Trader Corp v CarGurus Inc, a recent Ontario Superior Court decision, breaks a staggering amount of new ground in Canadian copyright law.[1] It is the first Canadian case to consider the “information location tool” safe harbour for search engines, the first Canadian case to consider the “making available” right – and that’s just the beginning.

This bulletin briefly summarizes the facts, then lists each of the major issues raised and decided by the CarGurus case.

Facts

This case pitted against each other the owners of two popular online marketplaces for used and new cars. Trader Corporation runs the well-known “autotrader.ca” and “autohebdo.net” websites. Most people will know that these websites contain photographs of cars that are available for sale at various Canadian dealerships. What many people will not know is that Trader also offers a photography service to car dealerships, and that about 5% of all photographs in Canadian vehicle listings are actually taken by Trader employees, rather than the dealership on whose website they appear.

In 2015 CarGurus began operating in Canada, and as part of its web operations, it began indexing dealer websites to build up its own vehicle listings. This mass indexing did involve copying photographs of vehicles from the dealer websites, including photographs taken by Trader employees. Mass indexing was a strategy CarGurus had used successfully in the United States, where it received few complaints from dealers, since the indexing ultimately generated sales leads for those dealers.

Shortly after CarGurus began operations in Canada, Trader became suspicious about the source of CarGurus’ vehicle photos, and contacted CarGurus to ask whether it was indexing Trader’s websites to obtain these photos. CarGurus denied indexing Trader’s websites, but refused to answer questions regarding any possible indexing of dealer websites. For its part, Trader never revealed that many of the photos on dealer websites were taken by Trader employees. Both corporations thus held back certain crucial information from the other, which would have legal consequences later on.

Once CarGurus finally revealed that it held copyright in certain dealer photographs licensing discussions began, but they quickly broke down, and Trader sued for copyright infringement. In response, CarGurus quickly removed as many of the litigious photographs as it could identify. This did not satisfy Trader, which accused CarGurus of infringing copyright in almost 200,000 photographs, and asked for $98 million in statutory damages. CarGurus denied infringement, and invoked both fair dealing and the “information location tool” safe harbour provision adopted in the 2012 reform of the Copyright Act.

1. Who Qualifies for the “Information Location Tool” Safe Harbour?

CarGurus is the first Canadian decision to consider section 41.27 of the Copyright Act, which in most situations prevents copyright damages from being awarded against an “information location tool.” The Act defines an “information location tool” as “any tool that makes it possible to locate information that is available through the Internet or another digital network.”[2]

CarGurus claimed that its service was similar to traditional online search engines that also index car dealership websites, and thus it qualified as an information location tool. The Court made short work of this argument on the basis that CarGurus only directed users to copies of material taken from dealer websites contained in CarGurus proprietary database, rather than assisting users to locate that material on the dealers’ websites:

The crux of the defined term “information location tool” in the Act is the locating of information – it is a tool that it “makes it possible to locate information that is available through the Internet.” In my view, Parliament intended to afford protection to intermediaries that provide tools that enable users to navigate and find information where it is located on the Internet.  It did not intend to afford that protection to providers like CarGurus that gather information from the Internet and make it available to the user on the provider’s own website.[3]

In a way, the Court found that CarGurus was both less and more than a search engine. It was less than a search engine because it failed to make allow users to reach the source directly, and instead acted almost like a broker or middleman for consumers in search of a used car. Users who wanted to access the original dealer listing had to contact CarGurus and could not click on a link to visit the material themselves. It was more than a search engine because CarGurus had built up a proprietary database of content displayed on dealer websites for purposes other than for caching.

The full implications of this ruling remain to be worked out, but at first blush, a tool which searches a proprietary database compiled by the tool’s own creator would not fall within the 41.27 safe harbour if that tool fails to provide users with direct access to the information searched at its original location.

2. The “Making Available” Right in Canada

The “making available” right was added to the Copyright Act in 2012, and is defined in Act as part of the right to telecommunicate works to the public: “For the purposes of this Act, communication of a work or other subject-matter to the public by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public.”[4] This new right flowed from Canada’s becoming a party to the 1996 WIPO Copyright Treaty which clarified that the exclusive right to communicate to the public must include the right to control the making available of works, as there was concern that certain forms of public communications over computer networks such as the Internet would not otherwise be properly addressed by copyright.

In the five years since that right was added to Canadian legislation, there have not been any definitive judicial or even administrative pronouncements on what kinds of activities constitute the making available of works. The CarGurus case thus represents the first consideration of this notion.

Here, the Court concluded that posting an image to a website constitutes a “making available” of that image.[5] This may entail that most uses of copyrighted works on the Internet would arguably involve “making them available” in the legal sense, thereby triggering the telecommunication right. Neither party raised the Supreme Court’s ruling regarding the scope of the telecommunication right in ESA v SOCAN, which held that the right to telecommunicate to the public would not be engaged in a situation where “permanent” downloads are being made.[6]  Whether and to what extent this ruling applies in the case of the “making available” of works will need to be addressed in the future.

3. Liability for “Framing” Images on a Website

CarGurus argued that for at least some of the photos, it should not be held liable for copyright infringement, because these photos were never hosted on CarGurus’ own servers, and were instead “framed” – that is, CarGurus website would merely display images hosted on the dealer’s own servers. In such a case it is the dealer’s computer server that is communicating the work directly to the Internet user’s computer. This argument was rejected by the Court, which found that regardless of where the digital image files were stored, they were being “made available” to the public by CarGurus by being displayed on the user’s screen alongside material originating from CarGurus’ server.[7]

This is the first Canadian case to consider framing from a copyright infringement perspective and is an important ruling for any business that displays content online via framing.[8] Many copyright users might reasonably believe that framing or inline linking to content found elsewhere on the internet should not expose them to liability, particularly if the framed content was lawfully posted online by the copyright owner. After all, that is the position that applies in the European Union.[9]

Following the CarGurus case, the Canadian position arguably appears to be more stringent. The Court in the case appears to adopt the perspective of Internet users, such that integrating content into a website via framing constitutes a second and separate “making available” of that content. Thus, the owner of the website engaged in framing requires the consent of the copyright owner for these activities, even if linking or framing back to authorized copies of the copyrighted work. Whether this reasoning could be extended to a mere hyperlink would need to be considered in a further case.

4. Commercial Fair Dealing Defence Rejected

CarGurus raised a fair dealing defence, arguing that it was merely facilitating research by car buyers, and so its use of Trader’s photographs should be protected by fair dealing. This required CarGurus to satisfy a two-step test: first, was its dealing with the copyrighted photographs for a protected purpose, and second, was that dealing fair?

CarGurus easily passed the first step, with the trial judge ruling that the photographs facilitated shopping for cars, and that shopping was a form of “research” for the purposes of the Copyright Act.[10] This finding follows the Supreme Court’s groundbreaking ruling in Bell v SOCAN that when digital music services provide music previews so that consumers could decide whether to buy a song, this was a form of “research.”[11]

However, CarGurus failed to satisfy the second step of the test, since the Court found that its dealings were not fair. Several reasons were given for this finding: CarGurus displayed the entire photograph (rather than an extract or thumbnail), the photographs remained online indefinitely, they were used for a self-interested commercial purpose (namely competing directly with the copyright owner), and there were many non-infringing alternatives available to CarGurus, such as hiring its own photographers.[12]

Thus, at the second step of the fair dealing test, the CarGurus case provides a useful counterpoint to Bell v SOCAN, since the two cases together provide good examples of what is, or is not, fair dealing with copyrighted works in a commercial context.

5. Infringement in a “Single Medium” leads to Statutory Damages of $2/Photograph

Statutory damages for commercial copyright infringement normally range from $500 to $20,000 per work. Since Trader had proven that about 150,000 works were infringed, this would have entitled it to at least $75 million in statutory damages.

However, the Copyright Act allows a Court to award less than the $500 minimum per work if two conditions are met: (i) awarding the $500 amount would be grossly disproportionate, and (ii) “there is more than one work or other subject-matter in a single medium.” In this case, the main debate concerned whether the infringements occurred in a single medium, with Trader arguing that the infringement here occurred across multiple web and mobile platforms, and thus could not be a “single medium.”

The Court disagreed, ruling that the word “medium” should be interpreted very broadly, citing two previous cases which found that use of copyrighted works on a website constituted use in a single medium.[13] The Court went on to hold that even though CarGurus’ listings could be accessed either from an internet browser or via the CarGurus app, the database containing these listings nonetheless constituted a “single medium.”[14] The app and website were just different ways of accessing that single medium.[15] From there, the Court easily concluded that awarding $75 million was grossly disproportionate, and reduced the award to $2 per photograph, for a total of roughly $300,000.[16]

This finding confirms a trend towards using a broad interpretation of “single medium” by Canadian courts, which in turns allows them to reduce statutory damages which they consider grossly disproportionate. It is interesting to consider whether the result would have been different if CarGurus had maintained separate servers for its mobile application and website – would they have constituted two different mediums, or would the Court have abstracted away from this difference in hardware by considering all digital reproductions a single medium because they were both available through the Internet? For the moment, it appears that the single medium requirement depends on the backend setup for an IT business, rather than the number of consumer-facing interfaces that allow access to the backend.

6. Avoiding Punitive Damages Through Legal Advice and Prompt Deletion

The Court held that because CarGurus did not infringe in bad faith, there were no grounds to award punitive damages.[17] This finding was based on three decisions taken by CarGurus and one taken by Trader.

First, CarGurus had obtained legal advice from Canadian counsel prior to entering the Canadian market, and this legal advice had cleared its indexing strategy.[18] Second, CarGurus was merely applying the same business model it had used successfully in the United States without suffering any serious copyright liability.[19] Third, CarGurus only indexed photographs taken from the dealership websites, and deliberately avoided indexing content on Trader’s own website, in the hopes of respecting Trader’s intellectual property. This last decision by CarGurus was particularly important in light of Trader’s own decision to not inform CarGurus that Trader owned copyright in photographs appearing on dealer websites in its initial communications. As soon as CarGurus was informed about Trader’s copyright ownership of dealer photographs, it immediately deleted the offending photos from its website.

In light of these decisions taken by both parties, the Court considered that CarGurus actions were not in bad faith, and thus refused to award punitive damages.[20]

The CarGurus case thus provides helpful guidance on what kinds of intellectual property due diligence are required to avoid a finding of bad faith, protecting an organization from punitive damages claims (and likely reducing the scale of statutory damage awards too). It also suggests what kinds of actions intellectual property holders should take in order to maximize recovery in litigation.

First, this case confirms the importance of obtaining an intellectual property legal opinion that clears a novel business model under Canadian law. The fact that CarGurus had obtained a legal opinion on Canadian copyright law was given significant weight by the Court, even though the Court also found that additional due diligence should probably have been conducted.[21]

Second, the Court considered the legality of CarGuru’s business model under American copyright law as favouring CarGuru’s good faith under Canadian copyright law. This should be reassuring for foreign copyright businesses that plan to launch operations in Canada using a business model tested overseas. While copyright laws may differ substantially between jurisdictions on certain aspects, the CarGurus case indicates that a successful foreign business model, combined with a Canadian legal opinion, may find favour with Canadian courts.

Third, this case provides a warning to intellectual property owners about the dangers of creating ambiguities around IP ownership and infringement. Trader was deliberately vague about its ownership of copyright in the disputed photos prior to initiating litigation, and was repeatedly criticized for this behaviour by the Court.[22] This case suggests that best practices for intellectual property enforcement would normally include an early and clear assertion of IP rights, since failure to do so could be raised by the defendant in an argument about its good faith.