Recent reports indicate that Netflix may be cracking down on the use of virtual private networks (VPN) and similar mechanisms to log into Netflix. While VPNs provide enhanced network security, they are commonly used by Netflix users to circumvent Netflix’s geographic restrictions (commonly known as “geoblocking”).
As savvy Netflixers know, Netflix’s library is different from one region to the next. For example, Netflix US’s library is nearly three-times larger than Netflix Canada’s. Feeling slighted, many Canadian Netflixers use a VPN to trick Netflix into thinking that they are logging in from the US, granting them access to Netflix’s US library (side note: when I discussed the VPN crackdown with a colleague her response was something to the effect of “of course you want to log into Netflix US. Netflix Canada sucks”, followed by what has become the standard “…though it has gotten better”).
Because I know you, the reader, are on the edge of your seat wondering what the legal issue is (you are, after all, reading an entertainment law blog), I will spell it out for you: licensing. Put simply, except for shows which Netflix produces itself (a small, though increasingly prominent portion of its library), Netflix must sign licensing agreements to include third party content in its libraries and these licenses are typically on a territorial basis. According to Netflix:
In general, content is bid for and licensed on a country by country basis (in some instances, licensing occurs on a regional basis as in Latin America).
In launching our service in a new international market, we must license a content portfolio for that country.
Further restrictions may be imposed by industry practices such as “windowing”, which is used by industry participants to determine how, when and to which mediums a movie is released following its theatrical run (it is beyond the scope of this post to review windowing in-depth. The New York Times has done a pretty good job of doing my work for me.
The long and short of it is that, in many cases, Netflix is only licensed to show a particular movie or television show within a particular territory, shutting out users outside of that territory. So, for example, Netflix may have acquired the rights to stream a show in the United States, but the rights to stream the same show in Canada may have been previously acquired by a different company — often a direct competitor of Netflix – so, unless Netflix is able to obtain the Canadian rights from one of its competitors, Canadian Netflix subscribers will be out of luck. Geoblocking measures are then implemented to restrict users’ access to content in territories where Netflix is not licensed to stream that particular content.
All things being equal, Netflix could pay more to license a film or television show in more territories but, according to Netflix, the service already spends upwards of $3 Billion per year on content. While Netflix had an advantage in its formative years, having moved into the streaming space earlier than most, licenses are typically granted for a fixed period, so existing licenses will need to be renegotiated, and licensing costs have increased exponentially (700% since 2011). One must also keep in mind that the content industry is fragmented, so Netflix must negotiate licenses with several different producers/distributors, and must bid against other service providers for licensing rights (which is likely to become more costly in Canada with industry heavyweights Bell and Rogers entering the streaming arena with CraveTV and shomi, respectively).
You might be wondering if using a VPN to circumvent geoblocking contravenes Canada’s Copyright Act (the Act) (you are not alone – others have asked the same question). Section 41.1 of the Act prohibits, amongst other things, circumventing “technological protection measures” (TPM) or providing a service that circumvents TPMs. The Act defines a TPM as “any effective technology, device or component that, in the ordinary course of its operation, (a) controls access to a work… and whose use is authorized by the copyright owner; or (b) restricts the doing… of any act referred to in section 3, 15 or 18 and any act for which remuneration is payable under section 19”. “Circumvent” is also defined in the Act, meaning to “descramble a scrambled work or decrypt an encrypted work” under (a) above, or to “avoid, bypass, remove, deactivate or impair [a TPM]” under (a) or (b) above.
No Canadian court has yet ruled on whether (i) geoblocking amounts to a TPM or (ii) using a VPN to circumvent geoblocking is a circumvention of a TPM. But, TPM is defined broadly in the act, encompassing any effective technology and geoblocking is designed to control access to licensed works (in Netflix’s case, the content). VPNs, which trick Netflix into thinking a subscriber is logging in from a different location, help users avoid or bypass geoblocks. Consequently, in this writer’s opinion, a court could find that geoblocking is a TPM and that using a VPN or offering a VPN service to evade geoblocking amounts to a violation of section 41.1 of the Act, meaning that the Act could be an effective tool for restricting Netflix subscribers’ ability to circumvent geoblocking.
In Australia, which has a similar clause to section 41.1 in its own copyright legislation, a parliamentary report recognized a distinction between TPMs and geoblocking. However, Australia’s legislation can be distinguished because it carves out from the definition of TPMs technology that “controls geographic market segmentation” if the work at issue is a cinematograph film.
Alternatively, our friends in the US have cast a wary eye at people who circumvent technology used to block them from accessing specific internet content. Notably, in Craigslist Inc. v. 3TAPS Inc. et al. Judge Breyer of the United States District Court, N.D. California held that using a VPN to circumvent an IP blocking mechanism violated the US Computer Fraud and Abuse Act  (the CFAA). (It must be noted, however, that the CFAA is not copyright legislation)
By being the first large-scale international movie and television show streaming service Netflix has been able to act with a certain level of latitude, both in negotiating licensing agreements and in enforcing its VPN policies. But for international Netflixers envious of the more extensive US library, the Wild West days where they are free to pretend they are located in the US might be nearing an end.
 Provided that the TPM is authorized by the copyright owner.
 The CFAA criminalizes intentionally accessing a computer without authorization and obtaining information from that computer