CASL’s private right of action
Canada has the most onerous anti-spam/anti-malware law (CASL) in the world. In less than a year, July 1, 2017, it is going to become even worse. That’s when the private right of action (PRA) comes into force.
Since its inception, the anti-spam and anti-malware portions of the Act (ss.6-9) have been enforced by the CRTC. But when the PRA becomes law organizations big and small including charities, small businesses and even children marketing their first lemonade stands – and their officers, directors and agents – could become liable for millions of dollars in penalties.
Organizations throughout the country that send commercial electronic messages (CEMs) or that distribute computer programs – and that is nearly everyone in the country because of CASL’s over-breadth – are becoming increasingly worried about the PRA. Firms that specialize in giving advice related to CASL such as my firm, McCarthy Tétrault, are seeing a major uptick and renewal of CASL compliance work. Organizations are spending valuable time and resources – time and resources that could be spent investing in their businesses and innovating – to try and avoid the costly and frivolous class action suits expected to be brought once the PRA bell goes off.
Why are Canadian organizations so concerned about CASL’s PRA?
CASL permits any person to bring clams for contraventions of its provisions. This includes breach of the provisions which make it illegal, among other things, to send CEMs without complying with CASL’s consent and unsubscribe mechanisms – regardless of whether the messages are really spam as most Canadians would understand that term. It also includes installing a computer program on any computer or device without receiving express consent – also regardless of whether the program has any malware, spyware or other harmful effects on anyone.
The definition of CEM is so expansive, no-one can ascertain for sure if a message is covered by CASL. Yet, organizations probably send billions of messages each year to Canadians using e-mail, text, instant messaging systems, portals, social networks, and other systems. No one even knows for sure which new messaging systems are covered by CASL. Countless millions of messages will undoubtedly be snared by CASL without the senders knowing.
Moreover, hundreds of millions or perhaps even billions of messages will be covered by CASL each year. CASL’s restrictive consent regimes for computer programs and CEMs and the unsubscribe formalities for CEMs are so complicated and time consuming in practice and expensive to implement, it is beyond doubt there will be many violations. These won’t be perpetrated by criminal spammers or botnet operators but by ordinary law abiding charities, small businesses, entrepreneurs, and upstanding members of chambers of commerce and other reputable organizations across the country legitimately trying to grow their businesses or let consumers or other organizations know about relevant information, a product, service, or opportunity of interest to them.
Further, as the CRTC recently warned businesses, it is not enough to merely have consents to send CEMs to satisfy that requirement. Message senders also have the burden of establishing consents to send each and every message. This requires record keeping that is ridiculously complicated in practice. This problem is exemplified by the existing business relationship implied consent rule. Generally, it expires two years after a relevant act such as the sale of a product. Most businesses did not have systems to track this kind of data when CASL was enacted. The reality is that most organizations still do not have the record keeping systems required to document the different forms of consents that CASL recognizes, the scope of the consents, or when they expire. In many cases its not for lack of trying. Data about customers often resides on multiple systems that don’t talk to each other, the required data was never collected in the first place, and the nature of the databases were not created to collect the needed information.
In short, CASL penalizes activities that are perfectly innocuous – activities that even lawyers that have studied CASL carefully can’t determine with certainty are legal or illegal and even businesses that do comply with CASL often don’t have the records to prove it for every message, and there are billions of messages each year that can get ordinary persons into serious trouble.
The PRA takes these compliance risks to new heights with excessive potential penalties. In civil proceedings, the general rule is that damages are intended to compensate an aggrieved party for the damages it sustains from the breach. Under CASL, compensation in an amount equal to the actual loss or damage suffered or expenses incurred by the applicant is not the cap that can be claimed. It is only the floor. In addition, the applicant can also be awarded significant other amounts. CASL says that these damages aren’t intended to punish. However, they can’t realistically be characterized as anything other than penalties that punish.
For example, in the case of a breach of the CEM provisions, the liability can be $200 for each breach not exceeding $1,000,000 for each day on which the breach occurred, So imagine a small business trying to build a customer base to compete with an established company by using targeted web scraping or other efficient and innovative tools to gather relevant contact details to promote a product or service or to reach out to new suppliers or distributors. Say it sends out 1,000 targeted e-mails a day for 10 days. It’s potential liability above and beyond any compensatory damages is $2 million. There may also be liability for breaching the address harvesting provisions. Defending the class action alone may be enough to bankrupt the company or divert management resources from achieving key company goals necessary to survive. Even the threat of these damages claimed in a suit could dry up venture capital and risk the company’s financial strangulation. Bigger business will simply write check after check to the CASL trolls after spending hundreds of thousands of dollars in evidence collection and in defending certification motions.
The potential non-compensatory damages for a breach of the computer program provisions is $1,000,000 for each day on which the breach occurred. So consider again, a high tech company installing or causing to install a completely benign program update on someone’s computer, phone, car, industrial device, fridge, thermostat, or other device to address a potential security threat without having express consent to do so over a 30 day period. The potential liability is $30 million. Many businesses will not install the update, creating or enabling cyber security breaches that threaten the public because of the CASL risk. Those that do face frivolous and expensive class action lawsuits and massive penalties. Considering how ubiquitous computer programs are today, the risks are very high that perfectly law abiding businesses will become mired in lawsuits that will serve no purpose other than to enrich class action lawyers and “investors” who will fund these suits. These suits will arise even if companies install updates in an effort to better serve or protect their customers.
To make the situation even worse, officers, directors and agents can be jointly and severally liable for contraventions if they directed, authorized, assented to, acquiesced in or participated in the breach. In fact, they can be sued, even if the business that committed the acts is not sued. A business is also vicariously liable for the acts of all of its employees. So a business could go bankrupt because of CASL and the directors including young entrepreneurs who are the directing minds of start-up companies would still be liable. Some people will refuse to join boards of directors of charities and smaller businesses for fear of this liability. If this becomes common, the PRA will deprive Canada’s innovative economy of the direction and governance expertise vitally needed by organizations to be successful. Since VC investors frequently also want seats on boards in companies they invest in, it could be another reason VCs will not invest in Canadian companies. Some innovators including company founders and CTOs may be worried about liability and not use innovative and efficient technologies that could better enable their businesses to grow and compete thus putting them in a competitive disadvantage to competitors in countries that don’t have laws that treat legitimate businesses reaching out to third parties as spam criminals.
CASL states that the purpose of these non-compensatory awards is to promote compliance with the Act and not to punish offenders. It also has factors courts must consider in making awards. These are helpful, but will do little to reduce the frivolous and vexatious suits.
Canadians should be worried. That was also the message delivered by the Chairman of the CRTC Jean Pierre Blais this spring:
“I can understand why people would be nervous” about this, Mr. Blais said on Tuesday, adding that working with the CRTC to ensure regulation is a good way to protect against such actions. “Once there’s a private right of action, I won’t be able to help you … you’re on your own. Good luck with that. All the more reason to get into compliance as much as you can with us, because it will diminish the risk.”
The irony of all this is that the substance of CASL and its predecessor bills were misrepresented to the public when they were before Parliament and during the regulatory processes. They were repeatedly promoted as targeting the most harmful and malicious forms of spam, malware and spyware and intended to protect against identity theft, phishing, viruses, and botnets. Yet, CASL’s provisions and remedies such as the PRA could never have been justified against the legitimate organizations that do business in Canada on this basis. CASL is costly to implement and penalizes small businesses. It deprives legitimate businesses of the most effective ways to communicate important marketing information to the public, it “strikes at the heart of their financial livelihood”, and thwarts their ability to compete with their U.S. counterparts. Nothing like CASL was needed to go after the real culprits.
It’s no wonder that after CASL came into effect and before the PRA was a factor, the public realized what a ridiculous albatross it is calling it, among other things, a Monty-Python-esque farce, a Spamaflop, deeply stupid, a sledgehammer that is ludicrous regulatory overkill, a looming disaster, and a bad and draconian law. It is all that and more and its many problems including its “ban all” approach to regulating speech almost certainly makes it unconstitutional.
So what is to be done? Of course killing CASL and enacting a much more nuanced and balanced 21st century law would be ideal. But, at the very least, the PRA should not be proclaimed into force until after the scheduled Parliamentary review of CASL. Doing anything else, would be to let this misconceived law further damage the economy and the freedoms of speech that Canadians enjoy under the Charter of Rights and Freedoms. Until the PRA is put on hold, organizations can do what many of our clients are doing – reviewing or reviewing their processes to try and reduce the risks of being another CASL victim. These resources could be much better spent investing and innovating and competing in Canada and in global markets.
For more on CASL, see Barry Sookman, CASL: the unofficial FAQ, regulatory impact statement, and compliance guideline.
First published on barrysookman.com.
 The two year time period is a “one size” fits all rule, which never recognized that sales cycles are different for different products and services and the two year period was too short for many businesses.
 They would not have this risk had the government exempted this form of update as business pleaded with it to do leading up to the final Industry Canada Regulations. The regulations only exempt acts by telecommunications service providers to protect the security of their networks.
 See, Industry Canada, Bill C-28: Canada’s Anti-Spam Legislation Questions and Answers;Industry Canada, “Government of Canada Protects Canadians with the Electronic Commerce Protection Act,” News release, Ottawa, 24 April 2009; Industry Canada, “Government of Canada Moves to Enhance Safety and Security in the Online Marketplace,” News release, Ottawa, 25 May 2010; Tony Clement on Fighting Internet and Wireless Spam Act, House of Commons on September 27th, 2010; Industry Canada, Regulatory Impact Analysis Statement
CASL enforcement private right of action