That’s right. Jail time. Grant Stanley is the latest casualty in the file-sharing wars.  The 23-year old network administrator for peer-to-peer file sharing site Elite Torrents has been handed a 5 month prison term [story link] for copyright infringement for the part he played in operating the online file-sharing system.  Elite Torrents used the BitTorrent file-sharing application and was shut down in May 2006 by US federal investigators [link].

In Canada, the law on P2P file sharing activity has been in legal limbo since the court in the BMG case [BMG Canada Inc v. John Doe] indicated that downloading music files does not infringe copyright under the private copying exemption. As the court said: ”Under [the Copyright] Act, subsection 80(1), the downloading of a song for a person’s private use does not constitute infringement.” So don’t expect anyone to be spending time in a Canadian jail for copyright infringement. Not any time soon, anyway. Mr. Stanley will have to wait for a Canadian pen pal on this issue.

It is the BMG decision which is referred to in the US government’s Special 301 Report which monitors countries whose intellectual property protection regime does not live up to the standards of the United States.  The report, which identifies trading partners who “do not provide an adequate level of IPR [intellectual property rights] protection or enforcement”, refers in a disappointed tone to the “Canadian court decision finding that making files available for copying on a peer to peer file sharing service cannot give rise to liability for infringement under existing Canadian copyright law…”

We can expect changes to the Canadian copyright regime when Parliament gets around to it. This issue will very likely be front and centre, but probably not until 2007.

Online contracts can provide fertile ground for disputes. The trick is to set-up your online click-through agreement in such a way that the court will have no choice but to uphold it.  In October 2006, in the decision in Person v. Google Inc. 2006 WL 2884444 (S.D.N.Y. Oct. 11, 2006) [See Law Professor Eric Goldman’s link], the internet behemoth successfully deflected a lawsuit brought in New York State. Google won based on the forum selection clause in its mandatory click-through AdWords contract, which forces disputes to be brought in California, Google’s home turf.  Google won the same battle in a different lawsuit in 2004 (American Blind & Wallpaper Factory Inc. v. Google, Inc., 1:04 cv 00642 LLS (S.D.N.Y. 2004)). This doesn’t mean the dispute is over. Merely that it must go forward in California.

In Canada, we’ve got the benefit of a number of cases, such as Rudder v. Microsoft, a 1999 decision which upheld the validity of Microsoft’s online MSN agreement.  In a number of provinces we also have the benefit of the Electronic Transactions Act [Alberta Version] which sets out a number of requirements for e-commerce businesses.

If a company is sued for infringement of intellectual property rights, can the director be held personally responsible?  One of the benefits of incorporating a company is that the company’s shareholders and directors are not personally liable for the debts and liabilities of the company.  That’s a basic proposition of corporate law.  Of course, there are exceptions.  In the 2006 decision in Krav Maga Enterprises, LLC v. Edge Combat Fitness Inc., the Federal Court allowed the addition of a director in a lawsuit for trade-mark infringement.  Essentially, if the director or officer is engaged in “deliberate, willful and knowing pursuit of a course of conduct that is likely to constitute infringement or reflects an indifference to the risk of it” then the director can be tagged with personal liability.  This is not a new idea.  The Federal Court of Appeal has established this type of liability in cases such as Mentmore Manufacturing Co. Ltd. v. National Merchandise Manufacturing Co. (1978), 40 C.P.R. (2d) 164 in a case of patent infringement and another decision of the Federal Court adding a personal defendant in Dimplex North America Ltd. v. Globaltec Distributors Ltd. from 2005, a case also alleging patent infringement. 

The 2006 decision by the Ontario Court of Appeal in the case of CivicLife.com Inc. v. Canada is instructive in how not to treat your software developer. The case involved a botched pilot project known as Access.ca which was touted as a ground-breaking portal for communities across Canada, designed to make all information and services of federal ministries and agencies accessible on-line. This was in 2000, back when we all used the endearing term “Information Superhighway.” The project foundered for a number of reasons and ended in litigation between Industry Canada and one of its contractors, a software company known as CivicLife.com Inc. It makes for a good case study, so here are a few of the lessons:

Lesson 1: Keep Track of the Cooks in the Kitchen
Sometimes you need to bring a number of technology providers together to get a project done. That’s business. However, make sure you know how many you really do need, and ensure there is a clear structure in place to deal with communication and governance. In the CivicLife case, the government engaged two contractors to work on the project: CivicLife and another software company called Smartsources.com Technologies Inc. Smartsources was the junior partner, hired to provide some of the minor components of the portal. The parties did turn their minds to the issue of communication and cooperation: in the legal agreements the two contractors were obliged to cooperate and communicate with each other and the government had established a communication structure between itself and each contractor.

But at some point in the process, someone at Industry Canada decided that Smartsources should take the lead and develop its own portal. Problem is, no-one ever told CivicLife, who continued to toil away at the project wondering why their partners weren’t cooperating. If you decide that one contractor needs to be dropped, do it early and negotiate a resolution of the issue or a termination of that contractor. Secretly encouraging one contractor while stonewalling the other will only breed confusion, inefficiency and ultimately litigation. The court found that: “The misconduct was carried out in secret while all along Industry Canada was telling CivicLife the project was proceeding as agreed, and when CivicLife learned of the portal submitted by SmartSources, Industry Canada invented a false story to convince CivicLife that its position was not altered.”

Lesson 2: The Duty of “Good Faith”
The court was clear that Industry Canada breached its duty of good faith when dealing with CivicLife. What does that mean? Essentially, the government secretly encouraged Smartsources while stringing along CivicLife with no intention of making the relationship work. According to the court, they “acted in such a way as to undermine the very objectives of the contract.” The government’s lawyers (hey, they were doing their job) argued that it was not a specific term of the contracts that the government act in good faith. Okay, they were technically correct, there was nothing expressly imposing such an obligation in the text of the government’s contracts. But that didn’t stop the court from “reading in” or implying a duty of good faith in its dealings with CivicLife. You may have a duty to act in good faith even if there is no such obligation written in your contract.

Lesson 3: The Fine Print
Of course the fine print can always come back to haunt you. And there’s nothing like litigation to shine a light on it. Here are a few nuggets from this case:
• If you have a duty to use “best efforts” you must exercise your discretion reasonably and fairly.
• If you can do something in a contract in your “sole discretion” don’t think that means you can ride roughshod over the other party. When exercising your discretion, these words can mean acting reasonably, honestly and in good faith and with regard to how the other party’s interests are affected.
• An “entire agreement” clause will not stop the court from implying a term of the contract, such as a duty of good faith or the duty not to abuse a discretion.

Lesson 4: The Value of Good Evidence
Industry Canada never provided any evidence to explain whether it ever rejected or found fault with any of CivicLife’s deliverables. It could never explain why it decided to ask SmartSources to provide a stand-alone portal or why it did not proceed with the national launch of Access.ca. If they had the evidence, it would have come out. On the other side, CivicLife could show that it sent written correspondence to Industry Canada, and this documentation helped win the case. In the court’s words: “Even though Industry Canada knew CivicLife was in dire financial straits and needed to be told the truth as soon as possible, it deliberately chose not to respond to CivicLife’s many letters and kept silent to allow CivicLife to drown in useless and expensive attempts to keep the project alive.”

This case isn’t a cutting-edge Supreme Court of Canada judgement, but it neatly illustrates some of the practical business issues to watch for. You may as well take a few tips: CivicLife ended up in receivership.

If you can’t bear to listen to another electronic rendition of Beethoven’s 9th while you’re watching a movie or enjoying a moment at the theatre, then this decision may give you some satisfaction. In a decision from August 2006 [link], the Canadian Copyright Board decided that ringtones do constitute a “substantial part” of a musical work, and so deserve a tariff all their own. The Board certified a new tariff for downloading ringtones for 2003 - 2005. The royalty is set at 6% of the price paid by the customer or a minimum of $0.06 per ringtone. The fact that the royalties generated by the new tariff will be about $1,570,000 for 2005 shows just how many ringtones are being downloaded annually. The royalty represents a small slice of the pie: revenues generated by ringtone retail sales in Canada are predicted to reach $30 million in 2006. So it probably won’t deter ringtones users, and you won’t ever see a dime (unless you’re a copyright owner) but it may help to ease the pain the next time you hear another electronic ditty on your trip to the movies.

There is a very interesting dispute developing in the case of  e360Insight, LLC et al. v. The Spamhaus Project, Case No. 06 CV 3958, in the United States District Court, Northern District of Illinois. 

Spamhaus is a UK-based organization that “blacklists” spammers in a database designed to filter out spam.  The lawsuit started as a complaint by e360 that their company shouldn’t be included in the blacklist.  Spamhaus took the position that, as a UK-based organization, they weren’t subject to the jurisdiction of the US court.  e360 obtained default judgement and an injunction against Spamhaus. Spamhaus has upped the ante by proposing a court order that ICANN should efffectively suspend the domain name of Spamhaus.  ICANN (properly) responded that it “cannot comply with any order requiring it to suspend Spamhaus.org or any specific domain name because ICANN does not have either the ability or the authority to do so.” [link] This brings in the Canadian connection: the registrar of the spamhaus.org domain name is Tucows Inc., a Canadian company.  Registrars do have the authority to deregister domain names (for example, a domain name which is the subject of a transfer order under a UDRP decision). As far as I can see, Tucows hasn’t commented yet.  This poses a classic law-school exam question on internet law: can a US company obtain an order in a US court over a Canadian registrar to enforce its judgement against a UK organization?  We will revisit this story in future posts.

If a US company obtains a judgement from a US court for intellectual property infringement in the US, can the judgement be enforced in Canada?

Several American movie studios sued a Canadian company Click Enterprises Inc. (”Click”), and its principal, an Ontario resident named Philip Evans, for infringement of intellectual property rights.  Specifically, the lawsuit involved allegations of copyright infringement arising from unauthorized movie downloads.  The movie studios obtained default judgement in New York state and sought to enforce their judgement against the Ontario company in Canada.  In the decision in Disney Enterprises Inc. v. Click Enterprises Inc. the Ontario court decided that there was a “real and susbstantial connection” between Click’s conduct and the United States, where the original judgement was granted.  The court said “it is inescapable that Click was making its services available to residents of the United States who wished to illegally download American films.”  Because of this connection, the US court had exercised proper jurisdiction in the eyes of the Ontario court, and the US judgement was upheld in Ontario.  In effect, the US judgement was enforced as though it was the judgement of a Canadian court.

The lessons for business?  The use of the internet was instrumental in cementing the “real and substantial connection” between Click’s conduct and the United States.  Click had US customers and accepted online payments in the US.  Any online business must take into account the risks of intellectual property infringement which might actually take place south of the border.  If a Canadian business infringes IP rights in the US, the long arm of the law does have a way of reaching across the border.

Battles for internet real estate are often fought in the domain name arena.  This is a hybrid world full of acronyms (UDRP, CDRP, CIRA, ICANN…) which was created just for the resolution of domain name ownership disputes. Who is entitled to own a domain name and what mechanism is used to resolve such a dispute? To answer this question, the domain name dispute resolution system was created.  In Canada, disputes over .CA domain names are governed by the CIRA Domain Name Dispute Resolution Policy, which is commonly referred to as the CDRP. 

In October 2006, the CDRP decision in Wrigley Canada Inc. v. Brain Wave Holdings Inc. was released. Remember, this is not a court decision.  This is an arbitration process unique to domain names which operates outside the Canadian court system.  This dispute involved the domain name candystand.ca.  Specifically, Wrigley, the candy king, alleged that the domain name was registered by Brain Wave Holdings in “bad faith” and should be transferred to Wrigley.

Brain Wave Holdings, a Kelowna, B.C. company, registered the domain name in July 2002.  The registrant used the site as a kind of portal to other candy-related sites or links. 

Wrigley alleged that the registrant registered the domain name in “bad faith” to prevent Wrigley from obtaining the domain name, and that the registrant lacked legitimate interests in the domain name.  Wrigley pointed to its own site at www.candystand.com and its US registered trade-mark CANDYSTAND.  Wrigley did not have a Canadian trade-mark registration and so had to rely on its unregistered or common-law rights to the mark CANDYSTAND in Canada for the purposes of this dispute. 

Brain Wave Holdings countered, saying that the word CANDYSTAND is descriptive or generic and that no-one should be entitled to a monopoly on such a descriptive term. This seems like a good argument to me, and given the use of the domain name by the registrant as a portal to candy-related sites, it might appear that the registrant was making a legitimate use of the domain name.  It would be like using the domain name breadbox.ca as a portal to bread-related products. Who could claim rights to such a generic term?

Wrigley could. And did, successfully in this case.  By submitting evidence of the strength of their mark and the popularity of their candystand.com site (4 million visitors a month) they showed that it was unlikely that the registrant was unaware of Wrigley’s rights at the time the name was registered.  They clinched the case when they showed that this registrant had a prior history as a cybersquatter.  Instead of an innocent mom-and-pop candy-store operator in Kelowna, they painted the registrant as a notorious cybersquatter who must be up to no good.  These factors convinced the arbitration panel that the domain name should be transferred to Wrigley. 

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Calgary - 08:58 MST - The Canadian Internet Registration Authority [link], the organization that operates Canada’s .CA registry, releases “gently used” domain names from time to time. These are typically registrations that have expired and their original owners don’t have the interest or inclination to renew them.  The domain names (there are 1361 being released this time around) are released back to the pool to be picked up by the next enterprising registrant. To view the current list, click here.

Calgary - 13:26 MST - “Newspaper publishers are not entitled to republish freelance articles acquired for publication in their newspapers in [databases] without compensating the authors and obtaining their consent.”

Today the Supreme Court of Canada (SCC) released its decision in Robertson v. Thomson Corp., 2006 SCC 43 [link], the copyright battle pitting freelance writer Heather Robertson against the Globe and Mail publishers. The decision came out in favour of Robertson.  The majority of the court decided that the publisher’s right to copy and reproduce the freelance articles was restricted to the specific layout or the “essence” of the newspaper. Republishing the articles in a database or other form which did not preserve the “essence” of the newspaper was not part of the publisher’s copyright.  For such a reproduction, the author’s consent was required.  However, the publisher was permitted to reproduce the artlcles in a CD-ROM which preserved the essence of the newspaper. We’re still reviewing this decision, but judging by the split in the Court’s analysis, it looks like the copyright debate is continuing.

The impact on business? Just because you think you own the copyright in a particular work, don’t assume that right includes the right to reproduce the work in any and all media.  As a result of the Tasini decision (a decision on comparable facts in the US), we have been advising clients to include contractual language to clarify the rights of reproduction to include any and all media.  This Canadian decision reinforces that advice.

Calgary - 22:09 MST - Many companies want some basic guidance on trade-mark usage. This discussion provides some practical tips and information on trade-marks in Canada.

Q: What is a trade-mark?

A: A trade-mark is a brand name which distinguishes one company’s products or services from the products and services of all the competitors in the marketplace. It’s a way of identifying which product or service comes from which company or “source”. The most common forms of trade-mark are logos or designs (for example, the Nike swoosh or the Royal Bank lion), letters or initials (such as IBM or DKNY) or slogans (such as “Don’t leave home without it” or “The breakfast of champions”). Successful trade-marks are valuable assets of their owners which convey a secondary meaning to consumers.

Q: How are trade-marks created?

A: Trade-marks are created through use. In this sense, “use” refers to use of the mark by the trade-mark owner in association with the sale of the owner’s products and services. Registration is not required for a trade-mark to exist, although registration is recommended. When you apply to register your trade-mark, your trade-mark agent will ask you about the “date of first use”. In other words, the question is “When did you start using your mark in the sense of selling products or services in association with that mark?” It does not refer to the date when you first had the idea for your mark, or the date business cards were printed, or any number of other points which might be mistaken for actual “use” in this sense. To document your use of the trade-mark, keep copies of invoices, hang-tags, labels, copies of advertising, pictures of signage and other indicators which coincide with the date of sales of your products or services using that mark.

Q: When do I use the “TM” and the ®?

A: This is a common question. In Canada, the Trade-marks Act does not refer to the TM or ® symbols. Customarily, the TM symbol is used to designate unregistered trade-marks and the ® is used with registered trade-marks. If you have a registered trade-mark, always use the ® symbol, to put the world on notice that you have registered trade-mark rights in connection with that mark. If your mark is unregistered, then use the TM as a way of indicating your intention to protect the mark. For those trading into the United States, we recommend using the ® symbol only in association with a mark registered in the US. The use of the ® symbol in the US for a mark which is not registered in the US can be considered a type of offence under what is essentially consumer-protection legislation.

Q: What’s the difference between a registered trade-mark and one that isn’t registered?

A: A mark can be unregistered and still be a valid trade-mark. This is known as a “common law” mark. A trade-mark owner enjoys more benefits and rights of enforcement under the Trade-marks Act if the mark is registered.

Q: What happens in the registration process?

A: The registration process starts with searches to determine the availability and registrability of the proposed mark. A trade-mark agent will typically render a report or opinion on the availability and registrability of the mark. If the path forward is clear, an application is prepared in a particular form, and submitted to the Trade-marks Office (the Canadian Intellectual Property Office) for examination. An examiner at the office will review the application and if there are no objections to registration (for example, an objection based on the similarity of the proposed mark with an existing mark owned by someone else), the mark will proceed. The examination process ends in “advertisement” of the mark which refers to the publication of the proposed mark (along with all the other proposed marks which are being applied for) in the Trade-marks Journal. A third-party (usually a competitor) may take the opportunity to oppose the application if the mark is confusingly similar to an existing mark, or if the mark is vulnerable to attack on any number of other grounds of opposition. Assuming there is no opposition or the opposition challenge is defeated (or a negotiated settlement is reached) the mark may proceed to allowance and ultimately registration. The whole process can take 12 - 18 months.

Q: Can others use my trade-mark?

A: In short, no-one else should use a mark without the permission and control of the owner. This goes for business partners, affiliates, joint-venture partners, distrubutors, even subsidiaries. Any use by someone other than the owner can jeopardize the mark. All such uses by others should be properly controlled and documented with properly-drafted Trade-mark License Agreements.

Q: Can you give me some tips on trade-mark usage guidelines?

A: Yes, tips on trade-mark usage will appear in future posts!

Calgary - 10:22 MST - The Supreme Court of Canada (SCC) has been very active on the copyright battlefield: its decision in the CCH case (link) has breathed new life into the “fair dealings” exceptions under the Copyright Act. “Fair dealing” is the carve-out in the Copyright Act giving users (including students, educators and others whose use is considered “fair”) certain rights to use works protected by copyright. This week, the SCC is expected to enter the fray again when it renders its decision in the case of Robertson v. Thompson Corp., a case pitting a freelance writer against a newspaper publisher. This case deals with the rights of publishers to copy works and rebublish them in databases. Robertson is the Canadian version of the famous 2001 US decision in New York Times v. Tasini (famous for copyright lawyers anyway). We’re eagerly awaiting the Supreme Court’s latest offering.

We’re proud to launch the first Calgary-based law blog to focus on intellectual property law, trade-marks and internet law in Canada. ipblog.ca is published and edited by Richard P.W. Stobbe, a Calgary intellectual property lawyer. This blog will focus on developments in Canadian intellectual property law, including practical information and commentary on intellectual property business issues, technology commercialization and developments in the law. We look forward to your comments and discussion.