Paypal has voluntarily blocked a number of Canadian Virtual Private Network (VPN) services from using its payment intermediary mechanisms, citing copyright infringement and the payment intermediary's acceptable use policy.
The specific infringing activity that prompted Paypal to suspend payment services to these Canadian VPNs relates to the manner in which such services allow customers to access subscription services such as Netflix from various geographpic regions. Copyright licensing is terrotorial, meaning that streaming services such as Netflix obtain different content for different countries. A core functionality of VPNs is that individuals using such services to encrypt their network traffic will at times appear to be based in foreign countries. As a result, individuals using VPNs will be able to access content not intended for the country in which they are in and, indeed, some VPNs advertise the ability to access a wider variety of content from services such as Netflix.
It is not clear on what basis individual VPN users accessing content intended for a foreign jurisdiction might incur copyright liability. These individuals are paying for their services and Netflix is designed to allow subscribers to access foreign libraries when physically present in a foreign state such as when travelling. While Netflix' terms of service and some technical measures it undertakes seek to preclude customers from using poxy services, it is questionable whether use of a VPN could constitute circumvention of a technical safeguards in violation of copyright laws. Even if it were, it is unclear that VPNs facilitate a broad range of functionality and it is unclear they can be held liable for infringing activity of their customers.
Finally, Paypal's liability in this context as a payment intermediary is even more tenuous. Under such ambiguous conditions, account suspension in the absence of a court order has high potential for penalizing services that are ultimately legal and provide substantial legitimate and important functionality.