The relationship between China and Canadian business is a complex one. Rising wages and a swelling Chinese middle class will fuel demand for Canadian products and commodities. However, rising wages in China’s manufacturing sector and increased fuel costs will also increase the price of Chinese imports for Canadian companies who have outsourced their manufacturing to one of Guangdong’s many factories.  That puts pressure on Canadian importers and retailers.

In either case - whether exporting consumer goods to China or outsourcing manufacturing to China - intellectual property rights (IPR) are critical for Canadian companies.  Recent reports suggest an encouraging trend:

The “Intellectual Property Tribunal” of the Supreme People’s Court of the P.R.C. has seen a surge in IPR cases in recent years. In 2010, over 1,000 foreign-related cases of IPR infringement were heard, but this number is a small fraction of the 40,000 IPR cases involving Chinese entities. IPR cases involving foreign companies appear to have success rates of about 50%. And 2010 statistics also show an increase in efficiency in handling IPR cases despite the surge in filings. All this is likely driven by the government’s high-profile campaign against IPR violations, including against online piracy. This suggests two things:

• The government (for its own purposes) is encouraging IPR enforcement, and domestic entities are taking advantage of the legal system in increasing numbers for IPR enforcement. Domestic entities wouldn’t be rushing to the local IP Tribunal unless they had some confidence that the process was worth pursuing. 
• Foreign entities don’t appear to be suffering any disadvantage or enjoying any advantage. Their claims are being processed along with those of their domestic counterparts - which is how a dispassionate legal system should work. 

IPR enforcement in China has come a long way, but it still has a long way to go. If you are doing business in China, get access to experienced legal counsel - in both Canada and the PRC - for trade-mark protection, trade-secret and patent protection, licensing agreements and manufacturing agreements.

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The Global Clean Energy Congress and Exhibition will be coming to Calgary from November 1 - 3, 2011.  This should be an excellent venue for showcasing local technologies in the cleantech sector. 

In related news, the Canadian Intellectual Property Office’s proposal to amend the patent rules to permit expedited examination of patent applications related to green technology is moving forward. The comment period is closed, and the draft rules (Rules Amending the Patent Rules – Canada Gazette I – October 2, 2010) are being reviewed. As argued by the Intellectual Property Institute of Canada (PDF), this proposed mechanism could be abused “by applicants wishing to accelerate examination of applications having only a dubious connection to green technology.” Further changes are expected before the program is implemented.

Related Reading: The National Post interviewed Richard Stobbe for an article on the plan to fast-track cleantech patent applications: “Canada plays catch-up on cleantech patents“

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My article on trade-marks and the Federal Court of Appeal decision in Jose Cuervo S.A. de C.V. v. Bacardi and Co., [2010] F.C.J. No. 1208  is published in the January 21, 2011 edition of the Lawyers Weekly: “Trade-mark owners must use it or lose it”.  This article reviews tips on dealing with Section 45 notices under the Canadian Trade-marks Act.

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We have compiled a few recent open-source software (OSS) stories:

• GPL in the App Store: A recent article on ZDNet reviews the differences in treatment of apps subject to the General Public License (GPL) in Apple’s App Store compared with Google’s Android Market. It argues that Apple’s closed system is incompatible with the GPL and so apps built from open-source kernels can’t be sold through Apple’s store, whereas the Google marketplace is compatible with GPL-licensed apps. When Apple pulled the VLC player last year, OSS enthusiasts complained that iPhone users would be deprived of OSS apps like GNU Go and the VLC media player (See: App Law Update - Part 2: Breach of GPL).  However, it’s worth remembering that the apps were pulled because of complaints from the OSS community, who levelled copyright infringement allegations at Apple. It was in response to those complaints that the apps were pulled.  It should be noted that the GPL is merely one of many species of OSS licenses, and other forms of OSS license will not necessarily be incompatible with Apple’s App Store terms.
• OSS and M&A: Lexology has a review of the OSS issues to consider in the context of mergers and acquisitions. In particular, when buying IT assets, business owners should work closely with legal counsel to review the software issues and the risks, and arrive at a practical way of mitigating those risks. Depending on the scope of the transaction, this may involve everything from simple representations and disclosure schedules in the asset purchase agreement, to detailed code-reviews by technical advisors. A “fear” of OSS need not kill an otherwise sensible transaction, as this article points out.
• Enforceability of the GPL: This story from the UK articulates an interesting argument about the enforceability of the GPL. It’s worth a read.

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When you apply for a bank loan, a credit check is one of the first steps taken by the bank. TransUnion is one of the two major national credit reporting agencies in Canada and when Calgarian Mirza Nammo applied to the Royal Bank (RBC) for a business loan, the RBC ran a credit check through TransUnion.  However, TransUnion had inaccurate information on file for Mr. Nammo; his credit profile was tainted with someone else’s information. RBC turned down his application because of this “bad credit” report. Mr. Nammo eventually determined the source of the problem - that his records were confused with someone else’s information - and launched a complaint based on a violation of Canada’s privacy laws.  The case finally landed in Federal Court and in December the court agreed that TransUnion had violated paragraph 4.6 of Schedule I to Canada’s Personal Information Protection and Electronic Documents Act - the obligation to maintain accurate information about the complainant.

The decision in Mirza Nammo v. TransUnion of Canada Inc. [PDF]    T-246-10 represents the first damage award under this legislation. Mr. Nammo was awarded $5,000 plus costs arising from TransUnion’s violation of the “accuracy principle”.  The court also made clear that a correction of the inaccurate information does not absolve an organization of the original violation of the accuracy principle.

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Here is the last case in our trio:

MLS Database - As a follow-up to our earlier post ( Data Mining Decision), you may recall the story of a real estate broker who tried to repackage the MLS listings controlled by the Toronto Real Estate Board (TREB).  The TREB controls the database for residential resale listings (the MLS database) for its approximately 25,000 member real estate agents and brokers.  Fraser Beach was one such broker who developed a workaround to pull the data from TREB’s database, and then redisplay it to the public through his own site.  The TREB cut off his access and Mr. Beach sued the TREB. The court agreed that the TREB was justified in terminating access since this “end-run” violated the authorized use terms that Mr. Beach had agreed to as a member of the TREB. In Fraser Beach v. Toronto Real Estate Board, 2010 ONCA 883, decided in December 2010, the Ontario Court of Appeal upheld this decision. 

Lessons for business? The TREB’s well-drafted Authorized User Agreement specified that use of the database was permitted “for the purposes expressly specified in this Agreement and for the exclusive and internal use by Authorized User“. This was critical to the court’s conclusion that Mr. Beach’s use was a violation of these terms. Companies in the business of licensing database access should take care to have their licenses and authorized use terms reviewed to keep up with technological advances and new methods of obtaining unauthorized access to the data.

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Here is the next case in our trio:

BlackBerry - Consider the problems faced by Canada’s world-leader in mobile devices. You open an app store to compete with Apple, so the little guys can develop interesting apps. The problem is, little guys keep developing interesting apps. In Research in Motion Ltd. v Kik Interactive Inc. [Statement of Claim available here], filed in November, RIM sued Kik, an upstart messaging service that had grown wildly popular in the previous several weeks (over 2 million Kik users reportedly signed up within the space of a month). In its suit, RIM alleges patent and trade-mark infringement as well as misuse of confidential information - (the principal of Kik is a former employee of RIM) - and privacy violations.  This shows the difficulty of controlling ex-employees and independent developers, and RIM is not alone. Apple has booted apps that mimic its own core services or threaten the bottom-line (most famously, Google’s VOIP apps). 

Moving to India, RIM faces another challenge in the form of Bharatberry, an app created by an independent Indian developer that provides an “India-compliant solution to the existing users of the BlackBerry® service in India”, and appears to piggy-back on BlackBerry hardware to run a parallel email and messaging service through its own servers, rather than through RIM servers.  This service was developed in the wake of concerns that the BlackBerry service would be disrupted in India if RIM did not solve the Indian government’s demands to have access to RIM’s encrypted e-mail traffic.

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We’ll review a trio of cases that illustrate the line drawn by the law when software users try to do an end-run around a software owner:

World of Warcraft (WoW) - Blizzard is the publisher of the popular WoW multiplayer game. MDY sold an autopilot bot marketed as “Glider“ that automatically played the lower levels of WoW, to enable a player to graduate to higher levels and earn points.  In a fascinating case (MDY Industries v. Blizzard Entertainment), Blizzard sued MDY for sales of this “Glider” bot. In the course of the cat-and-mouse tactics between Blizzard and MDY, Blizzard prohibited the use of bots in its Terms of Use, and then deployed bot-detection software to block Glider-users. The US Court of Appeals for the 9th Circuit said that the antibot provisions were covenants rather than conditions. “A Glider user violates the covenants with Blizzard, but does not thereby commit copyright infringement because Glider does not infringe any of Blizzard’s exclusive rights. For instance, the use does not alter or copy WoW software.” Thus, Blizzard failed in its copyright claims. 

However, the court decided that MDY was liable for a DMCA violation with respect to WoW’s “dynamic non-literal elements”. The term “dynamic non-literal elements” refers to the copyright-protected elements of the game other than the written code that are created in the course of dynamic play by user. The court upheld the permanent injunction against MDY.

Lessons for business? In Canada, we don’t have an equivalent of the DMCA, though the proposed changes to the Canadian Copyright Act contain anti-circumvention rules of the type that caught MDY in the WoW case. Software publishers and vendors should ensure that their end-user terms or acceptable use policies are well-drafted and up-to-date to guard against this type of indirect access. This may not allow a software vendor to access copyright infringement remedies, but will provide a contractual remedy.

Cases 2 and 3 up next. 

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Thanks 2010, intellectual property and internet law had an interesting ride. Here are a few issues to watch in 2011:

Canadian Copyright Reform and Anti-Spam Law:  Around this time last year, we predicted that copyright reform wouldn’t come to Canada until 2011 at the earliest. So far that appears to be holding true. However, Canada did make headway in the anti-spam department, with the passing of the Fighting Internet and Wireless Spam Act (hardly a poetic name, but we’ll take what we can get from Ottawa).  Canada’s anti-spam legislation received royal assent on December 15, 2010.  Meanwhile, the Canadian copyright reform bill was introduced in 2010 and the debate will continue when Parliament resumes at the end of January.

And the courts continue to tackle copyright issues piece by piece. News came in late December that a copyright “fair dealing” case will be going to the Supreme Court of Canada in 2011 (SOCAN v Bell).

Clean Tech Law: 2011 may prove to be a break-out year for Canadian Clean Tech companies, as private investment and government incentives provide a boost to companies in this technology-intense sector.  The law surrounding the uses, protection and licensing of clean technologies in Canada will gain traction in 2011.

App Law: This fascinating area of law shows no signs of slowing, as app developers continue to push the boundaries in their use of copyright materials, trade-marks and personal information of consumers, as the technology gallops forward. In December another iPhone-related class action suit was announced, naming Apple and a number of app developers as defendants (Lalo v. Apple, Inc et al, case 5:10-cv-05878).

Business Method Patents: We predicted that some clarity would come out of the Bilski review (in the US) and the Amazon 1-click patent (in Canada). In the US, the Supreme Court handed down its decision in the Bilski review, generally upholding the lower court decision, but cautioning that the machine-or-transformation test is not the only patentability test to be applied.  In Canada, the decision in October in the Amazon case upheld the patentability of business method patents, but the waters were immediately muddied again, when it was announced in November that the decision was being appealed (See: Amazon Business Method Case to be Appealed).

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