the proceeding.

As such, there is no evidence that they authorized Allarco to bring a copyright suit or even wanted to be part of one. As a result, last Friday Mr. Justice M. J. Lema stayed the main action until the copyright holders are joined. Until then, Allarco is effectively barred from bringing copyright infringement proceedings in its main litigation.

With no established right to bring the action, the Judge moved on to the interlocutory application, which does not require the addition of the copyright holders. At this point, things became even worse for Allarco.

Judge: There is No Serious Case To Be Tried Here

Allarco’s demand for an injunction is centered upon its claims that the decline in its subscriber base and “otherwise suboptimal performance” was caused by consumers using the ‘pirate devices’ sold by the retailers. These sales need to be stopped, according to Allarco, to prevent the situation from getting any worse. The Judge found that Allarco failed to provide evidence to back up its allegations.

Noting that Allarco did not have to identify every instance of infringement, the Judge said that at a minimum it needed to show an actual link between the activities of the retailers and its claimed losses. Allarco also had to show causation, i.e the promotion of set-top boxes for content piracy actually caused the loss of subscribers. But the company came up short.

Among other things, Allarco failed to demonstrate that even one Super Channel subscriber canceled or even considered canceling their subscription because they bought a set-top box from a retailer. Perhaps even more problematic is that Allarco provided no evidence that anyone who bought a set-top even went on to use it, “in any fashion.”

“Accordingly, Allarco has not proved that retailers-sold boxes have been used to infringe any of its broadcast rights. As a result, its copyright and other remedial claims hinging on proving such a link fall flat,” Justice Lema wrote.

That being said, the Judge did assume that at least some of the devices may have been used, so he moved on to the question of whether the retailers contributed to any infringement of Allarco’s rights.

Did The Retailers Promote and Encourage Piracy?

As previously reported, Allarco employed a single “investigative shopper” to gather evidence that the retailers were encouraging the use of set-top boxes for piracy purposes. Identified as a Mr. Best, the shopper is reported to have traveled Canada for more than a year, posing as a customer interested in buying a set-top box for piracy purposes, while secretly recording the transactions.

“In other words, [Mr. Best posed as] a person who, to all appearances, was already disposed to content piracy,” the Judge noted.

Citing the retailers’ brief, Justice Lema agreed that Best went to the stores with a plan to get employees to discuss how devices could be used for piracy. To achieve that, Best misled and lied to employees by telling them that his friends had already bought a device from the store that enabled piracy.

Some employees told him that his planned activities were illegal. Others did not know what he was talking about. However, a subset had some knowledge of how devices could be modified and tried to answer Best’s “leading questions.”

“Contrary to Mr. Best’s assertions, virtually all of the employees indicated the company could not assist with modifying any device. A few said otherwise and, taken at its worst, these employees (who have no legal training) were only guilty of trying to assist a persistent customer,” the stores testified.

“[T]here is not a single example in his evidence of any employee approaching him and promoting these products for those purposes.”

The Judge found this account to be accurate and highlighted another problem. Allarco tried to extrapolate the experiences of Mr. Best to other retail store customers but failed to provide evidence of interactions with any other customer, let alone retail customers generally.

“More significantly, whatever the extent, Mr. Best’s videos do not prove that the retailers promote and encourage a culture of piracy, and they do not prove that the retailers, through their employees’ actions, played any material role in any infringements of Allarco’s broadcast rights,” the Judge noted.

“I cannot find, based on the Best evidence here, or any other Allarco evidence, that any assistance offered by retailer employees to such persons contributed, or contributes, in any material way, to Allarco subscriber losses or other business difficulties.”

Retailers Did Not Sell Pirate Devices, Expert “Entirely Unhelpful”

One of Allarco’s main claims is that devices sold with the addition of Kodi software are only intended for piracy purposes and should not be sold by the retailers. The Judge didn’t buy that, noting that Kodi is a neutral application that can be used to find both legitimate and pirated content, with the addition of certain add-ons.

The Judge also noted that most (if not all) of the devices listed in the case came pre-installed with Netflix, YouTube and Google Play. However, Mr. Best and Allarco’s expert Dr. Eric Cole incorrectly claimed that the devices had no legitimate uses, with the latter insisting that they were designed for piracy and “not a viable or cost-effective use of technology for any other purpose.”

But things were about to get even worse. With the Judge variously finding Cole’s evidence as “not helpful”, providing no “illumination on the uses or functionality of the devices”, and at other times, “almost completely hollow”, attention was turned to Dr. Cole’s objectivity.

Dr. Cole reportedly has a history of working with a Donald Best, including in litigation commenced by Donald Best. However, Allarco’s counsel refused to allow Dr. Cole to answer any questions about his previous work with Allarco or Donald Best. However, it transpired that Dr. Cole had worked with Patrick Best, Donald Best’s son and the person who carried out the investigation for Allarco and whose work he was paid to verify.

Somewhat awkwardly, Dr. Cole also used Patrick Best’s equipment to compile his evidence while Patrick Best “assumed the role of note-taker” and indeed wrote some of the ‘Expert Notes’. Under cross-examination, Dr. Cole could not recall which parts of the Expert Notes were written by him and which parts were written by Patrick Best.

Furthermore, after claims that the Expert Notes were not modified after January 19, 2020 were found to be untrue (additional notes were added), Dr. Cole refused to answer whether Patrick Best had sent him those notes.

“An expert is expected to be helpful to the Court, he or she is also expected to be objective and transparent,” the judgment reads.

“This report raised more questions than it answered, and it did not answer, or shed any helpful light on, any issue in these proceedings. I reject Dr. Cole’s report as entirely unhelpful here, all aside from my concerns over his objectivity (echoing those of the retailers).”

Turning to Mr. Best, who has no computer or application testing background, the Judge found that his evidence had an “intentional” and “massive gap”, i.e it made no attempt at gauging the full range of uses for the set-top boxes beyond piracy, rendering Allarco’s evidence “effectively meaningless.”

Worse still, Mr. Best’s evidence, that he was able to use purchased set-top boxes in “off the shelf” condition to access pirated content, was also fatally flawed.

“In fact, the testing by both sides showed that various steps, of various difficulty, and requiring various amounts of time, were required to find and add on whatever ‘add-on’ programs were necessary to access pirated content,” the judgment reads.

“None of the units sold by the retailers included such add-ons when purchased. They either did not include KODI or included KODI without add-ons. Whether add-ons could be added in three minutes or thirty, or with ten clicks or twenty, the point is that the units here were not configured, as sold by the retailers, for immediate use as a pirating device.”

The full judgment can be found here (pdf, via IPPractice)