Vidéotron ltée v. Bell ExpressVu, l.p.

Vidéotron ltée c. Bell ExpressVu, l.p.

2012 QCCS 3492

SUPERIOR COURT

CANADA

PROVINCE OF QUÉBEC

DISTRICT OF MONTRÉAL

No.

500-17-027275-059

DATE : JULY 23, 2012

______________________________________________________________________

IN THE PRESENCE OF : THE HONOURABLE JOEL A. SILCOFF, J.S.C.

______________________________________________________________________

Vidéotron ltée.

-and-

Vidéotron (Régional) ltée.

-and-

CF Câble TV inc.

Plaintiffs

and

VIDÉOTRON s.e.n.c.

Plaintiff in continuance of suit

v.

BELL EXPRESSVU LIMITED PARTNERSHIP

Defendant

______________________________________________________________________

JUDGMENT

______________________________________________________________________

I.

INTRODUCTION.........................................................................................................................2

THE PARTIES.............................................................................................................................6

II.

A. VIDÉOTRON........................................................................................................................6

B. GROUPE TVA INC. (“TVA”)...............................................................................................7

C. BEV........................................................................................................................................7

TECHNICOLOGICAL AND CONTEXTUAL OVERVIEW....................................................7

III.

A. Direct Broadcast Satellite (“DBS”) Systems: A CONCEPTUAL OVERVIEW .....................7

B. SATELLITE TELEVISION PIRACY AND FRAUD IN NORTH AMERICA – A DESCRIPTIVE

OVERVIEW..............................................................................................................................8

C. ANTI-PIRACY TECHNIQUES...................................................................................................13

D. BEV’S ENTRY AND EXPERIENCE IN THE CANADIAN DBS INDUSTRY - A CONTEXTUAL

OVERVIEW............................................................................................................................15

IV.

V.

QUESTIONS OF FACT AND OF LAW.................................................................................25

OBJECTIONS TO BE AJUDICATED...................................................................................26

A. THE INADMISSIBILITY OF EXHIBIT D-226.............................................................................26

B. THE INADMISSIBILITY OF EXHIBIT D-79A.............................................................................26

C. EXPERT MICHAEL BARR’S LIMITED QUALIFICATIONS ..........................................................27

D. EXPERT DR. MATTHEW D. GREEN’S LIMITED QUALIFICATIONS .........................................28

EXHIBITS PRODUCED UNDER SEAL................................................................................29

VI.

VII.

VIII.

ADMISSIONS............................................................................................................................30

ANALYSIS OF THE EVIDENCE - ORDINARY WITNESSES...........................................30

A. VIDÉOTRON & TVA..............................................................................................................30

B. BEV......................................................................................................................................40

EXPERT Evidence – JURISPRUDENTIAL PRINCIPLES.............................................................90

IX.

X.

A. DUTIES AND RESPONSIBILITIES OF EXPERT WITNESSES....................................................90

B. ASSESSMENTOF CREDIBILITY, RELIABILITY AND PROBATIVE VALUE OF EXPERTEVIDENCE

92

ANALYSIS OF THE EVIDENCE - EXPERT WITNESSES................................................94

i

B. SECURITY & AVAILABLE MEASURES TO PREVENTOR LIMIT SATELLITE SIGNAL PIRACY AND

ENSUING DAMAGES..............................................................................................................94

VIDÉOTRON & TVA......................................................................................................................94

BEV...........................................................................................................................................113

C. QUANTIFICATION OF DAMAGES..........................................................................................129

VIDÉOTRON & TVA....................................................................................................................129

BEV...........................................................................................................................................138

APPLICATION AND DISCUSSION ....................................................................................152

XI.

A. FAULT.................................................................................................................................152

B. CAUSATION.........................................................................................................................173

C. QUANTIFICATION OF DAMAGES..........................................................................................185

EXPERT EXPENSES.............................................................................................................188

XII.

XIII.

INTEREST................................................................................................................................192

XIV. FOR THESE REASONS, THE COURT:.............................................................................192

A. OBJECTIONS .......................................................................................................................192

B. MERITS ...............................................................................................................................193

ii

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PAGE : 2

I.

INTRODUCTION

[1]

History changed on October 4, 1957, when the Soviet Union successfully

launched Sputnik I, the world's first artificial satellite. It marked the start of the space age

and a scientific and technological battle of epic proportions between the two world

titans.¹

[2]

In September 1997, approximately forty years later, ExpressVu Inc. (predecessor

of BEV) launched its programming service as a national Direct-to-home satellite

distribution undertaking. This event quickly gave rise to a multi-faceted commercial and

legal battle, also of epic proportions, between two Canadian telecommunications titans,

Vidéotron, BEV and their respective parent corporations.

[3]

In their initial proceeding introductive of suit, Plaintiffs, Vidéotron Ltée., Vidéotron

(Régional) Ltée. and CF Câble TV Inc. sought compensation from Defendant, Bell

ExpressVu Limited Partnership (“BEV”) for loss of actual and potential revenues from

various services offered to potential subscribers to its pay television, Internet access and

telephony services, as well as exemplary damages, as a direct consequence of its

alleged negligence to adequately control the black market pirating of its direct-to-home

satellite system (“Action # 1”, or the “Vidéotron Action”).

[4]

Vidéotron (Régional) Ltée was subsequently merged into CF Câble TV Inc. It

was then liquidated into Vidéotron Ltée. Thereafter, Vidéotron Ltée transferred its assets

to Vidéotron s.e.n.c., a limited partnership (“Vidéotron”).

[5]

An appearance in continuance of suit was then filed by Vidéotron. Vidéotron is,

therefore, the sole remaining Plaintiff in this action.

[6]

Vidéotron originally quantified its claim as follows:

(i)

$41,109,357 for loss of profits during the period commencing September

1, 2002 and terminating February 28, 2005 (the “Piracy Period”)²;

(ii)

$247,823,315 for loss of anticipated profits during the period commencing

March 1, 2005³and terminating December 31, 2015 (the “Post-Piracy

Period”);

1

http://history.nasa.gov/sputnik/.

2

The duration of the Piracy Period has been variously defined by the parties and by different experts

heard in these actions. In Plaintiff counsel’s oral argument, the Court was invited to modify the

commencement date of the Piracy Period, if necessary, in accordance with its appreciation of the

evidence.

The Post Piracy period also has been inconsistently described in various documents as beginning

March 1, 2005, March 31, 2005 and June 30, 2005. These differences are not material for the

purposes of the present judgment.

3

500-17-027275-059

PAGE : 3

(iii)

(iv)

$10,000,000 as exemplary damages; and

Interest at the legal rate as well as the additional indemnity provided under

Article 1619 of the Civil Code of Québec (“C.C.Q.”).

[7]

In an amended proceeding dated November 4, 2005, the total amount claimed in

compensatory damages and punitive damages was increased to $374,195,890.

[8]

Following the conclusion of the evidentiary phase of the hearing and in the

course of Plaintiff’s oral argument, Vidéotron substantially reduced its claim for

damages, based upon the following alternative parameters referred to, in the report

prepared by its experts Navigant Conseil LJ Inc. (“Navigant” and the “Navigant

Report”)⁴, as being appropriate in the circumstances:



Fixing the acceptable or tolerable level of piracy at 3%;

Accepting an annual “churn rate”⁵among Vidéotron subscribers of 12.6%,

corresponding to an average period of subscription for its clients of 7.9

years;



Fixing Vidéotron’s share of the market in the regions serviced by it at 71%;

and

Reducing the duration of the Post-Piracy Period during which damages

are claimed to a total of approximately 6.8 years, commencing March 1,

2005 and terminating December 31, 2011.

[9]

Moreover counsel invited the Court, if it deemed appropriate, to further reduce

the amounts awarded, depending on its determination of the date of commencement of

damages, that is the earliest date, after September 1, 2002, upon which the Court

concludes BEV could have effected the swap out from its problematic existing DNASP2

conditional access system (“CAS”) and smart cards to the upgraded and more secure

Aladin CAS and smart cards.

[10] The amount of the reduced claims for compensatory damages and the method of

calculation thereof are referred to in a letter, dated January 6, 2012, addressed to the

Court by Plaintiffs’ counsel.⁶They vary from a high of $28,539,723 if the Piracy Period

and resulting damages are deemed to have commenced on April 1, 2003, and a low of

$7,476,524, if the Piracy Period and resulting damages are deemed to have

commenced on October 1, 2004. For the Post-Piracy Period, the amount claimed is

reduced to $144,593,886.

4

Exhibits P-363 A – P-363 H, (collectively the “Navigant Report”).

Defined in Annex I to this judgement.

Exhibit P-388.

5

6

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PAGE : 4

[11] In oral argument before the Court, counsel for Vidéotron withdrew the claim for

exemplary damages on behalf of Vidéotron but maintained it on behalf of TVA as

claimed in the TVA (Piracy) Action (hereinafter defined).

[12] BEV denied liability for all of the amounts claimed. Its position is summarized in

paragraphs 1 to 15 of its Amended Defence and in greater detail in counsel’s Plan of

Argument of Defendant, Complément au Plan and the Plan d’Argumentation

Additionnel. BEV contends, in particular:



Its actions at all relevant times in preventing and opposing satellite signal piracy,

including the choice, implementation and use of its technology in that regard and

the conversion of its existing DNASP2 CAS to the new Aladin CAS were

commercially and scientifically reasonable and appropriate in the circumstances;



They were undertaken in a timely fashion based upon available technology at the

time;



It was not negligent;

It never tolerated piracy of its system and used commercially reasonable efforts,

in choosing and installing its satellite broadcast systems, to fight piracy which

was, at the time, an industry and world-wide concern;



It undertook a great number of actions to prevent and oppose signal piracy many

of which were at times simultaneous. These included interventionist legal actions

against persons engaged in signal piracy, repatriation programs to incite pirates

to become legitimate subscribers, implementation of an extensive program of

electronic counter-measures (“ECM”), implementation of the PRISM and BEATS

programs, a zero-tolerance policy, a public education campaign, marketing

techniques promoting the sale of programming packages with satellite receiver

equipment, call-out programs, phone connection contractual requirements,

investigation and industry-wide cooperation, major smart card swaps and

continuing discussions and collaboration with the Canadian Radio-television and

Telecommunications Commission (the “CRTC”) and law enforcement agencies

in the fight against piracy;



In assessing fault and liability, the Court should respect the rule of deference to

business decisions known as the “business judgment rule” in evaluating whether

BEV acted within the rules of conduct appropriate in the circumstances, usage or

law;



If Vidéotron’s submissions are to be retained by the Court, they require more

than mere conjecture. They require credible evidentiary support of fault and

causality. It has failed to provide same;

Vidéotron failed to discharge its burden to prove how the amounts claimed were

a direct and immediate consequence of the alleged fault of BEV and that they

reflected the real losses incurred by it;

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PAGE : 5



The approach and methodology used by Vidéotron’s expert, Navigant, to quantify

the compensatory damages claimed is flawed and should not be retained;

Under reserve, should the Court find fault and causality, the quantification of

damages as proposed by BEV’s expert, PricewaterhouseCoopers (“PwC”) and

modified by counsel subsequently, should be retained;



It denies, as being unfounded in fact and in law, Vidéotron’s claim for exemplary

damages; and

Vidéotron has failed to mitigate any losses resulting from any form of piracy for

which BEV might be held accountable.

[13] Although BEV denied liability for all of the amounts claimed, under reserve and in

the event that the Court should find it liable to compensate Vidéotron for the damages

claimed, counsel for BEV maintains that the appropriate quantification of damages

during the Piracy Period and the Post-Piracy Period should range from a high of

$861,000 if they are determined to have commenced on July 1, 2003 to a low of

$34,000 if they are determined to have commenced only on December 31, 2004. ⁷

[14] The Vidéotron Action was heard together with each of following three related

actions:

(i)

500-17-027276-057: Groupe TVA Inc. v. Bell ExpressVu Limited

Partnership (“Action # 2” or the “TVA (Piracy) Action”);

(ii)

(iii)

500-17-018324-031: Groupe TVA Inc. v. Bell ExpressVu Limited

Partnership (“Action # 3” or the “TVA (Account Stacking) Action”); and

500-17-022586-047: Groupe TVA Inc. v. Bell ExpressVu Limited

Partnership (“Action # 4” or the “TVA (Injunction) Action”).

(collectively, including the Vidéotron Action, the “Related Actions”)

[15] A total of 23 witnesses were heard over a period of almost 5 months on behalf of

one or other of the parties.

[16] Seeing the lack of identity of the parties and of the remedies sought in each of

the Related Actions and for the purpose of clarity, separate judgments are rendered in

each of Actions # 1 and # 2; a third judgment is rendered combining Actions # 3 and #

4; (collectively the “Related Judgments”). The Related Judgments are released

concurrently.

[17] For the reasons herein expressed and those expressed in each of the other

Related Judgments, the Court:

7

Exhibit D-292, Letter to the Court by counsel, January 12, 2012.

500-17-027275-059

PAGE : 6

(i)

maintained in part the present action;

(ii)

(iii)

(iv)

maintained in part the TVA (Piracy) Action;

dismissed the TVA (Account Stacking) Action; and

dismissed the TVA (Injunction) Action.

[18] The reader is encouraged to read each of the Related Judgments for a full

comprehension of the Court’s determinations on the issues raised for determination in

this and each of the other Related Actions.

[19] The evidence offered by the parties in support of their respective contentions in

the Vidéotron Action, is deemed to have been offered and to form part of the Court

record in each of the other Related Actions.

[20] The Court will limit its analysis in this judgment to the issues raised and the

conclusions sought in the Vidéotron Action. To the extent applicable, the findings and

analysis herein shall be deemed to form part of and to apply mutatis mutandis in each of

the other Related Judgments.

[21] All acronyms used but not otherwise defined herein, shall have the same

meaning as set out in the Glossary of Acronyms and Defined Terms annexed hereto as

Annex I.

II. THE PARTIES

A.

VIDÉOTRON

[22] Vidéotron is a cable broadcasting distribution undertaking (“BDU”) operating in

Quebec. It offers subscribers analog and digital pay-television, Internet access and

telephony services. It also offers business telecommunications services, wireless

communication services. It also operates a chain of video stores. At all times relevant, it

was in possession of licences issued by the CRTC to carry on a distribution undertaking

in the various regions or territories serviced by it⁸.

[23] The predecessor corporations (Plaintiffs herein) of Vidéotron became

subsidiaries of Quebecor Media inc. (“QMI”) in 2001.

8

Exhibit P-001 en liasse.

500-17-027275-059

B. GROUPE TVAINC. (“TVA”)

PAGE : 7

[24] TVA operates in the sector of television broadcasting. At all times relevant to the

present proceedings, QMI was the majority shareholder of TVA.

[25] TVA broadcasts one free-to-air television channel, Le Réseau TVA, as well as

twelve pay and specialty programing services, including Le Canal Nouvelles (“LCN”).

LCN is distributed by all BDUs doing business in Quebec, including BEV. Its licence as

a programing undertaking was granted by the CRTC in its decision 96-615 on

September 4, 1996⁹.

[26] At all times relevant to the present action, LCN was the only pay and specialty

programing undertaking available to BEV from TVA.

C.

BEV

[27] BEV is a limited partnership formed under the Limited Partnerships Act (Ontario).

Its two partners are Bell ExpressVu Inc., its general partner and Bell Canada, its limited

partner.

[28] By decisions dated December 20, 1995 and corrected on January 11, 1996, the

CRTC granted ExpressVu Inc. (predecessor of BEV) a licence to carry on a national

Direct-to-home (“DTH”) satellite distribution undertaking¹⁰. BEV’s licence has been

extended or renewed on several occasions since and is still in full force and effect.

[29] BEV launched its programming service in September 1997. It distributes digital

television and radio programming through DTH satellite technology, sometimes also

known as a Direct Broadcast Satellite (“DBS”) television system.

III. TECHNICOLOGICAL AND CONTEXTUAL OVERVIEW

[30] While the underlying technology relevant to DBS television and conditional

access systems may be complex and, from a layman’s perspective highly sophisticated,

and although the expert evidence offered on behalf of each of the parties is often

contradictory as to the adequacy of BEV’s response to signal theft, there is nonetheless

a general consensus as to the description of the essential components and functioning

of a DBS system. The Court will attempt to synthesize the relevant technology.

A.

Direct Broadcast Satellite (“DBS”) Systems: A CONCEPTUAL OVERVIEW

[31] DBS television is a communications medium used to distribute television

programming from orbital locations in outer space to an unlimited number of receivers

over a large terrestrial footprint. For BEV, the footprint covers most of Canada. Direct-

9

Exhibit P-285.

Exhibit D-1.

10

500-17-027275-059

PAGE : 8

To-Home (“DTH”) satellite television is another term sometimes used interchangeably

to describe a similar medium.

[32] BEV’s expert, Michael Barr, describes how the DBS system functions as follows:

11.

(…) In general terms, every DBS system has five major components (…)

12.

First, each broadcaster sends its video and audio content into the sky via

one or more (…) transmit antennas at an “uplink” center. Next, these signals are

received by the specific (…) satellite they are aimed at, which is located in a

“geostationary” orbit that follows the Earth’s daily rotation to keep it always above

the same fixed point on the Earth’s surface. The satellite retransmits these

signals in a cone-like signal stream directed primarily at a specific “footprint” on

the Earth (e.g., the 48 contiguous United States). Individuals or organizations

wishing to receive signals from a specific satellite must aim a (…) parabolic “dish”

antenna in its precise direction. The antenna gathers and amplifies the received

signals and forwards them along an attached coaxial cable to a (…) set-top

box.¹¹Next, the set-top box decodes the digital data it receives to display the

user-selected channel (e.g., ESPN) on an attached (…) television.¹²

[Internal footnotes omitted]

[33] To prevent unauthorized access to its signals, satellite broadcasters rely upon

Conditional Access System (“CAS”) security and technology. According to Vidéotron’s

expert, Dr. John Markey:

The primary purpose of conditional access security on satellite and cable

television systems is to prevent the unauthorized access to programming content

and other information delivered by those technologies. Security of digital satellite

TV systems, in layman’s terms, is achieved not through any one method or

component, but often is accomplished through security technology integrated in

many of the components and elements throughout the system.¹³Hence, the

overall strength of the satellite TV’s security is compromised if one or more of the

relevant parts to the security system becomes vulnerable to hacking and piracy.¹⁴

B.

SATELLITE TELEVISION PIRACY AND FRAUD IN NORTH AMERICA – A DESCRIPTIVE

OVERVIEW

[34] Satellite television piracy is defined by Vidéotron’s expert, James Shelton, as

follows:

11

The set-top box equipment may also be called just a “set-top” or just a “box.” More formally, it is an

“integrated receiver-decoder” (hence, “IRD”) or just “receiver.” All of these terms are interchangeable.

Expert Report of Michael Barr, September 30, 2010 (the “Barr Report”), pp. 9-10, Exhibit D-251.

The conditional access technology is integrated across numerous systems such as the broadcast

12

13

center, in the set-top-box receiver, and most importantly, in the smartcard technology.

Expert Report of Dr. John Markey, March 2010 (the “Markey Report”), p. 6, Exhibit P-350.

14

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PAGE : 9

Piracy is the unauthorized [and typically illegal] reproduction or use of another’s

production, invention, or conception, especially involving infringement of a

copyright. In the area of pay TV, piracy typically entails violating state, provincial,

and/or federal criminal and civil laws, by obtaining telecom hardware and

software that permits a would-be or actual subscriber, respectively, to view

content without paying for it, or to view content by paying less than what the

owner and/or distributor of that content typically charges. (…)¹⁵

[Internal footnotes omitted]

[35] Satellite television piracy has been a concern since the inception of this form of

television broadcasting. The earliest satellite broadcasts, which began in 1975, were

used to distribute new movies and live sporting events from, for example, Home Box

Office (HBO) and Superstation WTBS to local cable TV providers, for rebroadcast to

cable TV subscribers over the local wires.

[36] Barr describes the evolution of piracy since as follows:

22.

Early satellite TV broadcasts weren’t scrambled. Anyone with a large (6

foot diameter) “backyard dish” and receiver could watch them. In a sense, the

1986 introduction of encryption technology—after a decade of broadcasting video

channels in the clear—was the first anti-piracy measure. (…) In the intervening

decade, a generation of satellite TV enthusiasts and equipment providers was

established.(…) Many of these people had acquired sufficient understanding of

the required technology to install and maintain complex antennas and receiving

systems. Despite what the broadcasters thought of them, it is likely that very few

thought of themselves as hackers or pirates.

23.

Thus began a cat-and-mouse-game between those who would encrypt

satellite TV broadcasts to protect them and those who would decrypt them

without payment. A “backyard dish” technological arms race raged for over eight

years before the 1994 launch of the first mass market “small dish” DBS

systems—by DirecTV in the U.S. According to an estimate by a Plaintiff’s expert

more than 80% of “backyard dish” owners would have used pirate devices in this

era. (Shelton p. 9) The purveyors of products and services to assist in piracy

profited and learned.¹⁶

[Internal footnotes omitted]

[37] He also describes the more common fraud and piracy techniques used to

receiving DBS television programming without payment or by paying less than the

appropriate amount¹⁷:

15

The Carmel Group Expert Report, March 2010 (the “Shelton Report”), p. 5, Exhibit P-356.

Barr Report, pp.14-15.

Ibid, pp. 15-22.

16

17

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Grey Market

25.

The grey market is a type of fraud that involves Canadian residents who

make unauthorized subscriptions to U.S. satellite TV services, such as DirecTV

or Dish Network. In grey market fraud, customers do pay fees for what they

watch. But by law Canadians aren’t allowed to subscribe to U.S. broadcasts. A

grey market participant requires assistance in the form of a U.S. mailing address

and cross-border movement of receiving equipment (antenna, set-top box, and

access card) compatible with the target U.S. satellite TV system.

26.

It is difficult to fight grey market fraud technologically. Canadian satellite

TV operators, such as Bell ExpressVu, cannot stop the grey market unless they

receive help from the U.S. satellite TV operators and law enforcement on both

sides of the border.

Account Stacking

27.

Account stacking is a type of fraud that involves unauthorized location of

set-top boxes. In account stacking fraud, DBS subscribers purchase satellite TV

service for set-top boxes for additional rooms but instead place them in other

houses. (…) In this case, he lies to the satellite TV operator about the location of

the additional boxes to reduce his monthly bill. Account stacking can also be a

way of accomplishing grey market fraud—if, for example, a U.S. subscriber

purchases additional set-top boxes for dozens of “friends” in Canada.

28.

Account stacking fraud has been a problem for all satellite TV operators

since the inception of DBS services. (…)

29.

Account stacking fraud is difficult to fight technologically. Because of the

one-way broadcast, the satellite TV operator cannot tell where receiving set-top

boxes are located. (…)

Vacation Stops

30.

Vacation stoppage (a.k.a., vacation adjustment) is a type of fraud that

involves DBS subscribers who lie to the satellite TV operator. In this type of

fraud, the subscriber requests to have his account suspended for a period of

months but only removes his set-top boxes from the satellite signal for the first

few weeks (during which the downgrade command is initially sent and then

rebroadcast to his access cards). (…)

(…)

Blocker Boards

32.

Blocker boards are pirate devices that implement a “man-in-the-middle”

attack on a satellite TV system. Each blocker board is an electronic circuit board

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inserted between a set-top box and its access card. Once inserted, the blocker

board intercepts all satellite communications and occasionally discards certain

types of commands, such as downgrade messages, so they do not reach the

access card. Blocker board piracy is similar to vacation stop fraud, in that you

need a subscribed access card to begin the interception. (…)

(…)

Emulation

34.

Emulation is a piracy technique that involves replacement of the access

card in a set-top box with a pirate device that emulates (“pretends to be”) the

access card. The card substitute then replies to all requests from the set-top box,

including handing out decryption keys for any channel the pirate selects. Unlike

the other forms of fraud and piracy discussed so far, emulation can be done by

someone who has never been a subscriber of any satellite TV provider.

35.

(…)

38.

There are two types of card substitutes that can be used for emulation:

Emulation can be fought sufficiently with ECMs to make it costly for

pirates. (…)

Card Modification

39.

So-called “modified original smart cards” (MOSCs) are satellite TV

access cards with their internal data and/or software modified to allow greater

access to channels than actually subscribed. To accomplish this, the access card

must be removed from the set-top box, inserted into a smart card reader

(attached to a personal computer running pirate software), modified, and then

reinserted into the set-top box.

40.

(…)

41.

There are several variations of the card modification technique:

It usually takes months or years for persistent and sophisticated hackers

to reverse engineer a particular access card sufficiently to develop tools and

techniques to make these sorts of modifications. The reason it is attractive to do

so, compared to the other methods described so far, is that this attack uses the

satellite TV operator’s own equipment. Many potential pirates will already have a

set-top box containing an access card. With a smart card reader, a personal

computer, and some software he can modify his access cards himself. In effect,

this hack reduces the cost of piracy.

(…)

500-17-027275-059

Free-to-Air Receivers

43. Free-to-air (FTA) receivers are generic satellite TV set-top boxes

PAGE : 12

designed to receive unencrypted satellite TV broadcasts. These set-top boxes

can never be used by the legitimate subscribers of DBS operators like Bell

ExpressVu. However, some FTA receivers can be modified to intercept

encrypted channels. The piracy technique involves upgrading the factory

software inside the FTA receiver with special software available on the Internet.

The pirate software for the FTA receivers emulates the access card on the set-

top box’s embedded microprocessor, in a manner similar to a green card or white

card hack.

(…)

Card Sharing

45.

Card Sharing (a.k.a., Internet Key Sharing) is a pirate technique that

involves connecting multiple hacked FTA receivers over the Internet. In this

technique, a server computer is used to distribute the current decryption keys for

individual channels to all of the connected FTA receivers. The server computer

gets the current keys from a paying subscriber’s access card.

46.

Card Sharing is the only present vulnerability of the Bell ExpressVu

system, but does not involve hacked access cards and has very limited

commercial availability. (…)

[Internal footnotes omitted]

[38] Summarizing the historical perspective of piracy, Shelton adds:

Piracy Today 1: Thus, today, (…) four (4) key North American pay TV operators

are susceptible to serious piracy worries. These are the two (2) U.S. DBS

providers, i.e., DirecTV and DISH Network (or EchoStar), as well as the two (2)

DBS providers in Canada, i.e., Star Choice and BEV.

Piracy Free 1: Among this group of four (4), DirecTV has been free of piracy

since it completed its card swap to the P-4 card, which to date remains

unhacked. However, DirecTV’s first generation of smart card was called the P-1.

The P-1 card was hacked in the fall of 1995 and was replaced by the second

generation P-2 card in June 1997. By August of that same year, the P-2 card was

hacked prompting DirecTV to deploy the third generation P-3 card in March

1999. The P-3 card remained secure until it was hacked in the fall of 2001.

DirecTV then issued the P-4 smart card beginning in March 2002 using a custom

Application Specific Integrated Chip (ASIC). Since the completion of the P-4 card

swap, DirecTV has remained free of piracy.

Piracy Free 2: Canada’s Star Choice pay TV operator has never been the victim

of piracy because it uses the same, never-hacked VideoCypher-II Plus security

as does the North American C-Band industry.

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Piracy Today 2: The remaining two (2) pay TV operators, DISH Network and

BEV, have serious piracy problems, going back to 1999, in both the U.S. and

Canada, respectively, in large measure because they both use the same

Conditional Access System (CAS) vendor, Nagravision, (…)¹⁸

[Internal footnotes omitted]

C.

ANTI-PIRACY TECHNIQUES

[39] Although there are serious differences between the parties as to the adequacy,

appropriateness and timeliness of the various anti-piracy techniques implemented by

BEV, there would appear to be a general consensus among the experts as to nature of

the more commonly available techniques used to combat piracy.

[40] Barr describes some of the relevant piracy countermeasure techniques:

Electronic Countermeasures

50.

The definition of electronic countermeasure (ECM) varies according to

who you ask. (…) I define ECM as any change to a satellite TV operator’s

broadcast stream that thwarts or reduces piracy with no impact on legitimate

subscribers¹⁹. Each specific ECM is designed to either permanently eliminate a

particular type of piracy or frustrate pirates by interrupting what they are watching

and making them work harder to keep their interception going.

51.

There are a number of different ECM flavors, including but not limited to:



Key Changes involve changing the keys used to encrypt some or all

channels. For example, if a particular decryption key is known to be

published on a piracy website, then that key can be changed over the

satellite. Alternatively, the frequency of key changes can be increased

from days to minutes or seconds so that certain pirate devices can’t keep

up.



Card Upgrades are software downloads to an access card to make the

system more secure. For example, if a bug is found in the software for an

access card, the code can sometimes be patched over the satellite.

Box Upgrades are software downloads to the set-top box to make the

system more secure. These may be to fight a particular pirate technique

or as part of a larger security upgrade. (…)

Card Kills are commands sent over the satellite to disable access cards

detected as used in piracy. (…)

18

19

Shelton Report, pp. 10-11.

Emphasis added. There may not be a consensus among the experts on this qualification regarding

“no impact on legitimate subscribers.”

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PAGE : 14



Box Kills are commands sent over the satellite to disable set-top boxes

containing access cards detected as used in piracy. Because the box is

generally the property of the buyer, this is considered an aggressive anti-

piracy maneuver that could raise legal issues.

(…)

53.

All of this tends toward an arms race. ECMs disable some types of

modifications with no impact on others; the pirate community learns how to make

tomorrow’s modifications stronger; and then a new round of ECMs disables other

hacks. Once the secrets of a particular generation of access card have been

discovered by hackers, it is nearly impossible to use ECMs alone to stop piracy.

However, periodic ECMs can still be used to frustrate pirates and thus deter or

reduce the level of pirate activity.

Business Process Improvements

54.

Sometimes, the level of fraud or piracy is affected by a feature of the

business processes (rather than the technology) of a DBS operator, who may

require hindsight to identify that the feature is exploited and time to develop cost-

effective alternatives. Thus, from time-to-time, it may be helpful for the DBS

operator to change certain business processes in order to reduce the level of

piracy. Here are three examples:

 Inventory Tracking of set-top boxes and access cards from their source(s)

through distribution and retail channels can be used to identify those assisting

pirates. (…)

 Telephone Connections are a part of the standard set-top box equipment. As

mentioned above, the satellite TV signal is a one-way broadcast from the

uplink center via the satellite to a huge geographic region. To allow for

“impulse” pay-per-view purchasing from a subscriber’s remote control, the

box is designed to make a monthly middle-of-the-night modem call over the

subscriber’s home phone line. During installation, a standard telephone

cable is to be connected from the wall outlet to the back of the set-top box.

(…)

 Customer Identification at the point of sale requires the retailer to send the

name, address, and phone number of the buyer of each specific set-top box

back to the satellite TV operator. By requiring the retailer to examine a photo

ID and take down a valid credit card number, the DBS operator gains both

the contact information for a new subscriber and take note of “unactivated”

equipment.

(…)

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Card Swaps

56.

One of the lessons learned by those fighting piracy in the “backyard dish”

era was that replacing set-top boxes every few years was cost prohibitive. What

was needed was a less expensive piece of hardware that could be less

expensively shipped to customers, with the effect of a complete security upgrade.

The solution was the emerging “smart card” technology, with its computer on a

credit card format. Thus was born the concept of “renewable security.” The set-

top box could remain with the customer across several security upgrades of the

system as a whole. And new smart cards could be sent by mail.

57.

But it is still a considerable expense to replace all of the access cards in

every set-top box of every customer. The effort involves: engineering work to

develop and test the new solution; back-end system software and electronics

upgrades; card manufacturing; mailing and logistics; and customer instructions

and hand-holding.

(…)

D.

BEV’S ENTRY AND EXPERIENCE IN THE CANADIAN DBS INDUSTRY - A CONTEXTUAL

OVERVIEW

[41] The following is an overview of the relevant events and milestones, commencing

in 1995 with the entry of BEV in the DBS market following receipt of a BDU licence from

the CRTC until February 2005, the date on which BEV began switching off channels

from the former Nagra DNASP-2 CAS to the new Aladin CAS. A more detailed analysis

of the events occurring during this period of reference is contained in the analysis of the

evidence found in Sections VIII and X hereof.

[42] Immediately following receipt of its licence from the CRTC, BEV management

named a special committee to evaluate the alternative technology available from

several CAS and equipment providers and to recommend an appropriate selection.

[43] The special committee met with representatives of the various potential

providers. After consideration, and for the reasons hereinafter expressed, the committee

recommended the selection of EchoStar Technologies Corporation (“EchoStar”) as

BEV’s system integrator. EchoStar was also responsible for designing and constructing

the set-top boxes (“STB”) that were ultimately used by BEV.

[44] EchoStar was a multinational organization with vested interests in maintaining

the integrity of its technology given that it is not only a provider of equipment, but one of

its affiliates, Dish Network LLC, operates a substantial DTH satellite television

undertaking in the United States.

[45] In choosing EchoStar, consideration was given to its relationship with

Nagravision USA (“Nagravision” or “Nagra”), a company within the Kudelski Group, a

European conglomerate headquartered in Switzerland. The Kudelski Group designs

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PAGE : 16

and develops conditional access systems. These systems are the software platform that

allows for the transmission and reception of encrypted satellite signals. The Group also

design and develop the smart cards that enable the decryption of these signals.

[46] The EchoStar technology incorporated a CAS module engineered by

Nagravision SA and serviced and sold through NagraStar in North America. NagraStar

is a joint venture between EchoStar and Nagra and is the sales and service arm of

Nagravision SA products in North America.

[47] The EchoStar system that supported the Nagra CAS technology had been

integrated and tested and was available for deployment in a commercially feasible

manner.

[48] BEV considered and favourably evaluated EchoStar’s capabilities to deliver a

turn-key solution which included the Nagra CAS and functioning STB’s. Nagra’s CAS

had the additional advantage of being renewable, in the sense that the smart cards

giving access to the programming were removable and replaceable in the STB’s should

they be pirated in their original version. This feature was an important consideration for

BEV.

[49] On January 8, 1997, BEV entered into an agreement with EchoStar Satellite

Corporation and Houston Tracker Systems, Inc. (formerly EchoStar’s supplier

subsidiary) (the “System Agreement”)²⁰for the provision of hardware using the Nagra

designed CAS (“Nagra1”).

[50] No formal agreement was ever entered into between BEV and Nagra regarding

the supply of the Nagra1 CAS.

[51] Vidéotron does not challenge BEV’s initial choice of technology. At the time,

Nagra1 appeared to be a secure system, compared to the NDS system used in the

United States by DirecTV. It gave BEV the “…best shot of attaining their early market entry

objective with the least amount of risk.”²¹However, referring to the System Agreement,

Vidéotron’s expert, Dr. Teresa Ferguson, criticizes the absence of specific protections

and remedies for BEV, in the agreement, in the event of what she refers to as the

inevitable occurrence of the incidence piracy. She notes:

There are no provisions for smart card change-outs or assignment of

responsibilities for such change-outs; no contractual arrangement for interim

countermeasures or other actions that should be taken to either prevent

breaches or thwart known compromises; no structure of any sort of investigative

efforts to at least set up routine monitoring of pirate web sites or recover hacked

cards and devices for re-engineering purposes and destruction. In fact, all that

was recommended was that the contractor would “consult with ExpressVu and

20

Exhibit P-14.

Ferguson Report, p. 31, Exhibit P-31.

21

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PAGE : 17

make recommendations to ExpressVu regarding the steps” they intend to take to

remedy piracy of the DBS signals.²²Nothing was contractually in place between

ExpressVu and EchoStar or ExpressVu and Nagravision insuring that measures

were available for rapid deployment to battle compromises to its system as soon

as they became known.

[52] BEV began television programming in September 1997.

[53] In late 1998, more than one year following the launch of its programming, BEV

attempted to negotiate a contract with Kudelski SA, providing for the warranty and

maintenance of the Nagra1 CAS and the smart cards purchased from EchoStar

pursuant to the Supply Agreement. An unsigned draft agreement, dated October 23,

1998, was produced at trial during of the examination of Ian Gavaghan, BEV’s former

Vice President and General Counsel.²³

[54] The negotiations with Kudelski failed. The draft agreement was never signed.

[55]

In the summer of 1999, the National Football League (“NFL”) and BEV

commenced negotiations for the distribution of the NFL Sunday Ticket. At the time, the

NFL was “…most concerned about the security of [the BEV] distribution system”.²⁴

[56] In an attempt to reassure the NFL as to the security of its system as opposed to

that of the EchoStar system, which had already been hacked at the time, Chris Frank

(“Frank”), Vice President of Regulatory and Government Affairs, wrote a letter to the

NFL dated July 21, 1999, accompanied by a technical attachment prepared by Terry

Snazel (“Snazel”). Snazel asserted “… [f]rom a security perspective, the EchoStar and

ExpressVu systems…are independent and incompatible.”

[57] This assertion proved to be incorrect.²⁵BEV did not obtain the right to distribute

the NFL Sunday Ticket until to swap out to the new Aladin CAS.

[58] On March 31^st, 2000, Investigative Research Group (an independent research

organization) informed BEV’s management of incidents of piracy on BEV’s CAS.²⁶

[59] In the months that followed, BEV management were made aware of numerous

additional cases of both hybrid and pure piracy. Piracy of the BEV signal was increasing

faster than had been expected. Management was advised by Nagra that a swap out of

its CAS was strongly recommended in order to address this problem.

22

Exhibit P-14, p. 35.

Exhibit D-213.

Exhibit P-358.

23

24

25

Exhibit P-91; Shelton, transcript, September 21, 2011, pp. 156-160; Gee, transcript, November 23,

2011, pp. 94 - 95.

Exhibit P-91.2.

26

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PAGE : 18

[60] Various analyses were performed by the Technology and Legal Departments of

BEV in 2001 and 2002 in an attempt to identify the nature of the piracy and to quantify

the extent thereof. See by way of example, “Fraudulent Activity Reports” for the months

ended September 2002 to October 2002.²⁷

[61] Various measures were adopted by BEV management in an attempt to combat

piracy. Some were more successful than others. These included, inter alia,:



An extensive program of electronic counter measures;

Revisions to BEV’s marketing practices, including those aimed at

controlling account stacking; and



Investigations and prosecution of manufacturers and suppliers of pirated

equipment and technology.

[62] There is contradictory evidence as to the volume, frequency and type of ECM’s

performed by BEV, the sincerity of the revisions to the various marketing practices

adopted and the effectiveness of the investigations and prosecutions of pirates.

[63] The seriousness and increasing incidence in the volume of piracy and the

relative lack of success in controlling this problem was clearly evident to and stressed

by some of the responsible department heads and senior officers of BEV.²⁸

[64] For unexplained reasons, which will be discussed herein in Sections VIII and X,

the information as to the seriousness of the situation and the urgency of rectification

measures may not have been adequately communicated to the Board of BEV or that of

BCE.

[65] In his examination on discovery held on September 26, 2007, referring to

meetings in 2001 with Nagra, Snazel admitted having received a recommendation, at

the time, to swap its existing CAS and smart cards to the new DNASP-3 (Aladin)

system²⁹. His testimony at trial on the subject was more nuanced:

A-

Yes, the piracy of our system proceeded faster than we expected, and the

gist of the discussions very quickly moved to the need to do a change of

the conditional access system, that at some point, the ammunition that

Nagra had to fight the piracy would be no longer as effective as it was,

and that in their opinion, the solution for us was to do an exchange of our

conditional access system, a complete card swap.

771Q- So that was Nagra's position?

27

28

29

Exhibits P-100 (en liasse).

Exhibits P-91.3, P-91.4 & P-95.

See Exhibit P-198.1, first referred to in Nagravision User Guide, March 15, 2001.

500-17-027275-059

A- Yes.

772Q- Okay. So that was said in two thousand and one (2001)?

Yeah, the end of two thousand and one (2001) would have been... maybe

PAGE : 19

A-

early two thousand and two (2002), but the end of two thousand and one

(2001) would have been when we got to that level of discussion.30

[66] On December 12, 2001, Virgino Trevisan (“Trevisan”) and other Nagra

representatives, met with Snazel and Jessica Casavant (“Casavant”) at BEV’s offices

in Toronto, to present Nagra’s new CAS, then called “NagraTV”. NagraTV would later

be called “Aladin”.

[67] The presentation contained a timetable for the implementation of the new CAS. It

proposes the migration: “…could start Q3 2002 …and step by step… at your own pace” till

Q3 2003.”³¹

[68] At the trial, Snazel dismissed the December 12, 2001 presentation as “… an

introduction to a new product that the sales people wanted us to be well aware of”. He

asserted that the Aladin CAS was not ready for implementation at the time.

[69] In response to an undertaken made by Christophe Nicolas (“Nicholas”) during

his examination on discovery held on March 12, 2010, counsel confirmed that the first

tests on an EchoStar Aladin system set top box were performed in December 2001

(10,000 cards delivered). The first volume delivery for a new client (no swap to be

performed) was done in June 2003. (Unofficial translation).³²

[70] It would appear that some management of BEV, or at the very least, Casavant,

saw the necessity and urgency of implementing the Aladin CAS migration, discussed

during the December 2001 meeting with Nagra in Toronto. In a “talking memo” drafted

by Casavant for a discussion with Snazel in a meeting held in early 2002, she

recommended that BEV: “Evaluate and start to plan for the Aladin implementation. We need

to start evaluation of the processes required for the replacement of the smart cards in the field.”

[71] Nagra and BEV representatives next met to discuss the Aladin CAS migration at

a series of meetings held in Cheseaux, Switzerland, in March 2002. Several documents

outlining the features and pricing for the conversion to the new Aladin CAS were

presented to BEV during the meetings. Among the documents were:



The Aladin Installation Plan 2002-2003, which sets-out in details the

various steps to install the Aladin CAS ^33;

30

31

32

33

Transcript, Examination on discovery, September. 26 2007, pp. 209-210.

Exhibit P-198.2, p. 24.

Exhibit P-283.

Exhibit P-201.

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PAGE : 20



ExpressVu Aladin Budget³⁴;

ExpressVu Migration Options, which provides in depth details on the

various migration options to move from the legacy CAS to the new Aladin

CAS, the most relevant of which are Simulcrypt and Dual ECM. Bell

ExpressVu chose the Dual ECM solution as recommended by Nagra³⁵;



Nagravision CAS 2002, prepared by Nicolas Bovard, specialist of the IMS

systems of Nagra³⁶. Page 3 of this document demonstrates that IMS4 has

been in operation since 2000 for both the existing DNASP-2 CAS and the

Aladin CAS;³⁷and

NagraVision IMS4 Presentation, which sets out in detail the

characteristics, functionalities and the status of IMS4 as of March 17,

2002.³⁸The last page of this document sets out the timelines of various

Nagra customer deployments of IMS4 in 2001 and 2002.

[72] Snazel claims to have met on two separate occasions with David McLennan

(“McLennan”), then President of BEV, following the March meetings in Cheseaux to

discuss the Aladin proposal. He claims to have briefed him that the migration to Aladin

was necessary and should be done sooner than later.

[73] During his cross-examination at trial, surprisingly, McLennan, had no recollection

whatsoever of these discussions with Snazel.

[74] Gavaghan and Snazel co-authored a report, dated April 5, 2002, entitled

“Switching Off Signal Piracy”.³⁹Based upon random samplings, they conclude there is a

significant level of both hybrid and black market piracy of BEV’s services. They explain

the various methods used by the pirates to steal BEV services, the investigation and

prosecution process and other methods used to deal with pirates. Although the

estimates of the levels of signal theft and the resulting losses in revenue appear to be

significant, strangely, the report does not suggest any sense of urgency of implementing

remedial measures.

[75] In June 2002, a new budget for Aladin was presented to BEV by Nagra⁴⁰. The

June budget is similar to that of March 2002, except for the increased pricing on the

new features requested by BEV.

[76] On July 8, 2002, Gavaghan prepared a memorandum for the newly appointed

President, Tim McGee (“McGee”), dealing with the theft of BEV’s signals.⁴¹He

34

Exhibit P.201.1 – 02680.022.

Exhibit P-201.1 – 02680.001.

Transcript, November 10, 2011, p. 162.

Exhibit P-201.1 – 02680.086.

Exhibit P-201.1 – 02680.033.

Exhibit P-97.

Exhibit P-200.1 – 02679.001.

35

36

37

38

39

40

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PAGE : 21

estimates that 45% of BEV’s basic level subscribers are possibly thieves. In addition

there may be another 5% black market thieves. Again, no sense of urgency can be read

in this memorandum, although the level of theft of the basic level subscribers grew from

40% on April 15, 2002⁴²to 45% three (3) months later.

[77] On or around July 17, 2002, Nagra provided BEV with a document entitled “CAS

Upgrade 2002” dealing with the existing CAS upgrade to Aladin.⁴³This document

estimated that the complete migration to the Aladin CAS could be done in a total of ten

(10) to twelve (12) weeks. It provided a detailed plan for the migration showing the

estimated duration of each task. The migration from IMS2 to IMS4 is estimated to be

five (5) weeks.

[78] On July 23, 2002, McGee, Snazel and the then Vice-President of finance, David

McGraw (“McGraw”) met to discuss the Aladin project. During this meeting, a draft

working document entitled “Project Aladin Preliminary Outline of Business Case” was

presented, discussed and presumably approved by those present. It was prepared by

the Technology Department, presumably under Snazel’s authority, and the finance

group led by McGraw.

[79] The document contains a financial analysis of the business case to be

considered in deciding whether or when to proceed with the Aladin project. The

document was finalized, presumably following the meeting. It is titled “Project Aladin”,

still bearing the date of July 23, 2002.⁴⁴Both documents conclude with the following

recommendations:

 Proceed with Phase 1 of the project so that implementation can begin in

2003

(…)

 “Based on current estimates of signal theft, do not proceed with card

swap out program.”

[Emphasis added]

[80] Although he claims to have participated in the July 22, 2003 meeting, Snazel

testified he disagreed with the recommendation not to proceed with the swap out

program. Neither McGraw nor any other member of the BEV finance department

testified at trial.

41

Exhibit P-98.

Exhibit P-97.

Exhibit P-199.1.

Exhibit P-200.3.

42

43

44

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PAGE : 22

[81] Casavant, claims she was not then informed of the recommendation not to

proceed with the Phase 3 swap out program.⁴⁵

[82] McGee and Alexander Ishankov (“Ishankov”) testified that this recommendation

“not to swap” formulated on July 23, 2002, did not in any way hinder the migration to

Aladin. They claimed the delays in the implementation of the swap, if any, were not due

to any reasons other than those of a technical nature. No credible explanation is

provided for their incomprehensible views.

[83] On October 10, 2002, BEV confirmed to Nagra its commitment to proceed with

Phase I of the CAS upgrade consisting only of the “Main Production System, Lab

System and Engineering Phase 1”, conditional upon, inter alia, receiving a 50%

46

discount.

This commitment by BEV dealt only with Phase I, i.e. the CAS upgrade. A

purchase order was issued by BEV on November 8, 2002 in fulfillment of this order.⁴⁷

[84] The funding approval for Phase I was, according to McGee, given by him without

any reference to the appropriate finance committee. He claims this was within his

discretion to deal within the capital envelope already allocated to BEV.⁴⁸

[85] On or around October 28, 2002 McGee created a Counter-Piracy Task Force

(the “Task Force”). Casavant was appointed to lead the Task Force.⁴⁹

[86] In a “Highly Confidential Memorandum”, dated December 9, 2002, widely

addressed to Martin Cullum, Senior executive at Bell Canada, with copies to “Executives

– Bell ExpressVu, Jessica Casavant, Gary Swaffield, Janet Raabe, Alex Ishankov, Stephen

McDonnell, Robert Peter”,⁵⁰Snazel summarized: “the status of the various components of the

Aladin project for use during the approval process for Phase III.” He describes the status, at

the time, of the proposed Aladin transition:

This note is to summarize to date the status of the various components of the

Aladin project for use during the approval process for Phase III.

Essentially, there are three (3) distinct phases to the project, each phase is a

step towards the final roll-out and the next step cannot be put in place until the

prior one is completed and operational. Conversely the project could be

terminated before each step, with the attendant benefits of each part intact.

[Emphasis added]

45

Transcript, November 3, 2011, p. 153.

Exhibit P-284.

Exhibit P-204.

Transcript, December 7, 2011, p. 39.

Exhibit D-154.

Exhibit D-176.

46

47

48

49

50

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PAGE : 23

[87] He described each of the three Phases in the proposed transition and concluded,

with respect to Phase III:

Phase III

This is the critical phase to effecting any real improvement in signal piracy. The

current system is coming to the end of its secure life and although we still

continue an aggressive ECM Program the counter attack timeframe from the

hacking community is getting shorter and shorter each time we implement a

measure.

(…)

The final component of Phase III is to switch-off the data stream for the existing

systems. When this happens all illegal devices using the existing system will no

longer work.

Changing out approximately 2 million smart cards is expensive and logistically

challenging. A task force from all ExpressVu departments has been established

to plan and implement the project during 2003. Currently Phase III of the project

is going through a technical validation and budget approval process, with a target

of an early 2003 go ahead.

[88] Although the Task Force had yet to complete its mandate to identify and address

the problems with BEV’s conditional access system and in what, it would appear, to be

parallel efforts to address the problems of piracy in late 2002 or early 2003, Martin

Cullum prepared his own draft recommendations concerning BEV’s on-going

51

technology review. The final version of these draft recommendations is contained in a

document entitled: “ExpressVu Aladin Opportunity Review” dated January 14, 2002,⁵²

curiously the day following the tabling of the Casavant Report on Counter-Piracy.

[89] The Task Force tabled its “Report on Counter-Piracy” on January 13, 2003.⁵³

The Report contains a detailed estimate as to the: “Incidents of Signal Theft (As of

November 2002)”. However, a review of Appendix 1 of the Report reveals that the various

tests underlying the estimate were conducted between October 2001 and October

2002.

[90] On January 23, 2003, Casavant prepared a working document to be used in a

follow-up discussion with McGee addressing the proposed implementation of the

recommendations contained in the Report.⁵⁴

51

Exhibit P-202.01 – 02687.001.

Exhibit P-202.01 – 02687.006.

Exhibit P-106.

Exhibit P-106.1.

52

53

54

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[91] A detailed analysis of the mandate, composition, findings and recommendations

of the Task Force is contained in the evaluation of the Casavant evidence found in

Section VIII of this judgment.

[92] On March 10, 2003, Nagra provided BEV with an update as to the status of the

Aladin migration. A proposed time-line contemplated the performance of system

acceptance tests from April 16 to May 2, 2003, production starting on June 12 and a

swap start in mid-July 2003. ⁵⁵

[93] On March 10, 2003, BEV issued a purchase order for the Aladin Phase 2 System

Upgrade; Phase II Backup Production System, Engineering Phase II and Aladin new

features. ⁵⁶Aladin Phase 1 was in the advanced stage of development at the time.

[94] The system acceptance tests for IMS4 were completed and approved on July 8,

2003.⁵⁷The system acceptance tests were done for the main and back-up systems on

September 26, 2003.⁵⁸

[95] According to Casavant and Ishankov⁵⁹, from that time on, Aladin was ready for

production and for “launching”.

[96] The software download compatible with Aladin was first performed on the BEV

STB model 5100 on October 6, 2003. New smart cards were first provided to a small

group of existing set top boxes in December 2003 and August 16, 2004. Mass

production started on January 4, 2005.⁶⁰

[97] Although testing and limited swap outs of the legacy BEV CAS to Aladin had

already begun, as indicated on page 2 of the May 12, 2003 BEV “Revised 2003 CapEx

Budget”⁶¹, the capital expenditure for the card swap had yet to be authorized.

[98] On April 20, 2004, the BEV team charged with the implementation of the Aladin

CAS, under the direction of Andrio Barro, Project Manager and Casavant, Project

Leader, prepared a progress report entitled “Platform Security Implementation Plan”.⁶²

Among the objectives listed on page 2 of the report is the following: “Gain Executive

Approval for funding to proceed with program by April 22 to prevent schedule

slippage.”

55

Exhibit P-203.03 – 02702.050.

Exhibit D-219.

Exhibit D-220.

Exhibit P-208.1, doc.1.

Transcript, Casavant, November 2, 2011, p. 52; Ishankov, November 15, 2011, p. 203.

Exhibit P-214.

Exhibit P-274.01 -04381.006.

Exhibit P-220.

56

57

58

59

60

61

62

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PAGE : 25

[99] A status report on the Aladin swap-out is contained in a document prepared by

BEV representatives, dated May 18, 2004, entitled “Card Swap Implementation Plan”⁶³

The report notes:

Aladin is a new generation Conditional Access System that has operated in

parallel with the legacy system since July 2003, all set-top boxes shipped in 2004

have been with Aladin smart cards.

(…)

There has been a successful trial card swap of 3,000 cards and software is

deployed on all models of set-top boxes except 1000, 3500 and 4500. Software

for these models will be ready by June 2004. (…)

[100] Project milestones for the swap-out are found on page 16 of the May 18, 2004

Report. Funding approval was projected as “late-May” (2004).

[101] On February 28, 2005, BEV started to turn off certain channels from the legacy

DNASP-2 CAS, starting with adult pay-per-view services. LCN was turned off on May

24, 2005.⁶⁴

[102] On July 15, 2005, BEV completely switched off all channels from the legacy

DNASP-2 CAS data stream. The Aladin CAS and smart cards became fully integrated

in the BEV system.

IV. QUESTIONS OF FACT AND OF LAW

[103] The questions of fact and of law raised for determination in the Vidéotron Action

are:

(i) Did BEV abide by the legal standards which lie upon it in selecting and using

available satellite television technology, and in identifying and combating

“grey market” and “black market” piracy?

(ii) In light of the evolving available technology, did BEV act in a prudent and

timely manner in maintaining and eventually updating its conditional access

system so as to minimize the impact of signal theft by pirates?

(iii) Are the compensatory damages claimed by Vidéotron a direct and

immediate consequence of the alleged fault of BEV? and

(iv) Has Vidéotron discharged its burden of quantifying the amount of damages

allegedly suffered by it as well as future damages and for which BEV should

be held accountable?

63

Exhibit P-221.1, p. 6.

Exhibit P-225.

64

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PAGE : 26

V. OBJECTIONS TO BE AJUDICATED

[104] During the course of the evidentiary hearings, the Court advised the parties to

plead the merits of all objections taken under reserve at the appropriate time in their

respective arguments, failing which such party will be deemed to have withdrawn its

objection.

[105] The following objections, raised by counsel for Vidéotron and TVA, were so

pleaded. They relate solely to evidence led by witnesses called by BEV to testify in the

Vidéotron Action and the TVA (Piracy) Action.

A.

THE INADMISSIBILITY OF EXHIBITD-226

[106] Counsel argues:

3.

4.

In the course of her examination in chief, Ms. Casavant produced a chart

called “timeline of events which have been the subject of Ms. Casavant’s

testimony”.

Plaintiffs objected to the use and production of such chart, since the

evidence in the record contradicts its content.

Jessica Casavant, Nov. 2, pp. 122-124

5.

Plaintiffs maintain their objection to the production of chart D-226, content

of which is grossly misleading.

[107] The objection will be dismissed. Counsel was free to and did in fact bring to the

Court’s attention the apparent inconsistencies between the content of the chart and the

evidence otherwise in the Court record. It remains now for the Court to assess, in this

judgment, the credibility and reliability of the proof in this regard.

B.

THE INADMISSIBILITY OF EXHIBITD-79A

[108] Counsel argues:

6.

7.

At trial, BEV filed an updated listing of ECMs conducted during the piracy

period. D-79A.

There was already such a listing in the Court record, on which the

Plaintiffs had based their cross-examination of previous witnesses, Mr.

Snazel and Mrs. Casavant, who were personally involved in BEV’s ECM

campaigns. D-79.

8.

In Exhibit D-79A, there are several new ECMs listed which were

unaccounted for in BEV’s log of ECMs and which were not mentioned by

BEV’s own experts in their reports.

500-17-027275-059

PAGE : 27

9.

The Plaintiffs maintain their formal objection to the filing of this updated

Exhibit. Alexander Ishankov, Nov. 15, pp. 165-167.

10.

11.

The Plaintiffs submit that this document has so little probative value that

is should not be admitted into evidence.

The original Exhibit D-79 had little probative value itself. Given that many

entries were based on chat room postings by pirates found in chat room

reports, it is uncertain whether a single ECM may have been counted

numerous times due to delays in posting comments on each ECM.

12.

Exhibit D-79A is of even less probative value, since it includes more

entries without any support from additional contemporaneous sources of

reliable information. The production of this document suggests that

previous testimonies concerning ECMs were inaccurate and that BEV’s

own experts had not had all the information yet.

13.

14.

Also, the use of Exhibit D-79A in examination in chief was leading.

Alexander Ishankov, Nov. 15, pp. 123-144.

In any event, this Court should draw a negative inference on the reliability

and probative value of both Exhibits D-79 and D-79A given their

production at this late stage of the hearing, at which time no other witness

could testify on the conduct of ECMs.

[109] The objection will be dismissed. Counsel was free to and did in fact argue the

probative value, or lack thereof, of Exhibit 79A. The Court has made such determination

in this regard as it determined appropriate in the context of all the relevant evidence. As

for counsel’s concerns regarding their original cross-examinations of Snazel and

Casavant, based only on Exhibit D-79, they were free to recall either or both of these

witnesses in counter proof if they thought it necessary. They chose not to.

C.

EXPERT MICHAEL BARR’S LIMITED QUALIFICATIONS

[110] Counsel argues:

15.

Expert Michael Barr was qualified by this Court as an expert in electrical

engineering, embedded systems, technology and security of satellite TV

systems and satellite piracy. Expert Michael Barr, Dec. 8, pp. 39-40.

16.

17.

Expert Barr, in cross-examination, admitted lacking direct and personal

knowledge of card swap operations. Expert Michael Barr, Dec. 8, p. 33.

Finally, Expert Barr conceded having no business experience in either a

DBS broadcast business, a conditional access system provider such as

Nagra or with a satellite television provider, contrary to the Plaintiffs’

Experts Ferguson, Markey and Shelton, respectively. Expert Michael

Barr, Dec. 8, p. 33.

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PAGE : 28

18.

Despite his general technical expertise compared to the specificity of the

instant case, Expert Barr attempted to give opinion on either business or

technical aspects over which he has no experience or knowledge.

19.

The Plaintiffs maintain their objections to all forms of opinion expressed at

trial by Expert Barr on television business aspects and technical actions

theses businesses implement to monitor and disrupt signal piracy, such

as ECMs and CAS upgrades or card swaps. Expert Michael Barr, Dec.

8, pp. 77-79, 90-93; Dec. 9, pp. 11-14, 23-25, 28-29.

(…)

20.

21.

The Plaintiffs also objected to Expert Barr testifying on the accuracy of

BEV’s own estimates of piracy, while these criticism were nowhere in his

report. They maintain their objections. P-366; Expert Michael Barr, Dec.

8, pp. 162-171, 206-209, 222-223

Expert Barr has no greater personal experience in quantifying the scope

of piracy than the makers of the supporting documents included in Exhibit

P-366 that he attempted to comment on. His opinion on this regard is

simply irrelevant at helping this Court with the issue at bar.

[111] The objection will be dismissed. Counsel was free to and did in fact address

Barr’s apparent lack of personal knowledge in the particular areas referred to by him

and argued that accordingly his opinions expressed in these areas have no probative

value. This particular lack of knowledge does not, in and of itself, disqualify him as an

expert witness in all of the other areas addressed in his report and in his testimony.

Counsel’s representations were duly noted and considered in assessing the credibility

and reliability of the proof in the areas objected to.

D.

EXPERT DR. MATTHEW D. GREEN’S LIMITED QUALIFICATIONS

[112] Counsel argues:

22.

Expert Matthew D. Green was qualified by this Court as an expert in

computer science, computer systems and software security,

cryptography, conditional access systems technology and design and

encryption of broadcast signals. Expert Dr. Matthew D. Green, Dec. 13,

pp. 113-138.

23.

24.

During his cross-examination on qualification, Expert Green conceded

having no experience on conditional access components of a digital TV

satellite system. Expert Dr. Matthew D. Green, Dec. 13, p. 143.

Expert Green also admitted having no direct and personal knowledge or

experience with card swap operations, plans or costs. Expert Dr.

Matthew Green, Dec. 13, p. 143.

500-17-027275-059

PAGE : 29

25.

Finally, Expert Green conceded having no business experience in either a

DBS broadcast business, a conditional access system provider or with a

satellite television provider, contrary to the Plaintiffs’ Experts Ferguson,

Markey and Shelton, respectively. Expert MatthewD. Green, Dec. 13, p.

143.

26.

27.

Despite these limitations, Expert Green attempted to give his opinion on

either business or technical aspects of the DTH television industry over

which he has no direct and personal experience or knowledge.

The Plaintiffs maintain their general objection to all forms of opinion

expressed at trial by Expert Green on television business aspects and the

technical actions these businesses implement to monitor and disrupt

signal piracy, such as ECMs and CAS upgrades or card swaps. Expert

Dr. Matthew D. Green, Dec. 13, p. 148-149, 193-194; Dec. 14, pp. 14-

15.

(…)

[113] The objection will be dismissed. Counsel was free to and did in fact address

Green’s apparent lack of personal experience in the areas referred to and to argue that

his opinions expressed in these areas have little or no probative value. This does not

however, in and of itself, disqualify him as an expert witness in all of the other areas

address in his report and in his testimony. The Court noted counsel’s representations.

They were considered in assessing the credibility and reliability of the proof in the areas

objected to.

VI. EXHIBITS PRODUCED UNDER SEAL

[114] A substantial number of exhibits, including some of the expert reports, were

produced under seal subject to confidentiality orders issued at the request of one or

other of the parties. Following an exchange of messages initiated by the Court with

counsel for each of the parties, Plaintiffs’ counsel agreed that we were free to quote in

our judgments extracts from whatever exhibit or expert reports we so wished without

any restrictions. Defendant’s counsel agreed that we were free to quote such extracts

from Defendant’s experts’ reports or accounts and from Exhibits P-106, P-106.00.01, P-

106.1 and P-100 (en liasse) that we considered necessary.

[115] Subject to the foregoing, and considering the confidentiality orders issued by the

Court regarding numerous other exhibits, references in the analysis of the evidence to

their content and, in particular, to specific financial information, will be general in nature

rather than specific in order to respect the confidential nature of the information

contained therein.

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PAGE : 30

VII. ADMISSIONS

[116] A vast majority of the exhibits entered in evidence were produced by consent

under such reserves as are indicted in the appropriate documentation filed in the Court

record. Those not produced by consent are enumerated and reflected in the minutes of

the hearings for each of the days in question.

VIII. ANALYSIS OF THE EVIDENCE -ORDINARY WITNESSES

A.

VIDÉOTRON & TVA

(1)

Pierre Karl Péladeau (“Péladeau”)

[117] Péladeau is President, CEO and member of the Board of Quebecor inc. and

Quebecor Media inc. and Vice Chairman of the Board of TVA. He was previously

President and CEO of Vidéotron from 2001 to 2003.

[118] He was examined in connection with the following subject matters:



the corporate structure of the various legal entities having an interest,

direct or indirect, in the present action and the other Related Actions;



the evolution of the cable television distribution industry in Québec and

elsewhere;



the technology involved;

the entry into the market of direct broadcast satellite undertakings; and

the role of the CRTC in controlling access to the industry and the activities

of its members in combating piracy.

[119] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[120] He described the nature of Vidéotron and TVA’s respective claims in the present

action and the other Related Actions and, in particular, in connection with:



the losses which Vidéotron and TVA claim to have suffered resulting from

BEV’s alleged inability to control piracy of its signal;

the losses which TVA claims to have suffered due to BEV’s permitting the

practice of account stacking by its subscribers; and

the Order of Permanent Injunction sought by TVA in order to permit the

performance of an audit of the books and records of BEV to verify the

500-17-027275-059

PAGE : 31

number of its subscribers to TVA’s LCN programming and to verify the

accuracy of royalty payments otherwise made to it by BEV.

[121] He mandated investigations into the practices of BEV regarding account stacking

and what he claimed was the failure of BEV to control signal piracy. Although he

complained strongly to the CRTC regarding BEV’s practices, and notwithstanding BEV’s

undertakings to address his concerns, he claims the practices continued unabated.

[122] In cross-examination he denies that his concerns were more with respect to

account stacking than to signal theft. An examination of the financial statements and

press releases of QMI (or its successor corporation) produced in evidence⁶⁵discloses,

however, that mention of piracy appeared for the first time on June 21, 2002.

[123] He denies that BEV’s high definition television service, launched in October

(some considerable time before that of Vidéotron), gave BEV a competitive advantage

which may have contributed to Vidéotron‘s failure to attract new subscribers.

(2)

Pierre Dion (“Dion”)

[124] Dion has been President and CEO of TVA since 2005. He was previously its

Executive Vice President and Chief Operating Officer from 2004 to 2005. He has been a

member of its Board of Directors since 2011.

[125] He was examined in connection with the following subject matters:



the corporate relationship of TVA with QMI;

the operations of TVA: at present, it operates 13 television channels in

Québec of which one, le Réseau TVA, is available without charge to

television viewers;



the LCN channel, one of the specialized channels available on the TVA

network;

during the Piracy Period (previously defined), LCN was the only speciality

channel available; and

the practice whereby TVA received monthly royalties at an agreed rate

from BEV pursuant to an affiliation agreement, written or oral (subject to

dispute), based on the number of BEV subscribers having access to the

LCN.

[126] Among the subject matters mentioned above, certain elements raised during his

examinations both in chief and in cross, warrant specific attention and analysis.

65

Exhibit D-160 (en liasse).

500-17-027275-059

PAGE : 32

[127] He addressed the concerns of TVA as to the veracity and reliability of the

number of subscribers reported by BEV as having access to the LCN channel and the

unsuccessful efforts to have BEV consent to an independent audit to confirm this

information.

[128] Particular reference was made to the non-binding guidelines published by the

CRTC on April 18, 2005, entitled “Vérification comptable par les services de

programmation des renseignements sur les abonnés détenus par le distributeur”⁶⁶and

the refusal by BEV to adhere to what Dion considered were the reasonable guidelines

referred to in paragraph 46 thereof.

[129] The differences between the parties regarding the appropriate interpretation of

the definition of “subscriber” as defined in the CRTC Règlement sur la distribution de

radiodiffussion (DORS/97-555) were addressed and highlighted in Dion’s examination.

(3)

Robert Dépatie (“Dépatie”)

[130] Dépatie has been President and CEO of Vidéotron since 2003. He was

previously Vice President of Marketing, Sales and Customer Service of Vidéotron from

2001 to 2003 and President of VOX community channel from 2001 to 2003.

[131] He was examined in connection with the following subject matters:



the various services offered by Vidéotron to its customers;

the financial advantages to its customers of bundling discounts offered to

those who subscriber to two or more of the services offered; approximately

75% of its customers subscribe to at least two services and 51% subscribe

to three or more services;



the evolution of the various services offered by Vidéotron including its

conversion from analogue to digital service and thereafter to high definition

service;

the difference between the concept of “penetration rate” and “market

share”; the former being the number of actual clients of the service

provider compared with the number of potential clients in the market; the

latter being the number of actual clients of the service provider compared

with the total number of existing clients in the market area who subscribe

to a television broadcasting service; and



Vidéotron’s alleged zero tolerance level of signal piracy.

66

Exhibit P-314.

500-17-027275-059

PAGE : 33

[132] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[133] He testified as to the alleged practice by BEV and its retailers of permitting and

encouraging account stacking. He refers to a letter, dated May 3, 2002, addressed to

Mr. Randolph Hudson of the CRTC, by Philippe Labelle of TVA and to the transcript of a

telephone conversation of February 2002 between him and a representative of BEV

concerning the latter’s policy of permitting multiple receivers at different locations and to

its tolerance of a practice of account stacking.

[134] On March 23, 2002, Dépatie purchased a kit from an Espace Bell store which

would permit connection of multiple receivers at different locations. The invoice is

identified by him and produced.⁶⁷

[135] He then described various methods employed by Vidéotron to minimize losses

incurred by it resulting from BEV‘s practices. Some were more successful than others.

[136] Although he insists that the decline in Vidéotron subscribers during the Piracy

Period was due principally to piracy of BEV’s signal, in cross-examination he

acknowledged that there may be other reasons why Vidéotron had lost clients or

potential clients. In an exchange with counsel for BEV , Dépatie acknowledged:

290Q- Alors, durant toutes ces années-là, deux mille (2000), deux mille un

(2001), deux mille deux (2002), deux mille trois (2003), vous dites que le

déclin des abonnés était relié principalement au piratage?

R-

Je vais clarifier quelque chose, quand je... et je veux, Monsieur le Juge,

être juste précis là-dessus.

En aucun cas on attribue la décroissance complète de Vidéotron à

seulement le piratage. Bien au contraire, il y avait de la concurrence et

autres, on le sait fort bien.

On dit par contre que suite aux calculs, informations qu'on a reçues de la

part de Bell ExpressVu, nos spécialistes ont compté et sont arrivés à

la conclusion, à l'aide des chiffres encore une fois de Bell

ExpressVu, qu'on avait perdu tant de clients potentiels et/ou

existants.⁶⁸

[Emphasis added]

[137] He was confronted by counsel for BEV with a tableau showing the gains and

losses in Vidéotron’s client base during the Piracy Period. Although the figures of gains

and losses reflect the financial data produced by Vidéotron in its various statements,

67

Exhibit P-322.

Transcript, September 7, 2011, pp. 138-139.

68

500-17-027275-059

PAGE : 34

Dépatie did not agree with the methodology used to prepare the tableau. His

justifications are lacking in coherence or credibility.

[138] Finally, he was shown copy of an article, dated August 14, 2001, appearing on

the front page of the Financial Post section of the National Post⁶⁹. The article described

the existing problems at Vidéotron recognized by QMI following its acquisition of control.

In particular, it described what is referred to as the “service horrendous” of the

customers of its newly acquired company.

[139] Dépatie takes issue with the contents of the Financial Post article. He claims he

had occasion to compare Vidéotron‘s service with that of its competitors and concluded

there were no problems or difficulties with customer service at the time in question or

any time thereafter.

[140] Finally, he acknowledges that there were many reasons why a customer would

choose one television broadcast service over another.

(4)

Édouard Trépanier (“Trépanier”)

[141] Trépanier was Vice-president of Regulatory Affairs of Vidéotron from 2002 to

2010. He was previously Chief of Regulatory Affairs – Radiocommunications of

Vidéotron from 1994 to 2001. He was employed by the CRTC for approximately ten

years prior to joining Vidéotron.

[142] He has been retired since 2010.

[143] He was examined in connection with the incidence of piracy in the industry and

the costs to Vidéotron in terms of lost revenues from potential subscribers who have

access to BEV’s signal at little or no cost whatsoever (hybrid or pure pirates).

[144] He was examined, in particular, with respect to the issues complained of in a

series of letters addressed by him and Péladeau to the CRTC and BEV during the

period commencing June 21, 2002 and terminating October 22, 2003⁷⁰regarding the

acts and omissions attributable to BEV as were more fully described in paragraphs 45

to 82 of Vidéotron’s Requête introductive d’instance en dommages-intérêts precise et

Ré-Ré-amendée.

[145] In addition to the direct costs to Vidéotron and TVA resulting from the piracy of

BEV’s satellite signal, Trépanier testified about the alleged costs to all of the composite

and related industries to television broadcasting resulting from the failure of BEV to

69

Exhibit D-179.

Exhibit P-278 en liasse.

70

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PAGE : 35

control signal piracy. He produced an analysis of these estimated costs under the title:

“Incidence culturelles du vol de signaux satellite au Québec”⁷¹.

[146] Referring to numerous exchanges of correspondence on the matter, Trépanier

described BEV’s policies which permitted a potential subscriber to purchase the

necessary equipment at one of the Espace Bell stores or at other authorized dealers

without being obliged to subscribe to a particular BEV service or package. This

permitted potential subscribers to purchase a pirated smart card elsewhere and to

access BEV’s signal without monthly subscription payments.

[147] In one such exchange, BEV acknowledged, in a letter dated July 26, 2002

addressed by Ian Gavaghan to the Canadian Association of Broadcasters⁷²:

Bell ExpressVu does not control the sale of ExpressVu compatible equipment in

Canada and never has. Bell ExpressVu is a service provider. Set top receivers

which are compatible with the ExpressVu service are manufactured, imported,

distributed and retailed by independent third parties.

[148] What Gavaghan omitted to mention is the fact that a substantial number of set

top receivers were sold through corporate owned or franchised Espace Bell Stores. The

allegations contained in the Gavaghan letter were credibly refuted in the relevant letters

and affidavits filed en liasse as Exhibit P-278.

[149] Trépanier testified about an exchange of correspondence between the respective

parties, as well as with the CRTC, addressing the problems of piracy of the BEV signal,

the adequacy of the various measures undertaken to address the problem and the

elimination of the practice of account stacking.

[150] The CRTC formed a committee composed of CEO’s of various interested parties

in the industry, known as the “CRTC/Broadcasting Industry CEO Consultation on

Program Theft.” The Committee met on several occasions. Their deliberations are

reported in a confidential draft of its minutes filed under seal.

[151] In an Intervention enclosed with a letter, dated September 25, 2003, addressed

to the CRTC by Trépanier, on behalf of QMI, it requested the convocation of a public

hearing to make representations regarding the renewal of the BEV broadcast licence for

only a limited period and subject to certain strict controls and requirements which went

beyond the norm at the time.

[152] The BEV broadcast licence was renewed in the fall of 2003 for a period of 7

years, notwithstanding the QMI objections and without any of the conditions sought by it

in its Intervention. QMI did not appeal the CRTC decision.

71

Exhibit P-278.01.

Exhibit P-324.

72

500-17-027275-059

(5) Serge Bellerose (“Bellerose”)

PAGE : 36

[153] Bellerose was Senior Vice President, Specialty Channels and Business

Development of TVA from 2004 to 2006. He was previously Vice President, Specialty

Channels, Regional Channels and Corporate Affairs from 2002 to 2004; General

Manager, Specialty Channels and National Network from 2000 to 2001; General

Manager, Le Canal Nouvelles (“LCN”) and National Network from 1999 to 2000; and

General Manager, LCN from 1998 to 1999.

[154] Since leaving TVA, he has worked as an independent expert consultant.

[155] He was responsible for the negotiation of the affiliation agreement with BEV

regarding the distribution of TVA’s LCN channel.

[156] His examination confirms that:



Notwithstanding the exchange of numerous drafts, modified by one or

other of the parties, no formal written agreement was ever signed between

the parties⁷³;

Serious differences remain outstanding between the parties regarding, in

particular, the issue of account stacking by BEV subscribers and the right

to audit each other’s books and records; and

The parties did, however, agreed to the royalty rates payable by BEV to

TVA for the distribution of LCN’s service to its subscribers: the rate varied

from $0.42 per subscriber in 1998 to $0.48 per subscriber in 2002.

[157] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[158] Bellerose confirmed that the differences relating to the practice of account

stacking arise, in part from, the parties’ differing interpretation of the definition of

“subscriber”.

[159] “Subscriber is defined in section 1 of the Broadcasting Distribution Regulations,

SOR/97-555⁷⁴:

“subscriber” means

A household of one or more persons, whether occupying a single-unit dwelling or

a unit in a multiple-unit dwelling, to which service is provided directly or indirectly

by a licensee; or

73

See inter alia Exhibits P-20, P-21, P-287.

Exhibit P-18 A (French language text).

74

500-17-027275-059

PAGE : 37

the owner or operator of a hotel, hospital, nursing home or other commercial or

institutional premises to which service is provided by a licensee.

[160] He testified about an extensive exchange of correspondence between him, or on

his behalf, and various representatives of BEV and with those of the CRTC between

February 13, 2002 and March 17, 2004, in connection with the issue of account

stacking. These include a formal « Demande de règlement d’un différend entre Groupe

TVA et Bell ExpressVu en vertu de l’article 12 du Réglement sur la distribution de

radiodiffusion. » ⁷⁵

[161] He was examined, in particular, in connection with TVA and LCN’s complaints

resulting from its unsuccessful attempts to obtain an independent audit to verify the

amount of subscriber royalties’ payable by BEV to TVA for its distribution of the LCN

service. He referred to an extensive exchange of correspondence by him, or on his

behalf, with various representatives of BEV and with those of CRTC between May 14,

2003 and April 18, 2005, with respect to the audit issue.⁷⁶

[162] In cross examination, Bellerose confirmed the difficulty in arriving at a mutually

agreeable affiliation agreement with BEV. He referred to the numerous fruitless efforts

to find an acceptable solution to this impasse and acknowledged that there was general

skepticism and a lack of confidence by TVA management with BEV’s efforts to combat

account stacking.

[163] He was referred to a letter signed by him dated May 14, 2003, addressed to

Chris Frank, Vice-president of BEV regarding TVA’s desire to initiate an independent

audit of the information contained in BEV’s database regarding multiple set-top boxes⁷⁷.

He was questioned, in particular, concerning the extensive scope of the audit he was

requesting in the following portion of the letter:

As you will recall, pursuant to our complaint to the CRTC of April 10, 2002,

Commission staff convened an exploratory meeting on June 5, 2002 involving

representatives of Groupe TVA and Bell ExpressVu. At the meeting, Groupe TVA

and Bell ExpressVu agreed to the Commission staff’s proposal to adjourn the

dispute resolution process in order to permit the negotiation of an affiliation

agreement between LCN and Bell ExpressVu. The Commission’s staff had

hoped that the issues raised by Groupe TVA’s complaint would be resolved in

the course of negotiating the affiliation agreement. Although some aspects of a

potential agreement have been settled, the basic underlying problem has not

been resolved and the anticipated affiliation agreement has not been concluded.

75

Exhibit P-293. Bellrose was examined as well on the following letters and emails or as to the subject

matter contained therein: D-043, P-288, P-289, P-290, P-291, P-316, P-292, P-293, D-050, D-051, D-

052, P-294, P-295, D-053, D-054, P-296, P-297, P-308, P-298, D-056, D-057, D-058, D-059, D-060*

(struck from record), P-030 and D-061.

See in this regard Exhibits P-296, P-297, P-308, P-309 (March 31, 2004 & May 13, 2004), P-310, P-

76

311, P-312, P-313 and P-314.

Exhibit P-296.

77

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PAGE : 38

In light of this underlying problem, Groupe TVA and LCN wish to initiate an

independent audit of the information contained in Bell ExpressVu’s database in

regard to multiple decoders. We would like the audit to begin in about two weeks

time and not later than May 28, 2003.The audit will be conducted at our expense.

Covering the last three years to April 30, 2003, the audit should obtain the

following information which is recorded in Bell ExpressVu’s subscriber

management information system (SMIS), also called the customer service

representative system (CSG System) :



The number of Bell ExpressVu subscribers as

ײ

subscriber

ײ

is defined in

the CRTC’s Broadcasting Distribution Regulations;

The volume of Bell ExpressVu’s active and inactive subscribers, with a

breakdown according to the number of decoders (one, two, three, etc.)

assigned to these subscribers;



The volume of paid and unpaid subscribers to LCN, with a breakdown

according to the number of decoders assigned to these subscribers;

The number of Bell ExpressVu decoders assigned to the subscribers

registered on Bell ExpressVu’s SMIS, but unregistered at the registered

subscribers’ addresses (according to audits that Bell ExpressVu says it

has undertaken);



The number of LCN subscribers among Bell ExpressVu subscribers; and

The number of LCN subscribers among Bell ExpressVu subscribers who

identify themselves as French-language subscribers (i.e. request their

billing in French).

[164] Bellerose acknowledges that the letter, although signed by him, was drafted by

Mr. Labelle.

[165] He admitted not being aware of the customary methods used in the industry to

verify the number of subscribers receiving a particular service yet strangely he sought

access to what he knew or should have known was commercially sensitive and

proprietary information from BEV which may not have been available or normally

provided in the industry.

[166] He acknowledged having received a letter dated October 23, 2003, from

Randolph Hutson, Director, Competitive Disputes of the CRTC that had been addressed

to him and to Chris Frank of BEV containing “a non-binding staff opinion concerning the

definition of ‘service subscriber’”⁷⁸. BEV objected to the production in evidence of this letter. The

objection was taken under reserve. The Court sustained the objection in the judgment rendered

in the TVA (Account Stacking) Action and the TVA (Injunction) Action.

78

Exhibit D-60.

500-17-027275-059

(6) Marie-Josée Marsan (“Marsan”)

PAGE : 39

[167] Marsan is Vice President Finance, Information Technology and CFO of

Vidéotron. She is responsible for the preparation of financial statements and the

disclosure of financial data.

[168] She identified the QMI annual report for 2002⁷⁹and confirmed that, as reported,

Vidéotron suffered a net loss of 79,000 subscribers that year.

[169] She further identified and confirmed the contents of an analysis entitled

“Situation de la clientele résidentielle” reporting the number of “débranchements”

(disconnects) by Vidéotron subscribers during the years 2001 to 2006.

[170] She was referred to the consolidated financial statements of Vidéotron for the

years 2002, 2003 and 2004 and in particular to the estimated average period that

subscribers generally remained connected to the network (the “Churn rate”).

[171] In cross examination, referring to the Table produced as Exhibit P-347, she

explained how the Churn rate is calculated.

[172] She was unable to explain or justify the apparent contradictions in the statistics

contained in Exhibits D-183 and D-184 (which she claims to have never seen) and

Exhibit P-347, previously referred to in examination in chief.

(7)

Claude Hurteau (heard in camera) (“Hurteau”)

[173] Hurteau has been Director of network integrity (Département intégrité réseau) for

Vidéotron since 2003. He was previously Director of technical operations for Vidéotron

from 1996 to 2002.

[174] Hurteau’s testimony was taken in camera pursuant to an Ordonnance de

confidentialité issued on September 13, 2011 at the request of Vidéotron.

[175] He testified as to the rates of signal theft of Vidéotron’s analogue and digital

services and the methods used to combat piracy. He also explained the protocol and

procedure followed for the connection of new subscribers, as well as that for

subscribers who have moved and subscribers who have chosen to terminate service.

[176] Considering he appeared in camera it would be inappropriate to refer in detail to

his testimony. What can be disclosed and retained by the Court is that Vidéotron had

similar preoccupations as BEV with piracy and with the adequacy of measures and

strategies available to combat its problem.

79

Exhibit D-159.

500-17-027275-059

PAGE : 40

B.

BEV

(1)

Michael Neuman (“Neuman ”)

[177] Neuman was CEO of BEV from December 1997 to December 1999. He was

previously Interim CEO for a short period of time.

[178] Since leaving BEV he has held numerous positions with a variety of companies

in related industries operating in Canada, the United States and abroad. For a certain

period, he rejoined a BCE affiliate, Teleglobe, to attempt a turnaround of its business

activities. All of the positions held were relatively short lived.

[179] He was examined in connection with the following subject matters:



the development and evolution of the DBS industry in Canada;

the negotiations with EchoStar and Nagra, as well as with other CAS

suppliers regarding the choice of technology;



the preparation for and eventual launch of BEV ‘s DBS service on

September 10, 1997;

the justification for dealing with EchoStar for the total supply of the end-to-

end system, rather than by way of a direct contract with Nagravision; and

the justification for aligning BEV’s system with the Narga CAS, rather than

other systems available at the time.

[180] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[181] Neuman was aware, from the outset, of the industry wide concern regarding

signal security. He claims BEV’s objective was to create a business that would be

secure and compete successfully with existing cable based operators.

[182] The evidence supports Neuman’s preoccupations of choosing the best available

technology. He referred to the minutes of a meeting BEV’s Board of Directors of

January 23, 1996⁸⁰, and in particular to the discussion regarding the activities of the

technical working group charged with reviewing the various technology options available

at the time.

[183] The technical working group, under the direction of Snazel, was directed to

further review the available options and report back to the Board at its next meeting held

on February 19, 1996.

80

Exhibit P-73.

500-17-027275-059

PAGE : 41

[184] At the February 19, 1996 meeting the Board authorized management to enter

into definitive negotiations with each of the three groups of technology suppliers

recommended to the meeting.⁸¹EchoStar was not one of the three groups.

[185] At the March 5, 1996 meeting, the Board authorized management to negotiate

definitive agreements with the Irdeto/Pace group and the Scientific Atlanta/Thomson

group for the purchase of the “System Equipment” for the corporation’s DBS service⁸².

[186] Notwithstanding the authorization given by the Board to negotiate “definitive

agreements” with Irdeto et als., at the request of Snazel and others and acting on the

latter’s instructions, Bill Meeken visited the facilities of EchoStar on March 8 to explore

the possibility of an alignment with EchoStar. In a fax message dated March 11, 1996,

he reported to Snazel and others of his very favourable impressions of the EchoStar

system⁸³.

[187] The subsequent receipt, by management, of other positive reports led to the

selection of the EchoStar system as the most appropriate at the time and one that

would meet BEV ‘s stated objectives.

[188] According to Neuman, there were substantial advantages in BEV aligning itself

with a major United States DBS provider. In addition to the quality of the technology, he

referred to other compelling reasons for selecting the EchoStar system: (i) the grey

market was growing quickly; (ii) at some time soon, it would be too large to fight alone;

(iii) EchoStar, in concert with Nagra, had already developed ECM’s to deal with existing

incidents of signal piracy; and (iv) the renewable smart card technology provided an

added layer of protection.

[189] The agreement between Houston Tracker Systems Inc. (an EchoStar associated

company), EchoStar Satellite Corporation and Expressvu Inc. is dated January 8, 1997

(the “EchoStar Agreement”)⁸⁴. It set out the rights and obligations of the parties inter

se. The issue of “Signal Protection” was addressed in Article 18 thereof. It would

appear, however, that it dealt with the concerns directed more to grey market piracy

than to black market piracy.

[190] The Court finds curious that BEV would have agreed to the disclaimer of

responsibility by Houston Tracker Systems Inc. for remedying a “Breach of Security”, as

defined in the EchoStar Agreement. Since there was no formal contractual relationship

between BEV and Nargra, in the event of any breach of security, BEV was left with no

legal recourse against either its equipment supplier or, indirectly, against its CAS

designer.

81

Exhibit P-74.

Exhibit P-76.

Exhibit P-77.

Exhibit P-14.

82

83

84

500-17-027275-059

PAGE : 42

[191] When questioned in cross-examination on this concern, Neuman responded that

in his opinion, having a formal contract with Nagra was of little importance. Having an

alignment with EchoStar was of prime importance; the relationship with Nagra was

secondary.

[192] His views on this subject seem to be at odds with that of Gavaghan. The latter

attempted to negotiate, after the fact and after the conclusion of the EchoStar

Agreement, a formal agreement with Nagra. Not surprisingly, he was unsuccessful.

(2)

Ian Gavaghan (“Gavaghan”)

[193] Gavaghan was Vice President and General Counsel of BEV from summer 1999

to January 2003. He was thereafter a consultant for BEV until May 2003. He was

previously Senior Legal Counsel of BEV from March 1997 to summer 1999.

[194] He is a lawyer by profession and, in his own words, claims to have a “satellite

background”. Questioned by BEV’s counsel as to the source of this “satellite

background”, he responded it came from his academic studies at the Faculty of Law of

McGill University. He apparently followed a course offered by the Institute of Air &

Space Law at the Faculty.

[195] Since leaving BEV, he was a part owner of, a small scale wind turbines and solar

energy company for a short period of time. Thereafter, since 2005, he has been in

private legal practice.

[196] Gavaghan was examined in connection with the following subject matters:



Legal actions commenced by BEV against grey market and black market

pirates;



Assessment of signal piracy and various anti-piracy initiatives to combat

same;



ECM’sperformed by BEV;

Account stacking policy/ instructions to dealers/ enforcement; and

Residential customer agreements and warranties.

[197] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[198] In an Internal Memorandum dated August 24, 2000 addressed to “Executives” of

BEV⁸⁵, Gavaghan summarized the matters discussed at a cross- functional piracy group

meeting held on August 10, 2000. He noted the “serious concern” that “cracked” smart

85

Exhibit P-91.04.

500-17-027275-059

PAGE : 43

cards capable of pirating the BEV signal were increasingly being distributed by dealers

and other pirates.

[199] He appeared to be well aware of the ensuing damages caused to other members

of the industry, such as major studios and programmers. He wrote at page 1 of the

Internal Memorandum:

Obviously the increase in distribution and use of E3M cards is of serious concern

to us. First, we do not have the same ability to track potential pirates as we do

with blocker cards, which require that the user at least activate the boxes through

our service. E3M cards also make the full range of services, including pay per

view, available to pirates. If we are not successful with counter-measures to

shut down these cards, we may need to report to our major studios and

programmers that security is an issue and that our system has been

successfully hacked.

[Emphasis added]

[200] He expressed his concern as to BEV’s ability to successfully combat signal theft

and to conduct successful ECM’s due to the nature of the contractual relationship

between BEV and EchoStar and the absence of any formal agreement with Nagra. He

wrote at page 2 of the Internal Memorandum:

There are a number of concerns with Nagra. First, we believe that they are

devoting insufficient resources both to the development of technical fixes and to

the investigatory processes needed to determine what current and prospective

threats to the Nagra CA System there are. Second, we have no contractual

relationship with Nagra that would allow ExpressVu to demand that Nagra

remedy attacks on its CA System. Third, their performance to date undermines

our confidence in their ability to provide a positive addressing system that would

allow us to routinely address issues such as abuses of the temporary vacation

stoppage and other matters that could be addressed automatically.

Nagra has currently hinted that changes in the Nagra CA system will eventually

limit the E3M market to a core group of dedicated hackers who have the ability to

reprogram their cracked smart cards themselves. However, that potential has not

yet been justified by our actual experience.

[Emphasis added]

[201] In a Memorandum dated October 31, 2001, entitled “How Bell ExpressVu

Services are Stolen: A Brief Synopsis”⁸⁶, prepared by Gavaghan with the assistance of

Brian Johnson, lead anti-piracy investigator at the time, they explain the different ways

BEV’s services are stolen. These include: multiple box theft, false vacation theft,

blocking turn-off signals and hacked signals.

86

Exhibit P-95.

500-17-027275-059

PAGE : 44

[202] In an email message, dated July 17, 2002, sent by Joe Prodan to Gavaghan and

other senior BEV officers and department heads⁸⁷, Prodan estimated the total number

of persons stealing its services at 72,000 and the total corresponding annual revenue

losses at $40 million.

[203] Gavaghan identified and produced a series of Fraudulent Activity Reports for the

months of July through October 2002⁸⁸. He acknowledged having received these

Reports “in the context of the antipiracy group reporting system that we had in terms of

reporting statistics on potential pirates”⁸⁹.

[204] The Fraudulent Activity Reports were prepared by Allison Milborough and John

[family name not mentioned] with input from Joe Proden, “a more senior level employee.”

[205] The following summarizes the estimated total number of pirates, pure and hybrid,

and the corresponding estimated annual revenue losses for each of the months in

question:

Month

Total Number of Pirates

Total Annual Revenues Lost

July 2002

83,000 (7%)

$44,000,000

August 2002

September 2002

102,000 (8.5%)

125,000-196,000

(10% - 16%)

$54,000,000

$45,000,000 - $70,000,000

October 2002

180,000-250,000

(14% - 20%)

$74,000,000 - $100,000,000

[206] The following disclaimer appears at the end of each Fraudulent Activity Report:

This represents the best estimate given the information currently available to us.

These calculations are difficult to make and verify due to the fact that pirates are

not forth coming with Information and Bell ExpressVu's procedures for tracking

equipment is in the testing stages for improvement. However, we believe these

estimates do provide a useful ball park measure of the current impact of

signal piracy on Bell ExpressVu.

[Emphasis added]

87

Exhibit P-99.01.

Exhibits P-100 en liasse.

Transcript, October 20, 2011, p. 111.

88

89

500-17-027275-059

PAGE : 45

[207] Notwithstanding the disclaimer, one would have thought that the contents of the

Fraudulent Activity Reports and the apparent seriousness of the rapid estimated

increase in the incidence of piracy should have been cause for concern. It seems

reasonable that it should have been acted upon by senior management in a more

effective and timely manner. As will be seen, there would appear to have been

unexplained conflicting interests and a systemic dysfunction within the technology

department that impeded senior management from taking appropriate coherent

responses to address this growing problem in a timely fashion.

[208] By November 20, 2002, the estimated incidents of signal theft had reached

252,882 or 20% of the total number of active BEV subscribers.

[209] Gavaghan acknowledged that the numbers contained in the Fraudulent Activity

Reports disclosed a serious problem. The following candid exchange during his

examination in chief reflects his awareness of the problem and is but one example of

the lack of departmental coherence in dealing with it:

(…)

So, as coordinator of the anti-piracy committee, how did you... what did

you understand from those numbers, and how did you react to that?

A-

Well, my understanding was that we had a significant problem, and our

reaction to these numbers were to, you know, advise... or, sorry, to inform

the other executives that this was an issue, and just exactly how much of

an issue it was.

261Q- And from your various investigations and inspections and monitoring and

so on, do you have any idea to explain to the Court how that increase,

according to this methodology, could have happened?

A-

Well, we thought at the time that there were two (2) main reasons for this.

The first was that the so- called AVR card had been developed, it had

gone through a series of developments, and in the end of the year,

immediately before two thousand and two (2002), it reached the stage

where we saw this so-called autoroll and camless AVR being developed,

and it was pretty clear that that constituted a real threat to us from a

technology perspective. And then, at the same time, in two thousand and

two (2002), the DirecTV product was starting to disappear both because

DirecTV had secured its service, and so the supplies of new boxes that

could be hacked was disappearing, and moreover, you know, we had

stepped up enforcement against the dealers because of the victory in the

Supreme Court that we'd had. So, basically, the U.S. black market

product was disappearing, or is becoming more difficult to sell, and at the

same time, there was a replacement product that was us, unfortunately.

262Q- I would refer you to... before going to another document, have you been

made aware at some time in the fall of two thousand and two (2002)

that a task force on anti-piracy had been constituted at Bell

ExpressVu?

500-17-027275-059

PAGE : 46

A-

Q-

A-

Yes, I was aware of that.

And were you a member of that task force?

No, I wasn't a member.

264Q- And did you participate in their proceedings and...

No, I did not.⁹⁰

A-

[Emphasis added]

[210] On or about October 28, 2002, Timothy McGee, then President of BEV, named

Casavant to head the Counter-Piracy Task Force⁹¹. It is to be questioned why neither

Gavaghan nor Snazel were not included as members of the Task Force. Both of them

were presumably qualified as they had, in the past, been involved in tracking signal theft

and devising anti-piracy measures. Gavaghan had in fact been the head of the previous

anti-piracy committee.

[211] As will be seen and discussed subsequently in this judgment, the Task Force’s

estimates of the level of signal theft were below those disclosed in the Fraudulent

Activity Reports, prepared for Gavaghan and other members of senior management

only some months earlier.

[212] The Court is perplexed and justified in questioning: (i) why were Gavaghan and

Snazel not named to the Task Force; and (ii) why were there significant differences in

the estimates of signal theft? Perhaps the answer lies in the candid and self-serving

inscription found at the bottom of the cover page of the Report on Counter-Piracy:

(Prepared for and Submitted to the Legal Department by the Counter-Piracy

Task Force in contemplation of potential litigation)

[Emphasis added]

[213] More will be said on this matter in the analysis of the testimony of Snazel,

McGee and Casavant.

[214] Gavaghan described three situations and the corresponding BEV policies

relevant to account stacking by its subscribers: (i) vacation policy; (ii) cottage policy

(travelling STB); and (iii) multiple receiver fraud policy. They are described in various

BEV publications produced en liasse as Exhibit P-35.

90

Transcript, October 20, 2011, p. 123.

Exhibits D-111 & D-154.

91

500-17-027275-059

PAGE : 47

[215] He was questioned concerning a practice complained of by Bellerose in a letter

dated March 27, 2002 addressed to Chris Frank of BEV⁹². Bellerose referred to his

experience of having been offered, during a recent visit to a Radio Shack Store, BEV

service at two separate locations (his principal residence and his country residence) for

the cost of only one subscription. A similar offer was made at about the same time to

another employee of TVA (Dépatie) at an Espace Bell store. An invoice evidencing the

transaction complained of is attached to the March 27^thletter.

[216] Gavaghan responded, on behalf of Frank, to the Bellerose letter on April 3,

2002⁹³. He neither admitted nor denied the existence of the policy complained of.

Rather, he noted that Radio Shack is an independent entity but, that he would

nevertheless contact its head office to ascertain what representations were being made.

With respect to the experience at the Espace Bell store, he noted that it may have been

an independent distributor. He undertook to contact Bell Distribution Inc. on this matter.

He concluded by writing:

For the last several years, Bell ExpressVu has advertised a program where a

subscriber may purchase two satellite dish antennae, to be physically installed at

their primary and secondary residences. The customer could then transport their

set-top box to the secondary residence in order to continue to enjoy the benefit of

their television programming subscription. The notations on the Espace Bell

invoice could well have been intended to refer to that program.

[217] He was cross-examined regarding what BEV was telling its subscribers and

potential subscribers in its: (i) publicity; (ii) call centers; and (iii) retail outlets. Particular

reference was made to a pamphlet entitled “More movies, Fewer mosquitos”⁹⁴where

the practice of paying for one subscription, having two dishes installed at each

residence and transporting a set-top receiver from one residence to another is promoted

by BEV. At page 1395 of the pamphlet (Exhibit P-57), there is the following inscription:

Restrictions apply, If you have more than one digital receiver, all receivers [must

be] connected to a phone line in a residence owned by the subscriber.

[Emphasis

added]

[218] Reference to the BEV policy on account stacking is made in greater detail in the

analysis of the testimony of other witnesses called by BEV.

[219] In an Internal Memorandum, dated August 24, 2000, addressed by Gavaghan to

“Executives”⁹⁵, (previously referred to) he notes that “the increase in distribution and use of

E3M “cracked” cards is of serious concern to us.”

92

Exhibit P-289.

Exhibit P-290.

Exhibit P-57.

Exhibit P-91.4.

93

94

95

500-17-027275-059

PAGE : 48

[220] However, in a second Internal Memorandum of even date, addressed to “All

Employees” Gavaghan appears not to have the same “serious concern”. His worry now

appears to be limited to the fact of EchoStar’s programing having been “hacked” and

not that of BEV. In the second Memorandum he wrote:

Obviously, this is a concern to ExpressVu because of the intrinsic similarity

between the Echostar and the ExpressVu systems. Some people have been

mistakenly led to believe that the ExpressVu system has suffered similar

attacks.

[Emphasis added]

[221] In cross-examination, Gavaghan was referred to an internal BEV document

dated July 23, 2002 entitled: “Project Aladin Preliminary Outline of Business Case⁹⁶”.

For the reasons therein expressed, the Outline concluded with the following

recommendation: “Based on current estimates of signal theft, do not proceed with card

swap out program”.

[Emphasis added]

[222] He acknowledged that there was a clear awareness in 2002 among senior BEV

management of the problems associated with signal theft and of the need to address

these problems. Although Vice President and General Counsel of BEV, he claims he

had no involvement in the drafting of this document, nor was it ever discussed with him.

According to him, the analysis set out in the document was extremely narrow and

focused and he disagreed with much it.

(3)

Terry Snazel (“Snazel”)

[223] Snazel was Vice President of Technology of BEV from 1995 to November 2008.

In such capacity, he was …responsible for all the aspects (…)related to the end-to-end

technical system that provides service to customers⁹⁷.

[224] Since leaving BEV he purchased and operates a horse farm.

[225] He has no relevant formal higher education. Since leaving high school he

attended two years of a diploma course in Applied Physics but did not complete the

course. He attended the BBC Training College in North London and completed a course

in Broadcast Technology. He left the BBC and enrolled in a MBA program. He

completed one course in the program.

[226] He subsequently worked for various employers in the U.K. and in Canada in

various functions, including as: technical operator, camera man, technical producer and

96

Exhibit P-200.2.

Transcript, October 21, 2011, p. 207.

97

500-17-027275-059

PAGE : 49

officer and liaison between managers and technicians. In his words, “my expertise was in

colour cameras.”

[227] He was subsequently employed for brief periods by the CBC as Manager of

Technical Services and in similar functions by other employers.

[228] He was then employed by TSN as Vice President of Operations to assist, from a

technical perspective, the launching of its service. He was responsible for both the

technical side of operations and the engineering. After TSN, he was employed by Astral.

His duties were to recruit staff to develop their Pay TV networks.

[229] In 1995 he was recruited by BEV as Vice President of Technology.

[230] He was a member of several industry related Associations and Committees.

[231] Snazel was examined in connection with the following subject matters:



Technological issues and choice of the technology provider (testing,

meetings and discussions);



Negotiations of the Satellite Technology Agreement with Houston Tracker

Systems Inc. and EchoStar;



Nature of services provided by Nagra and EchoStar;

Assessment of piracy;

Web Monitoring;

Anti-piracy initiatives;

ECM’s

;

BEV's anti-piracy laboratory;

New CAS - Aladin;

Grey market piracy; and

His role in correspondence with the CRTC.

[232] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[233] He was examined regarding the circumstances leading to the signature of the

EchoStar Agreement.⁹⁸Annexed as Schedule 1 are the Functional Specifications

98

Exhibit P-14.

500-17-027275-059

PAGE : 50

required to be performed by EchoStar and HTS. Snazel claims to have drafted these

specifications based upon his understanding of the requirements of the system.

[234] The Technical Specifications found in Schedule 2 of the EchoStar Agreement

were drafted by EchoStar.

[235] Seeing his lack of formal higher education and technical experience, the Court

has serious concerns as to whether BEV was well served by allowing Snazel to define,

in Schedule 1, the relevant functional specifications required to permit the launch of a

secure DBS system. The evidence is silent as to the involvement of any other

competent officer having appropriate technical expertise.

[236] Snazel admitted that he did not attempt to negotiate a formal agreement with

Nagra. It was only, after the fact, that the legal department suggested to him the

advantages of a contractual relationship directly with Nagra. It would appear that, by

then, it was too late to require Nagra to agree to a direct contract with BEV. It had

already sold and been paid for its CAS through EchoStar. It had no incentive to agree to

provide the contractual guarantees and financial support sought by BEV in the event of

a breach of its system.

[237] Snazel was examined concerning a letter dated July 21, 1999, addressed by

Chris Frank to Tola Murphy-Baran, Senior Vice President, NFL Sunday Ticket

Enterprises regarding BEV‘s desire to licence the National Football League Sunday

Ticket for DBS distribution in Canada on a pay per view basis⁹⁹. In his letter, Frank

assures Murphy-Baran of the security of the BEV DBS system. He wrote;

Based on the attached technical opinion from our chief technology officer,

we can state unequivocally, that our distribution system – while sharing the

same underlying technology as EchoStar – is both independent and

uncompromised. The practical impact of this statement is that:

1. a regular paying EchoStar customer in the U.S. or Canada (grey market customer) cannot access

Bell ExpressVu programming;

a pirate EchoStar receiver (containing an unauthorized smart card) in either

Canada or the U.S. cannot access Bell ExpressVu programming; and

thorough investigations through private investigation agencies and the Royal

Canadian Mounted Police (“RCMP”, the Canadian equivalent of the Federal

Bureau of Investigation) have been unable to confirm the existence of a single

compromised Bell ExpressVu system

Consequently, we are of the strong belief that our system is secure and will stay

that way. (…)

99

Exhibit P-358.

500-17-027275-059

PAGE : 51

[Emphasis added]

[238] The Technical Opinion attached to the Frank letter was drafted by Snazel. It

purports to confirm that the BEV CAS system is incompatible with the EchoStar system

and is uncompromised.

[239] The Frank letter was forwarded by Murphy-Baran to James Shelton on July 22,

1999.

[240] In a letter dated August 13, 1999 addressed by Shelton to Snazel and Juneau¹⁰⁰,

he challenges Snazel’s Technical Opinion regarding the incompatibility of the two

systems. Shelton wrote:

This report is a high level analysis on NagraVision piracy and the impact on the

ExpressVu system which uses NagraVision’s conditional access system and

smart cards. (Page 1)

(…)

Overall, since both EchoStar and ExpressVu both use NagraVision's conditional

access system and there is a commercial pirate hack tor EchoStar programming,

then pirates could if they desired, apply this hack to obtain ExpressVu's

programming. There is no technological reason this could not happen. (Page

5)

[241] Confronted with the clear contradiction between his opinion expressed in the

Technical Attachment to the July 21, 1999 Frank letter and that of Shelton in his August

13, 1999 Report, Snazel simply says he disagrees with Shelton without any credible

explanation. His justification for this disagreement reflects his rather cavalier approach

to the subject as well as to other technical matters that he does not fully comprehend.

[242] He was examined as to the measures taken to combat signal piracy. He claims

the year 2000 was a busy year for anti-piracy activities. BEV became aware their

system had been breached in March 2000. Once they had confirmed the existence of

the breach, under his direction, BEV formalized a procedure for reporting instances of

piracy to management. He formed an anti-piracy committee chaired by Gavaghan.

Casavant was also member of the committee along with others. The Committee’s focus

was to determine the extent of piracy.

[243] Snazel claimed to have participated actively in the committee to encourage

organization and practicality. He did not, however, agree with Gavaghan’s assessment,

of the problems in implementing successful ECM’s due to the alleged deficiencies in the

100

Exhibit P-91.

500-17-027275-059

PAGE : 52

Nagra system and software, referred to in his Internal Memorandum dated August 24,

2000¹⁰¹.

[244] He testified that BEV only had “confirmed” evidence of piracy of its signal for the

first time in 2001 and that he discussed the problem with representatives of EchoStar on

the phone. He claims that they never mentioned considering a card swap to address the

problem in their own system.

[245] Piracy was a growing problem in 2002. Snazel attended with Casavant a

presentation by Nagra of their new Aladin CAS and smart card in Cheseaux,

Switzerland in March 2002. He identified a document and related documents which

formed the basis of the Nagra presentation.¹⁰²

[246] He acknowledged that he discussed with Casavant the nature of the ECM

program being pursued and the problems associated therewith. He acknowledged:

… there was a meeting regarding ECMs and how they were being used and what

we could expect from them in the future from them with respect to ECMs. There

was a caution, I think. Perhaps it was a flag went off when we were in Cheseaux

that the ECM program may have a finite life and that, at some point in time,

which we knew perhaps intuitively, we were being apprised the ECM

program would be less effective.

[Emphasis added]

[247] According to Snazel, the Aladin project was still in the developmental stage at

the time of the Cheseaux meeting. This opinion was not shared by Casavant, or by the

Nagra representatives heard.

[248] Following the March 2002 meeting, Snazel claimed he “…encouraged Nagra to

continue working on their Aladin project, although we had no formal authority to go along with

the Aladin project.”

[249] Upon returning to Toronto, he claimed he reported his findings and made his

recommendations known to McLennan, then President of BEV. According to Snazel,

McLennan told him he would digest this “new information” and get back to him.

McLennan appeared to have no recollection of the discussion with Snazel, if indeed one

took place.

[250] He was referred to a document prepared for senior BEV management authored

by Gavaghan and him entitled: “Switching off Signal Piracy: The Scope of the Signal

101

Exhibit P-91.4.

Exhibits P-201 and P-201.1 (en liasse).

102

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PAGE : 53

Piracy Problem with respect to Bell ExpressVu services, and our Strategy to defeat

it.¹⁰³”

[251] He described, in particular, his efforts to persuade senior management to accept

the Nagra Aladin proposal. The problems were made more difficult because of the

appointment in May 2002 of a new President of BEV, Tim McGee. According to Snazel,

“He had to be convinced.”

[252] He described the activities to deal with signal theft in 2003. These included

installation and testing of some new equipment.

[253] In a Memorandum dated December 9, 2002, addressed to Martin Cullum with

copies to BEV Executives, Casavant, Ishankov and others¹⁰⁴, Snazel provided a time

line for and describes the “Status of Aladin Conditional Access Transition.” It is clear

from a reading of the Memorandum that, in Snazel’s mind, the complete swap out had

not yet received formal budget approval from the appropriate sources in BEV or BCE.

He wrote, at page 3:

The final component of Phase III is to switch-off the data stream for the existing

systems. When this happens all illegal devices using the existing system will no

longer work. Changing out approximately 2 million smart cards is expensive and

logistically challenging. A task force from all ExpressVu departments has been

established to plan and implement the project during 2003. Currently Phase III

of the project is going through a technical validation and budget approval

process, with a target of an early 2003 go-ahead.

[Emphasis added]

[254] In cross-examination, Snazel contradicted either his previous testimony or that of

other credible witnesses on no less than eleven occasions. His responses to legitimate

questions put to him by counsel are frequently evasive. His explanations are convoluted

and often incomprehensible. As Vice President of Technology of BEV, one would have

expected from him a demonstration of a certain level of technical expertise in his

responses to legitimate questions dealing with matters within the scope of his

responsibilities. There was no such display.

[255] The following are some of the more problematic contradictions:

 He testified in chief that he had conducted “a high level review” of and was

familiar with the NDS conditional access system used by DirecTV. He was

referred to an analysis signed by him and Gavaghan dated April 5, 2002

entitled “Switching off Signal Piracy”¹⁰⁵, where they mention that, contrary to

the Nagra system used by BEV, the DirecTV system does not have the

103

Exhibit P-97.

Exhibit P-176.

Exhibit P-97.

104

105

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ability to be updated or modified through software downloads. Confronted

with, or anticipating the contrary credible evidence by Dr. Markey (former

Vice-president-Technology of DirecTV), he attempted to distance himself from

the analysis by claiming that his name appeared on the document only

because he endorsed the technology comments. He refuses to admit that he

was wrong and insists that his “knowledge of the NDS DirecTV system is still at a

high level.” However, after a protracted and convoluted exchange with

opposing counsel as to the nature of the question, he grudgingly gave a

qualified response to the question by stating: “Mr. Markey would have had much

more knowledge of the DirecTV system than I would.”

 He recalled having had discussions with McLennen, Neuman and Gavaghan

at a meeting held either in Neuman’s office or his, about the hack of the BEV

system in March 2000. He claims Neuman was not surprized and that this

was but a confirmation of what he (Neuman) believed would eventually

happen. When pushed in cross examination on the circumstances of the

meeting, he claims to have a good recollection of the discussion and that

neither he nor Neuman were surprized. He was reminded that Neuman

resigned from BEV in December 1999 and left immediately thereafter for

England. He could not have spoken to him about the hack which he claimed

occurred in March 2000. When confronted with this dilemma he retreats with

the following convoluted response:

But I am not so...I can't be sort of clear now as to whether, in nineteen

ninety-nine (1999), we had that confirmation, whether the discussion

was as firm as that.¹⁰⁶

 In the Technical Attachment to the letter, dated July 21, 1999, addressed by

Chris Frank to Tola Murphy-Baran¹⁰⁷(Re: NFL Sunday Ticket) he referred to

the smart cards devices which had already been successful in hacking

EchoStar signals. He was reminded that he testified in chief that the

EchoStar hack first occurred at the end of 1999, a date AFTER the date of

his Technical Attachment. The first EchoStar hack was confirmed by Shelton

to have taken place in October 1998¹⁰⁸. His explanation and justification for

this contradiction is, once again, perplexing.

 In his testimony in chief, he denied that, at a meeting held with Nagra in

2001, it had recommended that BEV perform a card swap. When suggested

that he was wrong and given the chance, in cross-examination, to correct his

testimony, he responded: “I have no recollection of that occurring.”¹⁰⁹Snazel

106

107

108

109

Transcript, October 26, 2011, p. 184.

Exhibit P-358.

Shelton report, Exhibit P-91, p. 4.

Transcript, October 27, 2011, p. 9.

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PAGE : 55

was examined on discovery on September 26, 2007. Regarding the

particular meeting held with Nagra in 2001, he testified:

(…)the gist of the discussion very quickly moved to the need to do a

change of the conditional access system that, at some point, the

ammunition that Nagra had to fight the piracy would be no longer as

effective as it was and that in their opinion, the solution for us was to

do an exchange of our conditional access system, a complete card

swap.

Q- So that was Nagra's position?

A- Yes.

 In his testimony in chief he insisted that at the time of his visit to Cheseaux in

March 2002, he was told by Nagra that IMS4, an essential component of the

Aladin CAS, was not yet ready for deployment. In cross examination, it was

suggested that he was specifically advised by Nagra in March 2002 that

IMS4 had been deployed for other clients of Nagra as early as 2001 and that

it was anticipated that other deployments would follow shortly. He responded:

“I neither recall that, nor do the documents substantiate that.”¹¹⁰He was then

shown a document entitled “Nagravision IMS4 Presentation ExpressVu, March

2002”¹¹¹, the last page thereof entitled “IMS4 Customer Deployment”. The

following exchange between Snazel and counsel demonstrates the

regrettable lack of transparency on his part:

38Q-

(…) Maybe the last page is more striking.

"IMS 4 Customer Deployment. First deployment, beta release

early two thousand and one (2001), O & O Cable Link. Two

thousand and one (2001), all new customers, Optus, extend,

start migration Cablecom, Quero TV."

So, now, I will put to you my question again. Is it not a fact, Mr.

Snazel, that you were advised by Nagravision, in March two thousand

and two (2002),in Cheseaux, that IMS 4 was being deployed for other

clients of Nagravision as early as two thousand and one (2001)?

A- What is not a fact is that I was aware of that. This document looks

like an extensive presentation on the status of IMS 4. I was not

present at all the meetings in Cheseaux. I was not present at all

the meetings in Cheseaux. There were a series of meetings. We

were... there was more than one (1) of us from ExpressVu. And in

particular, I was not present at meetings that were going through

110

111

Transcript, October 27, 2011, p. 16.

Exhibit P-201, 1 Bates # 2680.33.

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PAGE : 56

detailed discussions on some of the technology. This could well

have been a meeting at which I was not present.

THE COURT:

39Q- Why not?

A- I was... there were different meetings going on, sometimes

simultaneously. I would go to a meeting and Jessica would go to

other meetings with different...In fact, I can't even remember

precisely being in a meeting with Nicolas Aubert and Philippe

Landry on those dates, but the discussions I had in Cheseaux were

with, in many occasions, different people than Jessica and on

different topics. So this document doesn't look familiar to me, and

I'm sorry the presentation is not something I am familiar with.

Me PATRICK OUELLET:

40Q- Sir, you certainly were very affirmative yesterday when you were

saying to this Court that in March two thousand and two (2002), IMS 4

was not ready. Now, I'm suggesting to you that you didn't even attend the

IMS 4 meetings and you have no idea what you're talking about. Is that

not a correct statement?

A- That is a very extravagant statement. I do not acknowledge it being

correct. The meetings that I was at, it was very clearly made... it was

made very clear to me that, in fact, IMS 4 was not.

41Q- Was it not...

A- Was clearly not ready for us and, as it says in the documents, we

were undergoing the development process for IMS 4.

42Q- Sir, for IMS 4 to be ready for Bell ExpressVu, didn't Nagravision

need a go from Bell ExpressVu, which they did not have, and that's why it

wasn't ready for ExpressVu? Because they didn't have the okay to deploy

it? Isn't that why it wasn't ready?

A- I can't answer that question.

43Q- Fine. Now...

A- Sorry, I can't answer because I don't know is what I meant. I didn't

mean that I know and I'm not going to answer. I meant that I don't know.

 The Court finds it highly unlikely that Snazel did not attend this very critical

IMS4 presentation in Cheseaux. Moreover, if he did not attend, such

absence would demonstrate a shocking lack of judgment on his part.

However, assuming for whatever reason he chose not attend, it is not

500-17-027275-059

PAGE : 57

credible that: (i) he would have been unaware of the fact that the IMS4

system had been successfully deployed elsewhere as early as 2001; and (ii)

Casavant or any other members of the BEV delegation in attendance in

Cheseaux would not have fully briefed him on this important presentation.

 He further contradicts himself and other credible evidence regarding: (i)

number of pirates hacking the BEV signal; (ii) the number, dates and

effectiveness of ECM’s performed; (iii) the contractual relationship between

BEV and EchoStar and Nagra; and (iv) when final approval and budgetary

support was received to proceed with the full swap out to Aladin.

(4)

Jessica Casavant (“Casavant”)

[256] Casavant was Director, Systems Integration and Digital Technology of BEV from

late 2001 to fall 2007. She was previously Director of Digital Technology from 1999 to

late 2001 and Manager of Compression Systems from 1997 to 1999.

[257] Since leaving BEV in 2007 she has been C.E.O. and owner of a book publishing

and distribution company.

[258] She holds a degree in broadcast engineering from the University of Toronto and

a college diploma from Sheridan College in audio production techniques.

[259] Prior to joining BEV, she worked as a recording engineer for a film and post-

production studio in Toronto, Pathé Sound, and in various managerial and technical

positions for the Movie Network.

[260] Casavant was examined in connection with the following subject matters:



The installation, testing and configuration of the BEV DBS system prior to

and subsequent to launch its in 1997;



Technological issues and description of the functioning of the BEV DBS

system;



Assessment of level of piracy;

The March 2002 meeting with Nagra to present the Aladin CAS;

Counter-Piracy Task Force;

ECM’s and other anti-piracy initiatives;

Web monitoring of piracy activity;

Anti-Piracy Task Force; and

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New Aladin CAS.

PAGE : 58



[261] Among the subject matters mentioned above, certain elements raised during her

examinations warrant specific attention and analysis.

[262] With the aid of a schematic diagram, entitled “Bell ExpressVu Uplink Diagram”¹¹²

she explained in detail the complex technical functioning of the BEV DBS system.

[263] She described the organizational structure of the Technology Department. She

explained that there were close to 300 people working in the department headed by

Snazel, of which some 30 were under her direct supervision. An organizational chart

was produced describing the various department heads and their responsibilities.¹¹³

[264] She was examined in connection with the various ECM’s initiated by BEV and in

particular concerning “Project Liberty” and the results thereof described in a document

dated December 8, 2003 outlining the Fall ECM Plan.¹¹⁴

[265] She was questioned at length in connection with numerous proposals and

updates prepared by both Nagra and BEV and her involvement therein, dealing with the

various phases of an eventual migration to Aladin¹¹⁵.

[266] Particular reference was made to the description of the complex, multi-phased

approach and to the estimated time-line in the transition from BEV’s existing CAS to the

new Aladin CAS. Particular reference was made to an internal report prepared in

February 2003¹¹⁶entitled the “Nagra Aladin Conditional Access Exchange Program”¹¹⁷.

[267] By January 2004, the proposed time-line had slipped due to alleged difficulties in

testing and problems with the software.

The Counter-Piracy Task Force

[268] The Counter-Piracy Task Force was created by McGee, then President of BEV,

on or about October 28, 2002. Its Report on Counter-Piracy, (the “Report”)¹¹⁸prepared

112

Exhibit D-175A.

113

Exhibit D-216.

114

Exhibit P-161.4.

115

Exhibits P-201.1, D-217, P-200.1, D-218, P-199.1, D-218, P-202, P-204, D-176, P-202.02, P-200.0.1,

P-203.1, P-203, P-203.3, P-219, P-203.4, D-220, P-208.1, D-123, D-221, P-223.3, D-222, D-223, D-

224, D-225, P-218.1, P-220, P-221.1, P-218, P-226.1 and P-227.

The date on the exhibit is erroneously indicated as November 26, 2010 due to a technological glitch

116

in transforming the document in electronic form.

Exhibit P-200.0.1.

Exhibit P-106.

117

118

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PAGE : 59

and produced in less than three months following its creation, is dated January 13,

2003.¹¹⁹

[269] Although the Report was prepared for the BEV Legal Department in

contemplation of potential litigation and is inscribed as “Privileged and Confidential”, and

accordingly was filed in evidence under seal in these proceedings, it was referred to by

the various witnesses, including BEV’s own experts, without objection on the part of

BEV. Moreover, as previously mentioned, in response to a request by the Court to

confirm the status and confidential nature of several exhibits filed “under seal”, including

that of the Report, Defendant’s counsel agreed that we were free to quote such extracts

from the Report that we considered necessary. Plaintiff’s counsel gave its unrestricted

consent.

[270] The purpose of the Task Force was described at page 3 of the Report.

1.

PURPOSE

In light of a recent letter received from Yves Mayrand of Cogeco Cable Inc. dated

November 11, 2002 and a letter from Edouard Trepannier of Quebecor Media

Inc. dated November 8. 2002, each alleging that they are suffering damage as a

result of signal theft of Bell ExpressVu satellite signals, the Legal Department

received a request by Tim McGee, President, to assess the scope and

magnitude of Bell ExpressVu's potential liability if a successful claim was

made against it and to provide recommendations that would mitigate its

exposure and reduce its potential liability.

To assist the Legal Department in providing the proper advice to Tim McGee the

Counter-Piracy Task-Force was asked to prepare this report and is hereby

submitting it to the Legal Department for such purpose. This report has drawn

upon the assistance of many employees from a variety of business units at Bell

ExpressVu and all material prepared in connection with this report, whether

lncluded or not, is privileged and confidential.

Bell ExprossVu faces a possible threat of litigation in light of the broadcast

industry's current heightened awareness of signal theft. In contemplation of such

litigation, the Counter-Piracy Task Farce (the “Task Farce”) was asked to:

(1)

(2)

(3)

Assess the scope and magnitude of signal theft of Bell

ExpressVu's television and audio service;

Audit its current internal and external efforts to combat this theft;

and

Provide recommendations and a strategy to implement them for

the purpose of mitigating risk and future losses.

119

The date of January 13, 2002 appearing on the Report is a typographical error. It should read:

January 13, 2003.

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PAGE : 60

(…)

[Emphasis added]

[271] The Task Force would appear to have replaced the former anti-piracy committee

headed by Gavaghan and assisted by Snazel and others. As previously mentioned,

curiously, neither Gavaghan nor Snazel were appointed to the Task Force.

[272] The methodology used by the Task Force in estimating the level of fraud and

theft is described in Annex A to the Report.

[273] Attached to the Report as Annex B is a document dated November 27, 2002,

entitled “Customer Segmentation Project Status” prepared by Angoss Software

Corporation. Angoss had approached a member of the Task Force to do a “sales pitch”

on software they had developed that would allow BEV to perform different analyses and

research subscriber behavior. According to Casavant, “Angoss was really just used to

validate our methodology during those particular tests.”¹²⁰

[274] A follow-up report entitled “Subscriber Signal Theft” was prepared by Angoss

Software Corporation dated February 5, 2003¹²¹, subsequent to the Report on Counter-

Piracy. The February 5, 2003 Angoss report is referred to at length by Defendant’s

expert, PricewaterhouseCoopers in its Report and in the testimony of its representative,

Pierre Maillé. This evidence will be analyzed and addressed subsequently herein in the

appropriate Sections dealing with the quantification of the alleged damages suffered by

Vidéotron and TVA.

[275] Among the findings and recommendations contained in the Report, the following

extracts from the Executive Summary found on pages 5 and following thereof are most

relevant for the purposes of these proceedings.

B.

Incidents of Signal Theft (as of November 2002)¹²²

•

Active subscribers ("Hybrid"):

120,000 to 133,000*

(9.5% to 10.5%.of base of 1.2M)

11,000 to13,000

•

Former subscribers (disconnects):

Never activated using our boxes:

27,000 to 35,000 **

Lost & Stolen Receivers/Smart Cards:

6,012

120

121

122

Transcript , November 2, 2011, p. 149.

Exhibit P-107.

Although the estimate of the number of pirates is described in the Report as being “as of November

2002”, a review of Appendix 1 of the Report indicates that the various tests which give rise to these

estimates were conducted between October 2001 and October 2002. The effective date of the

estimates is thus more appropriately at the latest, October 2002.

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PAGE : 61

164,000 to187.000

(12% to 15% of 1.2M sub base)

•

Total:

*In our view, there are 3 reasons why the Hybrid number is proportionally higher

than any other method of theft: (a) the easiest and cheapest method of pirating

the signal continues to be by reprogramming an activated smart card or AVR

board; (b) by paying Bell ExpressVu some kind of monthly fee, the pirate can feel

a little more at ease in that they are not stealing all of Bell ExpressVu, and (c)

they view their subscription as a shield against prosecution (i.e., we wouldn't go

alter our own subscribers). As well it Is known that pirates keep and then use

their legitimate card any time countermeasures are launched to continue

watching a basic level of service until such time as a fix is released for the

counter piracy measures.

**This number was calculated by dividing the total number of receivers never

activated by a factor of 1.6 which is the current Bell ExpressVu average number

of active receivers per account.

C.

Estimated Revenue loss per year.

•

Active subscribers. (Hybrid):

Former subscribers (disconnects):

Never activated using our boxes

Total

$30M. to $33M

$6.2M to $6M

$24M to $31M

$60M to $71M**

(10.30% to 14% of overall revenue)

**This is based on the assumption that the offending subscriber would pay our

programming ARS of $40.52. (Oct.2002) and our PPV ARS of $5.40 (200I PPV

ARS whlch was the ARS prior to piracy becoming significant. Overall revenue as

of Nov 30 2002 was $580M.

D.

Estimated One Time SAC Ioss over last 18 months:

•

Never activated using our boxes:

Former subscribers (disconnects):

Total

$22M to $28M

$ .8M to $.9M

$22M to $29M

•



ExpressVu subsidizes their STB's. The estimated loss was based on an

indemnity loss per receiver of $493.56. This is not additive to annual loss but a

500-17-027275-059

PAGE : 62

one time loss only. One time losses will continue to have an impact as Iong as

boxes continue to be sold without activation and fall prey to pirates.

E.

Short Term Recommendations (1 to 2 Months)

(1)

(a)

Technological Recommendations

Implement strategy of more aggressive measures that target subscribers

and non-subscribers caught during last two pop-up countermeasures. (…)

(2)

(a)

Resources and .Staffing Recommendations

The Task Force should continue to meet and address issues relating

to Signal Theft and fraud and operate in the Interim until a

permanent person is appointed.

(3)

(…)

F.

Recommendations and Strategies to Discourage Signal Theft

Long Term Recommendations (3 to 6 months)

Technological Recommendations

(1)

(a)

Bell ExpressVu should implement a new conditional access system in

2003 that would involve a complete swap out of existing smart cards. This

swap out should be completed in 2003. This new system would include

improved hardware technology for both the smart card arid the conditional

access system, improved system strength (security better than current with more

capabilities to combat any future piracy). By using a new patented algorithm, this

new system will also include a much stronger legal aspect to it allowing the

security vendor to fight any future piracy using copyright infringement charges if

necessary.

(2) Resources and Staffing Recommendations

(a)

Appoint a permanent person to be responsible for its overall

strategy to combat Signal piracy and fraud. This person would report directly

to the President’s Office and would have audit powers over other departments

regarding processes and procedures that may impact on piracy. This person

would also be responsible for liaising with other departments, Bell Regulatory,

other officers at Bell Canada, BCE and others appointed to work on any signal

piracy or fraud issues.

(3) Recommendations and Strategies to Discourage Signal Theft

(…)

[Emphasis added]

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PAGE : 63

[276] The Task Force concludes: “Only a full card swap out will allow us to permanently

turn off the existing conditional access signals on all channels which will render all

pirating devices inoperable.”

[Emphasis added]

[277] The Court is satisfied that the recommendations contained in the Report, in

particular the long term technical recommendation that BEV implement a new CAS that

should be completed in 2003, was based on reliable information known at the time. The

recommendation was an informed one based upon knowledge obtained by Casavant

and others during the meetings previously held with Nagra in Cheseaux in March 2002,

the follow up meetings thereto and the security presentation made subsequently by

Nagra at the EchoStar offices in November 2002¹²³. In its presentation (page 17), Nagra

proposed that the swap-out to Aladin could be accomplished and completed by

December 2003. Casavant was well aware of the various tasks involved in the proposed

swap-out to the new Aladin CAS and of the realistic time lines.

[278] BEV now contends the time line for the swap-out recommended in the Report

was unrealistic and unattainable. It argues the project was very complex and that,

accordingly, any delays in the implementation of the migration were due solely to

technological reasons and for no other reasons. Aside from such generalities referred to

by other witnesses, including Ishankov, Nicholas and BEV’s experts, as to the reasons

for the delays, there is no compelling evidence which would permit the Court to retain

this assessment that the alleged complexity of the project was the sole cause of the

delays.

[279] The Court is satisfied that the Task Force’s estimate as the necessary time-line

to complete the migration in 2003 was not capricious, but rather realistic. It was a

well-informed-informed estimate. The recommendation was made by persons having

the necessary knowledge of the relevant technology involved.

[280] Accordingly the Court is satisfied that the Aladin swap-out was available and

ready for implementation by BEV in 2003 with a completion date no later than January

1, 2004. What appears to have been lacking, however, was the requisite internal

approval for the full implementation of the project.¹²⁴

[281] On January 23, 2003, Casavant prepared a working document to be used at a

planning meeting to be held with McGee and others in connection with the

implementation of the Task Force recommendations¹²⁵. The following extract of the

working document addressing the implementation of the Aladin CAS is reproduced below.

123

Exhibit P-202.00.01 – 02687.000.001; Transcript, November 8, 2011, Christophe Nicolas.

See, inter alia, Exhibits D-176, P-105.1 and P-202.01.

Exhibit P-106.1.

124

125

500-17-027275-059

PAGE : 64

AREA

IRR

(h, m.l)

RECOMMENDATION ACTION

PLAN/DETAILS

RISKS/COSTS

4. TECHNOLOGICAL

18. IMPLEMENT

NEW CONDITIONAL

ACCESS SYSTEM

(Aladin)

18. PLAN: Aladin

systemhas been

delivered and will

start to be deployed

in lab for testing

end of January.

$6 Million price

tag

ISSUE 1:

System has been

compromised. Too much

information about our

systemavailable on

internet for long term

effective measures.

Pirates also no longer

require prior activation.

18. PRIME: T.

Snazel

18.

COMPLETION

DATE: April

2002¹²⁶

19. PLAN: BCE

19. Swap out all smart

cards to new Aladin

card

Board approval for Logistics of

swap out required

swapping out 2.1

19. PLAN: Task

million cards.

force for smart card $50 Million price

swap out has been

struck to study

effort required.

tag

System could be

compromised again.

[282] During his examination, at trial, McGee took exception to Casavant’s comments

in the working document that “BCE Board approval for swap out [was] required”. He

explained that this type of approval for capital expenditures was dealt with by the

Investment Management Council (“IMC”) and not at the BCE Board level. In the Court’s

opinion, this distinction is a “red herring” and is of no consequence to the issues at

hand. Regardless of whether the appropriate approval was to come from the BCE

Board or the IMC, the fact remains and the numerous documents filed in evidence

subsequent to January 2003, clearly disclose that the requisite approval for funding had

not been obtained within the time frame proposed by the Task Force for the completion

of the Aladin CAS migration. Indeed it was not obtained until sometime long after the

2003 year end.

SYSTEMIC IMPEDIMENTS TO THE FUNCTIONNING OF THE TECHNOLOGY DEPARTMENT AND THE

PERFORMANCE BY CASAVANT OF HER RESPONSIBILITIES

[283] Casavant was cross-examined at length concerning the functioning of the

Technology Department, her role and responsibilities in the Department and her

126

Error in original text; should read “April 2003”.

500-17-027275-059

PAGE : 65

interaction with other senior members of the Department, notably Snazel and

Gavaghan.

[284] What became evident from her testimony was the serious lack of dialogue,

co-ordination and collaboration between Casavant, Snazel and Gavaghan.

Notwithstanding the fact that she was: (i) a member of the original anti-piracy

committee; (ii) a senior member of the Technology Department; and (iii) one of the most

technically qualified members of the Department, she was treated as an outsider,

perhaps not to be trusted, on numerous occasions involving important decisions

concerning piracy and other matters within the scope of her responsibilities. She was

frequently kept in the dark on important matters, for whatever unexplained reasons or

motives which Snazel and Gavaghan may have had at the time. The following examples

are among the more significant instances:



Attached to a letter dated July 21, 1999, addressed by Chris Frank to

Tola- Baron (N.F.L.)127 concerning the “N.F.L. Sunday Ticket” was a

“Technical Attachment” prepared by Snazel. He assured the NFL that the

BEV CAS had not been compromised and that, moreover it was

incompatible with that of EchoStar which had been recently compromised.

Casavant claims Snazel never discussed or sought her opinion on this

matter and that she had never seen the Technical Attachment before.

Considering her experience and technical expertise in the matter and the

corresponding lack thereof by Snazel, one expect that, at the very least,

he would have sought her input. Perhaps he intentionally chose not to. As

the credible evidence clearly demonstrates, Snazel was mistaken in his

opinion.



In a letter dated August 13, 1999, James Shelton provided Snazel and

Juneau a high level analysis of Nagra piracy and the impact on the BEV

system which uses Nagra’s CAS and smart cards¹²⁸. At page 4 and 5 of

the letter, he described in detail the current pirate market and the future of

piracy. Referring to the BEV system, and its vulnerability to a commercial

hack similar to the one that occured in the EchoStar system, he

concludes, “[t]here is no technological reason this could not happen.” Once

again, Casavant claims that Snazel never advised her of the Shelton

opinion.



Casavant was referred to a report entitled “EFU Changes to Date” dated

April 4, 2000, prepared by Geoff Collins and Murray Ho , both of whom

worked under Snazel’s direction in the Technology Department. The

report refers to the incidence of “hybrid piracy” and documents certain

efforts initiated by BEV to combat piracy, including the targeting of circuit-

127

128

Exhibit P-358.

Exhibit P-91.

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board smart cards and blocker cards. It concludes: “We know how to shut

the pirate systems down.” She claimed she only first saw the report in

preparation for her appearance as a witness in these proceedings and that

Collins never shared this information with her. She testified: “Things were

very isolated from that topic.”



Similarly, she was not copied on nor was she made aware of an Internal

Memorandum dated August 24, 2000 addressed by Gavaghan to

“Executives”

…summarizing information which came out of the August

10th cross-functional piracy group meeting”. This memorandum indicated

that there was an increase in distribution and use of E3M cards (the

“Three Musketeers Card”) and that this was a serious concern. Perhaps,

that explains why she appears to have been out of the loop. In response

to a question put to her as to whether she was aware that in 2000 and

2001, piracy was increasing and was more difficult to control, she replied:

No, my understanding was that, in two thousand and one (2001),

there was some piracy and that they initiated ECMs to target those

devices and contain the piracy. That was my understanding at the

time.

[285] In fact not being aware of the statistics and financial information compiled in the

department, Casavant credibly believed ECM’s were successful in containing piracy

well into the early part of 2002.

[286] She was cross-examined at length concerning the meetings at the Nagra offices

in Cheseaux, attended with Snazel in March 2002. She acknowledged having attended

all of the different meetings during which the subject matters discussed in the written

documents referred to in Exhibits P-201 and P-201.01 (en liasse) were presented by the

various Nagra representatives.

[287] She was shown copy of a document dated July 23, 2002 entitled “Project Aladin

Preliminary Outline of Business Case”. She claimed she did not receive a copy it and

was unaware of the recommendation not to proceed with the card swap out program at

the time.

[288] With respect to the delays in implementing the Aladin swap out program, the

following extract from the transcript of Casavant’s cross-examination on November 3,

2011, warrants reproduction:

593Q- Right. Now, you'll agree with me, will you not Madame Casavant, that it

was extremely important to introduce new technology quickly in order to

capitalize on a maximum benefit of that technology; is that not the case?

A-

Yes

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594

Q-And you'll agree with me, will you not, that the fact that the Aladdin card

had in... from the evidence we've seen, been used at least in a beta

format since two thousand and one (2001), and in an operational format

at least since two thousand and two (2002), that that new technology, by

two thousand and five (2005), was already getting a little bit long in the

tooth?

A-

If you talk about the Aladdin technology, then I wouldn't call it long in the

tooth, but it had its years of...

595Q- Three (3) years of life on it already by the time it was ultimately... the

DNASP-2 stream was switched off in July two thousand and five (2005)?

A-

Yes.

596Q- And you'll agree with me, will you not, Madame Casavant, that that simply

was far, far too slow to achieve the maximum benefit of that new

technology that you could have achieved through a card swap program

initiated in two thousand and two (2002), or at the very latest in two

thousand and three (2003)?

A-

Well, the card swap program or the Aladdin program started in that period

of time. The goal was always to finish sooner than it did. Unfortunately,

there were road blocks from the software development and testing, and

software on the set-top box being ready, that forced us to keep pushing

the date back. But the ultimate goal was always to try to do the swap as

quickly as possible.

597Q- Right, but you'll agree with me, will you not, Madame Casavant, that the

swap did not begin until August of two thousand and four (2004)?

A-

The actual card swap, correct

598Q- Yes, and that's what I'm talking about, the card swap that would have the

maximum impact on piracy.

A-

Well, in order to do the card swap, you had to get the system in place,

and it took longer to get the system in place before starting the card

swap, so...

599Q- Three (3) years to get the system in place?

[289] The Court believes that, based on the limited and filtered information made

available to her, Casavant was competent in the performance of her functions as one of

the department heads and credible in her testimony in these proceedings. However, her

testimony discloses that her performance and the results she might otherwise have

achieved in successfully combatting piracy in a timely fashion, were hampered due to

the serious lack of communication or the furnishing of selective information by Snazel

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and Gavaghan regarding important and, at times, critical matters. For reasons, allegedly

of security, she was kept in ignorant bliss. She was only provided with information on

what they believed to be “a need to know basis”.

[290] Snazel and Gavaghan chose not to share relevant information and decisions with

her. If she had been properly aware she could have performed her responsibilities and

functions in an effective manner. She was a member of the original anti-piracy

committee and Chairman of the Counter-Piracy Task Force, one of the few senior

members of the department having the requisite skills and technical knowledge to

advise the corporation and its directors in matters of piracy and appropriate technology

to combat signal theft. Perhaps, that was her problem.

(5)

Christophe Nicolas (“Nicholas”)

[291] Nicholas is the Senior Vice President, Chief Technology Officer at Nagra since

2008. He was previously Chief Security Officer from 2006 to 2008; Vice President Card

and Security from 2001 to 2004; Group Leader and holder of several other positions

from 1998 to 2006; and Software Developer from April 1996 to 1998.

[292] Nichols was examined in connection with the following subject matters:



ECM’s;

New Aladin CAS; and

Discussions and collaboration with BEV regarding signal security, piracy

and anti-piracy initiatives.

[293] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[294] He described Nagra’s role in coordinating with BEV, the designing and launching

ECM’s in Canada.

[295] He also described in detail the March 2002 meeting in Cheseaux with

representatives of BEV and the marketing effort pursued by Nagra to sell the new

Aladin CAS and smart cards. He confirmed that, at times, the presentation broke out

into several sub-groups to discuss different aspect of the entire Aladin project.

[296] Contrary to: (i) the testimony of other witnesses, that Aladin was being rolled out

at the time in the EchoStar system; (ii) the evidence found in the Annual Reports¹²⁹of

the Kudaski Group regarding other installations of Aladin elsewhere in the world; and

(iii) the timelines referred to in the various Aladin documentary presentations made in

March 2002¹³⁰and subsequently thereto, Nicholas still insists that Aladin was NOT

129

Exhibit P-372.

Exhibits P-201 & P-201.01.

130

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PAGE : 69

ready in March 2002 and that it required further development to adapt it to the BEV

system.

[297] He claims that between March 2002 and July 2005, there were no delays in

implementing the Aladin swap out for which BEV was responsible. This rather gratuitous

and unsubstantiated statement is, perhaps, best explained by the fact that BEV is still a

client of Nagra today.

(6)

Virgino Trevisan (“Trevisan”)

[298] Trevisan was Program Manager at Nagra from October 1996 to 1998. He was

also Vice President Services Americas from 1998 to date.

[299] Trevisan was examined in connection with the BEV card swaps.

[300] Certain elements raised during his examinations warrant specific attention and

analysis.

[301] He was the Nagra representative who first presented the Aladin project to Snazel

and Casavant in December 2001¹³¹. He alerted them, at the time, of the vulnerability of

BEV‘s system. Following the December meeting, he organized the meetings in

Cheseaux in March 2002.

[302] Following these meetings, Nagra worked on a modification of their proposal that

addressed the specific needs of BEV. A revised budget was prepared and presented in

June 2002¹³²to reflect the stated requirements of BEV.

(7)

Ian Gregoire (“Gregoire”)

[303] Gregoire was Financial Controller for Bell Sympatico, Bell Canada Wireless, Bell

Voice Over IP, Bell IPTV from 2004 to 2007. He was also Director of Accounting and

Financial Controller of BEV from April 2001 to June 2007.

[304] Since leaving BEV and the BCE group of companies, he has been employed by

an investment banking company.

[305] Gregoire was examined in connection with accounting issues and auditing

processes at BEV. He also described the auditing practices of the industry and the

nature of the mandates given by members of the industry to an independent firm of

auditors - Broadcast Auditors Canada (“BAC”).

[306] Relating to the calculations of royalties payable, he described the functioning of

the Customer Subscriber Base System (“CSG”) and the Programing Payment System

131

Exhibit P-198.2.

Exhibits P-200.1.

132

500-17-027275-059

PAGE : 70

(“PPS”) followed by BEV. He further explained the interrelation between the accounting

departments of BEV and Bell Canada. The later provided shared accounts payable

services for all of the BCE business units.

[307] He identifies a document prepared by him dated December 16, 2002, wherein he

requests an Accounting Policy Ruling regarding whether BEV can capitalize the costs

related to a project (Aladin) that addresses piracy.

(8)

Alexander Ishankov (“Ishankov”)

[308] Ishankov is Director of Digital Technology and Systems Integration at BEV since

2007. He was previously Associate director of Systems Integration from 2004 to 2007;

Manager of the System Administration - conditional access group from 2002 to 2004

and Senior System Administrator from 2001 to 2002.

[309] Ishankov was examined in connection with the following subject matters:



Technological issues;

Assessment of level of piracy;

ECM’s and other anti-piracy measures; and

The new Aladin CAS.

[310] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[311] He described at length the various techniques used to address security issues

regarding BEV’s signal. He described the ECM’s, including transmission key changes,

“Kill ECM’s” and “Nag ECM’s” devised and implemented in collaboration with

representatives of EchoStar and Nagra.

[312] He testified in particular that BEV performed more than a hundred transmission

key changes per year. In his opinion, these were relatively successful in combating

piracy. In cross-examination he had difficulty sustaining this number in light of other

credible evidence that disclosed a significantly lower number of annual key changes.

[313] He claimed he was not asked to and that accordingly he did not keep a log of

ECM’s performed from 2001 until 2005. However when referred, in cross-examination,

to what appears to be such a log of ECM’s performed without mention of the “…100’s of

key changes” alluded to by him¹³³, he dismissed the document claiming it was prepared

by a co-worker, Louis Adriano, from memory in response to a request from Casavant

following a Court order and that it did not include the “…100’s of key changes” previously

133

Exhibit P-156, Bates # 02476.

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PAGE : 71

referred to or the “repeat ECM’s”. In a rather cavalier manner, he rejected the validity of

the Adriano log claiming he had “other priorities” at the time and that he didn’t put much

effort into the preparation of this document even though it was prepared following a

Court order¹³⁴.

[314] He was actively involved, from the start, in the migration to the Aladin CAS. He

explained that one of the essential conditions for the deployment of Aladin was the

upgrading of the existing Integrated Management System (“IMS2”) to IMS4. He

described that there were initial problems detected in the process which had to be

addressed and corrected. During the phase out period, they were required to add

additional components to the existing IMS2 and the new IMS4 to allow them to

“communicate” with both the existing DNASP2 system and the new Aladin system. They

were only able to “light up” Aladin in a limited manner during the fall of 2003.

[315] He explained the various technological aspects referred to in the various exhibits

filed in connection with the migration process to Aladin and the sequencing of the

shutdown of the previous system and the complete activation of the Aladin CAS

throughout its subscriber network.¹³⁵

[316] In cross-examination, it was pointed out to him that there are inconsistencies in

certain lists which purport to track the ECM’s performed¹³⁶as well as in the Expert

Report prepared by Dr. Green¹³⁷regarding the number of ECM’s and the internet

postings, (“chatter”), which were monitored by them following each of the ECM’s in

question.

[317] He was unequivocal in his testimony that that following every ECM (including key

changes), he and his staff always verified the response of the pirate community by

monitoring and tracking the internet chatter in order to evaluate the success thereof.

[318] Confronted with the evidence that his department was only able to document

approximately 60 instances of such internet chatter¹³⁸, he still claimed that substantially

more ECM’s were performed. His justification for this “anomaly” in his evidence is lacks

credibility.

[319] He acknowledged having read the Green Expert Report and in particular Green’s

monitoring of the pirate community postings’ regarding the ECM’s performed. He was

only able to identify a limited number of ECM’s from the chatter. Although he read the

Green Report, he admits that he did not alert Green that he had missed the “100’s of key

changes” which he claims had been performed.

134

Transcript, November 16, 2011, p. 18.

Exhibits P-203.1, D-220, P-203, P-198.1, P-203.4, P-208.1, D-236, D-222 & P-218.

Exhibits D-71, D-75 & P-156.

Exhibit D-271, p. 40.

135

136

137

138

Exhibit P-93 (en liasse).

500-17-027275-059

PAGE : 72

[320] His cavalier responses to and lack of credible explanations as to the reasons for

these inconsistencies bring into question the credibility of these lists and his testimony

concerning the “100’s of key changes” performed annually. The Court is disposed to

accept as more credible the fact that there were only some seven key changes made

during the three year period commencing August, 2001 until September 2004, as

reported by Green in his Report.

[321] Questioned by the Court as to his awareness of the serious increase in the

incidence of piracy in the years 2002 and following and whether he was so informed by

either Casavant or Snazel, he responded he was not so informed, although he was

aware of “a slight increase”. On this matter, the Court finds him credible.

[322] Curiously, although he was Director of Digital Technology and Systems

Integration, a senior officer of the Technology Department, he was not made a member

of the Casavant Counter-Piracy Task Force. He was aware of the Task Force’s

existence but, oddly, he was not made aware of its findings and recommendations.¹³⁹

(9)

Steve Collette (“Collette”)

[323] Collette is a Gestionnaire principal des enquêtes à la Sûreté de Bell Canada

since 2008. He was previously Enquêteur à la Sûreté de Bell Canada from 2003 to

2008.

[324] He was examined in connection with a series of reports documenting

investigations carried out by him and Girard of the activities of suspected pirates and

their eventual prosecution¹⁴⁰.

[325] He described, in particular, the types of investigations performed, at times in

collaboration with various police forces, Industry Canada, the CMPDA and other

interested agencies and organizations.

[326] He was examined in connection with the various legal proceedings instituted

before the Courts and the CRTC against retailers and suppliers of equipment and smart

cards used to illegally access and compromise BEV’s signal¹⁴¹.

Questioned by the Court as to why BEV did not pursue the end-users, that is the

individuals with pirated satellite dishes and/or set top boxes and smart cards, he

responded that this was not a BEV’s strategy or a priority.

139

Transcript, November 16, 2011, pp. 83-88.

Exhibit D-008 (en liasse).

Exhibit D-082.

140

141

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(10) Martin Girard (“Girard”)

[327] Girard is Directeur de la sécurité of Bell Canada since 2008. He was previously

Directeur associé en charge du groupe des enquêtes pour la région du Québec from

2003 to 2008; Enquêteur from 2000 to 2003; Analyste au centre de contrôle de la

fraude from 1996 to 2000; and responsable for Gestion du crédit et perception from

1990 to 1996.

[328] He was examined in connection with investigations carried out of suspected

pirates and their eventual prosecution.

[329] His testimony corroborated that of Collette.

(11) Marci Peters (“Peters”)

[330] Peters was Manager of Business Quality Assurance of BEV from July 2005 to

July 2006. She was previously Manager of the Multiple Receiver Verification Program

from 2002 to 2005; Manager of the Collections Department from 2000 to March 2003;

and Team Manager for BEV’s call center in1999.

[331] Peters was examined in connection with the Multiple Receiver Verification

Program (the “MRVP”), the Call-out Program and other related activities to identify and

combat account stacking by BEV subscribers.

[332] She was also examined in connection with the Call Center organization and

specific internal written guidelines given employees of the department regarding

handling of subscribers having multiple receivers in secondary residences.

[333] In cross-examination, she was referred to an email message dated April 5, 2002,

(prior to her assuming the responsibilities for the Call Out Center) addressed by Janis

Macasias to the Call Centre and others regarding the Outbound Multiple Receiver

Campaign¹⁴². The following “SPECIAL NOTE FOR HELP DESK” found on page 2 of the

message, appears to confirm, at the very least, BEV’s tolerance of the practice of

account stacking at the time.

For now we will be giving some grace to customers who say they cannot verify

the location of all receivers because some of the secondary receivers are located

at a cottage. We will be requiring them to fax proof of ownership of both

residences (…) but we may need to call them back in the near future for a follow-

up. This information is not to be shared with CSRs at this time as the

“cottage policy” is still under review by Executive Management…stay

tuned for updates!

142

Exhibit P-36.01.

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[334] She was examined in particular with respect to a document dated July 2002

entitled “Multiple Receiver Outbound Campaign”¹⁴³. This document gives BEV

employees a sample response subscribers concerning account stacking:

If a Customer indicates that one or more receivers are located at a vacation

home:

“Thank you. Bell ExpressVu's policy states that all receivers should be

associated with a single physical address, and we ask that all receivers are

continuously connected to a single operating telephone line. However, the

policy is currently under review, so at this time we will simply note the

account and if we are unsuccessful in changing the policy, we will contact

you to advise of the steps that may need to be taken. Rest assured we are

constantly working to improve our customer service and ease all processes.

Alternatively you can activate a new account just for your cottage receiver. Thank

you for your understanding.”

(…)

If customer indicates that Dealer told them it was OK to do this when he

purchased the additional receiver.

“Bell ExpressVu receivers are most often sold through independent sales

agents, but we have advised authorized dealers of the policy. Our policy

and enforcement practices are clear in our Customer Service Agreement

and on your account statement. We apologize for any misunderstanding.”

[Emphasis added]

[335] Another document entitled “Multiple Receiver Verification Program”¹⁴⁴is more

definitive as to BEV’s policy requiring: “that all receivers on any account should be

associated with a single physical address.”

[336] In a document, created by Peters, dated December 10, 2004, entitled

“Departmental Overview: Fraud¹⁴⁵” at page 3 thereof, she gives a history of the

program history and notes:

Prior to 2002, Bell ExpressVu’s Multiple Receiver Policy wasn’t strictly enforced

with cottage/vacation properties because there wasn’t a real issue due to the

cost of receivers. Most customers could only afford one receiver and would take

it back and forth between their residence and cottage. As the price of receivers

decreased, more and more customers were maintaining two active locations on

one account simultaneously, hence the creation of the Multiple Receiver

Verification Process [Policy].

143

Exhibit P-39.01.

Exhibit P-43.05.

Exhibit P-43.06.

144

145

500-17-027275-059

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[337] A summary of the results of BEV’s various efforts through its Call Out Program to

control account stacking is found in an internal document dated May 2005¹⁴⁶. The

results of the Program are very positive.

(12) J.J.Gee (“Gee”)

[338] Gee was Special Projects Manager and/or Director of Field Security and

Investigations of NagraStar from January 2001 to date.

[339] He was examined in connection with the following subject matters:



Investigations and satellite security; and

Collaboration with BEV regarding signal security, piracy and anti-piracy

initiatives.

[340] He described the joint efforts pursued with BEV personnel to track the activities

of the pirate community. He worked closely with Snazel and Casavant and their team on

technology matters, legal prosecutions and for investigation work. The lines of

communication among these representatives were always informal.

[341] Contrary to what Ishankov claimed, he maintained that BEV investigators did

NOT provide Nagra with copies of their investigatory work.

[342] Like BEV, Nagra never pursued end users of signal piracy. They preferred to go

after the suppliers.

[343] Contrary to Snazel’s testimony and to his expressed opinions in the Technical

Attachment to the NFL Sunday Ticket letter of July 21, 1999¹⁴⁷, Gee confirmed in

cross-examination that the Nagra CAS used by EchoStar was substantially similar to

the one used by BEV.

(13) David McLennan (“McLennan”)

[344] McLennen was President of BEV from April 2000 to May 2002. He was

previously Interim President since 1999 and Vice President of Operations and Chief

Financial Officer from 1997.

[345] Since leaving BEV he has been employed as Chief Financial Officer and

Corporate Secretary of Sierra Wireless.

[346] He holds a Bachelor of Commerce degree and a chartered financial analyst

designation. His work experience is exclusively related to business, financial and

146

Exhibit P-44.

Exhibit P-358.

147

500-17-027275-059

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investment analysis and support. He has no formal education or work experience in the

area of satellite broadcasting technology.

[347] McLennen was examined in connection with the circumstances surrounding the

selection of EchoStar as the BEV technology provider, the incidence of piracy in the

industry and his management philosophy during his tenure as President of BEV.

[348] Certain elements raised during his examinations warrant specific attention and

analysis.

[349] His claims to have been a strong believer in delegating authority and

responsibility to senior management. Thereafter, he simply coordinated their activities.

He described his management style in the following manner:

ExpressVu had some talented people, (…) responsible for the various franchises

within the company, people that I had worked with really since the launch of the

service. So (…)my management style with that team was to (…) give them a

mandate to do their jobs, be a reference point for them as we dealt with issues

that we were faced, and also to make sure that we (…) we were headed in the

right direction in terms of profitably growing the business.

(…)

The way we managed the company at that time was (…) we had a fairly tightly

focused senior management team. We had a standing weekly management

meeting where we would discuss (…) issues that we were being faced with. So

(…) piracy would be (…) a topic during that regular dialogue among the senior

management team. ¹⁴⁸

[350] He identified the senior management team as being composed of himself,

Gavaghan, Frank, Snazel and others. Curiously his definition of the “senior

management team”, did not include any of the members of the Technology Department

who had the requisite technological knowledge and experience, such as Casavant and

Ishankov.

[351] Considering that neither Gavaghan nor Snazel possessed the requisite technical

knowledge or experience and each of them tended to keep information they gathered to

themselves to be shared only on a “need to know basis”, the Court can only question

whether the critical information necessary to make an informed decision was

communicated to McLennen during the standing weekly management meetings. The

Court finds his testimony concerning the nature and extent of the piracy problems that

existed at the relevant times reflected a shocking lack of awareness on his part of the

seriousness of the situation and the urgency to take remedial action.

148

Transcript, November 25, 2011, pp. 18 ff.

500-17-027275-059

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[352] His explanations as to the methods used to fight piracy are clothed in generalities

with little or no references to specifics. When asked if he was kept informed as to the

effectiveness of the various ECM’s performed, he responded that this would have

occurred at the weekly senior management meetings.

[353] When asked whether the possibility of a card swap was ever discussed during

his tenure as President, he responded, quite candidly :

The concept of a card swap was certainly … you know, we were certainly aware

of it you know, again, as yet another tool to … you know, to manage piracy. A

specific, you know, card swap, though, was... I don't recall a specific

discussion around card swaps.¹⁴⁹

[Emphasis added]

[354] He was questioned in cross-examination as to the internal capital investment

approval process at BEV and BCE. Considering his financial background and

experience, and his responsibilities as President of BEV, one would think he would have

had a certain degree of knowledge and understanding of the process at the very least.

Yet, other than in broad generalities, he was unable to explain the process in place in

each of the entities.

[355] He was shown a report, dated April 4, 2000, prepared by Geoff Collins and

Murray Ho dealing with various campaigns and measures to address piracy and the

difficulties encountered¹⁵⁰. He did not recall ever seeing this report or of having any

specific discussions concerning the matters raised therein. He did not recall the

problems or piracy mentioned in the report as having been significant at the time.¹⁵¹

[356] He was shown an Internal Memorandum, dated August 24, 2000, addressed to

“Executives” by Gavaghan “…summarizing the information which came out of the August 10

cross-functional piracy group meeting.” ¹⁵²The Memorandum describes serious incidences

of piracy of the BEV system and proposes specific measures to deal with the growing

problem. McLennan’s only response upon being shown this important Memorandum

was: “I don’t recall this memo specifically” ¹⁵³

[357] He was shown and acknowledged having received an Internal Memorandum

dated October 15, 2001, addressed to him and others by Snazel ¹⁵⁴, dealing with anti-

piracy measures and, in particular, a key change on the system. Although the

Memorandum refers to some positive results, Snazel cautioned as to the bad news

regarding the reference in the internet chatter to “autoroll” now working so as to defeat

149

Ibid, pp. 27-28.

Exhibit P-91.03.

Transcript, November 25,, 2011, pp. 56-57.

Exhibit P-91.04.

Transcript, November 25, 2011, p. 58.

Exhibit P-94.01.

150

151

152

153

154

500-17-027275-059

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key changes which BEV may effect. McLennen’s response to this concern was that,

notwithstanding Snazel’s opinion at the time, he believed ECM’s were effective. Despite

this testimony, the Court has serious doubts about whether McLennen knew what

“autoroll” was at the time or how it was “…now working so as to defeat key changes” which

BEV may effect.

[358] He was shown a document, dated December 12, 2001, presented by Nagra at a

meeting held in Toronto with Snazel and others entitled “NagraTV- The new generation

Nagravision CAS products”¹⁵⁵. He did not attend this important meeting, nor does he

recall ever being informed of it or of the matters discussed in the presentations made by

Nagra.

[359] He was shown a document entitled “Countermeasure Strategy Planning

Discussion”¹⁵⁶, prepared by Casavant in early 2002 as talking points to be discussed in

a meeting with Snazel. At the last page, Casavant wrote as a conclusion:

Evaluate and start to plan for the Aladdin implementation. We need to start

evaluation of the processes required for the replacement of smart cards in

the fields.

[Emphasis added]

[360] The following shocking revelation on this critical subject ensued in an exchange

between counsel and McLennan:

(…) Now, do you recall, seeing this document, that that was a subject of

conversation, at least by early two thousand and two (2002), that there was a

need to replace smart cards in the fields?

No, I don't recall that being raised with me.¹⁵⁷

[Emphasis added]

[361] Regarding the March 2002 meeting with Nagra in Cheseaux, he claims:



He did not instruct Snazel to go to this meeting;

He does not recall him going there;

He was not aware of a document entitled “ExpressVu Aladin Budget”¹⁵⁸

prepared by Nagra and presented at the March 2002 meetings;

155

156

157

158

Exhibit P-198.02.

Exhibit D-121.

Transcript, November 25, 2011, p. 72.

Exhibit P-201.01.

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

He does not specifically recall being briefed by Snazel following his return

from the Cheseaux meeting; and

He doesn’t recall being advised by Snazel of his opinion regarding the

necessity to perform a card swap.

[362] His testimony is in this regard is contradicted by Snazel. There are two possible

explanations for this, either: (i) McLennan was so informed by Snazel of these matters

and is not telling the truth, or (ii) he is telling the truth and Snazel withheld this

information of the Cheseaux meeting from him for whatever reason he may have had at

the time.

[363] The Court finds McLennan’s testimony and apparent lack of knowledge of the

critical issues in question to be sincere and more credible. It is not conceivable that, if

he had been made aware of the important matters discussed at Cheseaux, he would

not have had any recollection of having been so informed. As an effective President,

McLennan should have been aware of these matters. Perhaps his self-described

“laissez faire” approach caused this to be. That is, however, another matter.

[364] McLennan’s testimony reinforces the Court’s belief and is but a further example

of the incoherent and dysfunctional lines of communication and coordination prevalent

during this critical time in the Technology Department.

(14) Bernard Asselin (“Asselin”)

[365] Asselin was Vice President Marketing, Québec and Senior Director of

Acquisitions of BEV for Canada from 2002 to September 2004. He was previously Vice

President Marketing for Québec only from October 2000 to 2004.

[366] Since leaving BEV, he was employed by The Gazette as Vice President – Sales

and Marketing until 2010. Thereafter, he joined Bleublancrouge, an advertising agency,

as President, head of operations and partner.

[367] He was examined in connection with BEV’s marketing and anti-piracy initiatives.

[368] Initially, he did not participate in the Management Committee. He joined the

Committee in 2002, after assuming the responsibilities of Vice President Marketing.

[369] He described BEV’s increasing penetration of the Quebec market that he

attributed to the following factors: cost, flexible packages, additional local channels in

the regions, HD service, ongoing labour disputes and vandalism at Vidéotron, PVR

superiority and its network of retail vendors throughout Québec.

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[370] He produced a series of publicity pamphlets in support of his pretentions

regarding BEV’s superior marketing and promotional campaigns¹⁵⁹.

[371] He disputed the analysis and findings contained in the Navigant Report¹⁶⁰

regarding the relative similarity of the services, equipment and packages offered by

BEV and Vidéotron.

[372] In cross examination, he was referred to an internal BEV document dated August

5, 2003 entitled “ECM Communications Plan”¹⁶¹. He was questioned regarding BEV’s

estimates of the level of piracy referred to on page 2:



…on a base of 1 .3 M subscribers, 450K are pirating signals

300K of these are "hybrid" customers, paying for minimum service and

pirating the rest; Remaining 150K are black market users (…)

[373] Asselin was unable to or refused to confirm or comment on anything referred to

in this document. He claimed total ignorance of its content. In this instance, as in the

case of references to over ten other matters or documents of importance which, one

would have assumed, would have been within his area of knowledge and responsibility,

his response was consistently: “… c’est pas ma job, puis je suis pas impliqué…”

[374] In is worthy of note that in the case of the “ECM Communications Plan”, he was

listed as one of two spokespersons for the Initial Announcement. The other being Tim

McGee, then President of BEV. When questioned on this anomaly, he claims he was

added as spokesperson for Québec because McGee does not speak French. He

claims:

... j'étais le mouthpiece, là, j'étais juste le porte-parole...

(…)

R- ... le porte-parole de... par exemple, je vois ça, je vois mon nom ici, là. Alors,

porte-parole de ce qui était ECM. Maintenant, le contenu et qu'est-ce que j'ai

dit, j'en ai aucune idée.¹⁶²

[Emphasis added]

[375] Questioned concerning the contents of other documents with which he appeared

to have an implication, he repeated his response that he was only “le mouthpiece”.

159

Exhibit D-165 (en liasse).

P-363-A.

Exhibit D-91.

Transcript, November 29, 2011, p. 83.

160

161

162

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(15) Chris Frank (“Frank”)

[376] Frank was Vice President of Programming of BEV from 2005 to January 2011,

when he retired. He was previously Vice President of Regulatory and Government

Affairs from 1995 to 2005 and as well, during that period, Vice President of

Programming from March 2001 to June 2003.

[377] He represented BEV before the CRTC during the months preceding the launch

of its service and thereafter. He was responsible for the negotiation of affiliation

agreements with the various rights owners, including with TVA for the rights to the LCN

channel.

[378] He was examined in particular regarding the preparation and exchange of

various drafts of a proposed affiliation agreement between BEV and TVA regarding the

LCN channel and the extensive correspondence in connection therewith¹⁶³. Except for

their agreement as to the amount of royalties payable by BEV to TVA, the parties failed

to arrive at a formal written agreement addressing other matters normally found in such

agreements.

[379] TVA contends that, notwithstanding the absence of a signed written agreement,

the parties are nonetheless presumed to be bound by an unwritten agreement

embodying the provisions customarily found in affiliation agreements of this nature. BEV

disputes TVA’s contentions.

[380] Frank was examined at length concerning the various complaints made by

Vidéotron regarding BEV’s alleged tolerance of account stacking by its subscribers. He

identified a series of correspondence between the parties and with the CRTC, all to no

avail¹⁶⁴. The dispute is one of the issues now raised for determination in one or more of

the Related Actions.

[381] On October 11, 2002, in a letter addressed to all the major Broadcasting

Distribution Undertakings (“BDU”) by the CRTC, they were asked to detail the steps

that they have taken to address signal piracy.¹⁶⁵

[382] As requested, Frank responded in a letter addressed to the CRTC dated October

25, 2002.¹⁶⁶He provided an historical overview of the problem and the magnitude

thereof. He then proceeded to describe BEV‘s anti-piracy initiatives including the

163

See inter alia Exhibits P-300, P-22, P-316, D-51, P-19, P-316, P-23, P-297,, P-25, P-298, D-56, D-57,

D-59, D-58, D-60 & D-61.

See inter alia Exhibits P-291, P-292, P-293, D-50, D-182, P-26, P-295, D-53, P-296 & P-30.

Exhibit P-111.

Exhibit P-112.

164

165

166

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consolidation of it anti-piracy activities under a new Director of Counter Piracy, whose

sole responsibility was the co-ordination of BEV‘s various efforts in this area.

[383] Frank acknowledged that his response was based on discussions held with

Snazel, Gavaghan, Casavant and others in the Technology Department.

[384] On October 28, 2002, he Canadian Cable Television Association (the “CCTA”)

requested that the CRTC hold a public hearing, on an urgent basis, to investigate the

theft of BEV’s signal by pirates.

[385] The CCTA argued that it was in the public interest to undertake such an

investigation. It complained:

This situation causes material and growing harm, and is extremely unfair to all

stakeholders in the Canadian broadcasting system, including bona fide paying

customers of all licensed Canadian distribution undertakings, competing

distributors Canadian programming services and Canadian program rights

holders. If left unchecked, the penetration of compromised Bell ExpressVu

decoder equipment and related components being used to receive

programming services without the requisite payment could cause serious

and irreparable harm to the entire Canadian broadcasting system.

[Emphasis added]

[386] Frank responded to the CCTA complaint in a letter dated November 8, 2002¹⁶⁷.

He took issue with the “single minded focus of the CCTA with respect to Bell ExpressVu” and

argued, as had the CRTC, that “unlawful reception remains a serious problem for both

satellite and cable”. He contended this problem was an industry wide problem, not one

restricted to BEV.

[387] He identified a series of reports made by him and other senior BEV officers to the

CRTC and various responses received in the context of the ongoing CRTC Industry

Consultation on Signal Theft¹⁶⁸.

[388] Regarding the NFL Sunday Ticket Sunday Ticket programming rights, he

identified a letter July 21, 1999, addressed by him to Tola Murphy-Baron and the

Technical Attachment prepared by Snazel. As he was not an engineer he thought that

the attachment from Snazel regarding the security of the existing BEV CAS would have

greater credibility.

[389] He described the process leading to the administrative extensions and ultimate

renewal by the CRTC of BEV‘s DTH Broadcasting Licence.

167

Exhibit D-45.

168

See, inter alia, P-117, D-35, P-5, P-118, P-119, D-38, D-39, D-41, D-46, P-124, D-47 & D-49.

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[390] Concerning Vidéotron’s allegations regarding BEV‘s misleading representations

to the CRTC, Frank testified¹⁶⁹:

In all honesty, it would be totally counterproductive and it's counter-intuitive for a

company like Bell ExpressVu, which is an affiliate of a company like Bell Canada

whose many, many arms of business are regulated by the CRTC, with tens...

hundreds of millions of dollars of revenue at stake, to sully its relationship with

the Commission by misleading it in one particular area.

(…)

I don't know of any evidence that we filed with the Commission that was

misleading.

[391] In cross examination, he confirmed candidly that within BEV, information relating

to the whole area of security and piracy was compartmentalized and was available on a

“need to know basis” exclusively. What is surprising, however, is the fact confirmed by

him, that although he was Vice President of Regulatory and Government Affairs

charged with keeping the CRTC informed as required, he was unfortunately not one of

those on the “need to know” list.

[392] Frank “does not recall” ever having seen the January 13, 2003 Report on

Counterpiracy¹⁷⁰. It defies all logic and credibility that he would have been kept in the

dark as to the findings and recommendations of this critical analysis, especially in light

of his professed openness and transparency in reporting on this issue to the CRTC.

[393] He acknowledged that he never saw an evaluation made by BEV of the degree

of piracy of its service, nor did he ever see any evaluation by BEV as to the rate of

increase of the piracy of its services.

[394] He innocently believed that rate of piracy of BEV‘s signal was within industry

norms. Yet, when shown internal reports¹⁷¹that disclosed a rate of piracy substantially

higher than the 3 to 6% industry norm he considered reasonable, he refused to

acknowledge his mistake and he grudgingly admitted that the rate might have been only

“somewhat higher”.

[395] Frank testified that in the preparation of his various reports and letters addressed

to the CRTC he worked in a “collegial manner” with those responsible and

knowledgeable such as Snazel, Gavaghan, Casavant, Ishankov and others. Before

releasing these reports and letters, those responsible for the relevant information

“signed off” on the information emanating from their particular department or area of

responsibility.

169

Transcript, December 1, 2011, pp. 40-41.

Exhibit P-106.

See by way of example, Exhibit P-107.4.

170

171

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[396] In a letter, dated February 28, 2003 addressed by Frank to the CRTC¹⁷², in

response to questions and comments received on February 21 from the Canadian

Cable Television Association (“CCTA”), Vidéotron and Star Choice, Frank appears to

admit that no decision had yet been made, with respect to BEV‘s future technology

upgrades, and in particular the swap out to the new Aadin system. He wrote:

Some propose that ExpressVu replace its CAS and all existing smart cards.

ExpressVu notes that such technology upgrades are necessary from time to

time, not only to combat piracy, but to enable the receivers to interact with new

software that enables introduction of new features and services. The question

arises whether technology conversions should be applied on a going forward

basis, or to apply it to the existing base. The importance and number of design,

firmware, and software changes for each generation of technology in the field

must be considered, because card swaps are intrusive for consumers. Another

consideration would be the effectiveness of current anti-theft measures relative to

the degree to which a new CAS can combat piracy. Finally, the new card and

CAS must be designed to assist the company to better meet the desires of its

legitimate subscribers for new services and features Hence, all the elements

must be [to be] carefully considered to optimize the benefits. ExpressVu

continues to work with Nagravision to assess potential CAS upgrades that

will meet its requirements, and will implement a card replacement program

if, as and when appropriate.

[Emphasis added]

[397] In a document, dated August 19, 2003, entitled “Status of Bell ExpressVu Anti-

Piracy Actions, prepared by Frank for Michael Sabia and Tim McGee in anticipation of

their meeting with the CRTC and other broadcasting CEO’s, he described, at pages 7

and 8, the proposed phases of transition to the new Aladin CAS. He noted, with respect

to the third and final phase, Phase 3:

If Phase 3 is undertaken and when complete, all existing STB’s will have had

their cards exchanged for new Aladin cards and the first CAS will be shut down,

rendering old cards useless.

[Emphasis added]

(16) Timothy McGee (“McGee”)

[398] McGee was President of BEV from May 2002 to October 2004. He was

previously Chief Legal Officer of Bell Canada from 2000 to 2002.

[399] Since leaving BEV he has been employed as C.E.O. of the Law Society of British

Columbia.

172

Exhibit P-5.

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[400] McGee was examined in connection with the following subject matters:



Management of BEV;

Assessment of Piracy;

Signal piracy problems - strategy;

Anti-piracy initiatives and Anti-piracy Task Force;

New CAS – Aladin;

CRTC relations;

Project Liberty and

Fair Warning Letters preceding ECM’s.

[401] Among the subject matters mentioned above, certain elements raised during his

examinations warrant specific attention and analysis.

[402] He described his management philosophy as one based on creating “…a strong

team of direct reports.”

[403] He was referred to a “Briefing Note” dated July 8, 2002, apparently prepared by

Gavaghan to provide a background explanation to theft of BEV services using pirate

devices. Based upon random samples, Gavaghan estimated approximately 45% of

basic level subscribers were using illegal devices to steal additional programming

(“hybrid pirates”) and, in addition to the 45% hybrid pirates approximately 5% of total

subscribers were stealing BEV services outright without any subscription (“pure or black

pirates”).

[404] Based upon this information and other discussions and analyses, McGee

acknowledged it was clear to him at the time that ultimately BEV would require a full

swap out of its CAS.

[405] He was shown and identified a document dated October 2002 entitled “Technical

Options to Combat Piracy in Canada”¹⁷³. Although the document bears his name on the

front page, he claims it was prepared by Snazel and McGraw and presented to him for

his consideration and approval. He favoured option # 1, referred to on page 11, being

the introduction of the new Nagra system (Aladin).

173

Exhibit P-101.

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[406] He acknowledges having seen the Fraudulent Activity Reports prepared for the

months of July through October 2002¹⁷⁴. The reports revealed a fast growing level of

serious piracy.

[407] Although McGee had only assumed the role of President of BEV in May 2002

and had no previous technical training or experience in the area, he was quite

dismissive about the importance or value of these reports prepared by the very people

who he referred to as members of his “strong team”. In his opinion:

The report struck me as moderately helpful. And the reason why I say

moderately helpful to the assessment of the problem and something that could

help us in our decision-making about the fix, the reason why it was moderate is

these were, as they say, largely guesses based upon assumptions, and that is

the language of the reports, at least the September one we're looking at.

So it struck me that those, while somewhat interesting, were not essential to the

decision-making that I viewed was necessary in order to get a fix to this problem,

which was what I was committed to. So I didn't ignore them, but the numbers

were... the numbers contained in the reports and the methodology to get it was of

moderate interest to me.

[408] He constituted the Counter-Piracy Task Force in October 2002 headed by

Casavant. As previously mentioned, the Court has some concerns about the objective

and purpose of creating the Task Force. These concerns were discussed in the analysis

of the testimony of Casavant and will be addressed in greater detail further on in this

judgment.

[409] He testified as to his main purpose in creating the Task Force:

My goals were (…) to have an outcome which was a report which provided the

best possible assessment of the scope of the piracy issue and its nature, but

perhaps more importantly to make recommendations as to all aspects of how it

could be dealt with.

(…)

[T]he two (2) main reasons why I wanted that task force... I wanted a task force

to come up with that outcome, (…)My sense was that the counter-piracy

efforts were largely concentrated in the Technology group and that the

solutions, the main solution which was a full swap, a new access system

was well known and that that was the direction that we were headed.

(…)

What was missing from my perspective, and I viewed that as my job as CEO,

was to understand all the other elements of this. So, for example, the point of

174

Exhibit P-100 (en liasse).

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PAGE : 87

sale impact of piracy and whether that was contributing to the problem. How

public awareness fit into this and whether we were doing enough in that area.

What was our approach to our inventory control. We had other partners that

really had nothing to do with the Technology group that were still vital to this

issue.¹⁷⁵

[Emphasis added]

[410] McGee’s declared purpose in constituting the Task Force is inconsistent with and

is in clear contradiction with the stated purpose mentioned on the cover page of the

Report on Counter-Piracy¹⁷⁶(the “Report”), (“Prepared for and submitted to the Legal

Department by the Counter-Piracy Task Force in contemplation of potential litigation”).

Moreover, it is totally inconsistent with the stated purpose described at page 3 of the

Report, reproduced at length herein in the analysis of the evidence of Casavant.

[411] The Court notes with interest, that Mtre. Alexander J. Du, in-house legal counsel

to BCE, was one of the members appointed to the Task Force. This, perhaps, explains

and adds credibility to the legitimacy of the purpose stated in the Report rather than that

espoused by McGee.

[412] The Court retains as more credible, the stated purpose for constituting the Task

Force described in the Report, that is, “in contemplation of potential litigation” from Cogeco

Cable Inc. and/or Quebecor Media Inc.

[413] Questioned as to his reasons for naming Casavant to chair the Task Force rather

than Snazel, he responded that Snazel was: “… the Chief Technology officer with

responsibility for all aspects of the technology platform and its delivery…service delivery, which

was a big job. And he had to manage a large group…”¹⁷⁷

[414] While the reason given may be credible as to why Snazel was not named to

chair the Task Force, the Court finds it curious why those senior officers most closely

involved and knowledgeable of the on-going efforts to combat piracy, Snazel, Gavaghan

and Ishankov, were not at least named as members. Gavaghan testified he did not

participate at all in the Task Force; Ishankov, although consulted on occasion, was not

made aware of the findings and recommendations contained in the Report; and Frank,

BEV’s liaison with the CRTC, did not recall ever having seen the Report.

[415] Other than to explain the choice of Casavant to chair the Task Force and aside

from generalities as to the composition its members, no particular explanation is given

as to the reasons for appointment of its other members.

[416] McGee was rather lukewarm in his acceptance of the findings and

recommendations of the Report. He chose to disregard or dismiss its findings regarding

175

Transcript, December 6, 2011, pp. 54-55.

Exhibit P-106.

Ibid, p. 57.

176

177

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the rate of piracy. He claims his focus was not on the number of pirates. Rather, he

asserted with a certain degree of bravado, that in his mind: “any piracy” was

objectionable.

[417] He did not a send copy of the Report to the CRTC because “…we did not view

[that this] was information that was reliable or precise enough for […] public consumption or use

with the CRTC.¹⁷⁸”

[418] Similarly, the Report was not circulated among the BEV staff except : “…the parts

of the report that needed to be followed up with staff and with the people at ExpressVu, all of

that was shared, those pieces were shared with the relevant people on the implementation

179

team.”

He does not identify those persons. It would appear, however, from the

testimony of Ishankov and Frank that they were not one of those “relevant people”.

[419] Regarding the dissemination of the Report, or the limited nature thereof, see the

analysis of the evidence on the subject by Dr. Ferguson contained at pages 65-66 in her

Expert Report dated March 2010, extracts of which are reproduced further on in this

judgment.

[420] McGee was referred to a written presentation made by him to the BCE Board

dated September 24, 2003¹⁸⁰and, in particular, to the fact that it underlined the total

number of pirates (“Black Market” plus “Hybrid”) estimated to be stealing BEV’s services

was 450,000. Questioned on these numbers, he dismisses them as being estimates of

the “worst case scenario”. He gives them little credibility. It must be noted, however, that

no such qualification is to be found in the written presentation.

[421] In cross-examination, he was referred to a series of critical documents, which he

claims to have never seen or of which he was never made aware. These include:

. “Countermeasure Strategy Planning Discussion”¹⁸¹a talking points memorandum

prepared in early 2002 by Casavant for discussion purposes with Snazel. She

concludes with the following comment: “Evaluate and start to prepare for the Aladin

implementation. We need to start evaluation of the process required for replacement of

smart cards in the fields.”;

. “Bell ExpressVu Aladin - Budget” dated March 2002¹⁸²presented to Snazel and

Casavant at the Cheseaux meeting. He claims he was not briefed on this matter

when he arrived in May 2002. Nor was he aware of the December 2001

presentation made by Nagra to BEV in Toronto;

178

Transcript, December 6, 2011, p. 122.

Ibid, p. 122.

179

180

Exhibit P-108.

181

Exhibit D-121.

Exhibit P-201.1.

182

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. “Bell ExpressVu Aladin - Budget” dated June 2002,¹⁸³containing a pricing

summary for the years 2002 and 2003 of US$ 3,789,000 (received after

assuming his functions as President in May 2002); he does not recall having

been made aware of this Budget involving a substantial capital expenditure on

the part of BEV; and

. “Memorandum” dated December 9, 2002¹⁸⁴addressed by Snazel to “Executives

– Bell ExpressVU, and others concerning the “Status of Aladin Conditional

Access Transition”. The Memorandum states: “Currently, Phase III of the project is

going through a technical validation and budget approval process, with a target of

an early 2003 go-ahead.”

[Emphasis added]

[422] He did, however, identify and acknowledge having seen a document, dated July

23, 2002, entitled “Project Aladin Preliminary Outline of Business Case”¹⁸⁵and recalls

the recommendation contained therein on page 18 thereof: “Based on current estimate of

signal theft do not proceed with card swap out program”. He claims that, at the time he

received this recommendation, financial considerations were not that important to him.

[423] He was questioned as to the functions of the BCE Investment Management

Council (“IMC”) and the process followed by BEV to obtain approval for major capital

expenditures such as the ones required for the Aladin CAS swap out. Counsel

suggested to him that, in October 2003 and subsequent thereto, the IMC refused to

grant financial approval of the project. He refuses to accept that assertion. In a

convoluted and incomprehensible explanation as to the inner workings of the IMC, he

attempted, unsuccessfully, to convince the Court that the full swap out to the Aladin

project had indeed been approved at that time notwithstanding the clear October 2003

refusal.

[424] He was referred to a document entitled “Aladin Conditional Access System

Platform Security Implementation Plan”¹⁸⁶drafted on or about April 20, 2004¹⁸⁷by

Casavant and others. Among the objectives noted was to: “Gain Executive Approval for

funding to proceed with program by April 22 to prevent schedule slippage.”

[Emphasis added]

[425] Despite what appears to have been a clear indication that as of April 20, 2004,

BEV had NOT obtained executive approval to proceed with the full Aladin project,

McGee was still adamant that the requisite approval had in fact been obtained.

183

Exhibit P-200.1.

Exhibit D-176.

184

185

Exhibit P-200.2.

186

Exhibit P-220.

Exhibit P-220, Undertaking # JC-60.

187

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IX. EXPERT Evidence– JURISPRUDENTIAL PRINCIPLES

A.

DUTIES AND RESPONSIBILITIES OF EXPERT WITNESSES

[426] The duties and responsibilities of expert witnesses were discussed at length by

Cresswell, J. in the 1993 seminal and frequently cited¹⁸⁸U.K. Queen’s Bench Division

(Commercial Division) judgment in National Justice Compania Naviera S.A. v.

Prudential Assurance Co. Ltd. (“The Ikarian Reefer”)¹⁸⁹.

The duties and responsibilities of expert witnesses in civil cases include the

following:

1.

2.

Expert evidence presented to the Court should be, and should be seen to

be, the independent product of the expert uninfluenced as to form or

content by the exigencies of litigation (Whitehouse v. Jordan, [1981] 1

W.L.R. 246 at p. 256, per Lord Wilberforce).

An expert witness should provide independent assistance to the Court by

way of objective unbiased opinion in relation to matters within his

expertise (see Polivitte Ltd. v. Commercial Union Assurance Co. Plc.,

[1987] 1 Lloyd’s Rep. 379 at p. 386 per Mr. Justice Garland and Re J,

[1990] F.C.R. 193 per Mr. Justice Cazalet). An expert witness in the High

Court should never assume the role of an advocate.

3.

An expert witness should state the facts or assumption upon which his

opinion is based. He should not omit to consider material facts which

could detract from his concluded opinion (Re J sup.).

4.

An expert witness should make it clear when a particular question or

issue falls outside his expertise.

5.

If an expert’s opinion is not properly researched because he considers

that insufficient data is available, then this must be stated with an

indication that the opinion is no more than a provisional one (Re J sup.).

In cases where an expert witness who has prepared a report could not

assert that the report contained the truth, the whole truth and nothing but

the truth without some qualification, that qualification should be stated in

the report (Derby & Co. Ltd. and Others v. Weldon and Others, The

Times, Nov. 9, 1990 per Lord Justice Staughton).

6.

If, after exchange of reports, an expert witness changes his view on a

material matter having read the other side’s expert’s report or for any

other reason, such change of view should be communicated (through

188

189

See, inter alia,: Widdrington (Estate of) v. Wightman, 2001 QCCS 1788 (appeal

pending)(“Widdrington”); Comptables agrees (Ordre professionnel des) v. Blouin AZ-50775157,

par. 111.

[1993] 2 Lloyd’s Rep. 68 at pp. 81-82.

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legal representatives) to the other side without delay and when

appropriate to the Court.

7.

Where expert evidence refers to photographs, plans, calculations,

analyses, measurements, survey reports or other similar documents,

these must be provided to the opposite party at the same time as the

exchange of reports (see 15.5 of the Guide to Commercial Court

Practice).

[427] In a Discussion Paper of the Federal Court’s Rules Committee on Expert

Witnesses entitled “Expert Witness in the Federal Courts”¹⁹⁰, referring with approval to

the analysis of Cresswell J. in the Ikarian Reefer, the Committee wrote at page 1:

Background

The role of the expert witness is to assist the court through the provision of an

independent and unbiased opinion about matters coming within the expertise of

the witness. This duty is paramount. It overrides the obligations of the witness to

the party on whose behalf he or she is called to testify. The evidence of an expert

witness should be the independent product of the expert and should not be

unduly influenced, in either form or content, by the exigencies of litigation.

[428] Since, to a greater or lesser extent, most, if not all of the expert witnesses heard

on behalf of each of the parties could not resist addressing and opining on one or more

of the “ultimate issues” (“la question factuelle finale”) raised for determination in this and

the Related Actions, a brief overview of the applicable principles on the subject is

appropriate.

[429] Although, in the past, the admissibility of an expert report or expert evidence that

purports to address the ultimate issue has been the subject of some controversy, it is

now generally accepted that both ordinary witnesses as well as expert witnesses may

express opinions on the “ultimate issue” without thereby becoming disqualified¹⁹¹.

[430] In R. v. Burns¹⁹², McLachlin J. (as she then was), cautions, however:

The respondent does not argue that psychiatric evidence bearing on a witness'

behaviour is for that reason inadmissible. His objection is that "the opinion of Dr.

Maddess went to the very root of the issue before the learned trial judge" and

that "allowing that opinion usurped the function of the trial judge": the so-called

"ultimate issue rule". However, the jurisprudence does not support such a strict

190

http://www.fca-caf.gc.ca/bulletins/notices/ExpertWitness_Discussion_en.pdf.

191

See in this regard: J. Sopinka, S.N. Lederman & A.W. Bryant, The Law of Evidence in Canada,

Second Edition, (Toronto: Butterworths, 1999) at pp. 634-635; Phipson on Evidence, Sixteenth

Edition, (London: Maxwell & Sweet, 2005) at pp. 973-975; Droit de la famille – 1618, J.E. 94-176

(C.A.) at p. 6; and Chambly Toyota Inc. v. Carignan (Ville de), J.E. 97-1876 at pp.8-9 and Jean-

Claude Royer, La Preuve Civile 3e edition, (Montreal, Éditions Yvon Blais, 2003), p. 305 and Donald

Béchard, Ad.E., L’Expert (Cowansville, Québec: Éditions Yvon Blais, 2011) pp. 219-224.

192

[1994] 1 S.C.R. 656 at 666.

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application of this rule. While care must be taken to ensure that the judge or

jury, and not the expert, makes the final decisions on all issues in the case,

it has long been accepted that expert evidence on matters of fact should

not be excluded simply because it suggests answers to issues which are at

the core of the dispute before the court: Graat v. The Queen, [1982] 2 S.C.R.

819. See also Khan v. College of Physicians and Surgeons of Ontario (1992), 9

O.R. (3d) 641 (C.A.), at p. 666 (per Doherty J.A).

[Emphasis added]

B.

ASSESSMENT OF CREDIBILITY, RELIABILITY AND PROBATIVE VALUE OF EXPERT

EVIDENCE

[431] As a general principle, the credibility, reliability and probative value of expert

evidence is assessed in the same manner as is that of ordinary witnesses.¹⁹³

[432] In his text L’Expert¹⁹⁴, Béchard identifies, with appropriate authoritative

references, certain fundamental questions to be addressed in assessing the probative

value of expert evidence. Among the questions enumerated by him, the following find

particular application to the experts heard in the present and the Related Actions:

17. Questions fondamentales concernant la force probante :

(…)

2.

Au-delà de la qualification initiale de l’expert, quelle est la

qualification réelle de l’expert par rapport au point en litige?

3.

Quelles sont les qualifications de l’expert? A-t-il une expérience

pratique suffisante au-delà de ses qualifications académiques?

4.

Quelle est l’approche de l’expert face aux théories apportées par

les autres experts? Y apporte-t-il des éléments?

5.

Le travail de l’expert est-il sérieux et peut-on suivre son

cheminement? (2842-1733 Québec inc. c. Allstate du Canada, cie

d’assurances, [1998] R.R.A. 596, REJB 1998-04516 (C.S.)).

6.

L’expert a-t-il fait preuve d’objectivité? (2842-1733 Québec inc. c.

Allstate du Canada, cie d’assurances, [1998] R.R.A. 596, REJB 1998-

04516 (C.S.); Caisse populaire Desjardins de Drummondville c. Lévesque,

B.E. 2001BE-344 (C.S.)).

193

194

Chubb du Canada, cie d’assurances v. Construction Guillemette et Beaulac inc., REJB 1997-03029

(C.S.) Rolland J., paras. 60-62; Kansa General Insurance Co. et al. v. Quincaillerie Roger Lambert

ltée, [1994] RR.A. 881, 883 (C.S.), Hébert J.

Béchard, Supra note 193 at p. 660.

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(…)

10.

L’expertise est-elle contredite? (Simard c. Soucy. [1972] C.A. 640,

645).

11.

L’expertise et le témoignage sont-ils basés sur des faits plutôt que

sur des généralités? (2842-1733 Québec inc. c. Allstate du Canada, cie

d’assurances, [1998] R.R.A. 596, REJB 1998-04516 (C.S.)).

(...)

14.

Existe-t-il une preuve de faits positifs par rapport à la preuve

scientifique théorique? (General Accident Insurance Co. c. Cie de

chauffage Gaz Naturel, [1978] C.S. 1160).

(…)

17.

L’expert avait-il en sa possession tous les documents nécessaires

à son expertise? (Bélanger c. Robert (29 juillet 1993), C.S. Québec, n^o

200-05-000966-908, j. St-Julien).

18.

L’expert a-t-il manifesté un parti pris démesuré? (M. (D.) c. B. (D.),

REJB 1999-11836 (C.S.); Fortin c. Compagnie d’assurances Wellington,

B.E. 2000BE-416 (C.S.)).

(…)

[433] Moreover, and in addition to the foregoing, Béchard identifies, with appropriate

authoritative references, certain restrictive notions applicable in assessing probative

value¹⁹⁵. They include:



L’expert a l’obligation d’être neutre et objectif :¹⁹⁶

Le juge n’est pas lié par les témoignages d’experts, et n’est pas tenu de justifier

pourquoi il retient un élément plutôt que l’autre, surtout lorsqu’il est en présence

d’une preuve d’expertise contradictoire :¹⁹⁷



Les avis d’experts scientifiques exprimés sous forme de probabilités statistiques

ou d’échantillonnages ne lient pas le juge. Les conclusions scientifiques ne sont

pas identiques aux conclusions juridiques :¹⁹⁸

195

196

Ibid.

Bardiaux v. Leduc, 2009 QCCS 2194, Richer J., paras. 46-47; Audet v. Landry, 2009 QCCS 3312,

Hardy-Lemieux J., paras. 61-64, 93.

197

Entreprises d’électricité Rial inc v. Lumen, division de Sonepar Canada inc., 2010 QCCA 655,

Dalphond, Dufresne & Kasirer JCA, para. 28; Rouillard v. St-Martin, 2009 QCCA 2321, Dufresne,

Léger & Rochon JCA, para. 7.

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

La valeur probante de l’opinion d’un expert se mesure d’abord en fonction des

faits prouvés :¹⁹⁹

[434] The Court will assess the probative and determinative value of the evidence

adduced by each of the experts heard in light of one or more of the foregoing criteria.

X.

ANALYSIS OF THE EVIDENCE - EXPERT WITNESSES

A.

SECURITY & AVAILABLE MEASURES TO PREVENT OR LIMIT SATELLITE SIGNAL PIRACY

AND ENSUING DAMAGES

VIDÉOTRON & TVA

[435] Three expert witnesses testified on behalf of Vidéotron and TVA on the issues of

technology raised for determination in this and the Related Actions: Dr. John K. Markey

(“Markey”), James Shelton (“Shelton”) and Dr. Theresa L. Ferguson (“Ferguson”).

(1)

Markey

[436] Markey was qualified by the Court as an expert in engineering, security of

contents, technology and operations in the fields of digital media and

telecommunications. His Expert Report, dated March 2010, was produced as Exhibit P-

350 (the “Markey Report”).

[437] He has extensive academic and relevant industry experience in the areas for

which he was qualified as an expert. He received a PhD in Quantum Physics from the

California Institute of Technology and has done post-doctoral studies in Cryptography

Theory and Practice at the University of California and in the Executive Program at the

Harvard Business School. He has approximately 18 years of employment experience in

the areas for which he was qualified. His skills and experience, employment history and

education background are detailed in a Curriculum Vitae, annexed to the Markey

Report.

[438] Markey described his mandate in the following manner:

Briefly summarize and compare, from a technical point of view, two leading

digital satellite TV systems, namely, DIRECTV in the United States, and BEV in

Canada;

Analyze and outline the key technical security features that would explain how

these two companies faired in preventing compromises to their conditional

access security systems, as well as differences in their responses to signal theft;

198

Leduc v. Têtu, 2010 QCCS 623, Parent J., paras. 12-16.

Dicaire v. Chambly (Ville de), 2008 QCCA 54, Gendreau, Rochon & Robert JCA, para. 38.

199

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…[P]rovide my technical opinion as to why DIRECTV was able to overcome the

security threat of piracy on its system many years sooner than BEV, although

both systems serve television households in their respective North American

markets with technology based on similar, but not identical, direct broadcast

satellite technology.²⁰⁰

[439] Markey provided an explanation of the fundamentals of digital satellite television

and of the security and technology of DBS systems. To the extent that the explanations

and descriptions on this subject are consistent one with the other, Markey’s analysis,

along with that of other experts heard on behalf of the parties, is referred to previously in

Section III.

[440] Markey described five major differences between the DIRECTV and BEV

security systems. He concluded in all five instances that, because of differences in the

structure and technology used, the BEV system was far more vulnerable to

unauthorized signal theft by hackers.²⁰¹

[441] He then compared the experiences and differences in technology and

operational responses to signal theft by the two companies. Referring to the DIRECTV

experience and reactions to signal theft, he concluded [the numbering of all internal

footnotes in the following extracts has been modified to track the sequencing of

footnotes followed in this judgment]:

Among those requirements which differentiated DIRECTV from BEV, and in my

opinion, led to the more successful security system of DIRECTV, are:



Reliance on proprietary aspects of the system when possible, such as the

digital data stream packet format and programming data packet payload

encryption methods.



Having a direct, contractual relationship with the set-top box

manufacturers and conditional access technology supplier. In addition, it

was important to maintain a separation of the relationships of the supplier

of set-top boxes from the supplier of the security technology.²⁰²



A yearly budget allocation for frequent ECM testing and implementation,

and dedicated in-house resources for signal theft prevention and

response (engineering staff, field resources to acquire signal theft

devices, laboratory facilities for testing and operational integration of ECM

deployments).

Planned and budgeted smart card replacements were part of the

contractual arrangements with NDS, and were to be completed at least

200

201

202

Markey Report, p. 4.

Ibid, pp. 6-15.

Thomson-RCA, Sony, Hughes Electronics were the initial manufacturers for STBs; NDS provided the

conditional access technology and system for security protection.

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once every twenty-four months.²⁰³The budget allocations included

staffing and other resources required to support efficient smart card

replacements.



Complete control and access to the technology implemented by all

suppliers of the entire system.

The first two bullets above resulted in creating important barriers to signal theft

on the DIRECTV system; that is, unlike the BEV situation, FTA receivers were

never supported by DSS, and accordingly, have never been able to access

content delivered by DIRECTV. (…)

The points listed in the next two bullets above, gave DIRECTV the advantage in

the fight against signal theft by putting in place the human and material resources

needed to quickly and aggressively address attacks on its conditional access

system. ²⁰⁴

[442] Markey then compared the incidents of signal theft at BEV with that of DIRECTV

and the electronic countermeasures (“ECM’s”) deployed by each of them to combat

this problem. He noted that in the year following BEV’s launch of its Nagra CAS in 1997,

EchoStar (a.k.a. “Dish Network”) operating a similar Nagra CAS, confirmed evidence

of the compromise of its system in the United States.

[443] He noted that it was only in 2001, while monitoring chat room activities on the

web, that BEV confirmed evidence of the compromise of its system. This evidence was

noted by Gavaghan in an internal confidential Memorandum dated October 31, 2001.²⁰⁵

By this time EchoStar had already begun deploying ECM’s in the United States to

address this problem.

[444] He noted that, in the year following becoming aware of the compromise of its

system, BEV response was limited to “…conduct[ing] studies from October 2001 to October

2002, to understand the extent of signal theft.”²⁰⁶BEV only launched its first ECM on January

24, 2002²⁰⁷and followed up thereafter with other ECM’s on a more frequent basis. However,

according to Markey, BEV’s response was “…much less aggressively than what was performed

for EchoStar in the United States.”

203

The initial contract called for smart cards to be replaced at least once every two years. As piracy

became better understood, the timing of the replacement of smart cards was dictated more by the

development of the methods to defeat the evolving sophistication of piracy technology. The point here

is that very early on, the contractual arrangement with the smart card supplier recognized that piracy

was a fact of life, and that planning for the replacement of smart cards was the most effective method

for defeating piracy.

Markey Report, pp. 18-19.

Exhibit P-95.

Markey Report, p. 24.

Exhibit P-156 (ENG-CF # 115).

204

205

206

207

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[445] In the years 2002-2003, BEV was unsuccessful in stopping the ongoing attacks

on its security system notwithstanding the additional ECM’s deployed by it.

[446] He made particular reference to one of the long term recommendations of the

January 13, 2003 task force Report on Counter Piracy²⁰⁸; that BEV “…implement a new

conditional access system in 2003 that would involve a complete swap out of existing smart

cards. This swap out should be completed by 2003.”

[447] Markey compared the behavior of BEV with his own personal experiences at DIRECTV

in planning the prevention of signal theft. He concluded:

[A]t DIRECTV, piracy was a fight taken extremely seriously from the chief

executive officer at the top of the organization all the way down to the lowly

customer service agent. Such sentiments are evident by the history of

investments, measures taken and resulting success that DIRECTV had in its fight

against signal theft. I did not discern such seriousness at any level at BEV.

To summarize, several critical decisions were taken by BEV executives which

ultimately determined the low probability of success to fight signal theft of the

BEV service:



Lack of experience of the management in digital satellite broadcast

television, and failure to consider the importance of planning for the

fight against signal theft, including timely preparations for system

upgrades and smart card replacements. Even after BEV learned at the

latest in August 1999 ²⁰⁹, if not sooner, that the Nagravision system had

been compromised in the Dish Network system in the United States, no

planning or resources were allocated to prevent piracy on its own system.

[…]



The choice to select EchoStar as the system integrator, even at a

time when it was known or should have been known to BEV that

signal theft was prevalent in the North American satellite market,

was not in and of itself imprudent. After all, at that time, signal theft

existed in the DIRECTV system as well. What was negligent, however,

were the decisions not to include in the contractual arrangement, strict

provisions regarding investments and actions which should be taken in

the event that BEV’s system became compromised. […]

[…]

Contrary to the recommendations in Ms. Casavant’s Signal Piracy

Report,²¹⁰BEV did not implement a new card system by 2003. The decision

to upgrade to the Nagra II conditional access system and Aladin smart card,

208

209

210

Exhibit P-106, p. 7.

See the Report from James N. Shelton to BEV (UTM-4), Exhibit P-91.

Exhibit P-106 (JC-1), Report entitled, “Report on Counter-Piracy.”

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displayed a complete lack of awareness with the problems associated with

EchoStar’s recommended CA technology upgrades. Had appropriate in-house

technical expertise existed as well as a willingness to seriously vet the

conditional access recommendations made by EchoStar, BEV’s continuing

attacks from signal pirates would have been significantly minimized if not

altogether eliminated.

In my opinion, BEV acted negligently in the management and operation

of its system in an environment where it was known that piracy was or would

become a major issue. This negligence and the incompetence of the BEV

management team led to significant piracy of its system. Such piracy could

have been prevented or at least considerably reduced had the BEV management

team acted with the skills and competence one would expect of a prudent and

diligent company operating in the DBS sector.²¹¹

[Emphasis added]

[448] Applying the “Questions fondamentales concernant la force probante” identified

by Béchard, previously cited in extract in Sections IX B. hereof, the Court retains as

credible and informative, the expertise of Markey contained in the Markey Report as

well as that expressed in his testimony. His qualifications and experience, both

academic and practical are impressive, the reasoning and analysis contained in his

Report are both serious and coherent and his opinions, on all relevant issues are

substantially based upon facts properly in evidence rather than upon generalities.

[449] In his conclusions cited above, Markey finds that BEV was negligent in failing to

act in a prudent and timely manner in maintaining and eventually updating its CAS. This

matter is one of the ultimate issues raised for determination by the Court in these

proceedings and the Court is not bound by his conclusions. However, for the reasons

previously mentioned in Sections IX A. hereof, this does not render his Report or

opinions expressed therein inadmissible.

[450] Based on its appreciation of all the evidence the Court may, and in the present

case does, independently agree with Markey’s conclusion as to negligence of BEV.

(2)

Shelton

[451] Shelton was qualified by the Court as an expert in security of satellite and cable

signals and managing piracy. He co-authored, with Jimmy Schaeffler, the Expert Report

of the Carmel Group and Shelton & Associates dated March 2010 (the “Shelton

Report”). The Shelton Report was produced as Exhibit P-356

[452] Shelton obtained a Bachelor of Business Administration Degree from the

University of Oklahoma in 1978. Starting with the U.S. Air Force in 1971, and in a

variety of relevant positions subsequent thereto, he is a 37 year veteran of the telecom

211

Markey Report, pp. 27-29.

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industry with specific experience in encryption and signal security. He has extensive

relevant industry experience in the areas for which he was qualified by the Court.

[453] He has been a private security consultant since June 1995. His clients include

those operating in the cable industry, programmers, satellite carriers and security

vendors. His experience and employment background are detailed in a Curriculum

Vitae, annexed to the Shelton Report as Appendix 1.

[454] Shelton’s mandate is described in the Shelton Report as follows:

Based on our review of evidence received through examinations on discovery of

various BEV representatives, you have asked us to provide our opinion on the

conduct of BEV in relation to its efforts to prevent or limit the theft of its satellite

signals.²¹²

[455] He addressed, in Part C of his Report, the history of piracy on an industry wide

basis. His historical analysis, with that of other experts heard on behalf of the parties, is

referred to previously in Section III of this judgment.

[456] Shelton identified “Numerous Unreasonable Actions and Inactions of BEV”. The

following extracts highlight some of the more striking examples. [The numbering of all

internal footnotes in the following extracts has been modified to track the sequencing of

footnotes followed in this judgment].

6-Year Malfeasance: It took BEV almost six (6) years to complete its first card

swap (i.e., 1999 hack-2005). In addition, during these same and later years, the

record suggests BEV implemented very few effective ECMs, further shirking its

213

duties and responsibilities.

Note that the industry definition of an effective

ECM is one that takes away the ability of the pay TV pirates to steal

programming for more than one hour, but, hopefully, for a period of days or

longer.

Improper Hiring 1: As alluded to in the study for the plaintiffs completed by

Teresa Ferguson, PhD., one of the most important actions a new DBS system

212

213

Shelton Report, p. 4.

Further evidence showing BEV’s dearth of adequate ECMs comes from 1) Appendix 4, and 2) the

Ferguson Report. Specifically, Appendix 4 indicates that BEV did not undertake aggressive interim

measures until long after piracy was detected in the BEV system. Further, Appendix 4 shows that

BEV never developed or maintained its own ECM inventory, and BEV relied completely upon its

business partners, Nagravision and EchoStar, to do so. BEV finally began deploying ECMs via

business partner Nagravision in 2002 in response to its own piracy reports. This is the first time BEV

does so, even though it had been apparent that piracy was occurring on the EchoStar and BEV

systems for several years. Turning to the Ferguson Report, it notes that, “No electronic

countermeasures were deployed by BEV before 2002”; that “In the first four months of 2002, BEV

deployed four more sets of ECMs all of which were easily defeated by the pirates within weeks or

months after they were launched”; and that “There was some comfort among the hackers about the

ExpressVu system because ‘they have never sent an ecm down!!! lol’”.

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operator can undertake is to hire the proper personnel to develop and implement

different systems within the company. BEV failed to properly hire the proper anti-

piracy personnel. A perfect example of BEV’s actions and attitude in this regard

is the testimony of BEV’s top anti-piracy official, Terry Snazel. During the first day

of his deposition in March of 2008, Mr. Snazel shows clearly that he is completely

unaware (and obviously unconcerned about) the educational background of his

so-called security expert, Mr. Rene Juneau. Other deposition comments of key

anti-piracy executives, such as Mr. Snazel’s right-hand lieutenant, Ms. Jessica

Casavant, exemplify further lack of proper training, experience, attitude, and

actions.

Inadequate Experience: BEV’s top anti-piracy official, Terry Snazel, is himself a

perfect example of this failing. Mr. Snazel has never completed any kind of

educational degree. He has obtained nothing more than a high school degree, in

fact, Mr. Snazel has never achieved a college, masters, or doctorate degree; he

also has never obtained any formal technical degree. Moreover, he has neither

the engineering training nor the specific training in fighting piracy, to be capable

of using that experience to adequately design and implement an anti-piracy

system at BEV.

Improper Hiring 2: While at the CBC, for example, Terry Snazel worked, in his

own words, with the “best engineers” (page 15, deposition, September 25, 2007),

yet why then did he not employ the “best engineers” once he began running the

technical side of BEV?

Failings Understood: Nor can Mr. Snazel claim ignorance of BEV’s serious

technical (including serious piracy) concerns. For example, Mr. Snazel, on page

27, of his September 25, 2007 deposition further notes, “…there were such

shortcomings in the technologies that existed…”

Improper Hiring 4: Mr. Snazel notes, in his September 25, 2007 deposition,

page 40, “My job was to do that, was to build and implement and create a

technical infrastructure that could allow people to create a business around it.”

This statement constituted a misrepresentation of his job goals and capabilities,

because, without the proper and adequate education, training, and experience,

and without ever hiring the proper personnel to perhaps try to do what Mr. Snazel

himself could never do, neither Snazel, his team, nor BEV could ever properly

address the piracy concerns of any employer.

Poor Business Judgement: Completely contrary to standard business

practices, especially in the area of signal piracy, BEV failed to memorialize its

agreement with its sole conditional access and encryption system provider,

Nagravision. It is hard to understand and hard to accept such a lapse in business

judgement on the part of BEV. The most important component of a DBS system

is the security/encryption system. This is very important to copyright holders such

as TVA. However, BEV is not a copyright holder and did not ever bother to

understand the importance of security/encryption and the importance of a

prepared contractual plan in place for security warranty, along with the

‘Economics of Piracy”. Mr. Shelton offered his security expertise back in August

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1999 and could have helped BEV set up a security warranty program and proper

contract terms with Nagrastar. Mr. Shelton also could have shown BEV how to

properly set up their financials for restoring security, as well as tracking the cost

of security. Lastly, his expertise could have been utilized to identify pirates

through BEV’s Conditional Access System database with 99.9% accuracy.

Nonetheless, BEV decided to manage these tasks alone with no prior experience

in security, which hurts the copyright holders, its competitors (such as Videotron),

and the content providers (such as TVA) more than it does BEV.

Inappropriate Responses: Thoroughly understanding and properly reacting to

piracy is critical because those actions control not only how your company is run

and its overall success, but your company’s stock value, as well. To not act in

such a manner, at the very outset of a pay TV endeavour, is similar to opening a

convenience store in a troubled urban neighbourhood, and not instituting a

proper theft prevention system. It is just not smart.

Ignoring Facts: BEV was clearly put on notice, in August 1999, as to the

presence and significance of the piracy problem within its system (and that of its

partner to the south, EchoStar). Yet, despite ample warnings, it took BEV until

late in 2005, almost six (6) years after the first Shelton report, to do its first card

swap.

(…)

Piracy Reasons: First and foremost, BEV failed to ever adequately balance the

true cost of fighting piracy versus the true benefits of the anti-piracy battles and

war. The most likely reasons why BEV refused to fight piracy harder or earlier

include, 1) BEV found that it was easier to rush toward launch, and thus do

nothing to adequately address piracy; 2) BEV did not know what it was doing

(and, worse still, did not care); and 3) BEV realized that by doing next to nothing,

it still retained a victory of sorts, inasmuch as BEV pirates were almost certain to

never become subscribers of rival cable pay TV operators, such as Videotron.

Front- vs. Back-end: The only logical explanation for BEV’s behavior is to

assume that it figured that when it would finally start fighting BEV pirates,

chances were good that those pirates would take the easy (i.e., the “same

hardware” ²¹⁴) solution and simply become legitimate BEV subscribers, by

legitimately activating their existing hardware devices. That way, if BEV did not

win the pirates on the front-end, so to speak, it could certainly win them on the

“back end” of the BEV/pirate relationship.

214

“Same hardware” in this instance communicates the idea that a pirate will begin pirating, typically

using equipment provided by the pay TV vendor, but will then manipulate the equipment to steal

programming in one form or another. When the pirate has been notified and the piracy addressed, the

equipment usually still is installed at the former pirate location, and the new legitimized pirate can

then choose to merely activate and pay for the signal using the existing equipment.

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Expense + Misunderstanding: BEV further failed to fight piracy harder or earlier

for a number of additional reasons, including 1) BEV determined that properly

fighting system piracy was too expensive; and 2) BEV never understood, nor did

it make reasonable efforts to understand, or implement, the aforementioned

system behind the “Economics of Piracy.”

Inadequate Personnel + Reports: BEV took few, if any, steps to hire

competent, experienced, and respected piracy experts during the entirety of its

pay TV lifecycle. BEV failed this mission in terms of both the in-house BEV

personnel it hired, and in terms of the outside consultants it either did not hire or

did not listen to. Although BEV commissioned a couple of reports that identified

the piracy problem, no subsequent steps were ever taken to properly enact and

implement the needed recommendations.

BEV Knew: For example, the Shelton report, created for BEV and its partners

(i.e., that of 1999), made clear the proper anti-piracy path Mr. Snazel and BEV

should have followed. Yet, these recommendations were ignored by Mr. Snazel,

his team, and thus by BEV.

Staggering Losses: In short, BEV thought fighting piracy was too tough, so it

gave up. The losses were staggering. In 2003, BEV’s “Report on Counter Piracy”

estimated its lost revenue at $60 million to $71 million annually, which is

significantly more than the $60 million cost to restore security that was completed

in 2005.

(…)

6-Year Delay: As but one more additional measurement of BEV’s tepid anti-

piracy battles, the company waited nearly six (6) years after it knew there was a

hack, until 2005, to implement its first swap out of smart cards. This is an

exceptionally poignant example of BEV’s inability to deal properly with its piracy

problem.²¹⁵

[457] Shelton concluded:

 Worst Failure: In all our years of tracking pirates and piracy, globally,

The Carmel Group and Shelton & Associates have never experienced a

modern pay TV operator that has done such a deplorable job of

managing piracy as has BEV.

 Summary: Ultimately, BEV has run its business poorly, in a negligent and

unprofessional manner. This report provides in-depth explanations to

support these findings and explains why it is logical to assume that BEV

acted deliberately in an attempt to increase its market shares, to the

detriment of its competitors, by allowing the pirates to access its

programming for free (or for less than the retail cost) for a lengthy period

of time. In an industry where companies like BEV distribute programming

215

Shelton Report, pp. 21-25.

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signals belonging to others, like Plaintiff TVA, this behavior is simply

unacceptable. BEV’s negligent actions and inactions caused significant

damages to the Canadian telecom industry as a whole, but especially in

the Province of Quebec, where BEV knew that piracy was rampant but

failed to act so as to eradicate this piracy. These actions and inactions by

BEV therefore caused significant damages to the Plaintiffs Videotron and

TVA in particular.²¹⁶

[458] Applying the “Questions fondamentales concernant la force probante” identified

by Béchard, previously cited in extract in Section IX B. hereof and referred to in

assessing the credibility and probative value of the Markey Report and Markey’s

testimony, the Court reiterates and applies mutatis mutandis its findings and

conclusions regarding the credibility and probative value of the Shelton Report and

Shelton’s testimony.

[459] In particular, the Court concurs with and adopts as its own, each of Shelton’s

enumeration of the “Numerous Unreasonable Actions and Inactions of BEV” referred to

above.

(3)

Ferguson

[460] Ferguson was qualified, under reserve of counsel for BEV’s objection, as an

expert in the development, strategic planning and management of telecommunication

delivery systems. BEV challenged her lack of technical expertise and independence.

Although in its Plan of Argument and oral argument counsel for BEV contests many of

the opinions expressed by Ferguson, the objection raised at the time of her qualification

as an expert witness was not renewed. Accordingly, for the reasons previously given

regarding the rulings on objections, the objection is deemed to have been withdrawn.

[461] Her report dated March 2010 was produced as Exhibit P-361 (the “Ferguson

Report”).

[462] Ferguson received a PhD in Administrative, Institutional and Policy Studies from

the University of Chicago in 1984. Although she has no formal education in the areas of

technology relevant to the present action, she does have extensive industry experience

in the areas for which she was qualified as an expert. Her professional history is

detailed in her Curriculum Vitae, annexed to the Ferguson Report as Appendix A.

[463] Ferguson defined her mandate in the following manner:

[T]o describe and provide my opinion as to how a reasonably prudent and

diligent Direct Broadcast Satellite (DBS) company should conduct its business in

order to protect its satellite signals against piracy, fraud and signal theft; and

216

Ibid, p. 26.

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[T]o evaluate the conduct of Bell ExpressVu in relation to its response to piracy,

fraud and signal theft, and from such an evaluation, provide my opinion with

regard to Bell ExpressVu’s conduct. In short, you have asked me to compare the

conduct of Bell ExpressVu to that of a reasonably prudent and diligent DBS

company^..²¹⁷

[464] The Ferguson Report provides an overview of satellite signal piracy, an historical

perspective of the origins of the problem and a summary of the various approaches or

methods available to prevent or eliminate piracy. To the extent that the explanations

and descriptions on this subject are consistent one with the other, Ferguson’s analysis,

and that of other experts is referred to previously in Section III hereof.

[465] She described what she refers to as “A REASONABLE BUSINESS RESPONSE

TO ADDRESS SIGNAL PIRACY”. The following are some of the more salient responses

and requirements highlighted by Ferguson and retained by the Court as being of

particular relevance to the present action:

 [A] statement of commitment from the highest executive that no amount

of piracy will be tolerated;

 An engineering department staffed with competent experts and

technology specialists in their respective areas of expertise capable of

addressing actual and potential compromises to the company’s

conditional access system;

 The architecture of the DBS company’s conditional access system must

be designed with the belief that signal theft is inevitable and impossible to

completely prevent. Therefore, from the outset, the requirement to

replace conditional access cards must be part of the budget

planning and life cycle of the business;

 [A]ggressive interim responses are necessary to temporarily disable

illegal smart cards or otherwise frustrate users of illegal cards.

Consequently, it is important to develop and maintain a continual

inventory of electronic countermeasures (ECMs) that are capable of

such security measures;²¹⁸

[Emphasis in original]

[466] Ferguson also stressed the importance and necessity of periodic replacement of

smart cards. She referred to the early experiences of signal theft at DIRECTV and

described the various card swaps conducted to combat this activity.

[467] Referring to the need to protect signal integrity, she noted:

217

Ferguson Report, p. 4.

Ibid, pp. 5-13.

218

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j. A DBS company needs to be willing to go after the individual who uses a

compromised smart card to watch unauthorized television programming. In

many instances, the illegal users are also legitimate subscribers of other services

like the basic package.(“Hybrid pirates”) As a result, a DBS company has to

consciously make the decision to shut down paying customers based on their

best evidence that they may also be an illegal user. This obviously comes with a

risk, but it shows the level that a responsible and prudent DBS company must go

to in order to be diligent in fighting signal theft.²¹⁹

[Emphasis and definition added]

[468] Ferguson then proceeded to evaluate BEV’s performance in light of her industry

experience and the analysis previously referred to. In a chapter entitled “AN

EVALUATION OF BELL EXPRESSVU’S PREVENTION OF AND RESPONSE TO

PIRACY”²²⁰, she traced the chronology of events starting in 1995 when BEV received a

licence from the CRTC to provide DTH satellite broadcast services until its launch in

1997. She described how the business plan evolved during this period, how BEV

organized its resources to create and launch its service and addresses the deficiencies,

both in the planning and in the human and technical resources dedicated to this

process. She noted, in particular [the original numbering of all internal references in

the following extracts has been modified to track the sequencing followed in this

judgment, the text of the references remain unaltered]:

b.

In October 1995, then CEO Michael Neuman hired Terry Snazel as his

vice president of technology and chief technology officer. According to Mr.

Neuman, Mr. Snazel’s responsibilities involved “the end-to-end architecture…all

the technologies from the gathering and receipt of signals, encoding, encryption,

uplink, and at the point of reception, the set top box….”²²¹[…]There was serious

discomfort with the state of the technology at that point and the ability of the

technology to support the business.”²²²Mr. Snazel went on to say that “there

was no other sort of technical expertise on board”²²³at ExpressVu. Mr. Snazel

was “recruited specifically”²²⁴to “examine the technology and to get it to function,

…to bring the service to fruition and launch the service”²²⁵into the consumer

market. This included recruiting a staff of experts and engineering specialists

versed in the required DBS technologies.

219

220

221

Ibid, pp. 18-19.

Ibid, pp. 25 ff.

Examination on discovery of Michael Neuman, held on June 14, 2007, p. 53. In Mr. Snazel’s

September 25, 2007 testimony he also noted that he had the initial responsibilities of running the

customer service organization and the information technology department until around the years 2000

and 2001.

222

223

224

225

Deposition of Terry Snazel, September 25, 2007, p. 23.

Ibid, p. 26.

Ibid, p. 23.

Ibid, p. 24.

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c. (…) However, as the vice president of technology, it was his responsibility to

ensure that the engineers hired did have the appropriate education, degrees and

experience to perform and/or oversee the array of technical functions necessary

to launch and operate a successful and secure DBS service.

(…)

f.

…Specialists in the art of signal protection techniques and the state of

conditional access technology were not employed during the evaluation period

when alternative partnerships and alignments were reviewed.²²⁶… In fact, Mr.

Snazel did not fill his conditional access position until 1997,²²⁷the year

ExpressVu was launched into the market place.

(…)

j.

(…) By 1996, when ExpressVu was re-structuring their business plan and

evaluating their satellite and technology options, the emergence of piracy of

DIRECTV signals in the United States became widely known in the industry.

This should have been an alarm, a red flag to any start-up DBS company

witnessing significant compromises of systems belonging to companies like

DIRECTV…

k.

(…) During the evaluation period, ExpressVu did not test or perform any

sort of analyses to ascertain whether or not the hack of the DIRECTV system

could be used to compromise the EchoStar service…

(…)

n.

Article 18 of the January 1997 contract between ExpressVu and

EchoStar, entitled “Signal Protection,”²²⁸has nearly four pages devoted to

concerns about the grey market and “preventing members of the public from the

other’s jurisdiction subscribing to its DTH Service.” By comparison, only half a

page containing just three paragraphs in Article 20, “Breach of Security” is

devoted to the protection of the actual security of the system.²²⁹Signal security

clearly was not a top priority during negotiations.

[469] Ferguson concluded:

When ExpressVu launched its DBS service into the Canadian market place in

1997, it did so without a sufficient infrastructure in place that would allow it to

respond to attacks on its security.²³⁰

226

See Exhibit P-15 (MN-5), “ExpressVu Technology Progress Report” March 18, 1996, for the

evaluation of the options being explored by ExpressVu.

Mr. René Juneau was employed from 1997 until June 30, 2000. See Deposition of Terry Snazel,

227

September 25, 2007, pp. 40-41, and answer to Undertaking UPLy-98.

See Exhibit P-14, pp. 28-31.

Exhibit P-14, p. 35.

Ferguson Report, p. 35.

228

229

230

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(…)

d.

A reasonably prudent and diligent DBS company should have foreseen

that once DIRECTV solved the piracy problem, hackers would simply abandon

those systems and turn their efforts to stealing signals from the vulnerable

ExpressVu and Dish services. Indeed, had BEV behaved as a reasonably

prudent and diligent DBS company, they would have heeded their own

expert consultant’s report that “[i]f there is rampant piracy on any one

security system then it effects all in the DBS industry.”²³¹Such a

declaration was not just homily, it was based on the evidence provided to

BEV that the same Canadian pirates who were attacking the DIRECTV/NDS

conditional access system, were also creating hacks on the EchoStar and

Bell ExpressVu conditional access technologies.^{232 233}

[Emphasis added]

[470] In Section 3.4, 3.5 and 3.6 of her Report, Ferguson dealt with the crucial subject

of “SIGNAL PROTECTION IN THE ENGINEERING DEPARTMENT” in 1997-2000,

2001-2002 and 2002-2004.

1997-2000

[471] The following observations are of particular interest:

…[I]t was up to the ExpressVu’s Chief Technology Officer, Terry Snazel, to hire

expert engineers to manage the EchoStar contract and to insure that adequate

provisions were in place at EchoStar and Nagravision to protect ExpressVu’s

signal.

a.

After ExpressVu was launched into the market in 1997, Terry Snazel was

given additional duties to his role as vice president of technology.²³⁴This lasted

for nearly two years when in November 1999, a vice president of programming

was hired, and Mr. Snazel returned solely to managing the growing needs of

engineering.

b.

Around June of 1997, Mr. René Juneau was hired to oversee and

implement the conditional access system that had been selected prior to his

employment.²³⁵In this position, Mr. Juneau was the liaison to EchoStar and

Nagravision, and as such, was Mr. Snazel’s key “conditional access engineering

231

Exhibit P-91 (UTM-4), report via facsimile to Terry Snazel and René Juneau entitled “NagraVision

Piracy”, from Shelton & Associates, August 13, 1999, p. 6.

Exhibit P-91 (UTM-4), pp. 5-6.

232

233

234

Ferguson Report, pp. 35 ff.

His title changed to vice president of technology, programming and pay per view, and included

responsibilities such as the oversight of all the contracts with the content providers as well as

“creating and launching a Pay Per View service”. Deposition of Terry Snazel, September 25, 2007, p.

48.

235

Deposition of Terry Snazel, September 25, 2007, pp. 40-41.

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PAGE : 108

person.”²³⁶In a reasonably prudent and diligent DBS company, an engineering

position as important as Mr. Juneau’s, would require the essential education,

skills and experience in the art of signal protection, cryptographic methods,

software security, hardware protection, semiconductor technology and the like.

However, when questioned, Mr. Snazel was not sure whether or not Mr. Juneau

238

even possessed a degree in engineering.²³⁷

[472] It is noteworthy that, as previously mentioned, Mr. Juneau was not called as a

witness by either party.

[473] Ferguson continued her justified criticism of the dysfunctional internal BEV

organization :

c.

Also hired in the same year as Mr. Juneau, was Jessica Casavant who

held a parallel position to Mr. Juneau’s in the conditional access organization.

Her title was manager of digital services.²³⁹Ms. Casavant has an engineering

degree in sound techniques and TV broadcasting, and came to ExpressVu with

experience in sound production while employed at several television and cable

networks, and the Viewers Choice pay per view service operator.²⁴⁰Mr. Juneau

and Ms. Casavant “operated as two parallel directors,”²⁴¹both reporting to

Mr. Snazel and neither possessing education in the science of signal

security. Ms. Casavant’s responsibilities included “the digital multiplexing²⁴²and

the digital management system that digitized the signals.”²⁴³When Mr. Juneau

left the employ of ExpressVu in 2000, Ms. Casavant became “the person

responsible…for all our conditional access and our Nagra encryptions and all the

other good stuff that we did for security.”²⁴⁴At the time when piracy was

epidemic in the United States, Mr. Snazel did not use this opportunity to hire an

expert in conditional access technology who could help the company prepare

and put measures in place, or who could effectively evaluate measures offered

by Nagravision to battle the theft of ExpressVu’s signals.

d.

Having a high caliber engineering staff, especiallythose responsible

for protecting the security of the signal, was of vital importance. However,

neither Mr. Juneau or Ms Casavant possessed experience or training of any

sort to suggest that they were qualified to implement a conditional access

245

system as state-of-the-art as Nagravision’s.

[Emphasis added]

236

237

238

239

240

241

242

243

244

245

Deposition of Terry Snazel, September 25, 2007, pp. 42-43.

Deposition of Terry Snazel, September 25, 2007, p. 43.

Ferguson Report, pp. 38-39.

Deposition of Jessica Casavant, June 4, 2008, pp. 14-16.

Deposition of Terry Snazel, September 25, 2007, p. 55.

“Motor-plexing” is the word in the transcript, but I believe it should have read “multiplexing”.

Deposition of Terry Snazel, September 25, 2007, p. 55.

Deposition of Terry Snazel, September 25, 2007, p. 56. Mr. Juneau left in June 2000.

Ferguson Report, pp. 39-43.

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PAGE : 109

(…)

j.

In August 1999, Mr. Snazel and Mr. Juneau received a report which

analyzed “NagraVision piracy and the impact on the ExpressVu system.”²⁴⁶The

report provided evidence that the NagraVision conditional access system used

by EchoStar in the United States had been hacked as early as 1998.²⁴⁷It further

provided evidence that the hack on EchoStar could be used “to obtain

ExpressVu’s programming.”²⁴⁸The Shelton report noted that DIRECTV’s

conditional access system supplied by NDS had also been hacked and that

because they were very active in fighting these hacks, were experiencing relative

success in managing the piracy. By contrast, the Shelton report commented that

“programmers are concerned [about] whether EchoStar and NagraVision will

manage the commercial hack”²⁴⁹that their system was experiencing.

k.

The Shelton report emphasized that an infrastructure needs to be in

place to manage piracy; “complimenting this infrastructure” is the need for

“renewal security”. In other words, the periodic replacement of smart cards was

the best way to manage piracy because “[n]ew cards sent to consumers to renew

security take advantage of new chip technology and conditional access system

design enhancements” that, in turn “take advantage of lessons learned in prior

attacks.”²⁵⁰

l.

Nearly a year after the Shelton report, in October 2000, Bell ExpressVu

created a security department under vice president Ian Gavaghan, the executive

in charge of the legal department. A former RCMP officer, Brian Johnson, was

hired to conduct satellite piracy investigations. Mr. Johnson was the sole

employee of that organization until mid 2001, when bilingual investigator, Martin

Girard, was transferred from corporate security to ExpressVu’s anti-piracy

department.²⁵¹While the hire of Mr. Johnson was a start, ExpressVu still

seriously lacked the resources necessary to aggressively engage in

investigations or routinely monitor pirate web sites in order to ascertain the

imminence of the threat to ExpressVu or the on-going battles south of the border.

Such vigilance was necessary to detect the invasion of illegal activities on

Canadian DBS systems.

2001-2002

[474] The following observations are of particular interest:

246

Exhibit P-91(UTM-4), report via facsimile entitled “NagraVision Piracy” by Shelton & Associates,

August 13, 1999. This report will be referred to as the “Shelton” Report.

Exhibit P-91(UTM-4), p. 4 and Exhibit D attachment to the Report.

Exhibit P-91(UTM-4), p. 5.

Exhibit P-91(UTM-4), p. 4.

Exhibit P-91(UTM-4), p. 5.

See response to Undertaking UNM-13.

247

248

249

250

251

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c. The first comprehensive study detailing how Bell ExpressVu’s services

were stolen was completed at the end of October, 2001.²⁵²It asserted that the

“theft of Bell ExpressVu services is a multi-faceted, growing problem,”²⁵³and

came in two forms, namely, through fraud and piracy. […] The combat against

piracy, according to the study, would entail engineering efforts such as

downloads of software and/or ECMs. The report recommended such technical

procedures be developed and implemented. It also suggested that BEV “track

every system from manufacture to retail, and …use that data to help determine

areas worthy of investigation.”²⁵⁴It did not recommend replacing their

customers’ smart cards with more robust ones.²⁵⁵

[Emphasis added]

2002-2004

[475] The following observations concerning the technical security measures employed

by BEV are of particular interest:

a. No electronic countermeasures were deployed by BEV before 2002.²⁵⁶In

late 2001, BEV deployed several “key changes”²⁵⁷targeting their “older

generation smart card, which had been compromised and was being used with

modified blocker software.”²⁵⁸However, almost immediately pirates “introduced a

circuit board known as the AVR” that was used with the subscriber’s valid smart

card,²⁵⁹allowing the viewer to access higher tiered and premium programming

without paying for it. In the first four months of 2002, BEV deployed four more

sets of ECMs all of which were easily defeated by the pirates within weeks or

months after they were launched.

b.

(…) Nearly ten countermeasures or software downloads²⁶⁰were

deployed; all were promptly defeated by hackers. “The advancement in

technological piracy attacks and the steep learning curve enjoyed by the hackers

has made technological counter piracy measures by Bell ExpressVu and its

partners a very difficult challenge.”²⁶¹In 2002, the content providers were losing

confidence in Bell ExpressVu’s ability to stop the proliferation of the theft of their

252

See Exhibit P-95 (UMN-5), “How Bell ExpressVu Services are Stolen: A Brief Synopsis, October 31,

2001.”

Exhibit P-95 (UMN-5).

Ferguson Report, pp. 46ff.

See Exhibit P-153 (UPLy-100).

See Exhibit P-156 (UNM-28).

Exhibit P-106 (JC-1), Bell ExpressVu report entitled “Report on Counter-Piracy”, by Jessica Casavant

253

254

255

256

257

258

et al, January 13, 2003, p. 22.

Exhibit P-106 (JC-1), Bell ExpressVu report entitled “Report on Counter-Piracy”, by Jessica Casavant

et al, January 13, 2003, p.22.

Exhibit P-156 (UNM-28). In addition, Exhibit P-156 (UNM-28) reports that only seven actual ECMs

were deployed.

Exhibit P-106 (JC-1), Bell ExpressVu report entitled “Report on Counter-Piracy”, by Jessica Casavant

259

260

261

et al, January 13, 2003, p. 23.

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programming.²⁶²In response, Tim McGee, then president²⁶³of Bell ExpressVu,

put together a task force in late 2002 giving it the charter to “assess the scope

and magnitude of Bell ExpressVu’s potential liability (…) and to provide

recommendations that would mitigate its exposure and reduce its potential

liability.”²⁶⁴The task force, led by Jessica Casavant,²⁶⁵issued a report in

January 2003. (the “Report on Counter-Piracy”).²⁶⁶

[Emphasis added]

[476] Ferguson referred to and commented at length on the findings of the Report on

Counter-Piracy and the failure by management to implement some of the more

important recommendations made to McGee, the then President of BEV. She noted, in

particular:

h.

According to Mr. McGee, the report was provided to only two other

executives, namely, Ms. Sheridan Scott and Mr. Bernard Courtois who were

“regulatory officers” at Bell Canada²⁶⁷not individuals who would be on the front

line, so-to-speak, helping to secure and defend BEV from attacks and

compromises to its conditional access system. In fact, Mr. McGee treated the

report as a “privileged document” and “assumed” that people would learn

“indirectly what the report was advocating”²⁶⁸without establishing some formal

mechanism insuring that the Report’s findings and recommendations were

indeed widely communicated within the company. What appears irresponsible,

was that after Mr. McGee had ordered the investigation into the extent of

the piracy problem, after he had authorized the research, data collection

and statistical analyses documenting and verifying piracy’s deleterious

impact on the present and future state of the business including very

thoughtful and comprehensive recommendations for addressing the

issues; Mr. McGee then suppresses and limits the report’s distribution. If

his intent was “not to deprive people who needed the information to get

information”²⁶⁹his actions did not signal such an expectation. (…)²⁷⁰

[Emphasis added]

[477] Ferguson next addressed the Smart Card Replacements in the period 2002 to

2006. She was critical of the delays in implementing the card swap. She notes in

particular:

262

Exhibit P-278 (JC-2), letter to Mr. Chris Frank from Mr. Edouard G. Trepanier, vice president,

regulatory affairs, Quebecor Media, dated 8 November 2002.

Mr. McGee was president of BEV from May 2002, until October 2004; see Deposition of Timothy

263

McGee, October 21, 2009, pp. 5-6.

Exhibit P-106 (JC-1), p. 3.

Deposition of Jessica Casavant, June 4, 2008, p. 26.

Ferguson Report, pp. 55-56.

See Deposition of Timothy McGee, October 21, 2009, pp. 240-249.

See Deposition of Timothy McGee, p. 245.

Deposition of Timothy McGee, p. 247.

Ferguson Report, pp. 65-66.

264

265

266

267

268

269

270

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o. Over five years had transpired from the acquisition of the

knowledge that the system had been pirated in 2000, to the conclusion of

the card swap in 2005. Moreover, it took over 1.5 years²⁷¹for BEV to

complete the swap from the time it took the decision to proceed with the

swap. By contrast, DIRECTV took about 24 months from the time they learned

about the hack of their P-1 card until they introduced and completed their P-2

card swap of a million more receivers than BEV changed out in the 2004/2005

time frame.²⁷²

[Emphasis added]

[478] Some of her most serious conclusions are summarized in Section 4.0 her

Report:

…Either due to naivety, negligence or indifference, Bell ExpressVu

ignored or underestimated the extent to which the rising black

market throughout North America was a threat to its business, to that

of the content providers whose entertainment programming was

broadcast by Bell ExpressVu’s satellites and to the industry as a whole.

(…)

 By 1999, BEV had full knowledge that EchoStar’s conditional access

technology – the one that would be technically very similar to BEV’s CA

system— had been hacked as early as 1998.²⁷³Furthermore, EchoStar

had no solution to counter the compromises. At this point, a reasonably

prudent and diligent DBS company would have responsibly taken action

to insure that its system would not be vulnerable to such piracy, or at

least have the expertise and infrastructure in place to manage the

inevitable attacks. Bell ExpressVu provided no documentation of any

such action. Instead, BEV remained unprepared to respond to the

inevitable attacks on its encryption, and unprepared to effectively

participate in the design and development of its next generation security

system.

 Bell ExpressVu knowingly hired a Chief Technology Officer and

engineering staff without the education or skill set needed to understand,

assist and/or challenge Nagravision’s architecture for the conditional

access system at the launch of the business, security counter measures

during the operational phase, or its Aladin upgrade.

(…)

 At the time the decision was made to exchange all BEV subscribers’

access cards with Aladin smart cards, neither Bell ExpressVu nor

271

Corrected by Dr. Ferguson during her testimony.

Ferguson Report, p. 75.

See Exhibit P-91 (UTM-4).

272

273

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EchoStar had performed a card swap. It took Bell ExpressVu over [three]

one²⁷⁴years from the time the decision was made to go ahead with the

card swap in order to plan, roll out and complete the swap out of cards to

less than three million receivers. This card swap was completed more

than five years after it was discovered by Bell ExpressVu that its

Conditional Access System had been compromised by hackers.

Aladin was nearly ready for deployment in early 2003, so the card

development itself did not affect the length of the schedule. The

inexperience of the staff at Bell ExpressVu no doubt slowed the roll

out, but this could have been mitigated by simply soliciting advice

from experienced and competent professionals. The top

recommendation of Ms. Casavant’s Report on Signal Piracy stated

that Bell ExpressVu should implement a new card system in 2003

because of the rapid growth of piracy. Clearly, her sense of urgency

was not shared elsewhere within Bell ExpressVu.²⁷⁵

[Emphasis added]

[479] Applying the “Questions fondamentales concernant la force probante” identified

by Béchard, previously cited in extract in Section IX B. hereof and referred to in

assessing the credibility and probative value of both the Markey Report and the Markey

testimony as well as that of the Shelton Report and the Shelton testimony, the Court

reiterates and applies mutatis mutandis its positive findings and conclusions regarding

the credibility and probative value of the Ferguson Report and the Ferguson testimony.

BEV

[480] Although the reports filed in evidence by each of BEV’s expert witnesses were

initially filed under seal, in an e-mail message dated January 31, 2012, addressed to the

undersigned, counsel for BEV subsequently advised:

In this regard, to ensure a full and complete comprehension of the reasons for

judgment, BEV does not wish to restrict you from quoting excerpts from any of

Defendant's experts’ reports or accounts filed under seal that you may consider,

in your discretion, to be necessary for the reasons for judgment. Please accept

this e-mail as BEV’s consent thereto.

[481] Two expert witnesses testified on behalf of BEV on the issues of technology

raised for determination in this and the Related Actions: Michael Barr (“Barr”) and Dr.

Matthew D. Green (“Green”).

274

Corrected by Dr. Ferguson during her testimony.

Ferguson Report, pp. 78-81.

275

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(1) Barr

PAGE : 114

[482] Barr was qualified as an expert in electrical engineering, embedded systems,

technology and security of satellite TV systems and satellite piracy. His report dated

September 30, 2010, was produced as Exhibit D-251; his updated Curriculum Vitae

dated December 8, 2011, as Exhibit D-250 along with his corrections to various pages

of the original report (collectively the “Barr Report”).

[483] Barr obtained a Master of Science degree in Electrical Engineering from the

University of Maryland in May 1997 and a Master of Business Administration degree

from the same University in December 2006. He is founder of and has been

President/Chief Technical Officer of Netrino Inc. since January 1999. In such capacity

he has provided executive management for his firm, created professional training

curriculum and courses for embedded software developers and performed engineering

design, consulting and training services for clients in industries ranging from consumer

electronics to medical products. He has also acted as an expert witness in numerous

legal proceedings instituted by DIRECTV against satellite TV pirates. He was previously

employed as a software engineer by several companies operating in related industries.

[484] He has authored numerous articles and papers dealing with embedded systems

programming.

[485] Barr’s mandate was to provide opinions on the following issues:

 BEV ‘s choice of technology, including the choice of conditional access

system, (referred to in the Barr Report as “Mandate A”);

 The evolution of conditional access systems in light of worldwide piracy

attacks and how satellite TV operators have adapted to such piracy,

including BEV’s current conditional access system, (referred to in the Barr

Report as “Mandate B”); and

 Opinions expressed by Plaintiff’s experts in their expert reports, (referred

to in the Barr Report as “Mandate C”).²⁷⁶

[486] Barr provided an introduction to and explanation of the fundamentals of DBS

conditional access systems, the prevalent fraud and piracy practices and anti-piracy

techniques available to combat these practices. To the extent that the explanations and

descriptions on these subjects are consistent one with the other, Barr’s explanations

and those of other experts is referred to previously in Section III of this judgment.

276

Barr Report, p. 6.

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MANDATE A: BEV’S CHOICE OF TECHNOLOGY, INCLUDING THE CHOICE OF CAS

[487] For the reasons expressed in detail in his Report and referred to in summary

herein, Bar concluded:

Opinion A1: BEV‘s adoption of the DVB standards was reasonable.

Opinion A2: The decision by BEV to enter into a partnership with EchoStar has

always made good business sense and was prudent.

Opinion A3: BEV’s selection of Nagra’s conditional access system has always

made good business sense and was prudent.²⁷⁷

OPINION A1

[488] Barr compared the proprietary Digital Satellite System (“DSS”) television

transport protocol used by DIRECTV’s with the open standard Digital Video Broadcast

(“DVB”) selected by BEV. He noted, in particular, that the DVB standard is the most

popular format used in the industry and that its popularity has resulted in lowering the

prices of set-top boxes and related technologies.

[489] He acknowledged that “Piracy by FTA receivers is difficult for the numerous DVB-

based satellite TV services to fight precisely because DVB’s protocols are so widely adopted.”²⁷⁸

[490] However, he dismissed this as a concern at the time BEV entered the market

since “[t]he possibility of piracy-capable FTA receivers was not forseen by anyone in 1995 and

it wouldn’t be until almost eight years later that such a threat actually existed.” ²⁷⁹

[491] In his testimony before the Court, referring to an analysis of the DIRECTV

experience prepared by him contained in a chart entitled the “Piracy Outcome Chart”²⁸⁰,

he claimed that if BEV had chosen the DSS protocol instead of the DVB protocol, they

would nevertheless have been hacked.

OPINION A2

[492] Seeing the size of the potential BEV subscriber base and its lack of in-house

technological expertise, Barr opines that partnering with EchoStar was a way for BEV to

reduce costs, manage risk, reduce grey market piracy and enter the market in the

shortest delay.

[493] For the reasons expressed, Barr concluded that BEV’s best option for a U.S.

partner was EchoStar.

277

Ibid, p. 7.

278

Ibid, p. 32.

279

Ibid, p. 33.

Exhibit D-252.

280

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OPINION A3

[494] Barr compared the key dates and timelines for five access cards (three DIRECTV

cards and two BEV Nagra cards) that had been hacked between June 1994 and

November 2005. He concluded that the first three DIRECTV cards were more quickly

compromised than either of the first two BEV cards.

[495] He claimed that NDS, the CAS supplier of DIRECTV failed to perform necessary

code reviews on DIRECTV’s P1 and P2 access cards whereas Nagra did perform such

reviews. He bases his assertion on having read the transcript of the testimony of a

senior officer of Nagra, Christopher Nicolas, given in another totally unrelated

legal proceeding between Nagra and an undisclosed third party. For this reason

alone, the Court must attach little probative value to this evidence.

[496] He asserted that NDS failed to adequately test the DIRECTV P1 and P2 access

cards and that, in any event, they were less expensive to hack than the Nagra cards.

The source of this assertion is not clear.

[497] For the foregoing and other reasons, Barr concluded that, in 1996, selection of

the Nagra CAS was the most reasonable option.

[498] This conclusion may or may not be supported by the admissible evidence

alluded to by Barr. However, this matter is academic since neither Vidéotron nor its

experts seriously contest the propriety of the initial choice made by BEV of the EchoStar

and the Nagra CAS technology.

MANDATE B: THE EVOLUTION OF CAS IN LIGHT OF WORLDWIDE PIRACY

[499] For the reasons expressed in detail in his Report, Barr concluded with respect to

Mandate B:

Opinion B1: Bell ExpressVu deployed electronic countermeasures, including key

changes and software upgrades, in a useful and timely manner.

Opinion B2: Bell ExpressVu upgraded its business processes (e.g., inventory

tracking) in a useful and timely manner.

Opinion B3: Bell ExpressVu replaced access cards in a useful and timely

manner.²⁸¹

281

Ibid, p. 7.

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OPINION B1

[500] Barr reviews the evidence regarding the numerous electronic countermeasures

(“ECM’s”) performed by BEV. He refers in particular to the use of what are sometimes

known as “Box-kill ECM’s” which have the effect of disabling set-top boxes of suspected

pirates. He notes at page 53 of the Report:

141. Despite the legal risks to the company and associated brand risks to its

parent (Bell Canada), Bell ExpressVu deployed box-killing ECMs at least seven

times between October 24, 2003 and May 19, 2004. […] In addition to reducing

the level of piracy directly, the company intended that deploying this type of ECM

would send “a very clear message to the pirate community that Bell ExpressVu

will use all tools at its disposal.” (JC-1 Document 1 p. 29)

142. To the best of my knowledge, despite its long fight against pirates,

DirecTV never deployed even one ECM that would disable a set-top box

suspected of use in piracy.

[501] He notes that during the period of known piracy, BEV deployed a minimum of 42

ECM’s, on an average of at least one every 6 weeks. He concludes that this is a

reasonable pace of counter-attacks.

[502] It is noted that the number of ECM’s referred to by Barr is substantially less than

those alleged by Ishankov to have been performed during the period in question.

OPINION B2

[503] Barr claimed that in the years following launch of its service, DIRECTV operated

its satellite TV service without purchaser identity controls longer than did BEV. He

concluded BEV was no less diligent than DIRECTV in implementing appropriate

controls.

[504] He noted that while BEV initiated its service in September 1997 without a system

for tracking set-top boxes received from suppliers through to individual consumers, it did

ultimately institute effective controls.

152. […]In February 2002, it began to track this inventory via its Pre-

Registration Inventory and Sales Management (“PRISM”) system By April 2003,

Bell ExpressVu started requiring a valid photo ID be shown to set-top box

retailers (UPLY-24). By September 2003, a valid credit card was also required at

set-top box purchase (ENG-PLY-25). This system was fully implemented by all

authorized dealers by December 2003 (UNM-21).

153. It took DirecTV at least 6.5 years to fully track individual consumers who

purchased compatible set-top boxes. It took Bell ExpressVu no longer than 6.25

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years to fully track individual consumers who purchased compatible set-top

boxes.²⁸²

[505] Barr purports to support some of his opinions contained in his Report by

attempting to introduce in evidence in the present proceedings, evidence he claims to

have obtained resulting from interviews he conducted as an expert witness and

testimony given by DIRECTV representatives in other unrelated proceedings

between DIRECTV and other unidentified parties.

[506] Regarding mandatory phone line connections, for the reasons expressed, he

dismissed this obligation as being of little value in fighting piracy.²⁸³

OPINION B3

[507] Barr claimed BEV replaced its access cards in a useful and timely manner and

consistent with what is reasonable for a DBS provider operating in the environment at

the time. He wrote: [t]here is no satellite TV industry standard or ideal length of time to use

one access card before replacing it with another.²⁸⁴

[508] His opinion in this regard is not substantiated by any concrete evidence but,

rather, based on generalities and his own assessment. The credible evidence adduced

at trial by all three of Vidéotron’s experts, Markey²⁸⁵, Shelton²⁸⁶and Ferguson²⁸⁷

indicates the contrary.

[509] With respect, and considering their respective qualifications and experience, the

Court must retain as more credible and having greater probative value, the opinions

expressed on this subject by Vidéotron’s experts.

[510] Regarding the Nagra2 changeover, he writes at pages 62 and following:

169. In 2002, Nagra began development of the access cards and other

technology that would be called the Nagra2²⁸⁸conditional access system (the

numbering of internal footnotes is modified to respect the sequencing of this

judgment). This was before the 2003 appearance of the first FTA receivers

(Shelton p. 13), by which time development and internal testing of the Nagra2

access card and related conditional access system upgrades were complete and

Bell ExpressVu was testing Nagra2 access cards in several thousand customer’s

homes. (UPLY-131)

282

Ibid, p. 57.

283

Ibid, p. 58.

284

Ibid, p. 61.

285

Transcript, September 30, 2011, pp. 62-68.

Transcript, September 21, 2011, pp. 203-207.

Transcript, September 27, 2011, pp. 54-64.

Codename: Aladin.

286

287

288

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170. It wasn’t until at least six months later, in the summer of 2004, that FTA

receivers overtook other forms of piracy in popularity. Internet postings I have

seen from this timeframe put the price of the Blackbird FTA receiver in the

C$300-400 range.²⁸⁹Some pirates were willing to pay the price because these

devices didn’t need an access card and were not affected by all ECMs.

171. Thus FTA piracy was unknown when the Nagra2 conditional access

system was developed by Nagravision. Within approximately a year and a half,

Bell ExpressVu had completed the Nagra2 card swap and terminated the Nagra1

broadcast stream. Fortunately, the FTA receivers in use by pirates at that time

were no longer useful in piracy of Bell ExpressVu’s signals.

[511] In the original version of his report dated September 30, 2010, Barr wrote:

Evidence: Bell ExpressVu’s Nagra2 card swap was completed more

quickly than DIRECTV’s P3 card swap.

[512] In his testimony at trial, having heard the evidence of Vidéotron’s witnesses, he

asked to withdraw this assertion and to amend and correct the original Table 4 which

supported his initial assertion.

[513] Regarding his Mandate B, Barr concluded: “Bell ExpressVu’s upgrade to the Nagra2

conditional access system was successful in reducing all types of piracy, including piracy by

free-to-air receivers.”²⁹⁰In subsequent years, Barr’s unsubstantiated generalization also

proved to be incorrect.

MANDATE C: OPINIONS EXPRESSED BY VIDÉOTRON’S EXPERTS

[514] For the reasons expressed in detail in his Report and referred to in summary

herein, Barr concluded:

Opinion C1: Bell ExpressVu never benefited from any type of piracy of its

system.²⁹¹

[515] Barr referred to an analysis of the “Impact of Various Forms of Fraud and Piracy

on BEV” contained in Table 5 of his original Report dated September 30, 2010. He

concludes:

“Evidence: BEV lost money each time a set-top box is purchased for use in

piracy”; and

“Analysis: The net impact of each type of fraud or piracy on BEV is negative.”

289

For example, consider eBay.ca Satellite, Cable TV item list dated July 28, 2004 {Tab 17}.

Ibid, p. 64.

Ibid, p. 8.

290

291

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[516] During the hearing, after having heard the evidence of Vidéotron’s witnesses, he

asked to correct and then once again to re-correct the original Table 5. Although he

corrected the erroneous elements of the original Table 5, strangely and for some

unexplained reason, he did not think it necessary to correct or modify the text of what he

refers to as his “Evidence” and “Analysis” attached to the revised Table 5.

[517] In assessing the probative value of the Barr Report and his testimony in support

thereof, the Court reverts to four of the “Questions fondamentales concernant la force

probante” enumerated by Béchard and previously referred to herein²⁹²:

4.

Quelle est l’approche de l’expert face aux théories apportées par les

autres experts? Y apporte-t-il des éléments?

6.

L’expert a-t-il fait preuve d’objectivité?

11.

L’expertise et le témoignage sont-ils basés sur des faits plutôt que sur des

généralités?

18.

L’expert a-t-il manifesté un parti pris démesuré?

[518] With respect to the questions #4 and # 11, the Court finds Barr’s approach

lacking in coherence. His opinions on important issues relating to BEV’s response to

piracy are, to a great extent, based upon his unsupported subjective assertions and

generalities. In some cases he made reference to and allegedly supported his views

with hearsay evidence obtained from a witness who testified in other unrelated

third party legal proceedings in which he had acted as an expert witness or in

emails received in connection therewith²⁹³.

[519] With respect to the questions # 6 and # 18, the Court has serious concerns as to

Barr’s objectivity. He chose to ignore the credible evidence from both BEV’s lay

witnesses as well as that of its former expert, Shelton, regarding the failure of BEV to

upgrade its access cards, business processes and CAS in a timely fashion and the

consequences resulting therefrom. Rather, he adhered steadfastly to his unqualified

assertions referred to at paragraphs 166 and following of his Report that: [t]here is no

satellite TV industry standard or ideal length of time to use one access card before replacing it

with another. As for BEV’s business processes and the delays in swapping out to the

new Aladin CAS, his justifications are lacking in both objectivity and credibility.

[520] He described his mandate as including furnishing his opinion on the “Opinions

expressed by Plaintiff’s experts in their reports”. However, his Report and evidence in

this regard is seriously deficient. In instances where he does deal with this aspect of his

mandate, he simply reverts to generalities and fails to identify with precision the alleged

292

Béchard, Supra note 190 at p. 660.

Barr Report, paras. 150, 173: reference to Larry Rissler, Director of Signal Integrity, DIRECTV.

293

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errors or lack of scientific merit of these opinions. In other critical instances, he simply

chose to ignore Vidéotron’s experts’ various opinions.

[521] By way of example, in one particular instance, notwithstanding the credible

evidence that BEV’s smart cards had been illegally cloned by the pirate community, he

insisted that it was either impossible or very difficult to clone BEV’s cards.²⁹⁴This

assertion was credibly refuted by Shelton in his testimony given in counter-proof.

Relying upon his personal knowledge of the piracy market prevalent in the industry at

the time, Shelton explained that the cloning of BEV’s smart cards was both easy and

widespread during the entire period of reference, from 1999 until 2004.²⁹⁵

[522] Shelton’s testimony was corroborated by Gee in response to a question put to

him by the Court. He claimed there could potentially have been hundreds of clones of a

BEV card.²⁹⁶

[523] In another instance, and as a further example of Barr’s lack of objectivity and

“parti pris démesuré”, notwithstanding the credible and documented conclusions

expressed by all three of Vidéotron’s experts to the effect that BEV’s conduct was not

that of a reasonable DBS company operating in the circumstances prevailing during the

piracy period, he steadfastly asserts the contrary.²⁹⁷His unqualified assertions

absolving BEV from any responsibility whatsoever for its conduct or for the delays in

effecting the swap-out to the Aladin CAS lack credibility.

[524] Moreover, and further diminishing the probative value of his evidence and

opinions, Barr admitted in cross-examination that he had little or no experience with the

conditional access components of digital satellite systems such as the one operated by

BEV, nor did he have any direct knowledge or experience with card swap operations,

plans or costs. He further admitted that he had no business experience in a DBS

business, a satellite television provider or a conditional access provider²⁹⁸.

(2)

Green

[525] Green was qualified as an expert in computer science, computer systems and

software security, cryptography, conditional access systems technology and design and

encryption of broadcast signals.

[526] His expert report dated September 29, 2010, was produced as Exhibit D-271 (the

“Green Report”).

294

Barr, Transcript, December 8, 2011, pp. 101-112; December 13, 2011, pp. 33-36.

Shelton, Transcript, December 20, 2011, pp. 13-15.

Gee, Transcript, November 23, 2011, pp. 102-103.

Markey, Transcript, September 20, 2011, pp. 62-68; Shelton, Transcript, September 21, 2011, pp.

295

296

297

203-207; Ferguson, Transcript, September 27, 2011, pp. 54-64.

Barr, Transcript, December 8, 2011, p. 33.

298

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[527] Green obtained a Master of Science degree in Computer Science from Johns

Hopkins University in 2008 and a PhD in Computer Science from the same University in

2008. His doctoral thesis was entitled: “Cryptography for Secure and Private Databases:

Enabling Practical Data Access without Compromising Privacy”.

[528] He has authored numerous research publications dealing with related matters.

[529] In 2005 he co-founded, and remains to date CTO of, Independent Security

Evaluators, a company specializing in evaluation and design of security systems. He

was previously a Senior Technical Staff Member of AT&T Labs/Research from 1999 to

2003.

[530] Green’s mandate is described in the following manner:.

The mandate you have given me is to evaluate the technology and anti-piracy

efforts of Bell ExpressVu (BEV), and to answer the following questions:

 Given their various business and technical requirements, did BEV employ

an appropriate technology to protect satellite television signals from

piracy?

 Did BEV make reasonable efforts to detect and interrupt unauthorized

(“pirate”) television decoders on its network?

 Was BEV's conduct comparable to that of the other major North American

satellite carriers during the same time period?

In addition, you have asked me to consider the opinions put forward in reports

authored by Dr. Markey²⁹⁹and Dr. Ferguson³⁰⁰as well as the joint report of Mr.

Schaeffler of the Carmel Group and Mr. Shelton³⁰¹(these works are referred to

herein as the Markey, Ferguson and Carmel reports).

In addition, you have asked me to consider the opinions put forward in reports

authored by Dr. Markey³⁰²and Dr. Ferguson³⁰³as well as the joint report of Mr.

Schaeffler of the Carmel Group and Mr. Shelton³⁰⁴(these works are referred to

herein as the Markey, Ferguson and Carmel reports) ³⁰⁵

[The numbering of internal footnotes are modified to respect the

sequencing of this judgment].

299

John K. Markey. Digital Satellite TV Security: A White Paper, March 2010.

Teresa L. Ferguson. Signal piracy: Corporate prevention and response, March 2010.

Jimmy Schaefﬂer and Jim Shelton. Expert Witness Report of the Carmel Group and Shelton, March

300

301

2010.

302

John K. Markey. Digital Satellite TV Security: A White Paper, March 2010.

Teresa L. Ferguson. Signal piracy: Corporate prevention and response, March 2010.

Jimmy Schaefﬂer and Jim Shelton. Expert Witness Report of the Carmel Group and Shelton, March

303

304

2010.

Green Report, p. 3.

305

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[531] Green provided an introduction to and explanation of the fundamentals of digital

satellite broadcasting (a.k.a. “DBS” or “DSS”) systems and digital satellite television

piracy in North America. To the extent that his explanations are consistent one with the

other, these explanations and those of other experts are referred to in Section III of this

judgment.

[532] Green’s conclusions are referred in summary form :

1.

2.

3.

BEV was prudent in its selection of the EchoStar/Nagravision technology

platform.

From 1995-2004 the U.S. DirecTV system, rather than BEV or Dish

Network, was the primary target of piracy in North America.

DirecTV’s inability to stem signal piracy on its network created an

unexpected set of financial and technical conditions that contributed to

piracy on BEV’s network.

4.

5.

BEV aggressively monitored signal piracy levels and took actions to

thwart pirates.

BEV deployed a new smart card (Conditional Access Module) to its

customers in a timely fashion, allowing for reasonable and prudent testing

and integration of the card.

6.

7.

Smart card swaps are inherently risky, since a provider cannot predict the

resiliency and uncompromised lifespan of the replacement smart card

technology.

The duration of BEV’s 2003 card swap was similar to that of Dish

Network’s card swap, and to the card swaps conducted by DirecTV in the

1990s.

8.

9.

It would have been difficult for BEV to develop its own Conditional Access

technology, or even substantially improve upon Nagravision’s own efforts.

Regarding the claims of account stacking, most satellite providers do not

enforce the connection of telephone lines to new Receiver installations,

and BEV’s policies were consistent with this standard.

10.

11.

Moreover, many of the “industry standard” business practices described

by Plaintiffs’ experts do not appear to have been consistently followed, or

indeed followed at all by the industry.

BEV’s selection of the Digital Video Broadcasting (DVB-S) standard for its

satellite broadcasting technology was appropriate, and a later switch

away from DVB would have been impractical.

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In summary, it is my conclusion that BEV aggressively fought signal

piracy using the best tools available, and was successful in its effort

to both interrupt service to and inconvenience the signal pirates on

its network. When an updated Conditional Access technology was made

available to BEV, the company rolled out smart cards in a period that was

consistent with some of the smart card swaps conducted by DirecTV in

the late 1990s, and very much consistent with the parallel card swap

conducted by Dish Network.³⁰⁶

[Emphasis added]

[533] These conclusions were elaborated upon in his “Detailed Findings” contained in

Section 5 of the Report.

[534] The following is a more detailed examination of a number of Green’s

justifications for his “Findings”. They are revealing of what Béchard refers to as a

witness having “manifesté un parti pris démesuré”.



“5.1 BEV was prudent in its selection of the EchoStar/Nagravision

technology platform.”

[535] He dismissed the DIRECTV DSS platform developed by the NDS Group as a

suitable alternative to the EchoStar/Nagra technology chosen by BEV. He noted

DIRECTV was experiencing substantial problems with signal piracy of its system at the

time. He also dismisses the General Instruments DigiCipher platform used by PrimeStar

which, although not vulnerable to signal piracy, was nonetheless, in his words,

technically inferior. He described, without any reserve or qualification, his reasons for this

assertion:

For one thing, the DigiCipher technology did not incorporate a replaceable

smart card (CAM), which would have limited its renewability in the event of

a compromise. Furthermore, it required specialized set top box technology that

might have dramatically increased the cost of BEV’s service.³⁰⁷

[Emphasis added]

[536] Having been present in Court during a substantial portion of the evidentiary

hearing, having heard evidence to the contrary and having had the opportunity of

correcting his opinion in this regard, Green held steadfast, again without any

qualification, to his views expressed above during his examination in chief on December

13, 2011³⁰⁸.

306

Ibid, p. 4.

Ibid, p. 19.

Transcript, December 13, 2011, p. 169.

307

308

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[537] On December 14, 2011, during cross-examination, when challenged with

Shelton’s substantiated credible opinion to the contrary and when put to him that the

DigiCipher technology was indeed renewable, his evasiveness and reluctance to admit

his error was incomprehensible and, to say the least, troublesome.

[538] The following exchange between counsel and Green, when confronted with what

appears to have been an error or omission in his Report, discloses a certain

unnecessary lack of candour, independence and objectivity on a matter which, in and of

itself, would not otherwise be of crucial importance:

Now, Dr. Green, did you ever see one of these modules?

A-

I have seen a DigiCipher box, yes.

95Q-

A-

You have seen it?

I have.

96Q-

Now, you repeated this statement, by the way, in your examination in chief yesterday and

Mr. Shelton tells me that this is wrong, that Mr. Shelton was involved with General

Instruments with the design of these modules and that, in fact, the DigiCipher technology

was designed with a capacity for renewable security, it had a smart card slot. Is that not

the case, Dr. Green?

A-

I'm not sure if we're talking about the digital DigiCipher or the analog DigiCipher, I'm not

exactly sure.

97Q-

A-

Well, which one did you see?

I am talking about the digital DigiCipher platform. I don't know what to say, but...

(…)

101Q- Yes, but I said DigiCipher.

A-

Based on my understanding and based... I have not examined one of these boxes in

detail, but what I have seen in descriptions of these boxes is they use an internal

conditional access module that was actually connected to the circuit board. So that is

what I believe their conditional access module was based on.

102Q- So you... if I understand your answer correctly, all you saw was comments on the

module, you never actually saw the module, is that your...

A-

No, I've seen a box and I've never examined it closely to look for a smart card slot.

103Q- So you don't know whether there's a slot or there isn't a slot in the box, do you?

A-

I don't know whether there's a slot, but I do... I have examined... I have looked at

essentially descriptions of these technologies, and the description of this technology is

that the conditional access module was integrated inside of the box. If Mr. Shelton has

evidence to the contrary, I would correct myself.³⁰⁹

[539] Shelton was re-examined in counter-proof on December 20, 2011. He confirmed

both that he designed the DigiCipher CAS module in early 1999 and that these modules

all had renewable technology through the smart card slots at the rear of the units. His

testimony in this regard is credible and uncontradicted, except by Green.

309

Transcript, December 14, 2011, pp. 76-77.

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

“5.2 From 1995-2004 the U.S. DirecTV system, rather than BEV or

Dish Network, was the primary target of piracy in North America.”

[540] Green claimed “…there was no significant piracy on BEV until approximately 2000.”³¹⁰

In cross-examination, in a somewhat convoluted manner, he attempted to qualify his

comments by saying that he didn’t mean that there was “no piracy” before 2000 but

rather that it became significant thereafter.



“5.7 The duration of BEV’s 2003 card swap was similar to that of

Dish Network’s card swap, and to the card swaps conducted by

DirecTV in the 1990s.”

[541] Green noted that the duration of the card swaps performed by BEV was

comparable with that of the Dish Network and more favourable then that of DIRECTV.

That may or may not be the case. However, what is relevant and what he conveniently

omits to address in this part of his Report are the comparable delays in initiating the

card swaps. In particular he substantially ignored and failed to justify the reasons for

the delays in the initiation of the swap-outs by BEV.

[542] Moreover, peculiarly, he neglected to address the evidence regarding the

significantly shorter time period required by other DBS companies in other parts of the

world to perform the swap-out of their existing system to the new Aladin CAS. The

inordinate delay by BEV to initiate and execute the swap-out is one of the main

criticisms of Vidéotron. It is a fundamental issue raised for determination in this action.

[543] Green’s failure to consider these material facts which, being within the scope of

his professed expertise, one would have thought was known to him, brings into question

the reliability of his opinion. This is unexplainable and cause for concern.

[544] In Section 6 of his Report, Green addressed certain opinions expressed by

Vidéotron’s experts. His comments in this regard as well as his testimony are to a large

extent argumentative, founded in business and economic judgment rather than in the

technical expertise for which he was qualified. He should have abstained from opining

on these issues which fall outside his experience or expertise.

[545] Green concludes:

When BEV did confirm the existence of significant piracy on its network

(in late 2000 to 2001), it took a number of actions to combat the piracy. It

might have been ideal if BEV could have immediately deployed a new

Conditional Access System at that time, but in practice BEV (like most

satellite providers of its size) required a technology partner to develop the

CAS, integrate it with the platform, and test it and deploy it without

causing substantial interruption to its customer base. Nagravision was

already engaged in the process of developing such a CAS (the Aladin, or

310

Supra, note 308, p. 19.

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DNASP-III system), and thus BEV began planning the switchover to this

system. While BEV could technically have switched to an alternative CAS

manufacturer, this might have added substantial integration time, and

might not have reduced piracy. In my opinion, BEV made a prudent

decision to upgrade to the new Nagravision CAS.

Once an updated CAS technology was made available, BEV rolled

out the smart cards in a period that was consistent with some of the

smart card swaps conducted by DirecTV in the late 1990s, and very

much consistent with the parallel card swap conducted by Dish

Network. Furthermore, there is no reason to believe that a faster

rollout would have prevented, or even delayed subsequent

compromises of the smart card technology. ³¹¹

[Emphasis added]

[546] In his testimony at trial, referring to the swap-out process to the Aladin CAS,

Green insisted that, in his unqualified opinion: “there was no delay in that process that was

not related to a technical reason. That was my conclusion based on having examined this

history”.

[547] On this subject, in cross-examination, Green was referred to the document

previously referred to, dated July 23, 2002 entitled “Project Aladin: Preliminary Outline

of Business Case” ³¹²and in particular to the recommendation contained on page 18

thereof which read: “Based on current estimates of signal theft, do not proceed with card swap

out program.”

[548] Although he makes no mention of it in his Report, or in his examination in chief,

Green acknowledged having seen this document before. On the pretext, according to

him, that there was no proof as to its author, he simply chose to ignore it and disregard

its contents. He maintained his opinion that “there was no delay in that process that was not

related to a technical reason.”

[549] This is an issue for the Court to decide.

[550] At the moment, one can only wonder whether he even examined or was aware of

the financial structure and the internal workings of the funding process among BCE and

its subsidiary and affiliated entities. In particular, the Court is perplexed how Green

could make this unqualified assertion regarding the absence of any delays “… not related

to a technical reason” in light of the credible evidence to the contrary regarding the delays

in obtaining funding for the project.

311

Ibid, pp. 33-34.

Exhibit P-200.2.

312

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[551] The following exchange ensued between counsel for Vidéotron and Green on

this subject:

326Q- Dr. Green, I'll put the following the question to

[you…] From your

attendance in Court over the last some forty-five (45) days, were you

aware that it is only in May of two thousand and four (2004) that the

funding approval to proceed with the card swap was obtained?

A-

The funding approval was obtained in May two thousand and four (2004)

to purchase the cards that would be used in the physical swapping of

cards.

327Q- Right.

A-

Yes, that is my understanding.

328Q- Okay. And that the swap commenced in August of two thousand and four

(2004), you're also aware of that fact?

A-

That is my understanding as well.

329Q- And despite those two (2) facts, you testified before the Court that the

only delays to proceed (…) with the swap were technical in nature; that

was your evidence before the Court?

A-

That is my belief, yes. ³¹³

[552] The steadfast adherence by Green to this conclusion, without any qualifications

whatsoever on his part, is serious cause for concern as to the independence, objectivity

and probative value of his Report. It is a further example of his refusal to address

material facts that are were unfavourable to BEV and that challenge the validity of his

opinion.

[553] Moreover, the opinion that “…there is no reason to believe that a faster rollout would

have prevented, or even delayed subsequent compromises of the smart card technology” is

unsubstantiated in fact. It has been contradicted by the credible evidence adduced by

Vidéotron’s expert and ordinary witnesses.

[554] In assessing the probative value of the Green Report and his testimony in

support thereof, as in the case of the Barr Report, the Court applies the same

“Questions fondamentales concernant la force probante” enumerated by Béchard and

previously referred to herein³¹⁴. For the same reasons expressed with respect to the

probative value of the opinions expressed in the Barr Report and for the additional

313

Transcript, December 14, 2011, p. 194.

Béchard, Supra note 194 at p. 660.

314

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reasons expressed above, the Court rejects the opinions expressed in the Green Report

and in his testimony in support thereof.

B.

QUANTIFICATION OF DAMAGES

[555] The jurisprudential principles referred to in Section IX above will be similarly

applied in assessing the credibility of each of the expert witnesses examined at trial in

connection with the quantification of damages allegedly suffered by Vidéotron and TVA.

VIDÉOTRON & TVA

[556] Two expert witnesses testified on behalf of Vidéotron and TVA in connection with

the quantification of damages: Alain Lajoie (“Lajoie”) and Jonathan Allard (“Allard”)

both principles of Navigant.

(3)

Lajoie

[557] Lajoie was qualified as an “Expert en juricomptabilité”. His expert report, co-

authored with Allard and dated March 29, 2010, was produced as Exhibit P-363. They

were assisted in the preparation of the report by Guy St-Georges, a director of the

Montreal office of Navigant. A revised and consolidated report, dated October 3 & 5,

2011, was produced as Exhibit P-363i (the “Navigant Report”). He was solely

responsible for chapters 1 through 6 of the report and presumably shared responsibility

with Allard for chapters 8 and 9.

[558] He has practiced as a chartered accountant since 1978, received an MBA

degree from the University of Western Ontario in 1983, was named a chartered

accountant with an expertise in forensic accounting (CA-EJC) in 2000 and a Fellow of

the Order of Chartered Accountants of Quebec (FCA) in 2007. His full curriculum vitae

is annexed to the Navigant Report as Annex 1.

(4)

Allard

[559] Allard was also qualified as an “Expert en juricomptabilité”. He co-authored the

Navigant Report with Lajoie. He was solely responsible for chapter 7 of the report and

presumably shared responsibility for chapters 8 and 9.

[560] He has practiced as a chartered accountant since 2005. He received a

Baccalauréat en sciences comptable (B.A.A) in 2002, an MBA in 2004, a Diplome in

investigative and Forensic Accounting (DIFA) in 2007. His full curriculum vitae is

annexed to the Navigant Report as Annex 2.

[561] Navigant’s mandate is described in the following manner:

1.1

Les services de Navigant Conseil LJ Inc. (« NCI ») ont été

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retenus par Woods s.e.n.c.r.l., agissant à titre d’avocats pour le

compte de Vidéotron Ltée, Vidéotron (Régional) Ltée, CF Câble

TV Inc. (collectivement appelées « Vidéotron ») et Groupe TVA

Inc. (« TVA ») (collectivement appelées les « Demanderesses »)

aux fins d’éclairer le tribunal relativement aux :

Mission

confiée à

NCI

 dommages que Vidéotron allègue avoir subis depuis le

1^erseptembre 2002 et jusqu’au 31 août 2005 suite aux

actes que celle-ci reproche à Bell ExpressVu S.E.C.

(« BEV »);

 dommages que Vidéotron allègue avoir subis depuis le

1^erseptembre 2005 suite aux actes que celle-ci reproche

à BEV; et

 dommages que TVA allègue avoir subis depuis le 1^er

septembre 2002 et jusqu’au 15 juillet 2005 suite aux actes

que celle-ci reproche à BEV.

1.2

D’une part, vous nous avez demandé, à la lumière des données

disponibles à même la preuve déposée par les parties, de

déterminer à travers le temps le nombre de pirates présents sur

les territoires de Vidéotron, ainsi que ceux qui auraient

normalement été des clients de cette dernière.

Conditions

de

mission

la

Dans un deuxième temps, vous nous avez demandé, à la

lumière des données disponibles à même la preuve déposée

par les parties, de déterminer à travers le temps quel fut le

nombre d’abonnés pour lesquels TVA fut privée de

redevances sur le territoire québécois.

Finalement, vous nous avez demandé, à la lumière de

l’information financière historique des Demanderesses et des

données disponibles à même la preuve déposée par les

parties, de déterminer les pertes de profit que les

Demanderesses auraient subies depuis le 1er septembre

2002, incluant les pertes futures, permanentes ou

temporaires, attribuables à la perte de clients causée par les

fautes que les Demanderesses attribuent à BEV avant que

celle-ci ne procède à un changement de ses cartes

d’accès.315

[Internal references omitted]

315

Navigant Report, p.1.

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[562] The authors, with no apparent expertise or experience in the industry and with no

technical expertise relevant to piracy and signal theft in the DTH television industry,

purport to provide an analysis and historical perspective of the phenomenon not only in

Quebec and the rest of Canada, but as well in other parts of the world. This analysis is

found in section 3.0 of the report.

[563] An extensive list of documents that Lajoie and Allard claim to have consulted for

the purposes of the report is contained in Annex 5. The authors refer as well to an

additional source of information being: “ …discussions avec des représentants de

Vidéotron et de TVA qui nous ont fourni certains renseignements, notamment de nature

financière et ce, dans le but de nous assister dans la détermination du quantum. ”³¹⁶

With few exceptions, most of those representatives with whom the authors allegedly

met were not witnesses in these proceedings. There is no admissible evidence

emanating from them upon which the authors may appropriately rely in formulating their

opinions.

[564] In cross examination regarding which documents each of them actually

consulted, Lajoie is uncertain which he effectively examined as opposed to having had

them at his disposal. A substantial number of relevant documents appear not to have

been examined al all by either Lajoie or Allard, while, others, not in evidence appear to

have been examined and relied upon.

[565] The methodology used to calculate the damages allegedly suffered by Vidéotron

and TVA is described in section 5.2 of the report:

Notre démarche pour en arriver à un calcul des dommages a

comporté cinq (5) étapes, à savoir :

1.

À partir de la documentation en main, la détermination du nombre de

personnes qui pirataient le système de BEV de 2002 à 2005 (Section 7.2).

2.

La détermination du nombre de pirates qui, s’ils n’avaient pu pirater le

système de BEV, auraient été des abonnés de Vidéotron ou auraient payé des

redevances à TVA (Section 7.3).

3.

Le calcul des dommages pour la période pré-août 2005 pour Vidéotron et

pré-juillet 2005 pour TVA (Section 9.0).

4.

Le calcul des dommages pour la période post-août 2005 et jusqu’au 31

décembre 2009 pour Vidéotron (Section 9.0).

5.

Le calcul des dommages pour la période post-décembre 2009 pour

Vidéotron (Section 9.0).

316

Ibid, p. 21.

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Dans le cas des étapes 3 à 5, la méthodologie utilisée aux fins de déterminer les

dommages est expliquée plus en détail à la Section 8.0 du présent rapport.³¹⁷

[566] The authors referred the Court to Section 8.0 of the Report for a detailed

explanation of the methodology used for determining the damages evaluated under

steps 3, 4 and 5 above. However, once again, in examining the source financial

information relied upon by the authors in determining the damages allegedly during the

three distinct periods in question, reference is made to financial information emanating

not only from Vidéotron and TVA, but also to such information, not in evidence, from

other affiliates or sister companies.

[567] The information in question comes in part from what the authors refer to as “le

cahier”. There appears to be no differentiation in the minds of the authors between

financial information in evidence in these proceedings and such information, not in

evidence, forming part of the financial books and records of the Plaintiffs and their

affiliate or sister companies. The authors acknowledge as much in the Report:

Travail de

validation

Une grande partie des informations qui nous furent

utiles dans la détermination du quantum des

dommages dans le cas présent furent extraites

principalement de la version annuelle des Cahiers.

Voici en substance les procédés que nous avons

appliqués dans le cas présent:³¹⁸

[568] A summary of Navigant’s findings is contained Section 2.0 of the Report. The

following extracts warrant reproduction. They reflect a selective analysis and

appreciation of the evidence and a troubling lack of independence or objectivity.

Although the authors found it necessary to revise their Report on several occasions

since producing the original in March 2010, in many instances, either Allard or Lajoie,

who were in attendance during a considerable part of the evidentiary hearing, ignored

the oral and documentary evidence adduced during the hearing that was inconsistent

with their own analysis of the documentary evidence contained in their Report.

[569] The following summary, drafted in 2010, has not been amended even though, in

many respects, it reflects their appreciation or interpretation of the documentary

evidence which has proven, at trial, to be incorrect or at the very least misleading:

2.0 Sommaire

de nos

constatations

Nous avons d’abord examiné l’offre des deux

télédistributeurs, à savoir Vidéotron et BEV, tant en

matière d’équipements que de chaînes. La période

couverte allait du 1^erseptembre 2002 au 31 août 2005.

Cette analyse fut faite à partir des brochures

317

318

Ibid, p. 22.

Ibid, p. 58.

500-17-027275-059

PAGE : 133

publicitaires offertes aux consommateurs. Cet

exercice était essentiel aux fins de déterminer si l’un

ou l’autre des télédistributeurs possédait un avantage

concurrentiel sur son compétiteur.

Nous concluons que les offres de BEV et de Vidéotron en matière

d’équipements étaient similaires, si ce n’est que BEV avait introduit

certains de ses récepteurs/enregistreurs avant Vidéotron avec un avantage

sur le prix.

Toutefois, en matière d’offre de chaînes et de prix s’y rattachant, toutes

proportions gardées, les deux télédistributeurs avaient une offre similaire.

Lorsqu’il y avait un léger avantage pour l’un ou pour l’autre, cet avantage était

ponctuel, temporaire et rapidement comblé par son compétiteur.

Le piratage des signaux satellite de BEV est un phénomène pancanadien.

Toutefois, plusieurs éléments de la preuve nous ont amené à croire que le

piratage des signaux de BEV était, à l’époque des faits, plus répandu au Québec

que dans le reste du Canada.

Dans un premier temps, nous avons procédé au calcul du nombre de foyers qui

pirataient la signal satellite de BEV sur le territoire québécois. Le cœur de notre

méthodologie a reposé sur un rapport préparé par le comité de lutte contre le

piratage de BEV intitulé Report on Counter-Piracy et daté du 13 janvier 2003

(Pièce P-106). Pour ce faire, nous avons utilisé quatre méthodes, lesquelles ont

toutes pointé vers un résultat similaire démontrant que le nombre de foyers

piratant les signaux satellite de BEV se serait situé entre 79 500 (31 août 2002)

et 158 000 (28 février 2005).

Par la suite, nous avons transposé ces données et procédé au calcul du nombre

de clients perdus par Vidéotron. En appliquant un taux de piratage

« acceptable » de 0%, cette analyse nous a permis de conclure que

Vidéotron avait perdu entre 41 200 (31 août 2002) et 81 900 (28 février 2005)

clients suite au piratage des signaux satellite de BEV. Ces chiffres sont

bien entendu inférieurs si nous utilisons un taux de piratage « acceptable »

supérieur.

Nous avons ensuite procédé au calcul des revenus perdus. Cet exercice fut fait

sur une base de coût/revenu marginal et visait à déterminer les flux monétaires

générés par un abonné additionnel chez Vidéotron. Comme un client en

télédistribution pouvait aussi s’abonner à d’autres services (internet, télévision

par câble), ceci nous a amené à déterminer les revenus par année, pour chacun

de ces services et ce, pour la période étudiée, laquelle couvrait les exercices

financiers terminés les 31 décembre 2002 à 2009 inclusivement. Dans le cas de

TVA, nous avons calculé les redevances moyennes perdues par cette société

pour la chaîne Le Canal Nouvelles (LCN) entre le 1^erseptembre 2002 et le 15

juillet 2005.

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Finalement, nous avons, à partir des données déterminées précédemment,

compilé les revenus perdus par Vidéotron et TVA pour les périodes du 1^er

septembre 2002 au 28 février 2005 et du 1^erseptembre 2002 au 15 juillet 2005

respectivement. En prenant comme hypothèse un taux de piratage

« acceptable » à 0%, les pertes de profits subies par Vidéotron pour la

période du 1^erseptembre 2002 au 28 février 2005 se chiffreraient à environ

37 140 714 $ et celles de TVA pour la période du 1^erseptembre 2002 au 15

juillet 2005 à environ 1 468 174 $, le tout en dollars du 31 août 2005. Ces

pertes de profits sont bien entendu inférieures si nous utilisons un taux de

piratage « acceptable » supérieur.

Quant aux pertes de Vidéotron pour la période suivant le 28 février 2005,

elles dépendent de l’hypothèse que nous posons quant à la migration des

clients perdus vers l’un ou l’autre des télédistributeurs suite au

changement des cartes. En effet, il est fort possible qu’une partie plus ou

moins importante des pirates ait pu décider, suite au changement de carte,

de s’abonner (ou se réabonner) aux services de Vidéotron. De même, il est

fort possible qu’une partie plus ou moins importante des pirates ait pu

décider, compte tenu qu’il possédait déjà tout l’équipement nécessaire

pour capter le signal satellite de BEV (soucoupe, décodeur, etc.), de

demeurer avec BEV.

Les signataires du présent rapport soumettent donc respectueusement que

l’évaluation de cette partie de la réclamation, à savoir le nombre de pirates

qui ont migré vers Vidéotron ou qui sont demeurés chez BEV, devrait faire

partie du mandat de la Cour, compte tenu de l’entièreté de la preuve qui lui

sera présentée. De même, nous estimons que la Cour, après étude de la

preuve, sera mieux placée pour statuer sur un nombre d’années post-

février 2005 pendant lesquelles Vidéotron a été, ou sera pour l’avenir,

privée de revenus suite au piratage.

Nous avons préparé différents scénarios de migration et nous laisserons donc à

la Cour le soin de déterminer lequel serait le plus plausible dans les

circonstances, ainsi que la période sur laquelle ces scénarios devraient être

calculés. Dépendant du scénario et de la période choisis, les profits perdus,

avec un taux de piratage « acceptable » à 0%, se chiffrent dans une

fourchette entre 37 140 714 $ et 347 703 307 $, le tout en dollars du 31 août

2005. Ces pertes de profits sont bien entendu inférieures si nous utilisons un

taux de piratage « acceptable » supérieur.³¹⁹

[Internal references omitted, Emphasis

added]

[570] The Court is troubled by and has serious concerns about the credibility of the

authors’ opinions expressed in those portions of the Report, emphasized and

highlighted above.

319

Ibid, pp. 5-7.

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(i)

PAGE : 135

ALLEGED ABSENCE OF COMPETITIVE ADVANTAGE DURING THE PIRACY PERIOD

[571] In concluding that neither party had any competitive advantage with respect to

equipment and channels offered, the authors admit that: “Cette analyse fut faite à partir

des brochures publicitaires offertes aux consommateurs.” On that basis alone, they

dismissed the possibility that the reduction in the subscriber base and the consequent

losses incurred by Vidéotron could be due to consumer preferences for the service

offered by BEV. They ignore, or dismiss as of no consequence, the fact that high

definition television services were offered by BEV a considerable period of time before

that available to Vidéotron subscribers. This fact might have given BEV a certain

competitive advantage and might have contributed to its loss of subscribers. Their

finding in this regard is unsubstantiated and moreover, in light of the evidence adduced

at trial by the President and C.E.O of Vidéotron, Robert Dépatie on this subject,

incorrect.

[572] As previously mentioned, Dépatie acknowledged there may be “other” reasons

why Vidéotron lost existing or potential clients. He testified candidly and credibly:

“ En aucun cas on attribue la décroissance complète de Vidéotron à seulement le

piratage. Bien au contraire, il y avait de la concurrence et autres, on le sait fort

320

bien.”

(ii)

ACCEPTABLE LEVEL OF PIRACY (« TAUX DE PIRATAGE « ACCEPTABLE »)

[573] Although in their tables contained in the annexes to the report, the authors

provided calculations based upon other “acceptable” levels of piracy, it is significant that

for the purposes of their opinion and explanations and notwithstanding the evidence

heard on behalf of each of the parties that a 0% level of acceptable piracy is

unattainable, they chose nonetheless to base their conclusions on this level of

acceptable piracy. This form of presentation clearly presents a far more dramatic

portrait of the consequences of piracy with losses calculated as high as $347,703,307.

The attempts at drama, however, detract from the neutral objectivity one would have

hoped to see reflected in the Report.

(iii)

LOSSES: PIRACY PERIOD

[574] In calculating the losses for the Piracy Periods, the authors based their

calculations upon a 0% level of acceptable piracy, although acknowledging that the

losses would be inferior if they used a higher level of acceptable piracy.

320

Transcript, September 7, 2011, pp. 138-139.

500-17-027275-059

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[575] The calculations of the losses incurred by Vidéotron are for the period from

September 1, 2002 until February 28, 2005; and for TVA, for the period from September

1, 2002 until July 15, 2005. Depending upon which of the 3 scenarios proposed by

Navigant is chosen, the authors conclude that Vidéotron incurred losses ranging from

$37,140,714 to $29,095.272 during the Piracy Period; TVA ranging from $1,486,174

and $1,190,196.

[576] Once again, the authors chose to ignore the evidence heard at trial regarding the

timing of the availability of the Aladin CAS and the earliest possible date upon which

BEV could have performed the swap-out from the legendary CAS to the Aladin CAS.

Although Lajoie and/or Allard were substantially present throughout the evidentiary

phase of the hearings and either witnessed or were advised of the testimony, they

chose to ignore evidence and not to further amend their Report. They simply retain, as

appropriate, the September 1, 2002 commencement date of the Piracy Period as

proposed in their Report.

[577] While the authors chose to ignore this evidence, Plaintiffs’ counsel in their oral

argument, acknowledged that the earliest possible date at which BEV could have

performed the swap-out to the Aladin CAS would have been April 1, 2003 and not the

September 1, 2002 date relied upon by the authors. Counsel further acknowledged that

3% would be an appropriate acceptable rate of piracy. This resulted in a reduction of the

damages claimed during the Piracy Period on behalf of Vidéotron from $37,140,714 to

$28,539,723 and a similar reduction on behalf of TVA from $1,486,174 to $1,088,940.

[578] In a letter addressed to the Court dated January 6, 2012, Plaintiffs’ counsel

acknowledged, presumably based upon the evidence heard at trial, that the calculation

of damages claimed should commence from March 31, 2003 or, in the worst case

scenario, at the latest from July 1, 2003.³²¹At the request of the Court, counsel provided

the calculation of damages based upon other possible commencement dates

subsequent to July 1, 2003.

[579] No such amendment was ever proposed by either Allard or Lajoie.

I

(IV)

LOSSES: POST PIRACY PERIOD (VIDÉOTRON ONLY)

[580] In their revised and consolidated report, the authors decline to quantify the claim

for damages incurred by Vidéotron during the post piracy period. In particular they

decline to opine as to the number of subscribers who chose to either stay with BEV or

migrate to Vidéotron. For some incomprehensible reason, and notwithstanding their

willingness to opine on the damages allegedly incurred during the Piracy Period, they

conclude this determination should be made by the Court “…compte tenu de l’entièreté de

la preuve qui lui sera présentée.” Similarly, they decline to opine as to the duration of the

post piracy period.

321

Exhibit P-388.

500-17-027275-059

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[581] Rather, they provide different scenarios for the Court to adopt based upon what it

believes most appropriate. Depending on the scenario retained and with a 0% level of

acceptable piracy, according to the authors, the damages incurred during the post

piracy period would range from a low of $37,140,714 to a high of $347,703,307 all

calculated in dollars discounted as of August 31, 2005.³²²

[582] For

the

foregoing

reasons

as

well as

those

expressed

by

PricewaterhouseCoopers in the PwC Expert Report, reproduced below, with which the

Court concurs in all material aspects, one cannot look to the Navigant Report for

assistance to quantify the claims in damages claimed by either Vidéotron or TVA.

2.2

Summary of Comments on NCI’s Report

We present below the summary of our comments on NCI’s report:

 The assumptions used in NCI’s report to determine the number of alleged

pirates in Quebec are unsupported (see Section 2.3.1 and 2.3.2);

 A scenario with a 0% tolerable piracy rate is unreasonable and overstates

the quantum of the alleged damages (see Section 2.3.3);

 Using the assumption that the pirate population behaved like the average

legitimate customer is speculative and overstates Vidéotron’s alleged lost

clientele (see Section 2.3.4);

 NCI does not consider any mitigating actions Vidéotron could have

initiated to reduce its damages after the Swap End Date (see Section

2.3.5);

 The utilization of bundling is unsupported and overstates the quantum of

damages suffered by Vidéotron by including the cash flows lost for

services other than broadcast television in a proportion equal to the

contemporaneous bundling rate (see Section 2.3.6);

 The selection by NCI of the end-of-period bundling rates to estimate the

cash flows lost overstates the damages related to bundling (see Section

2.3.7);

 NCI fails to provide details on the composition of the direct costs and

operating expenses and as a result, it is difficult to comment on the

validity and reasonableness of the costs included and excluded from the

cash flow per subscriber (see Section 2.3.8);

322

Exhibit P-363i, Annexe 35.

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PAGE : 138

 NCI does not consider all the cash flows related to the costs from the

existing pirates at the beginning of the Piracy Period, which overstates

the damages. On the other hand, NCI does not consider the acquisition

costs actually incurred by Vidéotron in scenarios where former pirates

subscribed to Vidéotron after the Piracy Period. This omission

understates their quantification of damages (see Section 2.3.9);

 A portion of hybrid pirates were likely paying licensing fees to TVA and

TVA’s damages as quantified by NCI would be overstated (see Section

2.3.10); and, […]³²³

[583] In assessing the probative value of the Navigant Report and the testimony of

Lajoie and Allard in support thereof, the Court applies the same four “Questions

fondamentales concernant la force probante” enumerated by Béchard and previously

referred to herein in analyzing the evidence of other expert witnesses³²⁴. For the same

reasons expressed with respect to the probative value of the opinions expressed in the

Barr Report and the Green Report and for the additional reasons expressed above, the

Court rejects the opinions expressed by Lajoie and Allard in the Navigant Report and in

their testimony in support thereof.

BEV

[584] One witnesses, Pierre Maillé (“Maillé”), a principal of PricewaterhouseCoopers

(“PwC”), testified on behalf of BEV with respect to the quantification of damages

claimed by Vidéotron and TVA in this and one or more of the Related Actions.

[585] Maillé was qualified as an “Expert en évaluation d’entreprise et évaluation de

dommages”. His original Report, dated November 9, 2010, was produced as Exhibit D-

269C. A revised and consolidated Report, dated December 16, 2011, was produced as

D-269F (the “PwC Report”).

[586] Maillé received a Baccalauréat en commerce, Systèmes d’information de gestion

et Finances in 1978 and a Maîtrise ès sciences (M.Sc), option finance, in 1986. He

became a member of l’Institut canadien des experts en évaluation d’entreprises (EEE) –

Canadian Institute of Chartered Business Valuators (CBV) in 1998. His considerable

experience in business evaluation and quantification of business operating losses is

detailed in his curriculum vitae, produced as Exhibit D-269A. As in the case of Lajoie

and Allard, he has no particular expertise or experience with piracy and signal theft in

the DTH television industry.

[587] PwC’s mandate is described in the following manner:

323

PwC Report, pp.10 & 11.

Béchard, Supra note 194, p. 660.

324

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You have asked us, as independent experts specializing in business valuation

and financial litigation, to assist you in analyzing the financial issues relating to

two separate complaints filed with the Court by the Plaintiffs against BEV. More

precisely, you have asked us to comment on the Plaintiffs’ expert report on the

financial damages allegedly suffered by the Plaintiffs, prepared by NCI dated

March 29, 2010. Furthermore, you have asked us to assist you in analyzing the

financial damages, if any, pertaining to BEV’s dispute with the Plaintiffs as at

NCI’s Damage Quantification Date should the Court find BEV liable for damages.

[…]³²⁵

[588] The scope of the mandate, the documents consulted and reviewed and the

meetings and/or correspondence with various employees of BCE are described in

Appendix 1 of the Report.

[589] PwC’s analysis and comments on the Navigant Report are contained in Section

2 of the Report. An analysis and quantification of the alleged financial damages suffered

by Vidéotron and TVA, in the event that the Court concludes that BEV is liable for

damages, are contained in Section 3 of the Report.

(1)

COMMENTS ON THE NAVIGANT REPORT

[590] PwC concluded Navigant’s methodology used to establish the number of lost

subscribers and to quantify damages was unreliable because, in particular, it (i) was

based upon speculative and unsupported assumptions; (ii) did not exclude categories of

pirates that, in all probability, would not have been subscribers of Vidéotron; and (iii) did

not consider the effect of attrition. A summary of PwC’s comments on the Navigant

Report, contained at pages 10 and following of their Report is reproduced in its entirety

in the preceding sub-section of this judgment. The summary was elaborated upon in the

following pages of the Report. Certain of these comments warrant particular

consideration.

2.3.4 Analysis of Assumptions Regarding Pirates’ Behaviour

One of NCI’s key assumptions is that the pirates’ behaviour would mirror the

average legitimate user’s behaviour³²⁶. NCI recognizes that it is impossible to

establish with certainty the behaviour the pirates would have adopted, had they

not been able to engage in piracy³²⁷. NCI nevertheless assumes that barring

BEV’s signal piracy, the average pirate would have subscribed to Vidéotron’s

services in the same proportion as the average legitimate user had behaved

historically.

325

PwC Report, p. 1.

Page 54 of NCI Report.

Page 53 of NCI Report.

326

327

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NCI has not demonstrated that pirates would behave comparably to regular

users, and its expert report shows no indication of having analyzed possible

pirates’ behaviour. In our view, assuming that the pirate population would behave

like the average customer is speculative and overstates Vidéotron’s alleged lost

clientele.

[…]

2.3.4.2. Assumptions Regarding Vidéotron’s Market Share

NCI calculates the alleged loss of customers for Vidéotron on the basis that, had

the piracy been prevented, pirates would have subscribed to the different

broadcast distribution undertakings in the same proportion as Vidéotron’s market

share during the Piracy Period. As noted earlier, this market share of 71% is

applied consistently throughout the Piracy Period.

Based on our review of the evolution of market shares (…) in Vidéotron’s

territory³²⁸and Léger Marketing’s quarterly surveys from June 2004 to March

2005, we note that the market shares used in NCI’s report only include the

television broadcast undertakings and exclude non- subscribers, in effect

implying that, had piracy been prevented, all Excess Pirates would have paid for

television broadcasting.

This assumption overstates the number of Vidéotron’s lost customers. We

consider that without BEV’s signal theft, there would be three main options

available to the pirates: 1) Subscribe to one of the undertakings; 2) Off-air

television, or become a non-subscriber; 3) Pirating another system. We review

these options below:

Subscribe to one of the undertakers: NCI assumes this option as the only option

for the pirates.

Off-air television: according to NCI’s report³²⁹, it is estimated that between 13%

and 26% of Canadian households received television broadcasting through the

off-air system (i.e. free) between 1995 and 2005. Furthermore, according to the

Léger Marketing surveys referred to in NCI’s Appendix 11, approximately 20% of

households with a television received television broadcasting through the off-air

system, as computed in Table 1 below:

328

329

Appendix 11 of NCI Report.

Table 1 of NCI Report, p. 14.

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Table 1: Proportion of Off-Air Television Users

Jun-04

Sep-04

Dec-04

Mar-05

Respondents with off-air television service

Total respondents

Proportion

172

801

21%

20%

172

802

21%

155

802

19%

150

800

19%

Average

Source:

Léger Marketing’s surveys for June 2004, September 2004, December 2004 and March 2005

Pirating another system: we understand that signal piracy is a recurring problem

in the industry and would not necessarily cease as counter-measures are applied

to one system.

NCI should therefore have adjusted Vidéotron’s computed market share to

include the proportion of pirates that would not have been Vidéotron’s or any

other broadcaster’s customers even if the piracy had been prevented.

In conclusion, NCI overstated Vidéotron’s potential stake of BEV’s piracy market:

[…]

2.3.5. Analysis of Assumption of Vidéotron’s Loss of Customers after

February 28, 2005

In its calculation of the quantum of damages suffered by Vidéotron, NCI uses five

different scenarios to estimate the loss after February 28, 2005. In each of these

scenarios, NCI assumes that Vidéotron would have kept the alleged lost clients

in the same proportion for a period of approximately 10.5 years (based on

scenarios of 0%, 25%, 50%, 75% and 100% of the February 28, 2005 level). We

consider this method of calculation as a mere sensitivity analysis using

unsupported assumptions.

Moreover, this assumption does not consider any attrition over the years.

Implicitly, this indicates that NCI does not consider any mitigating actions

Vidéotron could have initiated to reduce its damages after the Swap End Date or

any efforts on the part of BEV and other competitors to increase their respective

subscriber base in a post-swap environment.

[...]

2.3.6. Analysis of Bundling and Corresponding Lost Revenues in Other

Services

NCI presumes that BEV’s television signal theft has impacted Vidéotron’s

Internet and cable telephony subscriber base. As such, lost profit margins on

those services offered by Vidéotron are added to the alleged damages. To

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quantify those damages, NCI further presumes that had piracy been prevented,

Vidéotron would have gained subscriptions from those calculated pirates at the

same bundling rate as its contemporaneous “legitimate” subscriber rate³³⁰,

implying that Vidéotron’s alleged lost subscribers due to piracy would have acted

the same way as the average subscriber in terms of services.

This presumption regarding pirates’ behaviour is optimistic and speculative as

there are no indications that pirates were not able to subscribe to Vidéotron’s

other services even if they were stealing BEV’s television signal.

[…]

2.3.10 Analysis of Computation of TVA’s Alleged Loss Over LCN

Subscribers

As discussed previously, in order to calculate the loss of profits related to the loss

of LCN subscribers, NCI multiplied total pirates net of tolerable pirates by the

licensing fee. By doing so, NCI presumes that all clients lost due to piracy were

not paying to receive the satellite signal broadcasting LCN’s content. Yet,

according to the data contained in Appendix 2 of NCI’s letter dated March 31,

2010 addressed to Woods, in Canada, 47.4% of hybrid pirates subscribed either

to À la carte – programmation supérieure or Forfaits. We understand these

packages could include LCN for the province of Quebec. In effect, NCI

erroneously presumes hybrid pirates were likely not subscribers to packages

including LCN.

[…]³³¹

[591] PwC’s comments and observations highlighted above are both appropriate and

well founded.

“BUNDLING”

[592] Since it represents a substantial portion of its claim for damages occurring during

the Post Piracy Period, it is appropriate to elaborate upon the comments of PwC’s and

of BEV’s counsel regarding Vidéotron’s claim for loss of revenues from potential

“bundling” opportunities.

[593] BEV’s counsel contends Vidéotron has not met the standard of proof necessary

to justify its claim as calculated by Navigant under this head of damages. The Court

concurs.

[594] Vidéotron relies upon the reasoning of Mainville J. in Automobile Cordiale Ltée v.

Daimler Chrysler Canada³³², in particular that found at paragraphs [130] and following.

330

In Appendix 29 of NCI Report.

PwC Report, pp.15 ff.

2010 QCCS 32 [“Automobile Cordiale”].

331

332

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In this case, Mainville J. included in the quantification of damages suffered from the loss

of sales, the estimated loss of revenues from derivatives such as the sale of parts and

accessories, labour for repairs under warranty, as well as from financing and insurance

charges [para. 129]. In a similar manner, Vidéotron contends, lost revenues from

bundling should also be calculated in evaluating its damages.

[595] For the reasons expressed in its Plan d’Argumentation Additionnel de la

Défenderesse, and with which the Court concurs, BEV’s counsel contends Automobile

Cordiale is not applicable in the present context.

74.

Or, contrairement au présent dossier, la preuve des dommages et la

méthodologie proposée par les experts de la partie demanderesse pour la

quantification des dommages dans l’affaire Cordiale n’ont pas été remis en

cause par la défense. En effet : « en cours d’audience, les procureurs de

DaimlerChrysler ont avisé le Tribunal que leur cliente ne remettait pas en

question l’exercice intellectuel effectué par Hamelin ni les chiffres

apparaissant au rapport d’expert.» (par.133), et : « Le tribunal doit donc

analyser la seule preuve d’expert disponible, soit celle de l’expert

Hamelin » (par. 134)

75.

Aucune preuve contradictoire n’a donc été administrée dans

l’affaire Cordiale en ce qui concerne les services connexes.

76.

En l’espèce, la réclamation pour pertes de profits reliées aux services

connexes est vivement contestée par BEV pour les motifs suivants :

(i)

Par. 713³³³: La preuve a démontré que les experts de la firme

Navigant ont émis diverses hypothèses pour la quantification des dommages qui

ne découlaient pas de leur champ d’expertise.

(ii)

Par. 714 : En effet, ces experts ont admis qu’ils n’avaient aucune

expérience ou expertise pour comparer l’offre de compétiteurs dans le domaine

de télécommunication ou pour déterminer le comportement et les goûts des

pirates eu égard aux services télévisuels et services connexes (internet et

téléphonie) (Lajoie, 3 oct., pp. 26 ligne 23 – 27 ligne 9; Allard, 4 oct. pp. 70

ligne 24 - 71 ligne 3; pp. 71 ligne 16 - 72 ligne 2).

(iii)

Par. 761 : Dans le cadre de leur rapport d’expertise, les experts

de Navigant ont émis l’hypothèse suivante relativement au comportement du

pirate :

« Pour les fins de nos calculs, nous avons présumé que les pirates recensés se

seraient comportés comme le client moyen et se seraient donc abonnés aux

différents télé-distributeurs en fonction des parts de marché de ces derniers». (P-

363i, p.55 - …).

333

References to “ Par.” are to paragraph numbers in the original Plan of Argument of Defendant.

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Par. 769 : Par ailleurs, ils ont admis, qu’il y avait des incertitudes

(iv)

importantes quant au comportement des pirates (P-363i, p.53 - …). Ils se sont

exprimés ainsi :

« Il nous est impossible d’établir avec certitude le comportement qu’auraient eu

les pirates s’ils n’avaient pu pirater. En effet, nous ne disposons que de peu

d’indications quant aux caractéristiques de la clientèle pirate. De plus, bien que

nous le croyons possible, nous ignorons si la population de pirates se

comporte, dans ses décisions relatives au service de télé-distribution, de la

même façon que l’ensemble de la population. Nous nous questionnons

donc sur le niveau de service auquel ils se seraient abonnés, les services

complémentaires qu’ils auraient achetés (par exemple l’accès à Internet),

leurs préférences technologiques, leur localisation, etc. »

c.

Par. 770 : Cette hypothèse concernant le comportement des

pirates, qui au départ n’était pas supportée, a été clairement contredite par les

autres experts des demanderesses et, plus particulièrement, par Shelton qui, le

22 septembre 2011, à la page 128, s’est exprimé ainsi :

« The customer that used to steal everything likes to continue because it’s like a

drug addiction. They are there used to getting everything for free, including Pay

Per View and if they can get that of a different system, then they will moved to

your system. »

d.

Par. 771 : Ainsi que par Ferguson qui s’est exprimée ainsi, en

date du 27 septembre 2011 à la page 51 :

« Question: And if we look at the benefits side of the coin, just that first bullet

there: «more opportunities to migrate customers, hybrid, black market customers

will see added reasons to be legitimate »

Answer: « They're... pirates are opportunists, and where they see opportunity,

they will try to exploit that opportunity. So, if there is a short-term opportunity, of

course they may become legitimate for a short time, but you can't depend on

them staying legitimate. You can't even depend on them actually converting, and

not pirating other systems. It is wishful thinking in my experience. »

e.

Par. 782 : Les pertes de profits relatives aux services

connexes sont énormes. Elles représentent 18.5% des dommages réclamés

pour la période de piratage et ce pourcentage grimpe jusqu’à 54% pour les

périodes de piratage et de post piratage combinées. (D-269D, p.46 – …)

f.

Par. 783 : La valeur probante de l’hypothèse utilisée par les

experts de la firme Navigant a également été remise en cause car les services

internet n’ont pas souffert ou diminué durant la période de piratage. (D-269D, p.

46 – bates #17029 – Compendium #12 – Experts; Dépatie, 16 janvier 2006,

pp.10, 11, 12 et 20; Lajoie, 5 oct., p. 121)

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Par. 784 : Quant aux services de téléphonie, ils ne sont apparus

g.

que vers la fin de la période de piratage. Ils ne devraient donc pas être

considérés car les clients perdus ont été récupérés.

[Emphasis added – bold & double underlined]

(2)

ANALYSIS AND QUANTIFICATION OF FINANCIAL DAMAGES

[596] PwC proceeded with an analysis and quantification of the damages allegedly

suffered by Vidéotron and TVA in the event the Court should find BEV liable to

compensate them for their losses. The structure and methodology of the PwC analysis

is summarized under the following headings, the details thereof are described in the

pages that follow:

In Section 3.1, we first provide our analysis of the trend in subscriptions for

Vidéotron and BEV along with an overview of the evolution of key product

offering in the market throughout the Piracy Period. This analysis will serve as

the basis of our computation of Vidéotron’s potential loss of customers.

In Section 3.2, we provide you with our estimate of BEV’s piracy (…) in

Vidéotron’s territory during the Piracy Period.

(...) In Section 3.3, we provide you with our estimate of Vidéotron’s potential loss

of customers during the Piracy Period.

(...) Sections 3.4 and 3.5 present our evaluation of Vidéotron’s alleged financial

damages during and after the Piracy Period, respectively.

(...) Section 3.6 presents our evaluation of TVA’s alleged financial damages in

relation to the loss of licensing fees for LCN.³³⁴

[597] Certain extracts of this analysis warrant particular consideration.

3.1

Fluctuations in Vidéotron’s and BEV’s Subscribers and Evolution of

Product Offering in the Market

3.1.1 Chronology of Significant Events Surrounding Piracy Period

In order to understand the state of the Quebec broadcasting market and its

influence on subscribers, we first tabled the significant events that occurred

between 2000 and 2005, focusing on BEV’s and Vidéotron’s products and

company events. The table below presents a chronology of the evolution of the

product offering and other events relating to the Piracy Period.

]…]

334

PwC Report, p. 26.

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Overall

We understand that BEV entered the market at the end of 1997. Prior to that

date, Vidéotron had a quasi-monopoly on the broadcast undertaking market. As

BEV was introducing a new offering on the market, it was expected that

Vidéotron’s subscriber base would be diluted through increased competition. As

we see in Chart 2 and Chart 3, as BEV was gaining customers, Vidéotron

suffered a decline. Even in the absence of piracy, a fierce competition from BEV

would have contributed to Vidéotron’s decline.

[…]

3.2

Population of BEV’s Signal Pirates in Quebec During the Piracy

Period

In this section, we will analyze the pirate population, segregating hybrid pirates

from pure pirates, with the objective of presenting our calculation of piracy in

Quebec and in Vidéotron’s territory during the Piracy Period. We noted earlier in

Section 2 that NCI estimated piracy in Quebec based on several reports and

data prepared by BEV. Their calculation by type of pirates (i.e.: hybrids,

disconnects, non-activated and lost or stolen decoders) is presented in Appendix

17 of their report.

We have reviewed their assumptions and methodology, analyzed the available

documentation provided by BEV, performed our calculation of piracy by type of

pirate and revised the proportion of piracy in Quebec. In essence, we are

presenting an adjusted version of NCI’s Appendix 17, which will serve as a

basis for our own estimate of financial damages.

[…]

3.2.6 Total Estimated Number of Pirates in Vidéotron’s Territory

Our detailed calculation of the number of pirates in Vidéotron’s territory during

the Piracy Period is presented in Appendix 2. Based on the above, we estimate

at 37,000 the number of hybrid pirates and at 30,000 the number of pure

pirates for a total number of 67,000 pirates at the end of the Piracy Period.

[…]

3.3

Pirate Population as Potential Subscribers for Vidéotron’s Services

Our quantification of Vidéotron’s alleged financial damages related to piracy of

BEV’s signal (...) begins with an evaluation of customers Vidéotron allegedly lost.

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(...) NCI recognizes that it is impossible to establish with certainty how pirates

would have acted had they not been able to pirate BEV’s signal³³⁵. NCI has not

attempted to demonstrate what could have been the pirates’ choices had piracy

been prevented. While this is one of the most important parameters for NCI’s

damage quantification assessment, they rely on an exaggerated and unfounded

assumption regarding Vidéotron’s market share.

In our view, the only objective conclusion regarding Vidéotron’s lost customers

can be derived from an analysis of pirates subscribing to Vidéotron’s broadcast

television services during and after the SmartCard Swap. As such, we will

present in Section 3.3.1 our estimate of Vidéotron’s lost customers based on the

level of Videotron’s subscriptions after BEV’s SmartCard Swap. In Section 3.3.2,

we will present a second approach to validate the reasonableness of our

conclusions of Videotron’s lost customers presented in Section 3.3.1.

[…]

3.4

Evaluation of Vidéotron’s Alleged Financial Damages During the

Piracy Period

Once we estimated Vidéotron’s lost customers for each period, we calculated the

earnings it lost from September 1, 2002 to the Swap End Date. As explained

in Section 2, we cannot comment on the accuracy of the assumptions used to

determine the annual cash flow per subscriber as calculated by NCI in

appendices 23 and 25 of their report. However, for lack of validated information

over Vidéotron’s cash flows, we used the same assumptions as NCI regarding

the cash flow generated and the acquisition cost per subscriber.

To estimate the cash flows lost by Vidéotron for each period, we multiplied the

average number of Vidéotron’s lost subscribers by the cash flow that would have

been generated by each subscriber. We then deducted from that amount the new

subscriber acquisition cost for each period, in turn, calculated by multiplying the

fluctuation in lost customers by the acquisition cost per subscriber.

As discussed in Section 2, we consider that the acquisition cost of Vidéotron’s

lost subscribers as at August 31, 2002 should also be deducted from Vidéotron’s

quantification of damages. Therefore, those acquisition costs were deducted in

2002.

In Section 2, we also noted that the inclusion of lost earnings due to

bundling of Internet and cable telephony services was unfounded.

Therefore, our valuation model does not include any loss related to

services other than those directly related to signal theft, i.e. television

broadcasting.

335

NCI Report, p. 53.

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Finally, we indexed the subtotal obtained to NCI’s Damage Quantification Date

using the same indexation rate at NCI’s. Based on our understanding of the

situation, we conclude that Vidéotron’s alleged financial damages during the

Piracy Period range from (...) $3,424,000 to (...) $4,581,000; refer to (...)

Appendix 4 for our detailed calculation.^{336 337}

[The Court’s emphasis in bold, double underligned, single

underlining in original text]

[598] The PwC Report then quantified the Vidéotron damages during the Post-Piracy

Period (referred to as the “Mitigation Period”) and those of TVA during the Piracy

Period.

3.5

Evaluation of Vidéotron’s Alleged Financial Damages After the

Piracy Period

Vidéotron would and should have mitigated the number of customers it lost

during the Piracy Period in the period following the Swap End Date. The period

for which we calculated the damages after the Piracy Period is significantly

different than NCI’s period of approximately (…) 10½ years.³³⁸

We consider that a mitigation period of approximately six months is

adequate, reflecting the period during which the pirates selected their post-

piracy television companies. For Vidéotron, we considered this mitigation

period to represent the (...) 5½ months following the Swap End Date (i.e. the

third and fourth quarters of 2005) representing a damage mitigation period

extending from July 16, 2005 to December 31, 2005, using the premise that

the former pirates would have subscribed to Vidéotron linearly during this

period.

Based on the information above, we quantified Vidéotron’s damages suffered

after July 15, 2005 by multiplying the mid-point number (4,500 to 6,000) of lost

customers by the cash flow loss per subscriber. We also considered the

acquisition costs Vidéotron incurred for the pirates gained after the Swap End

Date. As for the lost earnings after the Swap End Date, we used the same cash

flow per subscriber than NCI as we did not obtain any information that we

consider to be more appropriate and more accurate at the date of this Report.

Finally, we discounted the subtotal obtained to NCI’s Damage Quantification

Date. As a result, we estimate that Vidéotron’s alleged financial damages for the

Post-Piracy Period range from (...) $1,547,000 to (...) $2,063,000; refer to (…)

Appendix 5 for our detailed calculation.³³⁹

336

Assumes a 0% rate of tolerable piracy and a commencement of the Piracy Period of September 1,

2002.

337

338

339

PwC Report, pp. 27 ff.

Now reduced by Vidéotron to 6.8 years.

Supra, note 340, p. 50.

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[599] As to the evaluation of TVA’s financial damages:

3.6

Evaluation of TVA’s Alleged Financial Damages

As further described in (...) Appendix 6 of this Report, we quantified TVA’s

alleged financial damages regarding LCN’s licensing fees by deducting from the

total population of pirates the (…) estimated number of pirates that would have

used off-air television broadcasting or would have continued to pirate another

undertaking, as explained in Section 2.

(...)

This calculation provides the number of pirates from whom TVA could have

obtained licensing fees. Each period, we multiplied this number by the

percentage of Vidéotron’s customers who subscribed to LCN to obtain the total

number of pirates who would have reasonably subscribed to LCN. We have then

deducted the estimated number of hybrid pirates who (...) were already

subscribing to LCN and paying for such services.

We finally indexed the subtotal obtained to NCI’s Damage Quantification Date.

We estimate (...) the lost licensing fees at $527,000 for TVA.³⁴⁰

[600] Like those of Navigant, the PwC evaluations referred to above contemplate a 0%

level of acceptable piracy. Based upon the evidence adduced at trial, it would appear

that calculation of damages at a 3% level of acceptable piracy would be more realistic

and appropriate. Accordingly, as previously mentioned, the Court requested counsel for

each of the parties to provide revised calculations of damages. Plaintiffs’ counsel

provided the requested calculations in its letter dated January 6, 2012³⁴¹.

[601] In a letter dated January 12, 2012³⁴², addressed to the Court, counsel for BEV

confirmed:

Vous nous avez demandé de vous fournir les montants calculés selon la

méthodologie utilisée par PwC en fonction de la reconnaissance des

demanderesses et selon le scénario avec un taux de piratage acceptable de

3 %. Ces montants sont les suivants :

Si les dommages commencent à courir au :

Date

Vidéotron

TVA

1er juillet

2003 :

648 000 $

à

334 000 $

861 000 $

340

341

342

Supra, note 340, pp. 50-51.

Supra, note 324.

Exhibit D-292.

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1er janvier

PAGE : 150

262 000 $

295 000 $

à

2004 :

383 000 $

1er juillet

2004 :

138 000 $

à

172 000 $

169 000 $

77 000 $

31 décembre

2004 :

34 000 $

[602] Applying a 3% rate of tolerable piracy, the revised amounts calculated for both

the Piracy Period and the Post Piracy Period (Mitigation Period) discounted to the

Navigant Damage Quantification Date (August 31, 2005) would range from $861,000 to

$34,000 for Vidéotron. For TVA, the damages for the Piracy Period only range from

$344,000 to $77,000. There is no Post Piracy Period for TVA.

[603] Clearly there are fundamental differences in the approach and methodology

followed by Navigant and PwC in calculating the size of the population of BEV signal

pirates (both hybrid and pure) during the Piracy Period. Similarly, there are fundamental

differences in the calculation of the duration of the Post Piracy Period. These are one of

the material reasons why there are significant variations in the calculation and

quantification of the damages suffered by Vidéotron and TVA.

[604] NCI estimated its level of piracy in Quebec upon its selective extrapolation of

information from several reports and data prepared by BEV, including, in particular, the

Report on Counter Piracy.³⁴³Its calculation by type of pirates (i.e.: hybrids, disconnects,

non-activated and lost or stolen decoders) is presented in Appendix 17 of its Report.

[605] Although the reports referred to, including in particular, the Report on Counter-

Piracy,³⁴⁴would appear to have some merit and probative value, Navigant has chosen

to base its analysis and conclusions on a selective consideration of the Report’s

findings and applied these findings in a subjective manner favourable to the Plaintiffs.

Where the analysis fails, however, is when unsupported assumptions or considerations

are brought into the process that allow Navigant to arrive at unjustified conclusions.

[606] PwC analyzed the relevant available documentation including a series of

analyses prepared by Angoss Software Corporation (“Angoss”)³⁴⁵, reviewed and

challenged several of the assumptions and methodology followed by Navigant and, for

343

Exhibits P-256, P-106, P-159, P-160, P-273 and P-262.

P-106.

Exhibit P-107 (January 27, 2003 & February 5, 2003).

344

345

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the reasons expressed in sub-section 3.2.1 of its Report, arrived at an adjusted estimate

of the level of piracy in Quebec substantially below that retained by Navigant.

[607] PwC presented an adjusted version of Navigant’s Appendix 17, which it

considers more reliable and which forms the basis for its own estimate of financial

damages. Notwithstanding some concerns regarding certain anomalies in the Angoss

analysis, the Court finds, on balance, that the PwC use of the Angoss findings and its

conclusions to be appropriate and credible. Its conclusions regarding the estimated

number of pirates are reasonable and justified in light of the evidence.

[608] Two additional differences exist between Navigant and PwC with respect to the

calculation of damages: (i) the alleged lost earnings by Vidéotron emanating from

“bundling” of Internet and cable telephony services; and (ii) the duration of the

“migration period” - the Post Piracy Period.

(i)

“BUNDLING” OF INTERNET AND CABLE TELEPHONY SERVICES

[609] PwC contends that the utilization of bundling is unsupported and that the

quantum of damages suffered by Vidéotron was overstated by including the cash flows

lost for services other than broadcast television in a proportion equal to the bundling

rate. Navigant presumes that if BEV had prevented piracy, Vidéotron would have gained

subscriptions from the pirates at the same bundling rate as its legitimate subscriber

rate.³⁴⁶

[610] PwC argues:

This presumption regarding pirates’ behaviour is optimistic and speculative as

there are no indications that pirates were not able to subscribe to Vidéotron’s

347

other services even if they were stealing BEV’s television signal.

[611] Succinctly, the Court concurs.

(ii)

THE DURATION OF THE “MIGRATION PERIOD” - THE POST PIRACY PERIOD.

[612] PwC contends the mitigation period of approximately 10 ½ years proposed by

Navigant, now reduced by Vidéotron to 6.8 years, is unjustified and is unsupported by

the evidence. Navigant originally calculated the total damages incurred by Vidéotron

during the Piracy Period and the Post Piracy Period, and depending on which of its

three scenarios the Court choses to retain, at between $29.1 million and $347.7 million.

[613] PwC considers a mitigation period of approximately 5 ½ months to be adequate

following the swap end date during which the former pirates selected their post piracy

provider.

346

Appendix 29, Navigant Report.

PwC Report, p. 22.

347

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[614] The Court concurs. The PwC analysis is reasonable in the circumstances and

consistent with the credible evidence.

[615] Applying the “Questions fondamentales concernant la force probante” identified

by Béchard, previously cited in extract in Section IX B. hereof, the Court retains as

credible and informative, the expertise of Maillé contained in the PwC Report as well as

that expressed in his testimony. His qualifications and experience, both academic and

practical are impressive. The reasoning and analysis contained in the Report are both

serious and coherent. The opinions expressed, on all relevant issues, are based

substantially upon facts properly in evidence, rationally applied and analyzed, rather

than upon unsupported speculation and unsustainable premises.

XI.

APPLICATIONAND DISCUSSION

A.

FAULT

[616] Two distinct legal regimes find application in one or other of the Related Actions.

The general regime of extra contractual civil responsibility, codified in Article 1457

C.C.Q., governs the Vidéotron Action. The general regime of contractual civil

responsibility, codified in Article 1458 C.C.Q., governs the TVA (Piracy) Action, the TVA

(Account Stacking) Action and the TVA (Injunction) Action.

(1)

STANDARD / DUTY OF CARE / BURDEN / FAULT BY OMISSION

[617] The distinction between the obligation of means and the obligation of result

applies in both extra-contractual and contractual circumstances.³⁴⁸The obligation of

means is the appropriate standard of conduct applicable in assessing liability in the

present proceedings. The standard of conduct applicability to BEV is that of a

reasonably prudent and diligent comparable person in the same or similar

circumstances.³⁴⁹

[618] When it is proven that a party had a duty of care to address and rectify a

situation that caused damages to a third party of which it: (i) was aware, (ii) was, in part,

responsible, and (iii) had the capacity to eradicate, then the aggrieved party has met its

burden of proving prima facie extra-contractual fault. In such instances, the burden is de

facto reversed and then falls upon the defendant to rebut the presumption of fault with

comprehensive, convincing and concordant evidence.³⁵⁰

348

L’Écuyer v. Quail, AZ-91011735, J.E. 91-1095 [1991] R.R.A. 482 (C.A.); Hansebout v. Québec

(Procureur général), AZ-88011521, J.E. 88-634, [1988] R.R.A. 243 (C.A.).

Ventilabec inc. v. Patrick Garneau & Associés inc., 2009 QCCS 2811, aff’d. 2011 QCCA 1166.

Automobile Cordiale ltée v. DaimlerChrysler Canada Inc., 2010 QCCS 32, aff’d. 2011 QCCA 2066,

349

350

Mainville J. [“Automobile Cordiale” ].

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[619] See also in this regard: Léo Ducharme, Précis de la preuve, 6th ed.³⁵¹

De même, dans les actions en responsabilité civile, si le demandeur réussit à

établir par présomption de fait que le dommage résulte selon toute probabilité de

la négligence du défendeur, il appartient alors à ce dernier de prouver qu’il n’a

pas commis de faute.

[620] Contrary to that which may exist in the common law Provinces, the regime of

extra-contractual civil liability in Québec does not require proof of a breach of a specific

duty of care between a party and its victim where the act complained of is one of fault

by omission.

[621] The Court adopts by reference and with approval, the analysis of the relevant

authorities on this subject found in Plaintiffs’ Outline of Argument, at paragraphs 562

and following:

562. Professor Daniel Jutras commented on this important difference between

common and civil law in a recent academic publication:

Wrongdoing and unlawful behaviour are never understood or described in

relational terms. Despite the use of the language of “duties” in Article

1457 CCQ, Quebec civil law contains no conceptual equivalent to the

restrictive, relation concept of the “duty of care” which plays such a key

role in Anglo-American common law. Any failure to meet the ordinary

standard of reasonable behaviour in the circumstances can be viewed as

wrongful, and amount to a fault.

[Our emphasis]

Daniel Jutras, « Quebec » in Vernon Valentine Palmer &

Mauro Bussani, ed, Pure economic loss: New Horizons in

Comparative Law, (New York: Routledge-Cavendish, 2009)

114, pp. 114-115, […]

563. Authors Baudouin & Deslauriers share Professor Jutras’ view in their

seminal treaty La responsabilité civile au Québec:

1-183 (…) À propos de la faute d’omission, il existe une confusion, plus

apparente que réelle, chez certains auteurs et certaines décisions.

D’aucuns, en effet, prétendent que l’omission n’est fautive que s’il existe

un devoir ou une obligation spécifique d’agir. On voit ici une influence de

la common law qui, pour qu’il y ait responsabilité, impose comme

préalable d’analyse juridique un « duty to act ». Cette proposition n’est

pas exacte en droit civil et mérite d’être nuancée. […] D’autre part, s’il est

certain que l’omission pure et simple constitue une faute lorsqu’il existe

une obligation d’agir, il n’est pas, pour autant, indispensable que ce

351

Montreal: Wilson & Lafleur, 2005, p. 298.

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devoir soit spécifique c’est-à-dire législativement imposé pour qu’il y ait

faute extracontractuelle. En effet, l’obligation générale de se comporter

en personne prudente et diligence contenue à l’article 1457 C.c. en

respectant les règles de conduite qui s’imposent à elle, est, à notre avis,

suffisante pour fonder une faute d’abstention, en l’absence d’une

disposition légale ou réglementaire touchant l’activité particulière que

devait avoir le débiteur. Il convient donc, à cet égard, de se méfier de

l’analogie avec la common law ou le droit pénal qui, pour sa part, prévoit

plutôt une série de devoirs ou d’obligations spécifiques. (…)

[Our emphasis]

Jean-Louis Baudouin & Patrice Deslauriers, La responsabilité civile,

Vol. 1, 7^thed., (Cowansville, Quebec : Yvon Blais, 2007), p. 164, […]

564. In the recent decision Vibron Ltd v. Patrick Garneau & Associés inc., the

Court of Appeal expressly referred, with approval, to the opinion of Baudouin and

Deslauriers quoted hereinabove.

565. The trial judge upheld the action in damages, finding that Vibron did not

acted reasonably in omitting to proceed with the tests specified in the technical

requirements of the order, despite having not been a party to the contract that set

out these specific tests:

[134] Ce retard imputable au manque de diligence de Vibron constitue

donc une négligence fautive. Elle sait ou aurait dû savoir que des coûts

supplémentaires d’installation découleraient de ce long délai de livraison.

Vibron manque ainsi à son devoir général d’agir de façon raisonnable.

Elle ne se soucie pas du préjudice prévisible que ce retard causera, à

tout le moins de façon probable, à ce sous-traitant (…).

Ventilabec Inc. v. Patrick Garneau & Associés Inc., 2009 QCCS 2811,

aff’d 2011 QCCA1166, […]

566. The Court of Appeal affirmed the trial judge’s decision and added the

following comments regarding the scope of liability by omission under s. 1457

CCQ:

[46] (…) Il est faux de prétendre que l’omission est fautive seulement s’il

existe un devoir ou une obligation d’agir comme ce serait le cas en

common law ou en droit pénal. La faute d’abstention peut être retenue

pour un manquement au devoir général de ne pas causer préjudice à

autrui.

Ventilabec Inc. v. Patrick Garneau & Associés Inc., 2009 QCCS 2811,

aff’d 2011 QCCA1166, […]

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567. This recent appellate ruling is unequivocal. Extracontractual liability can

be triggered for an omission likely to cause harm to another, notwithstanding the

absence of a close relationship between the wrongdoer and the victim, as it

would be required under the common law tort of negligence. A civil fault exists

where one does something that is not reasonable in light of the circumstances

and is likely to cause damages to another.

[622] The Court will now revisit the evidence relevant to Vidéotron’s allegations of fault

on the part of BEV. This will be done in the context of each of the subject matters

considered below in sub-sections 3, 4, 5 and 6 of this Section XI. In particular, the Court

will analyse the evidence regarding BEV’s awareness and tolerance of the growing

incidence of piracy long after the first attack of its signal was first confirmed and its

failure to take appropriate remedial.

(2)

BUSINESS JUDGMENT RULE

[623] Relying on the “business judgment rule” described in recent decisions of the

Supreme Court of Canada, BEV contends that it should not be held accountable for

damages because its conduct reflected reasonable decisions it took in light of business

and technological circumstances then existing. Counsel argues:

6)

In evaluating the conduct of BEV under article 1457 of the Civil Code of

Quebec, the Court should apply the line of reasoning provided by our

courts known as the business judgment rule, whereby deference will be

shown to BEV’s business decisions made in good faith, as long as those

decisions were one of several reasonable alternatives, taking into

account the business and technological circumstances at the time

when those decisions were made.³⁵²

[…]

11)

This line of reasoning has been applied in several decisions of the

Supreme Court of Canada and the Courts in Québec:

Sharbern Holding inc. v. Vancouver Airport Center Ltd., [2011] 2 S.C.R.

175.

BCE Inc. v. 1976 Debentureholders, (“BCE”) [2008] 3 S.C.R. 560, para.

40.

Kerr v. Danier Leather, 2007 3 S.C.R., paras. 56-58.

Peoples Department Stores v. Wise, [2004] 3 S.C.R. 461, at para. 64.

Grant c. Dion, 2007 QCCS 4833, para. 117-120.

352

Plan of Argument of Defendant, p. 6.

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Forget c. Société financière Desjardins-Laurentienne inc., REJB 1999-

10474 (C.S.), para. 82-103.

See also from the Ontario Court of Appeal: Maple Leaf Foods Inc. v.

Schneider Corp. (1998), 42 O.R. (3d) 177, para. 36.

12)

Consequently, the central issue is not whether BEV’s decisions

regarding technology and security were perfect or proved to be

successful after the fact. It is rather whether the business decisions

in question were part of the reasonable options available to BEV at

the time they were made.

[Emphasis added]

[624] The business judgment rule has been consistently and fairly uniformly defined by

the authorities cited above. It was described by the Supreme Court of Canada in the

2008 BCE decision as follows:

[40]

In considering what is in the best interests of the corporation,

directors may look to the interests of, inter alia, shareholders, employees,

creditors, consumers, governments and the environment to inform their

decisions. Courts should give appropriate deference to the business judgment of

directors who take into account these ancillary interests, as reflected by the

business judgment rule. The “business judgment rule” accords deference to a

business decision, so long as it lies within a range of reasonable alternatives: see

Maple Leaf Foods Inc. v. Schneider Corp. (1998), 42 O.R. (3d) 177 (C.A.); Kerr

v. Danier Leather Inc., [2007] 3 S.C.R. 331, 2007 SCC 44. It reflects the reality

that directors, who are mandated under s. 102(1) of the CBCA to manage the

corporation’s business and affairs, are often better suited to determine what is in

the best interests of the corporation. This applies to decisions on stakeholders’

interests, as much as other directorial decisions.

[99]

Under the business judgment rule, deference should be accorded to

business decisions of directors taken in good faith and in the performance

of the functions they were elected to perform by the shareholders.

[Emphasis added]

[625] The business judgment rule has evolved in both the common law and civil law. It

is an attempt to protect corporate directors and their respective corporations from

judicial interference or “second guessing” with the decision making process. It shields

directors from personal liability arising from bona fides decisions made in good faith and

in the interest of the corporation but that subsequently proved to be detrimental to its

interests.

[626] The business judgment rule cannot, however, be applied and should not be

relied upon to shield a corporation from liability to third parties where the acts or

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omissions of the directors and the resulting conduct of the corporation causes damages

to such third parties. Such proposition is without precedent or authority and justly so.

[627] While the business judgment rule may shield directors from personal liability for

prejudicial decisions made or abstained from in good faith and in the interest of the

corporation, it would be unconscionable to extend its application to shield and exclude a

corporation from the general rules of extra-contractual liability described in Articles 300

and 1457 CCQ, for the sole reason that the decision complained of was made and

approved by a Board of Directors.

(3)

SELECTION OF ECHOSTAR AS THE EQUIPMENT VENDOR AND THE IMS 2 & DNASP-2

TECHNOLOGY

[628] Vidéotron does not seriously challenge BEV’s initial selection of EchoStar as the

equipment vendor and the IMS 2 (Integrated Management System) and DNASP-2

(Digital Nagra Advanced Security Processor) technology.

[629] Ferguson acknowledged at page 31 of her Report: “To align with a DBS company is

not a bad strategy from a business and competitive prospective.”

[630] She cautioned, however that: “…a reasonably prudent and diligent DBS company

taking this short-cut approach to market would also have put in place, at a minimum,

arrangements between the two companies to insure the security of the system.”

[631] There were no such contractual arrangements put in place. The evidence does

disclose that attempts were made by BEV to enter into a formal support agreement with

Nagra more than a year after the launch of its service. A draft agreement between BEV

and Kudelski S.A. (Nagra) dated October 23, 1998 was entered in evidence³⁵³, but it

was never signed.

[632] Markey concurred with Ferguson that the selection of EchoStar was not in and of

itself imprudent. He acknowledged in his Report:

 The choice to select EchoStar as the system integrator, even at a time

when it was known or should have been known to BEV that signal theft

was prevalent in the North American satellite market, was not in and of

itself imprudent. After all, at that time, signal theft existed in the

DIRECTV system as well. What was negligent, however, were the

decisions not to include in the contractual arrangement, strict

provisions regarding investments and actions which should be

taken in the event that BEV’s system became compromised. For

example, there was no attempt to directly align with the security

technology supplier, or at the very least, establish expectations and

sanctions in the EchoStar contract in the event of a security attack.

353

Exhibit D-213.

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 The consequences of not having a direct contractual relationship with the

security technology supplier were disastrous. In short, it led to weak

support for countermeasures, delayed system improvements and smart

card replacement, and no technical enhancements designed to eliminate

smart card vulnerability:



Semiconductor security features

Cryptographic design (secret methods)

Software robustness to attack

BEV’s complete delegation of the subscriber equipment and conditional

access responsibilities to EchoStar led to weak field operations of signal

theft device investigation, no insight into the analyses of illicit pirating

devices, no say regarding countermeasure specifications and

deployments, in short, no responsibility in the combat against signal theft.

As a result, BEV had no in-house expertise or resources able to respond

to signal theft or to constructively participate in the design and

development of improvements of the security system. Furthermore, BEV

gave the responsibility for the technology to prevent signal theft to a

supplier with which it had no contractual relationship either directly or

indirectly.³⁵⁴

[Emphasis added]

[633] The inadequacy of the measures available for BEV to deal with signal theft, of

which Markey cautioned, became obvious within a relatively short time after the start-up

of its service.

[634] The lack of a formal contractual relationship with Nagra may or may not have

had an impact on the ability of BEV to adequately deal with signal theft. These concerns

and the evidence in this regard will be dealt with in the context of the following sub-

section (4) of this Section XI A in the context of the design and coordination of ECM’s.

(4)

DEPLOYMENT OF PRECAUTIONARY MEASURES, MARKETING PRACTICES, ELECTRONIC

COUNTER-MEASURES (“ECM’S”) AND OTHER ANTI-PIRACY MEASURES IN A USEFUL

AND TIMELY MANNER

[635] BEV contends it acted in a reasonable and diligent manner in deploying

precautionary measures to combat signal theft consistent with the technology available

at the time. It argues that the ECM’s, both in type and frequency, were deployed at

acceptable intervals and consistent with the technological and business options

available at the time. The expert and lay evidence heard is, at best, contradictory on the

subject.

354

Markey Report, p. 28.

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[636] BEV stresses that in addition to deploying ECM’s, it initiated other actions to

combat signal theft. These included the PRISM and BEATS programs, concerted legal

campaigns and prosecutions directed against suppliers of equipment, repatriation

programs and campaigns to sensitize the public as to the illegality of piracy.

[637] These actions and the evidence in support thereof are referred to at length in the

Plan of Argument of Defendants at pages 58 to 76.

[638] With the exception of the inordinate delays incurred in effecting the swap-out to

the Aladin CAS, the Court is unable to conclude, as Vidéotron suggests, that BEV’s

short term responses to the piracy problem through the deployment of ECM’s and other

precautionary measures were inadequate in light of the technology available at the time.

Vidéotron has not, in the Court’s opinion, discharged its burden in this regard.

(5)

ACCEPTANCE OF “ACCOUNT STACKING” AND ADEQUACY OF BUSINESS PROCESSES TO

COMBAT THE PRACTICE

[639] Account stacking is briefly described in Section III B. hereof.

[640] BEV asserts it never promoted or knowingly permitted this practice among its

subscribers. Vidéotron disputes BEV’s assertions. However, it makes no monetary

claims for damages in this action as a result of BEV’s alleged tolerance of this practice.

The only monetary claims related to this practice are made in the TVA (Account

Stacking) Action and, indirectly, in the TVA (Injunction) Action.

(6)

UPGRADE OF TECHNOLOGY: IMS 4 & DNASP-4 (ALADIN)

[641] The appropriate standard with which to evaluate the conduct of BEV in its efforts

to combat signal theft is that applicable to a prudent and reasonable DTH satellite

distributing undertaking that: (i) is fully aware of the serious breaches of its CAS and the

consequent damages of such breaches to itself and others; (ii) has the technological

and administrative means available to address this problem; and (iii) fails to act in a

timely manner to rectify the situation.

[642] For the reasons hereinafter expressed, the Court finds that BEV’s failed to meet

the appropriate standard.

(i)

AWARENESS OF THE SERIOUS BREACHES OF ITS CAS AND THE CONSEQUENT

DAMAGES OF SUCH BREACHES TO ITSELF AND OTHERS

[643] BEV likely first became aware of the serious breaches in the NagraStar CAS,

used at the time by EchoStar (Dish Network), at a meeting attended by René Juneau, at

the time a senior engineer in the BEV technology department, held at the offices of

Nagra in Denver, Colorado.

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[644] In its most essential features the EchoStar CAS was “…substantially similar in form

and function to the ExpressVu System.” ³⁵⁵

[645] Snazel disputed the fact that the EchoStar CAS was substantially similar to the

ExpressVu System. He is alone to do so. He even argued that, on the contrary: “Bell

ExpresVu’s security system is incompatible with the EchoStar System.”³⁵⁶

[646] Snazel is incorrect. He was credibly contradicted by the substantiated testimony

of Shelton and by the contents of his letter, dated August 13, 1999 addressed to Snazel

and Juneau warning “… [t]here is no technological reason this [pirate hack] could not

happen.” ³⁵⁷

[647] In August 31, 1999, BEV’s Senior Legal Counsel, Gavaghan, was informed by

the Investigative Research Group (“IRG”) that: “…it would be just a matter of time before

major technology has been uncovered in order to capture Express Vu signals.”³⁵⁸

[648] When asked what was done in response to the IRG warning letter, Gavaghan

stated quite astonishingly: “…I read it, and filed it. I mean, we continued to do other

investigations on a regular basis in order to track down any other rumours or innuendo that we'd

heard.”³⁵⁹

[649] Notwithstanding his earlier testimony to the contrary and after some prodding in

cross-examination, Snazel admitted that the BEV management definitively became

aware of the successful hacks of BEV’s CAS by the fall of 1999.³⁶⁰

[650] By August 2000 the incidence of piracy of BEV’s signal was well known to

management and it was an urgent concern. In an Internal memorandum, dated August

24, 2000, addressed to “Executives” by Gavaghan, he emphasized the seriousness of

the problem. He noted that the “E3M ‘cracked’ cards are appearing in greater numbers”

and that:

If we are not successful with counter-measures to shut down these cards, we

may need to report to our major studios and programmers that security is an

issue and that our system has been successfully hacked.³⁶¹

[651] It is curious and, perhaps, reflective of the dysfunctional technology department,

that the very same day Gavaghan wrote the “Executives” advising them of the serious

incidence of piracy of BEV’s system, in a separate memo addressed by him to “All

355

Markey, Transcript, September 19, 2011, pp. 197-201; Gee, Transcript, November 23, 2011, pp. 95-

99; Exhibit P-376, para. 14.

Snazel, Transcript, October 25, 2011, pp. 173-175; Exhibit P-358, p. 1 of “Technical Attachment”.

Shelton, Transcript, September 21, 2100, pp. 156-160; Exhibit P-91, p. 5.

Exhibit P-91.1, p. 11.

Transcript, October 20, 2011, p. 69.

Transcript, October 26, 2011, pp. 182-185; 204-206; and 211-212.

Exhibit P-91.04, p. 1; Transcript, October 21, 2011, pp. 141-142.

356

357

358

359

360

361

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Employees” referring to incidences of piracy in the Echostar systems, he wrote:

“…[s]ome people have been mistakenly led to believe that the ExpressVu system has suffered

similar attacks.”³⁶².

[652] On October 31, 2001, in a “highly confidential” memorandum, Gavaghan wrote:

“The theft of Bell ExpressVu services is a multi-faceted, growing problem.”³⁶³As was

discussed in Section VII hereof, and as will be further elaborated upon, Gavaghan’s

warning was either not taken seriously or, more likely, due to the failure of management

of the Technology Department to properly sensitize the BEV and BCE Boards as to the

urgency of the problem, seemed to fall on deaf ears.

(ii)

TECHNOLOGICAL AND ADMINISTRATIVE MEANS AVAILABLE TO ADDRESS THIS

PROBLEM

[653] Technological and administrative means to address the problems of signal theft

were available to BEV long before the July 15, 2005 completion of the swap-out to the

Aladin CAS. For a variety of reasons previously discussed in Sections VII and X hereof

and summarized below, management and the Board chose to defer implementation of

the available technology.

[654] The Aladin CAS, in one form or another, was available to the market at least as

early as March 2001. Contemporaneous discussions about the need to replace the

existing CAS were ongoing between Snazel and others at BEV and Nagra towards the

end of 2001 or early 2002.

769Q- And what was the gist of the discussions that took place during these

meetings?

A-

The...

770Q- Beginning in two thousand and one (2001).

A-

Yes, the piracy of our system proceeded faster than we expected, and the

gist of the discussions very quickly moved to the need to do a change of

the conditional access system, that at some point, the ammunition that

Nagra had to fight the piracy would be no longer as effective as it was,

and that in their opinion, the solution for us was to do an exchange

of our conditional access system, a complete card swap. ³⁶⁴

[Emphasis added]

[655] In contradiction to his testimony referred to above given during examination on

discovery, in his examination in chief at trial he recanted his previous testimony and

362

Exhibit D-18.

Exhibit P-95, p. 2.

363

364

Examination on Discovery-Snazel, Transcript, September 26, 2007, pp. 209-210.

500-17-027275-059

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denied ever having received a recommendation from Nagra to proceed with the card

swap in 2001.³⁶⁵Paradoxically, and without any substantiating evidence, in cross-

examination at trial, he agreed that his testimony given in the matter during his

examination on discovery was also true. The Court accepts as more probable, his

recollection of the events of 2001 as disclosed during his examination on discovery.

[656] A written presentation entitled “ITM DNASP-/ (Aladin) Version 3.7.3 User Guide”

describing the features of the new CAS was made to BEV. The document appears to

have been first published, March 15, 2001 and subsequently revised on numerous

occasions until November 2002.³⁶⁶

[657] Since, as Casavant claimed, she and other members of the Technology

Department held weekly meetings with Nagra’s technical people, one would assume

that the existence and availability of the new Aladin CAS must have been discussed

sometime prior to the 2001 discussions referred to by Snazel in the extract reproduced

above.

[658] At a meeting held in BEV’s Toronto offices on December 12, 2001, attended by

Snazel and Casavant, Trevisan and others, Nagra representatives made a formal

presentation of Nagra’s new CAS, (then called “NagraTV” and which would later be

called Aladin) (the “Toronto Presentation”)³⁶⁷.

[659] The Toronto Presentation described the advantages and characteristics of this

new CAS, described a methodology to effect the migration from the current system and

set out a timeline of approximately one year for its implementation.

[660] Contrary to Snazel’s assertions that the Aladin CAS was not available at the time

of the 2001 Toronto Presentation, it would appear that Aladin was being used in beta

tests for EchoStar as early as December 2001.³⁶⁸

[661] The Court finds, once again lacking in credibility, Snazel’s assertions that the

Toronto Presentation was but a “Sales Pitch” and that, according to him, the new CAS

was not ready at the time.

[662] In the weeks following the Toronto Presentation, Casavant drafted a discussion

document (“Talking points for Terry”) entitled “Countermeasure Strategy Planning

Discussion” based on her belief that the Aladin CAS was then available for

implementation. She concluded with the following recommendation: “Evaluate and start to

plan for the Aladin implementation. We need to start evaluation of the processes required for the

replacement of the smart cards (inaudible).”³⁶⁹

365

Transcript, October 26, 2011, p. 14.

Exhibit P-198.1, p. ii of ii.

Exhibit P-198.2.

Exhibit P-283.

366

367

368

369

Exhibit D-121; Transcript, November 3, 2011, pp. 122-123.

500-17-027275-059

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[663] A series of follow-up meetings were then held in Cheseaux, Switzerland, in

March 2002 during which numerous written presentations were made to BEV, outlining

the features, pricing and timelines to implement the new Aladin CAS.³⁷⁰

[664] As previously mentioned herein in the analysis of the testimony of both Snazel

and McLennan, Snazel testified that upon his return form Cheseaux, he met with him,

then to brief him on the Aladin proposal. According to Snazel, McLennan’s response

was: “Well, this is new information to me too. I need to digest this a little bit and I need to

discuss it with my superiors and I’ll get back to you.” ³⁷¹

[665] Questioned on the alleged briefing by Snazel, McLennan’s response was: “I don’t

specifically recall that meeting.”³⁷²This is surprizing given the importance of the subject

matter.

[666] McLennan was also questioned about the alleged subsequent meeting which

Snazel claims to have had with him where he supposedly told him that “… the necessity

of starting to get into a card swap frame of mind were important.” Once again McLennan’s

response was, in the same vein: “You know, I candidly don’t remember that conversation”.³⁷³

[667] As previously mentioned, McLennan’s “lack of recollection” of these two alleged

meetings with Snazel is both perplexing and disturbing.

[668] On April 5, 2002, Gavaghan and Snazel co-authored a confidential document

entitled “Switching off Signal Piracy”. The document was intended to brief management

374

of BEV, Bell Canada and BCE.

The authors claim that, as of April 2002, 40% of

BEV’s basic level subscribers (approximately 29,000) were likely hybrid pirates and that

an additional 37,500 people were black-market pirates, for a total of 66,500 pirates.

[669] What is noteworthy, notwithstanding Snazel’s presumed awareness, having

attended both the Toronto and the Cheseaux Nagra presentations, of the possibility of

seriously addressing signal theft by means of a migration to the Aladin CAS, the only

oblique reference to this possibility is found in section (e) of the document where, the

authors wrote: “Ultimately, we expect to replace elements of each subscriber’s conditional

access system in order to take security to the next level.”³⁷⁵

[670] The Court has little doubt that, at the time, the Board of Directors of BEV, Bell

Canada and BCE were unaware of the technological and administrative means

available to address this problem. There is no evidence that explains the motives of the

senior officers of the Technology Department of BEV to suppress this crucial

370

Exhibits P- 201, P-201.01 (02680.01, 02680.022, 02680.033, 02680.086 & 02680.117).

Transcript, October 26, 2011, pp. 52-53.

Transcript, November 25, 2011, pp. 79-80.

Ibid, p. 80.

Exhibit P-97.

Ibid, p. 9.

371

372

373

374

375

500-17-027275-059

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information that could have permitted them to act in an appropriate manner consistent

with its obligations as a prudent and reasonable DTH satellite distributing undertaking.

[671] This apparent ignorance of the options available by the Boards at that time and

their consequent failure to respond to the situation resulted in a dramatic and

exponential increase in the level of piracy of BEV’s service during the year 2002, and

continuing thereafter from 2003 to early 2005.³⁷⁶

[672] Whatever limited involvement McLennan may have had in the attempts to

address signal piracy and whatever views he may have had regarding the advisability of

a full migration to the Aladin CAS, became of little value. He was replaced by McGee as

President of BEV in May 2002. This, no doubt, caused additional delays in the decision

making process resulting in a further delay in the migration.

[673] McGee was supposedly brought up to speed as to the extent of the problem of

signal theft and the means available to address this problem in a “Briefing Note” dated

July 8, 2002. Gavaghan reiterated that approximately 45% of basic level subscribers

were hybrid pirates and an additional 5% were pure pirates.³⁷⁷

[674] On or around July 17, 2002, BEV received an updated proposal from Nagra

dealing with the Aladin migration. It provides a timeline of between ten (10) and twelve

(12) weeks to complete the migration. Despite BEV’s unsupported contentions

regarding technological impediments, according to Nagra, the migration from the

existing IMS 2 system to the IMS 4 system could have be accomplished in a relatively

short time and performed in parallel with other necessary efforts in the migration

process.³⁷⁸

[675] To conclude, the Court is therefore satisfied that, at the latest, as of January 1,

2004, BEV could have substantially rectified what had become a growing problem of

uncontrolled signal theft.

[676] As will be seen, in the next subsection, BEV failed to apply the available

technology in a timely manner.

(iii)

FAILURE TO ACT IN A TIMELY MANNER TO RECTIFY THE SITUATION

[677] On July 23, 2002, a meeting was held between the newly appointed President,

McGee, Snazel and the Vice-President of finance, David McGraw (“McGraw”). It is

uncertain whether Gavaghan was also in attendance at the meeting.

376

Exhibit P-366.

Exhibit P-98.

Exhibit P-199.1.

377

378

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[678] During this meeting, a document dated July 23, 2002, entitled “Project Aladin

Preliminary Outline of Business Case” was tabled for discussion purposes.³⁷⁹The

finalized version of this document, entitled “Project Aladin”, also bearing the date of July

23, 2002 is filed in evidence.³⁸⁰

[679] These documents were prepared by the Technology Department, under Snazel’s

authority, and the finance group led by McGraw. They addressed in great detail many

issues raised for determination in the present proceedings. Their contents are

accurately summarized in Plaintiff’s Outline of Argument at pages 33 and 34,

reproduced below:

- The estimated annual revenue loss to piracy, based on the estimated number

of 72,000 pirates (p. 2 of P-200.2);

- BEV’s awareness of the fact that the Aladin CAS is currently rolling out on the

EchoStar system (p. 3 of P-200.2);

- The fact that the proposed Aladin CAS provides opportunity to increase

revenues by converting some of the pirates to paying customers (p. 3 of P-

200.2);

- A description of the various phases of the migration to Aladin, i.e.

Phase 1 (the construction of the Aladin CAS), Phase 2 (the hardware

and software to support the new services) and Phase 3 (the

replacement of all existing cards with new secured cards and the shut-

down of the legacy CAS) (p. 7 of P-200.2);

- The financial benefits of the migration to the new Aladin system, i.e. the

revenues and profits which could be derived from the conversion of the

pirates or would be pirates to legitimate customers, including the incremental

revenues earned in perpetuity from would be pirates who are converted to

paying customers; (p. 9 of P-200.2);

- Other financial considerations including the fact that the results of this project

are driven by conversion of some non paying users and the assumption that

the new CAS would remain secure for a period of three (3) years; (p. 10 of P-

200.2);

- The costs of Phase 3 (the card swap), which at that time were evaluated at

$61.8M; (p. 12 of P-200.2);

- An analysis of the revenue opportunities to be derived from conversion of the

pirates and would be pirates to legitimate subscribers, including the estimated

impact of churn reduction (p. 13 of P-200.2);

379

Exhibit P-200.2.

Exhibit P-200.3.

380

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- A sensitivity analysis, suggesting that even if BEV were successful in

securing 50% conversions of never activated systems and 33% conversions

of the disconnected subscribers, the net present value would be of negative

$21.6M, which would not even to come close to breaking even (p. 15 of P-

200.2);

- The project risks, including the risks of not proceeding (piracy will continue to

grow, BEV will become the weakest DBS system, piracy will escalate

dramatically, etc.) and the risks of proceeding (p. 17 of P-200.2);

- The recommendation and next steps, i.e. to proceed with Phase 1 of the

Project but “based on current estimate of signal theft, do not proceed

with card swap out program” (p. 18 of P-200.2).

[Emphasis added]

[680] It is curious that, among the “Risks of not proceeding”, the authors do not include

the damages to the industry including competitors, content providers and pay-television

distributors, as a growing percentage of the market were able to access television

programming without authorization or payment. In particular, the authors do not address

the potential liability of BEV to members of the industry, including Vidéotron and TVA,

for damages resulting from theft of its signal. The threat of litigation is only first

acknowledged in the Report on Counter-piracy in January 13, 2003 when it became a

primary concern. It was this threat that prompted the constituting the Task Force in

October 2002.³⁸¹

[681] It would appear that the financial analyses performed and the considerations

dictated by the Finance Department of BEV were the primary “drivers” of the

recommendation not to proceed with the card swap-out program in 2002.

[682] Snazel testified that he disagreed with this recommendation. Curiously, neither

the author of this recommendation, McGraw, Vice-President of Finance, nor any other

member of BEV’s Finance Department were called testify at trial and to explain BEV’s

intentions and concerns in this regard.

[683] The Court considers the July 23, 2002 document to represent a credible

reflection of BEV’s volontée réelle at the time and a candid acknowledgement that the

decision not to: “… proceed with the card swap out program” was based primarily on

financial or budgetary considerations.

[684] On October 10, 2002, BEV confirmed to Nagra its commitment to proceed with

Phase I of the project. The second CAS was to run in parallel with the current system to

381

Exhibit P-106, Cover page and page 3.

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PAGE : 167

be installed only on equipment delivered to new subscribers and on VOD PVR’s.³⁸²

A

purchase order was issued in fulfillment of this commitment on November 8, 2002.³⁸³

[685] A memorandum entitled “Technical Options to Combat Piracy in Canada”, was

prepared in October 2002, bearing the name “Timothy McGee” on the cover page.³⁸⁴

Notwithstanding McGee’s name on the cover page, the authors of this memorandum

are uncertain. He presumes that it was drafted by McGraw and Snazel.³⁸⁵The authors

recommend BEV proceed with a full card swap-out program to eradicate piracy. The

proposal called for an allocation of “…$60M in capital for the card swap out program to be

completed in 2003.”

[Emphasis added]

[686] Based on the substantial evidence emanating from Nagra regarding the time-line

necessary to complete the full card swap-out program, the Court is satisfied that in

proposing a completion of the program in 2003, the authors were well aware of what a

full card swap entailed, the technical issues to be addressed and what would a

reasonable delay for its completion would be.

[687] Clearly, as of October 2002, funding for the full swap-out had not yet been

approved by the relevant Boards or committees of BEV or, to the extent necessary,

BCE.

[688] It would appear that the October 2002 memorandum was filed in the same filing

cabinet like its predecessors. Virtually contemporaneously with the receipt of the

“Technical Options to Combat Piracy in Canada” memorandum and despite the

overwhelming evidence of the necessity to proceed with a full card swap as quickly as

possible, in late October 2002, McGee created the Task Force on Counter-piracy. He

appointed Casavant as its leader. As previously mentioned, neither Snazel nor

Gavaghan were named to the Task Force.

[689] The Task Force then duly produced its Report on Counter-piracy in January

2003³⁸⁶. Amongst its recommendations was the following:

“F. Long Term Recommendations (3 to 6 months)

(1)

Technological Recommendations

(a)

Bell ExpressVu should implement a new conditional access

system in 2003 that would involve a complete swap out of existing smart

cards. This swap out should be completed in 2003.(…)”³⁸⁷

382

383

384

385

386

Exhibit P-284.

Exhibit P-204.

Exhibit P-101.

Transcript, December 6, 2011, pp. 47-49; December 7, 2011, pp. 55-60.

Exhibit P-106.

500-17-027275-059

PAGE : 168

[Emphasis added]

[690] The Report concluded:

Only a full card swap out will allow us to permanently turn off the existing

conditional access signals on all channels which will render all pirating

388

devices inoperative.

[691] More than one year later, the Task Force recommended precisely what Nagra

had first proposed in the Toronto Presentation in December 2001 and what was

elaborated upon in the meetings held in Cheseaux in March 2002.

[692] In formulating the recommendations contained in the Report on Counter-Piracy,

Casavant was no doubt aware of the features of the Aladin CAS and of the tasks

involved in migrating to the new system. The Court is satisfied that in suggesting that

the complete swap-out be completed in 2003, Casavant knew full that this was realistic

and feasible.

[693] What is clear, however, notwithstanding McGee’s convoluted attempt to convince

the Court otherwise, is that as of January 2003, the technology to perform the full card

swap-out program recommended by both the Task Force and, previously, by other

members of the Technology Department, had been tested and available for immediate

implementation.

[694] What lacking at the time, and for some time thereafter, was the necessary

funding approval from the appropriate sources, be it the Boards of BEV, BCE or its

Investment Management Council.

[695] The lack of funding necessary to complete the final phase of the full swap-out is

highlighted in a Memorandum, dated December 9, 2002 addressed by Snazel to Martin

Cullum, Senior Executive in the technology group of Bell Canada.³⁸⁹

[696] The following extract of the Memorandum shows that BEV did not have the go-

ahead, at the time, to proceed with the full card swap-out.

“This note is to summarize to date the status of the various components of the

Aladin project for use during the approval process for Phase III.

Essentially, there are three (3) distinct phases to the project, each phase is a

step towards the final roll-out and the next step cannot be put in place until the

prior one is completed and operational. Conversely the project could be

terminated before each step, with the attendant benefits of each part intact.

387

Ibid, p. 7.

Ibid, p. 28.

Exhibit D-176.

388

389

500-17-027275-059

Phase I Headend Uplink Hardware/Software Installation

PAGE : 169

This phase of the project must be in place and be fully tested before any further

action can occur […]

The Aladin system allows several new business features not available with the

current system, notably […]. These features will only be available to subscribers

who have new cards made available in Phase II, Phase III.

[…] The Aladin headend system will be completed early in 2003 and should

Phase II or Phase III not be implemented for any reason, the back-up

redundancy features will remain for the existing CAS system.

Phase II

Phase II of the project is to change to Aladin smart cards on all new set-top-

boxes sold […] The benefit of Phase II is that there will be no more existing smart

cards available for illegal purposes, limiting the pirate smart card hacks to cards

sold before the cut over date. These new subscribers will also be able to

subscribe to the new services without needing a change out of their cards.

[…]

Phase III

This is the critical phase to effecting any real improvement in signal piracy. The

current system is coming to the end of its secure life and although we still

continue an aggressive ECM Program the counter attack timeframe from the

hacking community is getting shorter and shorter each time we implement a

measure. (So much is now known about the internal workings of the card and the

hacker/dealer internet communication system is extremely efficient).

[…]

[…] Currently Phase III of the project is going through a technical validation and

budget approval process, with a target of an early 2003 go ahead.”390

[Emphasis in bold added by the Court and in Plaintiff’s Outline of Argument]

[697] The Memorandum and Snazel’s testimony³⁹¹show clearly that, as of December

9, 2002: (i) BEV did not have the necessary go ahead for the full card swap-out, (ii) it

was possible to stop the project after Phase I or after Phase II and (iii) the full card

swap-out could have begun in early 2003 and that the only impediment was the budget

approval process.

390

Ibid, pp.1 ff.

Transcript, Oct. 27, 2011, p. 22.

391

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[698] The following time line for the proposed Aladin migration was contained in a

subsequent Security Presentation made by Nagra to BEV on or about December 19,

2002.³⁹²

Phase 1 – Q2-2003

Install Aladin system in parallel of current dnsap2 system for new subscribers

Phase 2 – Q3-Q4-2003

Swap dnasp2 smartcards with Aladin smartcards and turn-off dnasp2 streams,

expected duration of the swap 2-3 months

Phase 3 – Q1-2004*

Install Aladin new features, not related to security (ISUB, PVR, etc…)

* Not relevant for the purposes of these proceedings

[Emphasis added]

[699] BEV contends the time lines proposed by Nagra in its various presentations were

unreliable and did not consider the complexity of the existing BEV CAS. It argues that

the migration process to Aladin was technically problematic, dynamic and subject to the

justified delays incurred in its implementation. It contends that all of the time lines

proposed by Nagra as well as those proposed by the members of the BEV Technology

Department were just estimates and that until appropriate testing and trials were done

and performed, there could be no reliable way of calculating what delays would be

reasonable.

[700] BEV argues that the process was further delayed due to unavoidable technical

problems associated with the delays in obtaining the STB swap software provided by

EchoStar as well as other technological difficulties.

[701] The evidence in support of BEV’s argument is, at best, unconvincing. No credible

technological explanation for failing to swap earlier was ever given in a comprehensive

and coherent way by any of BEV’s witnesses. To accept the reasons advanced by BEV

would necessitate a finding that the various proposals made by Nagra, as well as the

testimony of Markey in this regard, were unreliable and unrealistic. The Court is unable

to arrive at this conclusion.

[702] Even if the Court were satisfied, which it is not, that the delays in implementing

the Aladin project were due solely for technological reasons, the fact remains that the

392

Exhibit P-202.00.02.

500-17-027275-059

PAGE : 171

authorization for the necessary funding to complete the final phase of the project, the

swap-out of the existing subscribers, was not obtained until long after BEV became

aware of the necessity to perform the Aladin migration.

[703] The Court shares the views of Vidéotron’s counsel who stated that:

It is simply preposterous that it would take over three years from the date of the

availability of the Aladin solution to the piracy problem to complete the card

swap, when it took 8 months to create and launch the service in 1997, when the

expected secure life of a new generation of cards was three to four years, the

Aladin 101 being first used in 2001.³⁹³

[704] An examination of the credible and coherent evidence concerning the budget

approval process for Phase III of the Aladin migration reveals why the delays were

incurred. Contrary to its contentions raised at trial, BEV’s failure to act in a timely

manner was not related to technological reasons but rather to purely business-oriented

and strategic considerations.

[705] It would appear that serious efforts to obtain budget approval only commenced in

the fall of 2003, almost two years after the December 2001 presentation of the Aladin

CAS to Snazel and Casavant in Toronto. The request for funding to proceed with the

card swap was formally discussed for the first time almost two years later during an

October 2003 meeting of the BCE Investment Management Council (“IMC”) convened

to discuss the overall 2004 Capex Plan Review. However, because of the gap between

the requirements of the various BCE business units and the level of affordability (a gap

of $457M), the card swap program was deemed “out of affordability” at that time and the

request for funding was denied.³⁹⁴

[706] In a report dated April 20, 2004, the team responsible for the Platform Security

Implementation Plan of the Aladin CAS, headed by Andrio Barro, Project Manager and

Casavant, Project Leader, prepared an assessment of the current level of signal theft

and the ineffectiveness of the ECM program to address this problem.³⁹⁵Under the

heading “Objective & Exec Summary, the authors list one of the objectives: “Gain

Executive Approval for funding to proceed with program by April 22 to prevent schedule

slippage”.³⁹⁶

[707] Notwithstanding McGee’s assertions to the contrary, it was clear to the authors of

the Report that, as of April 20, 2004, funding for the final swap-out had not been

obtained.

393

Plaintiffs’ Reply Argument, p. 11.

Exhibit P-254B.

Exhibit P-220.

Ibid, p. 2.

394

395

396

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[708] A revised and updated Card Swap Implementation Plan dated May 18, 2004,

was prepared to support a renewed request for funding for the final swap-out project.³⁹⁷

The Executive Summary, merits reproduction in full. It is an objective “snapshot in time”

and a long overdue acknowledgment of the rampant and growing level of piracy of

BEV’s signal and the ineffectiveness of ECM’s to address this phenomenon.

Executive Summary

Current and future expected signal theft situation in Canada requires a complete

swap-out of all smart cards to secure ExpressVu’s conditional access system

- Estimated number of 450K pirates expected to grow as new devices (e.g.

Blackbird) infiltrate the market

- ECMs are becoming increasingly ineffective against piracy

DirecTV has completed a card swap program and Echostar is implementing anti-

piracy initiatives leaving ExpressVu as the only alternative for thieves

Investment in new smart cards required to prevent further deterioration in

shareholder value

Combined with a new Conditional Access System (Aladin), these smart cards

provide a secure platform

A comprehensive Card Swap program yields almost $200M in incremental long-

term value

Required $44M capital investment ($26M in 2004; $18M in 2005)³⁹⁸

[709] On May 19, 2004, the IMC approved, only in part, the capital costs for the

project. An amount of $20M was approved rather than the $26M requested for 2004.³⁹⁹

[710] On August 16, 2004, less than three months after receiving IMC funding

approval, BEV commenced a second employee trial for the card swap and initiated the

first mass mailing of new cards for the card swap. The last mass mailing was on April 9,

2005.⁴⁰⁰

[711] Between February 28 and April 3, 2005, BEV turned off six channels from the

existing DNASP-2 CAS data stream, starting with adult pay-per-view services. The LCN

channel was turned off on May 24, 2005.⁴⁰¹

397

Exhibit P-221.1.

Ibid, p. 2.

Exhibit P-254A –doc. 1, p. 3.

Exhibits P-217 & P-223.

398

399

400

401

Exhibit P-225.

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[712] On July 15, 2005, BEV completed the swap-out and switched off all remaining

channels from the DNASP-2 CAS data stream.⁴⁰²

[713] The Court finds relevant certain observations contained in an analysis entitled

“Project Aladin Post Mortem”, dated June 3, 2005, prepared by Dietrich van

Weesenbeek, (“van Weesenbeek”) a BEV employee.⁴⁰³He notes that the Aladin smart

card replacement project was initiated in 2002. He also notes that: “Approval to go

officially launch the program” was only obtained in May 2004.

[714] The author summarized what he believed “Worked” and “What did not work…”.

The following observation under the heading “What did not work” is noteworthy: “Project

was kept a secret for too long a time”⁴⁰⁴

[715] Van Weesenbeek’s observations are consistent with and corroborated by the

credible evidence.

[716] For the foregoing reasons, the Court concludes that BEV: (i) was fully aware of

the serious breaches of its existing CAS and the consequent damages of such

breaches to itself and others, (ii) had the available technological and administrative

means available to address this problem and (iii) failed to act in a timely manner to

rectify the situation.

[717] Its efforts to address the serious breaches of its CAS in an effective and timely

fashion were ineffective and neither prudent nor reasonable.

B.

CAUSATION

(1)

LEGAL PRINCIPLES AND CONCEPTS

[718] Having concluded that BEV failed to respect the appropriate standards in its

efforts to combat signal theft, the Court must now determine whether the damages

claimed by Vidéotron are the direct and immediate consequence of such acts or

omissions.⁴⁰⁵

[719] The fault attributable to BEV results from the inadequacy of the measures taken

or the acts of omission (“faute d’abstention”) in its efforts to address the excessively

high incidence of piracy of its signal.

[720] Article 1457 C.C.Q. permits recovery for a relational pure economic loss in cases

of fault by omission.⁴⁰⁶

402

Exhibit P-228.

Exhibit P-227, pp. 3ff.

Ibid, p. 5.

Articles 1457 & 1607 C.C.Q.

403

404

405

406

Daniel Jutras, Civil Law and Pure Economic Loss: What Are We Missing?, (1986-87) 12 Can. Bus.

500-17-027275-059

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[721] Vidéotron has the burden to prove that the damages it claims are the direct and

immediate consequence of BEV’s fault.⁴⁰⁷What is in dispute in the present case is the

standard of proof required and whether Vidéotron has discharged its burden.

[722] Baudouin et Deslauriers, describe the burden in the following manner :

(…) (L)es tribunaux n'exigent pas que le demandeur établisse le lien causal au-

dessus de tout doute et d'une manière certaine. Il suffit simplement que la

preuve rapportée rende simplement probable l'existence d'un lien direct. La

preuve par présomption de fait est donc ouverte et, devant l'impossibilité

d'une preuve directe, on admet le réclamant à procéder par élimination. Ce

genre de preuve consiste à démontrer que, parmi toutes les causes possibles du

dommage, seule l'une d'elles, qui le relie au défendeur, est probable. Il doit s'agir

cependant de probabilités et non de simples conjectures ou hypothèses

lointaines⁴⁰⁸.

[Emphasis added]

[723] In Multi Portions inc. v. Fullum⁴⁰⁹, Gagnon J. describes “ cause direct et

immédiate ” in the following manner :

[78]

Baudouin et Deslauriers commentent longuement les difficultés de

discerner dans la jurisprudence québécoise, des lignes directrices claires et

précises permettant au juge du procès de discerner ce qui est la cause directe et

immédiate, plutôt que la simple occasion, du préjudice de la victime,

particulièrement quand il faut choisir entre plusieurs facteurs qui ont tous

contribué à la réalisation de ce préjudice⁴¹⁰.

[79]

Ces auteurs éminents parviennent tout de même à dégager des règles

dont le Tribunal doit ici faire usage :

 Le lien de causalité est essentiellement une question

de fait, confiée à l'appréciation du juge⁴¹¹.

 L'approche de la causalité adéquate invite à distinguer la

cause véritable, des simples circonstances ou occasions

du préjudice⁴¹².

L.J. 295, pp. 295 & 310; Daniel Jutras, « Quebec » in Vernon Valentine Palmer & Mauro Bussani, ed,

Pure economic loss: New Horizons in Comparative Law, (New York: Routledge-Cavendish, 2009)

114, p. 114.

407

408

Article 2803 C.C.Q.

Jean-Louis BAUDOUIN et Patrice DESLAURIERS, La responsabilité civile, 7^eéd., Cowansville,

Éditions Yvon Blais, 2007, n^o1-644, p. 638.

409

410

411

412

Multi Portions inc. v. Fullum, 2007 QCCS 3777; 2008 QCCA 2358 (appeal dismissed).

J.-L. BAUDOUIN et P. DESLAURIERS, supra note 356 , n^o568, p. 453.

Ibid, at n^o580, p. 458.

Ibid, at n^o588, p. 463.

500-17-027275-059

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 L'approche de la prévision raisonnable, également valable,

demande d'identifier quels faits ont rendu

objectivement prévisible la création du préjudice, dont

les conséquences aient été normalement prévisibles

par l'auteur de la faute⁴¹³.

 Il peut y avoir rupture du lien de causalité, en cas

d'événement fautif ou non fautif subséquent qui, lui, est en

lien direct avec le préjudice⁴¹⁴.

 Il faut envisager un partage de responsabilité quand il y a

deux ou plusieurs acteurs fautifs (la victime pouvant être

l'un d'entre eux)⁴¹⁵.

 La jurisprudence est moins exigeante, au stade de la

vérification du lien de causalité, en présence d'une faute

lourde⁴¹⁶.

[Emphasis added]

[724] The Court adopts by reference the analysis contained in the Plan

d’Argumentation Additionnel de la Defenderesse on this subject. It does so, however,

without agreeing with or accepting counsel’s application of the principles referred to

therein to the factual context of the present proceedings. The following extracts of the

Plan represent an appropriate summary of the state of the law on the subject.

23.

En droit québécois, la règle de la causalité exige que le dommage soit

une suite logique directe et immédiate de la faute. Comme l’énoncent les auteurs

Baudouin et Deslauriers, cette règle révèle un désir de restreindre le champ de la

causalité et de ne retenir comme cause que le ou les événements ayant un

rapport logique et intellectuel étroit avec le préjudice dont se plaignent les

demanderesses. (Voir Jean-Louis Baudouin et Patrice Deslauriers, La

responsabilité civile, 7^eéd., 2007, Cowansville, Yvon Blais, […] n 1-622, aux

pp. 624-25)

24.

Comme la Cour suprême du Canada l’a énoncé dans Laferrière c.

Lawson, le lien causal, comme la faute et les dommages, doit être établi selon la

balance des probabilités. (Voir Laferrière c. Lawson, [1991] 1 S.C.R. 541, […]

à la p. 602)

25.

Par ailleurs, la demande peut recourir à des présomptions de fait

pour tenter de rencontrer son fardeau de preuve.

413

414

415

416

Id., n^o589, p. 464-465.

Id., n^o592, p. 466.

Id., n^o596, p. 468.

Id., n^o582, p. 459.

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is

sufficient if it renders the

existence of a fact more

probable than its non-

existence, unless the law

requires more convincing

proof.

2804. La preuve qui rend

l'existence d'un fait plus

probable que son

inexistence est suffisante,

à moins que la loi n'exige

2804.

Evidence

une

convaincante

preuve

plus

26.

Bien que BEV reconnaisse que les présomptions de faits peuvent

servir à établir la causalité, le fardeau de preuve de cet élément générateur

de responsabilité demeure celui des demanderesses. (Voir St-Jean c.

Mercier, [2002] 1 S.C.R. 491, 2002 SCC 15, […] aux pp. 48-50)

27.

Le renversement du fardeau de la preuve n’entre en jeu que lorsque la

demande a elle-même rencontré son propre fardeau de preuve.

28.

Afin de conclure qu’une preuve a été établie par présomption, l’article

2849 C.c.Q. est clair, seules les présomptions graves, précises et

concordantes doivent être prises en considération :

2849. Les présomptions

qui ne sont pas établies

par la loi sont laissées à

l'appréciation du tribunal

qui ne doit prendre en

considération que celles

qui sont graves, précises

et concordantes.

2849. Presumptions which

are not established by law

are left to the discretion of

the court which shall take

only serious, precise and

concordant presumptions

into consideration.

29.

La Cour d’appel a d’ailleurs défini ce que constituent les critères de

précision, de gravité et de concordance pour conclure à l’existence de

présomptions. (Investissements Mont Écho inc. c. Banque Nationale du

Canada, 2008 QCCA315, j. Brossard, Otis, and Duval Hesler, […]

[60] La Cour, dans l'arrêt Longpré c. Thériault, définissait comme suit les

critères de précision, de gravité et de concordance prévus par l'ancien

Code civil du Bas-Canada, et repris par le Code civil du Québec, pour

conclure à l'existence de présomptions :

Les présomptions sont graves, lorsque les rapports du fait connu

au fait inconnu sont tels que l'existence de l'un établit, par une

induction puissante, l'existence de l'autre (…).

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Les présomptions sont précises, lorsque les inductions qui

résultent du fait connu tendent à établir directement et

particulièrement le fait inconnu et contesté. S'il était également

possible d'en tirer les conséquences différentes et même

contraires, d'en inférer l'existence de faits divers et

contradictoires, les présomptions n'auraient aucun caractère

de précision et ne feraient naître que le doute et l'incertitude.

Elles sont enfin concordantes, lorsque, ayant toutes une origine

commune ou différente, elles tendent, par leur ensemble et leur

accord, à établir le fait qu'il s'agit de prouver (…). Si (…) elles se

contredisent (…) et se neutralisent, elles ne sont plus

concordantes, et le doute seul peut entrer dans l'esprit du

magistrat.

[Tel qu’annoté dans l’original]

30.

La Cour doit être satisfaite que la cause alléguée est la cause probable

du dommage et que sans cela, le dommage ne serait pas survenu. (Voir Liberty

Mutual Insurance Co. c. Sanborn’s Motor Express (Québec) Inc, EYB 1991-

57483 (C.A.), […]

31.

Une présomption de fait ne peut être déduite d’une pure hypothèse,

d’une spéculation, de vagues soupçons ou d’une simple conjecture. Le fait

inconnu que les demanderesses veulent établir ne sera pas prouvé si les faits

connus rendent plus ou moins vraisemblable un autre fait incompatible avec celui

que l’on veut prouver ou s’ils ne permettent pas d’exclure raisonnablement une

autre cause d’un dommage subi. Il faut que les prétentions des demanderesses

soient supportées par des faits précis, graves et concordants. (Voir Vêtements

Paul Allaire inc. c. Citadelle, cie d’assurances générales, [2000] R.R.A. 957

(C.S.), AZ-00022046, j. Dalphond; Cie d’assurances Bélair c. Accessoires

électroniques Bomar inc., REJB 2005-92106 (C.S.), AZ-50320663, j. Emery;

et Metivier c. Groupe C. Laganière (12 octobre 2001), SOQUIJ AZ-50101612

(S.C.), j. Tellier)

[…]

[51]

À cet égard, le professeur Jean-Claude Royer écrit dans son

manuel sur la preuve civile :

Le législateur a ainsi codifié des critères qui étaient déjà retenus par les

tribunaux. Dans l'arrêt Longpré c. Thériault [[1979] C.A. 258], M. le juge

Lamer déclare : […]

Une présomption de fait ne peut être déduite d'une pure hypothèse,

de la spéculation, de vagues soupçons ou de simples conjectures.

Le fait inconnu qu'un plaideur veut établir ne sera pas prouvé, si les

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faits connus rendent plus ou moins vraisemblable un autre fait

incompatible avec celui que l'on veut prouver ou s'ils ne permettent

pas d'exclure raisonnablement une autre cause d'un dommage subi.

Les indices connus doivent rendre probable l'existence du fait

inconnu, sans qu'il soit nécessaire toutefois d'exclure toute autre

possibilité.

Cie d’assurances Bélair c. Accessoires électroniques Bomar inc.,

REJB 2005-92106 (S.C.), AZ-50320663, j. Emery, […]

[Emphasis (plus double bold) added]

(2)

CONTEXTUAL APPLICATION

[725] Vidéotron contends that BEV was well aware that the increasing incidence of

piracy of its signal was causing damages to the industry as a whole and to the

broadcasters in particular. As more and more television viewers were able to access

BEV’s signal and services without authorization or payment, this phenomenon resulted

in increasing damages not only to BEV but, as well, to the other members of the

industry as a whole, including Vidéotron. Why would a television viewer pay for services

offered by BEV 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?

[726] It cannot be disputed that BEV was well aware that this was happening and that

damages were being caused as a direct and immediate consequence of its failure to

adequately secure its signal. Initially, it chose to ignore the gravity of the problem. It

then unduly delayed taking appropriate measures to rectify the situation until well into

May 2004 when final approval of the necessary funding to perform the card swap was

obtained. The full swap-out was only completed in July 2005. See in this regard:



Exhibit P-101, (“Technical Options to Combat Piracy in Canada” Timothy

programmers and DTH and cable-distributors is purported to be $400M

annually.”;



Examination: Michael Neuman :

94Q- You'll agree with me, will you not, Mr. Neuman, that in the event of

significant pirating of your competitors' signal, that that could cause significant

losses for BEV?

A- Yes.

95Q- And, indeed, for everyone involved in the television broadcasting

business?

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A- Yes. ^417;

Examination: Timothy McGee:



100Q-Now, one thing you did clearly understand, did you not, Mr. McGee, was

the fact that the Bell ExpressVu signal being stolen hurt everybody in the system.

That was clear to you, was it not?

A-

Yes, I understood that signal theft in all its forms hurts the distributors and

has downstream effects as well. That's why we took out an integrated approach

to this.

101Q- Well, not just the distributors. It hurts everyone in the industry, if someone

can access signal for free, whereas they have to pay another broadcaster for

their signal.

A-

I agree with that, My Lord, and that's... and we were very clear in all of our

public pronouncements and in our press releases and in our public awareness

campaign. We made that point very clear that my friend has indicated. ⁴¹⁸;



Examination on discovery: Timothy McGee:

581 Q – Did you not understand that the fact that people were stealing or could

steal the Bell ExpressVu signal caused damages not only to Bell ExpressVu and

its broadcasting partners, but also to other distributors such as Vidéotron,

Cogeco, Star Choice? Was that—did you understand that? That that—that

they—that they were deprived of potential subscribers by the fact that people

could steal—

A

Right.

582 Q — the signals?

A

Oh, my view was we were all in the same boat.

583 Q—Okay

A

Anybody stealing is denying everybody—I mean, no matter who they

choose to go to, whether they want satellite or cable or whatever.⁴¹⁹

[727] BEV contends that Vidéotron failed to discharge its burden of proving that the

compensatory damages claimed were the direct and immediate consequence of BEV’s

fault. In particular, it contends that the causes of Vidéotron’s alleged loss of profits

during the Piracy Period were for reasons other than those alluded to by Vidéotron. In

417

Transcript: October 19, 2011 p. 73.

418

Transcript: December 7, 2011, pp. 51-52.

419

Transcript : October 21, 2009, pp. 90-91.

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its Plan d’ Argumentation Additionnel de la Défenderesse counsel cites 23 factors which

could explain this loss.

50.

La preuve administrée par la défenderesse a démontré divers facteurs

qui peuvent expliquer la perte de clients chez Vidéotron durant la période

de piratage:

(i)

Le choix des consommateurs durant cette période était davantage

tourné vers les services de télévision par satellite […]

(ii)

Malgré les représentations des demanderesses, la preuve a

révélé que l’offre de BEV et Vidéotron n’était pas similaire durant

la période de piratage.

(iii)

(iv)

Rappelons tout d’abord que l’analyse comparative effectuée par

Navigant s’est limitée aux équipements, aux prix, aux forfaits et

aux chaînes disponibles chez Vidéotron et BEV. […]

Cette analyse est nettement incomplète, puisqu’elle ne tient pas

compte de ce qui fait habituellement partie d’une analyse de veille

concurrentielle à savoir : la technologie utilisée et notamment de

la qualité de l’image, du son et de la fiabilité du service, du service

à la clientèle, du service d’installation, du service de réparation,

des coûts d’installation des équipements et des conditions et

restrictions qui s’y rattachent, des possibilités de location, des

promotions-rabais offerts pour les équipements et/ou les frais

d’installation, des promotions-rabais offerts au niveau des chaînes

et des forfaits ou des efforts publicitaires et de marketing en

général chez les deux compétiteurs. (Lajoie, 5 oct., pp. 15 ligne 4

- 28 ligne 19; Asselin, 29 nov., p. 67, ligne 11 à p. 68 ligne 24)

(v)

Au niveau technologique, la preuve a démontré que la technologie

numérique était supérieure à la technologie analogique. (D-245 –

[…]- Asselin, 29 nov., pp. 50 ligne 6 - 51 ligne 4, Péladeau, 6

sept., p. 166 lignes 3 à 7, Dépatie, 7 sept. p. 167 ligne 13 à p. 169

ligne 21)

(vi)

BEV a lancé la technologie numérique partout au Canada dès

1997 alors que Vidéotron était limitée par des contraintes

d’optimisation de réseau. Le service numérique chez Vidéotron a

été rendu disponible partout au Québec qu’en 2001.

(vii)

En 2001, 90% des clients de Vidéotron étaient toujours des

abonnés au câble analogique, alors que 8% étaient des abonnés

au numérique. (Dépatie, 7 sept., p. 89 ligne 18 à p. 90 ligne 1)

(viii)

En comparaison avec le câble analogique de Vidéotron, le service

numérique de BEV offrait plusieurs avantages dont une

supériorité au niveau de l’image et du son, plusieurs centaines de

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canaux dont une multitude de canaux de télévision payante, une

flexibilité accrue, le guide interactif, le time-shifting, la disponibilité

du PVR, ainsi que le parental lock feature. (D-165, […] et Asselin,

29 nov., pp. 48 ligne 20 - 50 ligne 4 et pp. 54 ligne 11 - 56 ligne 7)

(ix)

(x)

Bernard Asselin a également établi qu’en 2002, BEV a ajouté des

postes locaux, comme TVA Rimouski ou TVA Sherbrooke pour

répondre à une demande de la population. (Asselin, 29 nov., p. 41

lignes 14-24)

Bernard Asselin a aussi témoigné que le réseau de distribution de

BEV avait un haut taux de pénétration au Québec, ce qui

représentait un autre avantage concurrentiel. (Asselin, 29 nov.,

pp. 41 ligne 25 - 42 ligne 6) :

(xi)

BEV a lancé son récepteur vidéo personnel un (1) an avant

Vidéotron (octobre 2001 vs novembre 2002) et le service haute

définition plus de deux (2) ans avant Vidéotron (août 2000 vs.

décembre 2002 (pour la région de Montréal seulement)). (Lajoie,

5 oct., pp. 28 ligne 20 - 36 ligne 7).

(xii)

BEV possédait également un avantage par rapport à Vidéotron au

niveau de son service à la clientèle durant, à tout le moins, une

partie de la période de piratage.

(xiii)

En effet, malgré le refus de M. Robert Dépatie (« Dépatie »)

d’admettre qu’il y avait, notamment en 2001, un sérieux problème

de service à la clientèle chez Vidéotron, la preuve a clairement

démontré le contraire.

(xiv) Le rapport annuel de Quebecor pour l’année 2003 annonce que

Vidéotron a dû déployer des efforts considérables pour améliorer

son service à la clientèle, passant d’un taux de réponse de 70% à

l’intérieur des délais requis à 93% […] :

(xv)

Le sondage effectué par la firme de recherche Décima en 2003

confirme également que le taux de satisfaction des clients,

relativement au service à la clientèle de Vidéotron, était inférieur à

celui de Cogeco, BEV et Star Choice. (P-279 […])

(xvi) Ces données objectives contredisent le témoignage rendu par

Dépatie et confirment plutôt les déclarations de M. Luc Lavoie

(« Lavoie »), porte-parole de Vidéotron au National Post (D-179 –

[…]) :

« Luc Lavoie, the company's spokesman, yesterday portrayed

Videotron as a lazy, spendthrift monopoly with "legendary"

customer service problems: "The customer service is absolutely

horrendous," Mr. Lavoie said. "It's almost legendary in Montreal

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that if you call Videotron for service you may wait forever and

ever and ever and ever. We have competition from the direct-to-

home satellite companies, and they don't seem to have the same

problems at all. »

(xvii) La pièce D-207 – […], qui concerne l’historique de l’attrition des

abonnés chez Vidéotron durant la période de 1996 à 2009, a

démontré que le taux d’attrition de Vidéotron pour les périodes pré

et post-piratage est très similaire au taux d’attrition en 2004 et

2005, soit en plein cœur de la période de piratage. (Données

internes de Vidéotron, D-185 – […] et l’aide au témoignage de

Navigant, P-363C – No Compendium)

(xviii) Durant les années 2000, 2001, 2002 et 2003, des évènements,

qui n’entrent pas dans le cours normal des affaires, étaient

présents chez Vidéotron, soit l’acquisition hostile de Vidéotron par

Quebecor, les problèmes de service à la clientèle et le conflit de

travail prolongé. (Lajoie, 5 oct., p. 38 ligne 8 – p. 59 ligne 15)

(xix) La grève s’est déroulée sur une période de 11 mois et demi, de

mai 2002 à avril 2003. (Péladeau, 6 sept., p.167)

(xx)

La grève était donc en cours durant la période des

déménagements en 2002.

(xxi) Cette grève, qui impliquait deux mille deux cents (2 200)

employés de Montréal et Québec a été déclenchée parce que

Vidéotron a décidé de vendre son service d’installation et de

réparation à Entourage, dans le but de réduire ses coûts en raison

de la concurrence. (D-206 en liasse; Lajoie, 5 oct. p. 54 ligne 18 à

p. 55 ligne 4)

(xxii) Des actes de vandalisme et de sabotage ont été perpétrés dans le

cadre de la grève chez Vidéotron, cela ayant causé des

interruptions de service aux abonnés de Vidéotron (D-206 en

liasse).

(xxiii) Dans son rapport annuel de 2003, Québécor Inc. a commenté les

impacts occasionnés par le conflit de travail, notamment comme

suit :

« Sur le plan des relations de travail, une nouvelle

convention collective de travail a été signée entre Vidéotron

et ses employés des régions de Montréal et de Québec le

29 avril 2003, mettant ainsi fin au conflit de travail qui avait

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débuté en mai 2002. Tout en permettant de réaliser des

réductions de coûts et des gains de productivité, les

nouvelles conventions collectives ont procuré à Vidéotron

une flexibilité accrue dans la gestion de ses opérations. »

(D-159 (005) […])

« Le bénéfice d’exploitation a atteint 14,4 millions de

dollars, contre 27,3 millions en 2002. Cette chute s’explique

par la baisse des revenus, la réduction des marges brutes

causée par la sévérité des conditions sur le marché, la

diminution de la capitalisation et les coûts encourus en

2003 liés au règlement de litiges. Il est à noter que les

résultats de 2002 avaient été affectés par l’impact des

actes de vandalisme perpétrés lors du conflit de travail

chez Vidéotron. (D-159 (005) […])⁴²⁰

[728] BEV contends that if, indeed, piracy of BEV’s signal during the Piracy Period and

its inability to address this problem in a timely fashion, were the principal causes of

Vidéotron’s loss of profits, Vidéotron was in a position to administer the necessary

evidence, through its data banks, in support of its allegations. No such evidence was

administered. Rather, counsel argues, Vidéotron presented, through the Navigant

Report, in the case of Vidéotron, 255 possible scenarios as to the cause of damages

and, in the case of TVA, 15 possible scenarios. Counsel argues further and notes in its

Plan d’Argumentation Additionnel:

61.

Les experts de la firme Navigant ont refusé d’émettre une opinion

quant au scénario le plus plausible ou probable parmi tous les

scénarios présentés. Ce faisant, les experts des demanderesses ont

représenté à la Cour que tous les scénarios présentés étaient aussi

possibles l’un que l’autre.

62.

Ce n’est qu’en plaidoirie que les demanderesses ont suggéré à la Cour

de retenir un scénario très spécifique à l’intérieur des 255 scénarios

présentés par Navigant, toutefois, sans que ce scénario ait été supporté

et/ou endossé par leurs propres experts retenus pour la quantification des

420

Pp. 10ff.

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dommages et malgré le fait que la méthodologie derrière ce scénario ait

été sévèrement critiquée par les experts de la firme PwC.

63.

Par ailleurs, par lettre datée du 6 janvier 2012, les demanderesses ont

transmis des suggestions de scénarios additionnels dans l’éventualité où

la quantification des dommages, qui pourrait être retenue si elles

obtenaient gain de cause, ne se retrouverait pas à l’intérieur des 255

421

scénarios présentés par Navigant.

[Emphasis added]

[729] BEV contends the fact that piracy may have caused damages to the industry at

large is not relevant for the purposes of these proceedings. What, it argues, is relevant

is the absence of credible evidence supporting Vidéotron’s claim that BEV’s acts and

omissions are the direct and immediate cause of the damages suffered by it.

[730] In particular, BEV contends Vidéotron has failed to specifically prove that the

source of its lost profits emanates either from: (i) those of its former subscribers, who

left Videotron with the intention of pirating the BEV system, or (ii) those potential

subscribers who did not join Vidéotron but rather BEV with the intention of becoming

pure or hybrid pirates.

[731] In the circumstances of the present case, the burden of establishing causality by

means of direct evidence, which BEV would have the Court impose on Vidéotron, would

be difficult if not impossible to discharge. Rather a more appropriate and acceptable

standard would be that of the “approche de la prévision raisonnable” referred to in the

citation of Baudouin and Deslaurier referred to above.

[732] Vidéotron has identified, through the credible evidence adduced at trial and

referred to in this judgment, such evidence that should have rendered objectively

predictable to BEV, the source and cause of the damages for which Vidéotron now

claims compensation. While other reasons were given as contributing to Vidéotron’s

loss of profits during the Piracy Period, these do not absolve BEV of responsibility for

the damages claimed. The impact of these other identified sources of lost profits, if any,

is not readily quantifiable.

[733] BEV was or should have been aware of the likelihood and predictable

damageable consequences of its acts and omissions. The evidence is more than

sufficient in law to establish causality. It renders the existence of the facts that give rise

to the “lien de causalité” more probable than its non-existence.⁴²²The Court is satisfied,

on the balance of probabilities, that the failure to take adequate and available measures

421

P. 15.

Article 2804 CCQ.

422

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that could have avoided or minimized the damages claimed by Vidéotron is in fact the

cause of these damages.⁴²³

C.

QUANTIFICATION OF DAMAGES

COMPENSATORY DAMAGES

(1)

[734] The quantification of compensatory damages in the context of the present

proceedings presents considerable challenges. The various methods of calculating the

loss of potential subscribers, the income generated therefrom and the resultant loss of

profits are, at best contentious. Clearly, the significant differences in the evaluation of

damages arrived at by the financial experts retained by each of the parties to assist the

Court in the quantification of damages reflect the extent of the challenge.

[735] However, the presence of these challenges does not negate the right of recovery

of an aggrieved party when, as in the present case, fault, causation and the existence of

damages has been adequately proven on the balance of probabilities. The Court’s role

in such circumstances is to arbitrate the quantum of damages based upon whatever

credible evidence may be available to it.

[736] See in this regard : Renaud v. Société de gestion des activités communautaires

de l’Île Notre-Dame :⁴²⁴

[26] Ce faisant, le juge arbitrait les dommages et intérêts comme il se

devait de le faire dans les circonstances. Ayant conclu à l’existence de divers

manquements à leurs obligations de la part des appelantes, manquements qui

selon toute probabilité avaient été dommageables pour l’achalandage de

l’entreprise exploitée par l’intimée, il lui fallait rechercher dans la preuve la

démonstration probable du montant du préjudice financier subi par

l’intimée. C’est ce qu’il a fait, conformément au principe énoncé dans l’arrêt

Rothpan c. Drouin, [1959] B.R. 626, principe que le juge en chef adjoint

Hugessen de la Cour supérieure avait formulé en ces termes dans la décision

Raymor Painting Contractors (Canada) Ltd c. Purolator Courier Ltd, [1976] C.S.

468, à la page 472 :

Even where the assessment of damages in a contractual matter is extremely

difficult, it is the duty of the court, once it is tolerably clear that there have been

some damages suffered, to attempt to estimate them in much the same manner

as a jury would be called upon to do.

[Emphasis added]

423

See in this regard, by analogy : Jacques Ghestin, Geneviève Viney & Patrice Jourdain, Traité de droit

civil – Les conditions de la responsabilité, 3^rded., (Paris : L.G.D.J., 2006), p. 201.

424

B.E. 2001BE-525 (S.C.) aff’d J.E. 2004-778 (C.A.).

500-17-027275-059

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[737] See as well: Provigo Distribution Inc. v. Supermarché A.R.G. Inc.:⁴²⁵

La présence de nombreux facteurs difficilement prévisibles ou appréciables

rendait l’évaluation du préjudice fort compliquée. La difficulté supplémentaire

éprouvée par cette Cour d’évaluer le dommage en ne tenant compte que de la

preuve constituée au dossier l’excusera sans doute de ne pas pouvoir y

appliquer une rigueur strictement mathématique. Elle doit donc procéder à ce

calcul en faisant appel à une certaine approximation, à un certain degré

d’appréciation et à sa discrétion. C’est cependant là le rôle des juges.

Comme il a déjà été mentionné, l’évaluation de la capacité de gains futurs d’une

entreprise peut s’appuyer sur sa performance passée, si la période de référence

est suffisamment longue pour être significative. (…)

La méthodologie proposée par Parent [l’expert], sous réserve de certaines

corrections, est donc parfaitement acceptable et la juge de la Cour supérieure a

eu raison de la retenir.

(…)

Nous avons exprimé l'avis que si le rapport Parent devait servir de base à

l'évaluation du préjudice, ses conclusions devaient néanmoins être nuancées

pour tenir compte de l'ensemble des facteurs déjà identifiés et qui en affectent la

justesse. Le jugement entrepris a évalué l'un d'eux, les inévitables imprévus et

impondérables propres à toute entreprise commerciale, en réduisant

généralement de 10% l'indemnité proposée par l'expert et a donc utilisé un mode

d'appréciation estimatif. Cette méthode est valide même si, par définition, elle

n'offre pas un haut degré de précision scientifique. Elle se justifie par un examen

global de l'affaire à partir de faits prouvés et de critères connus, pour dégager

une solution équitable et juste dans les circonstances. À cause de ces

caractéristiques, elle est difficile d'application. Son utilisation doit par conséquent

se faire avec grande prudence et lorsque toutes les autres techniques ou

solutions sont exclues. C'était le cas en l'espèce.

[Emphasis added]

[738] For the reasons previously expressed regarding the probative value of the expert

evidence concerning the quantification of the damages claimed by both Vidéotron and

TVA, the Court retains as more credible and reliable, the methodology and analysis

adopted by PwC and the conclusions expressed in its Report. Their analysis and

methodology are coherent and reflect an unbiased appreciation of the relevant

evidence. Its estimates as to the level of piracy are reasonable and consistent with the

credible evidence. Similarly, the quantifications of the damages incurred by Vidéotron

during the Piracy Period as well as during the Post Piracy Period, and that of TVA

during the Piracy Period alone, are reasonably supported by the evidence.

425

J.E. 98-39; pp. 84-85 & 92(C.A.) (“Provigo”).

500-17-027275-059

PAGE : 187

[739] Sub-section 3.4 and Appendix 4 of the Revised PwC Report contain its analysis

and conclusions regarding the valuation of Vidéotron’s damages during the Piracy

Period. Sub-section 3.5 and Appendix 5 contain its analysis and conclusions regarding

the damages during the Post Piracy Period (referred to by PwC as the “Mitigation

Period”).

[740] Unlike Navigant who refused to opine on the duration of the Post Piracy Period

and left the determination to the Court without any credible and coherent guidelines,

PwC for reasons expressed in its revised Report and elaborated upon by BEV’s counsel

in a response to a message by the Court for a clarification, concluded that the Post

Piracy Period extended for a period of approximately 5.5 months from July 16, 2005 to

December 31, 2005. PwC’s assessment of the limited duration of the Post Piracy Period

is based upon the premise that all former pirates who might otherwise have used

Vidéotron’s services in the past, would likely have subscribed to Vidéotron linearly by

the end of this period.

[741] The Court considers PwC reasoning in this regard reasonable and credible.

[742] The evaluations contained in both Appendices 4 and 5 are based upon a 0%

level of acceptable piracy. During the course of oral argument, and at the Court’s

request, counsel for the respective parties quantified the amount of revised damages

claimed, calculated based upon the Navigant methodology or in part upon the PwC

methodology, as the case may be and subject to the following criteria:

(i)

a 3% level of acceptable piracy; and

(ii)

a commencement date for the start of the Piracy Period varying from April

1, 2003 to December 31, 2004.

[743] Applying the above criteria, the damages claimed by Vidéotron during the Piracy

Period varied from a high of $28, 539, 723 if the damages for which BEV is accountable

are deemed to have commenced on April 1, 2003 and a low of $338,847 if they are

deemed to have commenced on October 1, 2004. As for Post Piracy Period damages,

the damages claimed for the period commencing February 28, 2005 and terminating

6.8 years later on December 31, 2011 using the 3% level amount to $144,593,886.

[744] Applying the above criteria, according to BEV, the damages incurred by

Vidéotron during the Piracy Period and the Post Piracy Period (of 5.5 months) combined

varied from a high of $648,000 to $861,000 if the damages for which BEV is found

accountable are deemed to have commenced on July 1, 2003 and a low of $34,000 if

they are deemed to have commenced on December 1, 2004.

[745] For the reasons previously expressed, the Court will retain as more reliable and

sustainable, the quantification of damages as performed by PwC. In so deciding the

Court has also taken into consideration possible additional sources of lost profits, other

500-17-027275-059

PAGE : 188

than piracy of BEV’s signal, which may have contributed to its losses during the Piracy

Period.

[746] Based upon the evidence, the Court concludes that had BEV acted in a

reasonable and diligent manner it could have effected the swap-out to the Aladin CAS

at the latest by January 1, 2004. Thus, for the purpose of the quantification of the

damages incurred during the Piracy Period, it is deemed to have commenced on that

date.

[747] Applying the methodology retained by PwC for the quantification of damages

based upon a 3% level of acceptable piracy as reflected in counsel’s letter of January

12, 2012,⁴²⁶the amount of damages should range from a maximum of $383,000 to a

low of $295,000. In the absence of any justification to the contrary, the Court considers

a reduction of the maximum amount retained by PwC to $339,000, being the mid-point

between these two amounts, as a just and equitable evaluation of the damages incurred

both for the Piracy period and the Post-Piracy Period. In so deciding the Court has also

acknowledged and considered an appropriate reduction from the maximum amount

based upon what was referred to by the Court of Appeal in Provigo as “…les inévitables

imprévus et impondérables propres à toute entreprise commercial”.⁴²⁷

[748] Accordingly, BEV will be condemned to pay Vidéotron the amount of $339,000 in

compensation for the damages incurred both during the Piracy Period and the Post

Piracy Period.

(2)

PUNITIVE DAMAGES

[749] Although in its Requête introductive d’instance en dommages-intérêts précisée et

amendée, Vidéotron initially sought an additional award of $10 million as punitive

damages, no representations were made by counsel other than a passing reference

made during its oral presentation. Detailed representations concerning rights to punitive

damages were limited to those of TVA in the other Related Actions.

[750] The Court assumes that Vidéotron, appropriately, desisted from its claim for

punitive damages in the present action.

XII. EXPERT EXPENSES

[751] Substantial expenses were incurred by each of the parties for the services of

their respective experts.

PLAINTIFFS’EXPERTS:

Markey (P-353 and P-353A) =

$184,991.00

426

427

Exhibit D-292.

Provigo, p. 92.

500-17-027275-059

Shelton (P-359 and P-359A) =

PAGE : 189

$410,638.35

$262,144.92

$696,636.62

Ferguson (P-362 and P-362A) =

Navigant (P-364 and P-364A) =

TOTAL FOR PLAINTIFFS =

$1,554,410.89

DEFENDANT’S EXPERTS:

Barr (D-268 and D-268A) =

Green (D-281 and D-281A) =

PwC (D-282 and D-282A) =

$398,154.50

$755,657.67

$879,038.69

TOTAL FOR DEFENDANT =

$2,032,850.86

[752] Article 477 CCP codifies the criteria established by the case law for the

admissibility of expert expenses as costs of the action:

477. The losing party must pay all costs, including the costs of the

stenographer, unless by decision giving reasons the court reduces or

compensates them, or orders otherwise.

As well, the court may, by a decision giving reasons, reduce the costs

relating to experts' appraisals requested by the parties, particularly if, in

the opinion of the court, there was no need for the appraisal, the costs are

unreasonable or a single expert's appraisal would have been sufficient.

In a personal action, and subject to article 988, the amount of the costs of suit,

except costs of execution, that the defendant who loses may be required to pay

shall not exceed the amount of the condemnation, if that is not greater than the

amount contemplated in paragraph a of article 953, unless the court, by judgment

giving reasons, orders otherwise.

[Emphasis added]

[753] The “costs” to which Article 477 CCQ refer are those provided for in Article 12 of

the Tariff of judicial fees of advocates.⁴²⁸

12.

The cost of exhibits, copies of plans, deeds or other documents, as well

as the cost of expert's reports filed shall be included in the bill of costs,

unless the judge orders otherwise.

[754] The amendments to Article 477 CCQ in January 2003 and the codification

thereby of the powers previously exercised by the Court to mitigate the amount of

428

RRQ, c. B-1, r 22.

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PAGE : 190

expert expenses included in the costs of the action⁴²⁹, are consistent with the principle

of proportionality reflected in Article 4.2 CCP.

[755] In order that expert expenses be admissible as “costs”, the services must have

been at the very least useful, if not essential, and the expenses incurred reasonable in

the circumstances.⁴³⁰

[756] Expert evidence was clearly essential in the context of the present proceedings.

However, as will be explained, what is reasonable is indeed problematic.

[757] Expert evidence was received concerning two distinct subject matters:

(i)

Security & Available Measures to Prevent or Limit Satellite Signal Piracy

and Ensuing Damages (“Prevention of Piracy”): and

(ii)

Quantification of Damages (“Quantification of Damages”).

[758] Regarding the expert evidence received concerning the Prevention of Piracy, for

the reasons previously expressed and elaborated upon below, the Court retains as

more credible, the evidence offered by Vidéotron and TVA’s experts, Markey, Shelton

and Ferguson.

[759] The issues raised for determination in the Vidéotron Action as well as in the other

Related Actions are indisputably highly complex and technically sophisticated. They

required credible, coherent and unbiased explanations by the experts heard and,

hopefully, a comprehension by the Court, of the underlying technology relevant to the

design and operation of a sophisticated DBS television and conditional access system

such as that operated by BEV.

[760] The required explanations were credibly and coherently provided by Markey,

Shelton and Ferguson. For the most part, each of them addressed different aspects of

the relevant technology with minimal duplication, one to the other. There is no doubt

that the expert evidence offered was not only useful, but rather essential to a

comprehension of the relevant technology. It enabled the Court to assess and evaluate

the lay evidence in the appropriate technological context.

[761] Regarding the expert evidence offered by Lajoie and Allard (Navigant)

concerning the Quantification of Damages, for the reasons previously expressed, the

Court is unable to retain their evidence as either credible or useful. Their evidence did

not assist the Court in reaching its conclusion and therefore their expenses in the

amount of $696,636.62 will not be included in the calculation of costs on either the

Vidéotron Action or the TVA (Piracy) Action. Rather the Court has relied upon and

429

See by way of example : Berthiaume v. Val Royal Lasalle ltée. [1992] R.J.Q. 76 (C.S.).

Tessier-Biron v. Verrier, J.E. 2006-1092 (C.A.); A.D.S. Associés ltée. v.Village de St-Basile Sud

430

(Municipalité du) B.E. 2001 BE-286 (C.A.); Gadoua v. Beaudoin J.E. 99-1724 (C.S.).

500-17-027275-059

PAGE : 191

retains as more credible and useful in quantifying the amount of damages in each of the

two actions, the expert evidence offered, under reserve, by Maillé (PwC) heard on

behalf of BEV.

[762] Moreover, under reserve of the Court’s views regarding the usefulness and

credibility of the expert evidence offered by Maillé and the lack thereof of that offered by

Lajoie and Allard, since BEV has paid PwC $879,038.69 for its services which, seeing

the conclusions in each of the two actions, will not be recoverable from Vidéotron or

TVA, it would be unjust to have BEV pay, in addition, the amounts charged by

Navigant.⁴³¹

[763] The amounts originally claimed in the Amended Motions Introductive of Suit filed

in the Vidéotron Action and in the TVA (Piracy) Action were substantial. They totaled in

excess of $387 million (“somme à parfaire”) plus interest, the additional indemnity

provided for in Article 1619 CCQ and costs including extra-judicial costs. ⁴³²

[764] Although, following the termination of the evidentiary portion of the hearings and

consistent with the evidence adduced, their respective claims were substantially

reduced to a fraction of the original amounts, nevertheless, both Vidéotron and TVA, on

the one part, and BEV on the other were required to prepare for and lead expert

evidence either in support of or in contestation of the significant monetary

condemnations originally sought in each of the Related Actions.

[765] BEV will be condemned to pay to Vidéotron, in the present action and to TVA in

the TVA (Piracy) Action, substantially reduced portions of the amounts originally

claimed by each of them in their respective actions.

[766] The initial quantifications of the damages claimed by Vidéotron and TVA were, in

the opinion of the Court, grossly exaggerated. Had the initial claims been of the reduced

magnitude now claimed by each of them in oral argument rather than the three hundred

and eighty-seven million plus dollars ($387,000,000) initially claimed, perhaps Vidéotron

and TVA might have limited the number of experts, especially in the area of technology,

to one or two and thereby reduced the expenses for their services.

[767] Clearly, Vidéotron and TVA were free to engage and pay for as many experts as

they thought necessary. What remains to be determined in this judgment, however, is

whether some or all of these expenses should be mitigated or totally excluded from the

costs of the Vidéotron Action and/or of the TVA (Piracy) Action for which BEV will be

held accountable.

[768] The expenses incurred for the services of the three experts regarding Prevention

of Piracy total $857,774.27. This amount well exceeds the combined total of the

condemnations to be awarded in both the Vidéotron Action and the TVA (Piracy) Action.

431

See in this regard: Cadieux v. Martineau, [2005] R.R.A. 892 (C.S.).

Amended Motions dated November 4, 2005: Vidéotron $374,195,890; TVA $13,670,019.

432

500-17-027275-059

PAGE : 192

Applying the principles of proportionality, the Court finds this amount unreasonable in

light of the amounts legitimately in dispute. While BEV will be condemned to pay the

costs in each of the two actions, it should not be required to bear the financial burden of

reimbursing Vidéotron and TVA for the full amount of these services. Although these

expenses might have been reasonable and justified to support the $387 million plus

dollar actions, they cannot be justified in light of the amount of damages awarded in

each of these two actions. The amounts originally claimed were unsupported by the

evidence and were never realistically the amounts in dispute.

[769] Had Vidéotron and TVA initially realistically quantified their respective claims in

amounts similar to those presented by counsel in oral argument or in the amounts

determined by the Court in this judgment and the judgment in the TVA (Piracy) Action,

they would normally have sought means to limit their expert expenses in the area of

Prevention of Piracy by engaging one or two experts instead of the three in question.

Accordingly, consistent with this premise and applying the principles of proportionality,

the Court exercising its discretion will reduce by 50% to a total of $428,887 the amount

of expert expenses that will form part of the costs in the two actions in question. This

amount will be allocated between the Vidéotron Action and the TVA (Piracy) Action in

the following manner as agreed to by the parties: Vidéotron: $385,998; TVA: $42,888.

433

Although this amount exceeds the amount of the condemnation in the Vidéotron

Action, for the reasons previously expressed, the Court considers it justified.

XIII. INTEREST

[770] The amount of damages awarded in the present judgment is calculated based on

the methodology favoured by PwC using the Navigant quantification date of August 31,

2005. Accordingly, interest as well as the additional indemnity calculated in accordance

with Article 1619 CCQ will run on the amount of the award as and from September 1,

2005.

XIV. FOR THESE REASONS, THE COURT:

A.

OBJECTIONS

[771] DISMISSES Vidéotron’s objections regarding the admissibility of Exhibits D-226

and D-79A;

433

By agreement between the parties, as confirmed in a message addressed to the Court on June 19,

2012, in the event of a condemnation in damages or a dismissal in either the present action or the

TVA (Piracy) Action, the expert expenses determined to be admissible in calculating the costs of each

of the two actions are to be allocated in the following proportion: Vidéotron Action 90%, TVA (Piracy)

Action 10%.

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PAGE : 193

[772] DISMISSES Vidéotron’s objections regarding the Barr Expert Report and the

Green Expert Report;

B.

MERITS

[773] MAINTAINS, in part, Plaintiff in continuance of suit Vidéotron s.e.n.c.s Requête

introductive d’instance en dommages-intérêts précisée et Ré-Ré-amendée;

[774] CONDEMNS Defendant Bell ExpressVu Limited Partnership to pay to Vidéotron

s.e.n.c. the sum of $339,000, with interest thereon calculated at the legal rate as well as

the additional indemnity provided in Article 1619 C.C.Q, both as and from September 1,

2005;

[775] THE WHOLE with costs, including expenses of expert witnesses fixed at

$385,998.

______________________

JOEL A. SILCOFF, J.S.C.

Mtres James A. Woods, Patrick Ouellet, Emmanuel Laurin-Légaré, Alexandre Paul-Hus and

Samuel Bachand

WOODS S.E.N.C.R.L.

Attorneys for Plaintiffs

Mtre Geneviève St-Georges

Attorney for Quebecor Media Inc.

Mtres William J. Atkinson, Jean Lortie, Chantal Tremblay, Nicolas Trottier, Shaun Finn,

Sean Griffin, Emmy Serikawa, Marc-André Russell and Kim Nguyen.

McCARTHY TÉTRAULT S.E.N.C.R.L., S. R.L.

Attorneys for Defendant

Mtre Alexander J. Du

Attorney for BCE

Dates of hearing :

September 6, 7, 9, 12, 13, 14, 19, 20, 21, 22, 26, 27; October 3,

4, 5, 6, 18, 19, 20, 21, 25, 26, 27, 28; November 1, 2, 3, 8, 9, 10,

11, 15, 16, 17, 18, 23, 25, 29, 30; December 1, 6, 7, 8, 9, 13, 14,

15, 16, 19, 20, 2011; January 4, 5, 6, 9, 10, 11 & 12, 2012

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APPENDIX I

GLOSSARY OF ACRONYMS AND DEFINED TERMS

(1) Acronyms

Application-specific integrated chip

Audio Video Replicator

Broadcasting Distribution Undertaking

Bell ExpressVu Asset Tracking System

Conditional Access Kernel

Conditional Access Module

Conditional Access System

Common Scrambling Algorithm

Customer Service Representative

Direct broadcasting satellite

Data Encryption Standard

ASIC

AVR

BDU

BEATS

CAK

CAM

CAS

CSA

CSR

DBS

DES

DNASP

DSS

DTH

Digital Nagra Advanced Security Processor

Digital Satellite System

Direct-to-home

Digital Video Broadcast

Earnings before interest, taxes, depreciation, and amortization

Electronic Counter Measure

Entitlement Control Message (as in dual-ECM)

Electrically Erasable Programmable Read-Only Memory

Entitlement Management Message

Free-to-air Receiver

DVB

EBITDA

ECM

EEPROM

EMM

FTA

General Instrument

GI

Investment Management Council

Integrated Management Systems

Integrated Receiver-Decoder

IMC

IMS

IRD

International Standards Organization

Interactive Transaction Manager

Interactive Voice Response

ISO

ITM

IVR

Low Noise Blocker

LNB

Modified original smart card

Multiple Receiver Verification Program

NagraVision and/or NagraStar

MOSC

MRVP

Nagra

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News Digital Systems

Pay-Per-View

NDS

PPV

PRISM

PVR

SAT

STB

Pre-registration Inventory and Sales Management System

Personal Video Recorder

Service Assurance Team

System Acceptance Test

Set-top box

Software

SW

Videocipher II

Videocipher Renewable Security

VC2

VCRS

(2) Defined terms⁴³⁴

Application Specific Integrated Circuit (ASIC): A specialized silicon chip designed for

a particular application or purpose. ASICs can be purchased “off the shelf” or built to

custom specifications.

Blocker card: A pirate device, typically inserted between the IRD (receiver) and smart

card. Blockers were designed to stop certain messages from reaching the smart card.

They were used with legitimate (subscribed) smart cards and with pirate cards.

Challenge-response protocol: An interactive authentication protocol, typically

executed between an IRD (receiver) and smart card. In a typical challenge-response

protocol, one party generates a random number (challenge), and the other party

performs some computation on that value, often using a cryptographic algorithm and

key. The original party can verify the correctness of this response, and thus be assured

of the other party’s legitimacy.

Churn rate: Ratio of subscribers discontinuing their services to the global subscriber

base over a given time period.

Common Scrambling Algorithm (CSA): A digital cipher, also known as an encryption

algorithm, designed to ensure the confidentiality of satellite television programming in

the DVB standard. CSA uses a 64-bit key which is necessary to encrypt and decrypt

programming. In typical implementations, the CSA descrambler resides in the IRD

(Receiver), and obtains the necessary keys from the Conditional Access Module.

Conditional Access System (CAS): A security system designed to allow authorized

users to view satellite programming, while preventing unauthorized access. The CAS

includes the equipment, management systems and policies required for both

broadcasting and receiving the satellite television signal.

434

Source, (except for definition of Churn rate), Expert Report of Matthew D. Green, PhD, September 29,

2010.

500-17-027275-059

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Conditional Access Module (CAM): A component of the Conditional Access System.

The CAM is incorporated into the Set Top Box (Integrated Receiver/Decoder) and

allows authorized users to view satellite programming. Modern satellite CAMs are

frequently implemented in a replaceable smart card form factor.

Data Encryption Standard (DES): A digital cipher, also known as an encryption

algorithm. DES uses a 56-bit key (with an additional 8 bits of parity checking) which is

necessary to encrypt and decrypt programming. DES is used within the Nagravision and

NDS/DirecTV conditional access modules to protect keys.

Dish Network: U.S. satellite television service offered by EchoStar Inc. Uses

technology based on the DVB standard with Conditional Access technology developed

by Nagravision.

Digital Video Broadcasting (DVB-S, DVB-S2): International satellite television

standards promoted by the DVB consortium. The DVB standards specify many of the

physical and logical parameters for DVB-compliant satellite networks and devices. DVB-

S service is available worldwide, and is used in North American by Dish Network and

BEV. DirecTV also employs the DVB-2 standard for High-Definition programming.

DirecTV: U.S. satellite television broadcaster. DirecTV uses technology based on the

Direct Satellite System (DSS) with a Conditional Access technology developed in

collaboration with NDS. Recently, DirecTV has also begun to use the DVB-2 standard

for high definition content.

Direct Satellite System (DSS): a proprietary satellite broadcasting technology used in

the DirecTV system in North America, and (at various points) the Sky TV system in the

United Kingdom. The DSS specification defines many of the physical and logical

parameters used by DSS-compliant satellite technology

Electronic Countermeasure (ECM): A digital message designed to interrupt pirate

CAMs and receiver devices. ECMs are transmitted within the satellite broadcast stream,

and consist of signal elements such as key changes, obfuscated software code, and

configuration changes.

Entitlement Management Message (EMM): A digital message designed to enable or

disable program reception on subscribers’ satellite receivers. EMMs are transmitted via

the satellite broadcast stream. They may contain commands and/or digital decryption

keys.

Electrically Erasable Programmable Read-Only Memory (EEPROM): A memory

element on a smart card that can be re-written with new information. This area typically

contains software and/or encryption keys.

Free to Air (FTA) Receiver: A third-party receiver device designed to receive free-to-air

satellite television programming. In many cases FTA receivers included, or could be

updated with software that would allow their use in pirating subscription content.

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Integrated Receiver/Decoder (IRD): A dedicated “set top box” containing circuits to

tune and decode satellite television signals. The digital IRD is typically connected to a

small ﬁxed satellite dish via a length of coaxial cable. Commercial satellite television

receivers contain circuits for descrambling the program signal, and frequently include a

slot for a smart card based Conditional Access Module (CAM).

Internet Key Sharing: A technique by which a single, authorized CAM (smart card) is

shared among many users by distributing program keys over the Internet. This does not

require that the conditional access technology be compromised. Rather, the keys are

extracted from a pirated IRD or from the digital interface between the smart card and

IRD.

Nagravision: A Conditional Access technology manufacturer. Nagravision technology is

employed by the U.S. Dish Network and BEV service.

Nagra 1 CAS (DNASP-II): A Conditional Access technology developed by Nagravision.

Nagra 1 was used in the initial deployment of BEV and Dish Network systems. The

Conditional Access Module was implemented within a replaceable smart card.

Nagra 2 “Aladin” CAS (DNASP-III): A Conditional Access technology developed by

Nagravision. The Nagra 2, or “Aladin” technology was deployed by BEV and Dish

Network following a card swap in 2003.

Nagra 3 CAS: A Conditional Access technology developed by Nagravision. The Nagra

3 technology was deployed by BEV and Dish Network from approximately 2008 on.

NDS (NDS Group): Conditional Access technology manufacturer, formerly known as

News Datacom Ltd.

P1, P2, P3 and P4 CAMs (DirecTV): A series of Conditional Access Modules

developed jointly by NDS and DirecTV and used within the DirecTV system from its

launch. The P1, P2 and P3 cards were each compromised, necessitating replacement

of the CAM (card swap). The P4 and later variants has proven resistant to piracy.

Set Top Box (STB): See Integrated Receiver/Decoder (IRD).

Smart card. A miniaturized computing device with a standardized physical proﬁle and

digital interface. Smart cards have limited computing and storage capability, and may

incorporate tamper-resistant components to prevent reverse-engineering. The ISO/IEC

7816 speciﬁcation deﬁnes the interface to the card, but not necessarily its internal

operation.⁴³⁵

435

CardWerk. The ISO 7816 Smart Card Standard: Overview. Available from http://www.cardwerk.com/

smartcards/smartcard_standard_ISO7816.aspx.