Bell ExpressVu ordered to pay $82 million to Videotron over pirated television signals

Is it still intellectual property theft if the property isn't intellectual?
Is it still intellectual property theft if the property isn’t intellectual?

The Quebec Court of Appeal has ordered Bell ExpressVu to pay over $82 million to Quebecor Inc. subsidiaries Videotron Ltd. and TVA Group Inc. for failing to prevent the piracy of its satellite signal in a ruling that clarifies the application of the business judgment rule.

In a singular ruling that set aside the traditional deference shown to a trial judge’s assessment of damages, the appeal court revised a 2012 lower court decision that ordered Bell to pay approximately $339,000 to Videotron and $262,000 to TVA after it held that the trial judge’s analysis of expert evidence contained a “palpable and overriding error” when calculating the award. Quebecor estimates that the total sum will amount to $137 million including capital, interest and costs, according to a written statement.

“It is extraordinary for the Court of Appeal to intervene in the quantum of damages because as a general rule significant deference is given to a trial judge assessment of damages,” noted Karim Renno, co-founder of the newly established Montreal law firm Renno Vathilakis Inc. “What’s interesting here is that the Court of Appeal said that the trial judge was wrong to basically set aside all of the expert evidence presented by the plaintiff. That’s surprising, and very rare.”

It’s also almost unheard of for an appeal court to award such substantial damages, added Renno. But James Woods, a noted Montreal litigator who successfully plead the case, was not surprised by one of the most important awards in Canadian judicial history. “I wasn’t taken back at all,” said Woods, a senior partner at Woods LLP. “It was a recognition of what we felt was necessary to compensate our client for the losses that it had suffered.”

The case dates back to more than a decade when Quebecor’s cable television company and private television network sought nearly $375 million in damages because it felt that Bell had deliberately stalled efforts to prevent the piracy of its satellite signals between 1995 and 2005. Quebecor argued that by gaining free access to Bell, viewers could watch programming at no cost, which reduced the number of paid Videotron subscribers and royalties paid to specialty channels of the French-language TVA network. Or as the trial judge, Quebec Superior Court Justice Joel Silcoff, put it: “Why would a television viewer pay for services offered by BEV (Bell ExpressVu) or its competitors when it could readily pirate BEV’s signal with impunity for the relatively minimal one time cost of purchasing the necessary hardware or pirated smart cards from the multitude of suppliers, both on-line and in retail outlets?”

Bell countered that it had acted in a reasonable and diligent manner in deploying precautionary measures to combat signal theft with the technology available at the time. It also resorted to the business judgment rule, arguing that it should not be held accountable for damages because its conduct reflected reasonable decisions it took in light of business and technological circumstances that existed at the time. The business judgment rule is a rebuttable presumption that directors or officers of a corporation acted on an informed basis, in good faith, and in the best interests of the corporation. Courts tend to defer to business decisions honestly made.

In a 20-week trial that heard 31 witnesses, including eight experts, and yielded more than 682 pieces of evidence, Bell’s arguments were dismissed by the lower court ruling — and by the appeal court in a unanimous decision. The appeal court held in Videotron, s.e.n.c. c. Bell ExpressVu, l.p., 2015 QCCA 422 that Bell could not invoke the business judgment rule to avoid its liability because it was the company’s liability that was at issue, and not that of its directors and officers. The appeal court noted that the business judgment rule is not intended to protect the corporation itself. Corporations must “fully assume” business risks it takes and its consequences towards third parties, added the three-judge appeal court panel.

“There was a certain amount of confusion within the bar over the application of the business judgment rule, and the appeal court clearly wanted to explain the circumstances under which it applies,” said Renno. “When companies commit a fault, it cannot automatically be assumed that its directors or officers also committed a fault. Directors and officers must have committed a distinct fault, and one that is more important than the company’s fault.”

The appeal court also held that Bell could not fault the trial judge for using the so-called reasonable foreseeability approach to assess the probability of a causal link between the fault and the prejudice based on the evidence, “when he could deduce that (Bell) knew or should have known that by failing to act in a timely manner, it would logically and directly cause its competitors damage.”

Much of the appeal court decision hinged however on the appreciation of evidence by experts, including evidence of damages caused by Bell’s inaction to implement appropriate security to prevent piracy of its signals. The appeal court held that the trial judge “unfortunately scorned” expert evidence provided by Quebecor’s experts “because of a major weakness that was, in truth, non-existent.” The appeal court then proceeded with a detailed analysis of the evidence and noted that based on Quebecor’s 73 per cent market share at the time and the acceptable rate of three per cent pirating, the company could have expected to attract an additional 43,000 customers if the piracy was dealt with.

“The Court of Appeal judgment as well as the trial judge’s judgment from the quantum of damage standpoint definitely turned on the expert evidence,” said Woods. But the “appeal court points out that because of what they consider to be an error by the trial judge, they had to do an analysis based on expert evidence they reviewed.”

But in revising the lower court judgment, the appeal court also issued a loud and clear missive to the business community, argues Renno. “The message that the Court of Appeal is sending is that we are not going to be afraid of making you pay for all of the damages that you caused to your competitor, no matter what the amount is,” remarked Renno. “You would like to think that it has always been the case, but that’s not necessarily true.”

This story was originally published in The Lawyers Weekly.

About Luis Millán 348 Articles
I am a law and business journalist. I write for Canadian Lawyer, the National, a magazine published by the Canadian Bar Association, and The Lawyers Weekly, an independent legal Canadian publication. This blog is in no way affiliated with any of these publications.

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