August 26, 2014

Most Canadians are certainly in favour of reducing unwanted spam in their mailboxes, but Canada’s new anti-spam law (CASL) has been met with hesitation by both businesses and consumers. Critics have called the new law "the world's toughest anti-spam law." There are concerns that CASL won't be effective in combatting the most insidious sources of spam, which often originates outside of Canada. There are also concerns that CASL's broad provisions will be onerous on Canadian businesses, and that the law is likely to be found unconstitutional, but there really hasn't been much written on why that is. This post explores these concerns through an international perspective on the fight against spam. When viewed in this context, CASL can be seen in a different light.

For those who don't know much about CASL, it is legislation that helps encourage electronic commerce and protect Canadians from spam by regulating conduct that discourages the use of electronic commercial activities that compromise privacy. CASL prohibits sending unsolicited commercial electronic messages (CEM) to electronic addresses in Canada, as well as installing computer programs without express consent, and altering transmission data. The CEM provisions of CASL came into force on July 1, 2014. Additional provisions regulating the installation of computer programs will come into force on January 15, 2015, and there will be a private right of action available to those complaining of violations as of July 1, 2017. There are steep penalties for CASL violations, including administrative monetary penalties (AMPs) up to $1,000,000 per violation for individuals and up to $10,000,000 per violation for businesses. Directors and officers can also be held vicariously liability for violations under the Act.

Reducing Spam in Canada through International Collaboration

Critics of CASL often claim that it will be ineffective because most spam originates outside of Canada. While it is true that only a small amount of the spam received by Canadians actually originates in Canada, this claim ignores the fact that spam is a serious and rapidly escalating global issue, which, like the internet, knows no borders. It is harmful to both consumers and to organizations that rely on electronic commerce, and the enactment of multilateral agreements, as well as laws like CASL, globally across jurisdictions forms an integral part of the solution. The United Nations Working Group on Internet Governance (WGIG), which released a Report in June, 2005 stressed that, "there is a need for global coordination among all stakeholders to develop policies and technical instruments to combat spam." Similarly, in the 2006 Organisation for Economic Co-operation and Development's (OECD) Task Force on Spam Report ("OECD Report"), it was noted that "global co-operation is fundamental to promote appropriate domestic frameworks to counter spam in all countries, and to encourage co-operation among governments, private sector, civil society and other stakeholders."

Canada has made efforts to take a leading role in the fight against spam from the outset. This commitment was reflected in the following statement made in the Canadian Task Force on Spam's 2005 report, Stopping Spam: Creating a Stronger, Safer Internet,Canada has an obligation to exercise international leadership in combatting spam. One major contribution the country can make is to reduce the amount of spamming in Canada." This wording was mirrored in Industry Canada's Regulatory Impact Analysis Statement (RIAS) on the Electronic Commerce Protection Regulations. The Task force also noted that, "The actions that we take within Canada to reduce the amount of spam will only have a limited effect on the amount of spam arriving in Canadians' email inboxes, unless these actions are complemented and reinforced by strong, effective international cooperative actions against spammers."

Another significant reason for Canada to take this role was articulated by Michael Geist in the first of his two part series of blog posts in defence of CASL, in which he noted that, "Canada's role in global spam is larger than most might think. The Register of Known Spam Operations is a database of the world's largest spamming organizations… The list currently identifies seven organizations based in Canada, making us the third largest home of spamming organizations in the world, behind only the United States and Russia." Viewed in this context, the need for a comprehensive law targeting spam in Canada seems clear. It's a shared international responsibility.

One of the ways that countries have worked together to combat spam is through the implementation of multilateral agreements. According to the Canadian Task Force Report, which recommended that Canada pursue agreements on anti-spam policies and strategies with foreign governments, Canada has already participated in a variety of multilateral initiatives. These include the London Action Plan on International Spam Enforcement Cooperation, as well as agreements with key international partners including with Australia, the United Kingdom, the United States, and the European Commission. Canada also actively participated in the OECD's Task force by completing a comparative analysis of the anti-spam legislative frameworks that were in place internationally at the time of the Report, and developing a comprehensive and multi-faceted anti-spam toolkit for countries to use in developing public policy and legislative frameworks for addressing spam.

Another way that the international community is collaborating to reduce spam is through the harmonization and effective enforcement of anti-spam laws. The International Telecommunication Union (ITU), which is the United Nations’ specialized agency for information and communication technologies, released a Survey on Anti-Spam Legislation Worldwide in 2005. The survey revealed that not all countries had spam laws, and amongst those countries that did, the laws were varied, usually in relation to their approaches to consent. Some required business to obtain "opt in" consent before sending CEMs, while others required "opt out" consent or required senders to use a label in the subject line of a CEM.

According to the Survey, the first anti-spam law was enacted in 1997 in the State of Nevada. Significant developments in anti-spam laws since then have included the enactment of the European Directive on Privacy and Electronic Communications (2002/58/EC) in 2003, as well as Australia’s Spam Act 2003, and the United States CAN-SPAM Act in 2004. Unlike CASL, which requires businesses to use an "opt-in" approach when it comes to commercial electronic messages, the US's CAN-SPAM Act is based on an "opt-out" model, where implicit consent to receive these messages is assumed, unless recipients take steps to remove their consent. Unfortunately, an effective approach has yet to be found, and the laws that have been enacted have had little effect on the explosive growth of unwanted spam.

So what makes anti-spam legislation effective? One difficulty faced by regulators in drafting effective anti-spam legislation that supports a harmonized global approach is that there is no internationally recognized definition of spam. The Canadian Task force's analysis of the experiences of other countries efforts in reducing spam demonstrated the importance of an "opt in" approach that incorporates clear, unambiguous policies and legislation, resolves jurisdictional issues, and provides rigorous enforcement mechanisms. These measures complement other non-regulatory measures including industry-specific private sector activities, technical solutions, as well as education and awareness initiatives.

Tracking down and identifying spammers can be difficult and costly, requiring considerable resources. Accordingly, the ITU’s discussion paper on Countering Spam: How to Craft an Effective Anti-Spam Law emphasized the importance of minimizing hurdles faced in prosecuting spammers across jurisdictions. It also recommended that regulators focus on the most significant concerns identified related to spam, including fraud and pornography, and limit negative impacts on legitimate businesses. The OECD Report recommended putting strong enforcement mechanisms, including appropriate standards of proof in place, and allocating sufficient resources to enforcement authorities. It also recommended that the legislation should support international cooperation and cross-jurisdictional information sharing amongst authorities in the fight against spam.

While CASL meets most of these principles, it seems to fall short in terms of legislative simplicity. Indeed, the new law appears to be anything but simple to interpret, and has proven to be complicated, time-consuming and costly for businesses trying to implement it, especially for small businesses. This, as well as the law’s cross-jurisdictional reach within Canada could be where constitutional challenges may arise.

Questions about Constitutionality

Concerns surrounding the constitutionality of CASL involve its breadth and proportionality in relation to its primary objective, as well as federalism. In 2012, Ravi Shukla wrote a comprehensive discussion on the constitutionality of CASL for the Internet and E-Commerce Law in Canada Newsletter, which focused on the issue of federalism. An earlier article from the same year by Justice Bastarache, Former Justice of the Supreme Court of Canada (SCC), addressed the constitutionality of the Personal Information and Protection of Electronic Documents Act ("PIPEDA") in light of the Court’s 2011 decision in Reference Re Securities Act. Both of these articles provide insight into what constitutional arguments are likely to be made in the event of a Challenge to CASL.

The federalism issue relates to whether or not a law represents a legitimate exercise of the federal government's power over general trade and commerce under section 91 of the Constitution Act, 1867 (the "Constitution"), or whether it impinges the provinces' authority over property and civil rights, and matters of a merely local and private nature under subsection 92 of the Constitution. The SCC set out five tests for determining whether or not an impugned law has the requisite national focus, in its 1989 decision, General Motors of Canada Limited v. City National Leasing. First, whether the law is part of a general regulatory scheme; second, whether the scheme will be monitored by the continuing oversight of a regulatory body; third, whether the law is concerned with trade as a whole, rather than a particular industry; fourth, whether the law is of a nature that the provinces would be constitutionally incapable of enacting; and finally, whether the failure to include one or more of the provinces in the legislative scheme would jeopardize the successful operation of the scheme in other parts of the country.

Shukla noted that while the federal government took multiple approaches in supporting its position that PIPEDA's enactment was valid under the federal trade and commerce power, it had not taken similar steps in support of CASL. For example, under PIPEDA provinces are permitted "opt-out" if they enact "substantially similar" legislation, such as British Columbia's Personal Information Protection Act. Organizations that are subject to these provincial privacy laws are exempt from PIPEDA. Despite this provision, the government of Quebec initiated a formal court challenge to the constitutionality of PIPEDA in 2003, but the case was suspended since 2006 when Quebec's privacy legislation met the test for substantial similarity to PIPEDA.

According to Justice Bastarache, concerns over the constitutionality of PIPEDA were increased when the SCC held that the proposed Canadian Securities Act was not supported under subsection 91(2) of the Constitution in Reference Re Securities Act. The federal government had sought an advisory opinion from the Court as to whether it had legislative power to create a national regulatory scheme for securities under the proposed Securities Act. The Supreme Court was unanimous in finding that it did not. In its decision, the Supreme Court provided some clarification on the government's general trade and commerce power. It reaffirmed the test set out in General Motors, finding that the power must give meaningful scope while preserving provincial autonomy.

The Court found that the proposed Act was overreaching, and viewed as a whole, did not fall within the federal government’s general trade and commerce power. While the economic importance of the securities and some aspects of the Act went beyond a specific industry were national in scope, the day to day regulation of the securities market was not a national concern. The effects of the Act would be to duplicate and displace the existing provincial securities regime; and the objectives of national harmonization, presenting a unified face internationally, and reducing inefficiencies were insufficient to justify federal regulation. Importantly, the Court noted that its opinion did not "address the question of what constitutes the optimal model for regulating the securities market", but instead reflected the constitutionality of the model proposed under the Act. A cooperative approach that recognized the essentially provincial nature of securities regulation while allowing the federal government to deal with genuinely national concerns might have passed constitutional scrutiny.

Applying the five the tests outlined in General Motors to CASL, it remains to be seen whether or not Canadian courts will find that the new law is a legitimate exercise of the federal government's power over trade and commerce. It could be argued that CASL would meet the first test because it incorporates a complex legislative scheme. However, it could also be argued that it is a regulatory scheme not primarily directed at trade and commerce, and is actually more of a privacy related regime like PIPEDA. According to Michael Geist however, in the second part of his recent blog posts in defence of CASL, it was always intended to be more than an anti-spam law. In fact, its stated purpose reflects the promotion of the "efficiency and adaptability of the Canadian economy by regulating conduct that discourages the use of electronic means to carry our commercial activities."

CASL will likely satisfy the second test because it is monitored by the continuing oversight of three federal regulatory bodies, including Industry Canada, the Canadian Radio-television and Communications Commission ("CRTC") and the Office of the Privacy Commissioner ("OPC"). It is also likely to satisfy the third test because it is concerned with electronic trade as a whole, rather than a particular industry. However, CASL may or may not be legislation of a nature that the provinces would be incapable of enacting. This is because it is unclear whether or not the provinces could effectively regulate commercial electronic activities related to spam across inter-provincial and international jurisdictions. Unlike, PIPEDA which involved a cooperative regulatory scheme in which the federal government provided a minimum standard for privacy legislation, as well as an opt-out mechanism for provinces that enacted substantially similar legislation, CASL provides a unified national regulatory scheme which does little to protect provincial autonomy. It is possible that CASL would meet the fifth test. A lack of regulatory harmonization could jeopardize the success of CASL's regulatory schemed and undermine Canada's ability to meet international obligations in relation to the fight against spam. Although there are some provincial laws related to electronic commerce, including Ontario’s Electronic Commerce Act, 2000, there are no long-standing provincial laws in place related specifically to spam.

Finally, concerns surrounding the constitutionality of CASL also involve its breadth and proportionality. Industry Canada’s FAQs for Businesses and Organizations notes that, "CASL sets a new standard for spam laws around the world." The negative impact of CASL on legitimate Canadian businesses – and small businesses in particular – in terms of its significant compliance costs, such as the need to put systems in place to track consent, may be disproportionate to its primary objective. This impact might have been reduced by narrowing the impact of the legislation to the most harmful spam offenders, such as those engaged in fraudulent activity. Despite the controversies surrounding CASL, individual Canadians appear to have embraced the new anti-spam legislation, with almost 50,000 complaints received by the CRTC in the first month following its coming into force according to a recent article by Glenn Kauth in Law Times. The sheer volume of complaints makes it much more likely that a constitutional challenge will be launched by a business at the receiving end of a significant penalty.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Business Law