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. 

Calgary – 07:00 MST

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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).

Calgary – 07:00 MST

 

Can intellectual property theft or infringement lead to jail time?

• An employee can walk out the door with all kinds of interesting information. Customer lists, business methods, intellectual property of all descriptions. Last week a US jury convicted an ex-employee of Goldman Sachs of trade-secret violations arising out of his theft of software code.  Mr. Aleynikov, a computer programmer, violated the employer’s confidentiality policy when he purloined portions of the company’s code and then quit to join a rival firm. The algorithms in such code provides a critical edge in such a competitive industry as high-frequency stock trading. The charges flow from the Economic Espionage Act dealing with trade-secret protection, a US law that doesn’t have an exact equivalent in Canada. Mr. Aleyniko faces up to 10 years in prison when he is sentenced in March, 2011.
• In Canada, we don’t have trade-secret protection legislation, and jail-time is extremely rare for white-collar theft of trade secrets or intellectual property. Under the criminal remedies section of the Copyright Act (Section 42), imprisonment is a possible punishment, but is rarely used in practice.  In R. v. Borg, [2007] O.J. No. 3287, a company was convicted of eight offences under the Copyright Act relating to importation and sale of forged copies of software.  The person who operated the company was convicted of two offences and the individual was sentenced to 60 days in jail.  However, that sentence was deleted on appeal.
• In the recent case of R. v. Hirani (2010), 2010 BCPC 205 (B.C. Prov. Ct.), the Canadian Border Services Agency intercepted shipping containers which contained knock-offs of Chanel, Prada and Gucci bags. Undercover officers later attended at the store to which the goods were destined and nabbed the perpetrator.  The accused pled guilty and was fined $4,000, but avoided anything more serious. Jail time was technically part of the sentence, but was served in the community.

Related Reading:

• Copyright Infringer Hit with Fine  
• First Conviction Under Anti-Camcording Law

Calgary – 08:00

The Supreme Court of Canada (SCC) is currently considering its verdict in the long-running case of Crookes v Newton The BC Court of Appeal’s 2009 decision (in Crookes v. Newton 2009 BCCA 392) held that Mr. Newton was not liable for hyperlinks to defamatory content. In short, if a person merely hyperlinks to a defamatory site, that act alone does not make that person a “publisher” of the defamatory material found at the hyperlinked site.  Mr. Crookes appealed that decision to the SCC. Oral arguments in the case were heard this week, and a decision is expected soon. With luck, the ruling will clarify the law on liability for hyperlinks – something that has far-reaching consequences for use of the internet in Canada.

Related Reading:

Can you be anonymous online in Canada?

Is a Website Operator Liable for User Comments?

Defamation Update: Hyperlink Is Not Publication

Online Defamation Update: Doctrine of “presumed publication”

Calgary – 10:00 MST

 

The long-running battle between two of the app industry’s biggest players has settled: Zynga v Playdom (acquired in the summer by Disney). This lawsuit, in many ways, illustrates the battle for dominance in a highly competitive industry like app development, and included allegations against former employees of misappropriation of trade secrets, breach of contract, and breach of the duty of loyalty… even a threat of a jail time for one of the employees. For a more staid Canadian equivalent, see: RBC v. Merrill Lynch. That case dealt with bank employees, so it lacks the flair of social gaming, but is a good Canadian example of the duties of departing employees.

Related reading: Departing Employees & Trade Secrets

Calgary – 09:00 MST

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Should Canada develop a national clean energy strategy?

There have been calls for a coordinated national approach to leverage Canada’s ability to compete for investment in the clean-energy market, which was worth over $160 billion in 2009. Earlier this year, a report was released to review the rationale for national coordination on this issue [Link to Report: Towards a National Clean Energy Strategy].

Momentum is building: for example, part of this national investment in cleantech is underway through the federal incentives and investment in clean technologies, including through SDTC (Sustainable Development Technology Canada). Alberta has the potential to leverage its own expertise in energy development to take a lead in this arena and Alberta companies have cornered 15% of SDTC funding. The Alberta government also offers various incentives in the biofuels sector (the Bioenergy Producer Credit Program) as well as funding for GHG-reduction technologies through the Climate Change and Emissions Management Fund. CIPO’s recent announcement about a fast-track program for cleantech patents also helps Canada keep pace with the US, UK and South Korea.

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“

Calgary – 13:00 MST

 

My article on the Legal Implications of App Development [Download Copy of Article (2MB PDF)] is published in the November 19th edition of The Lawyers Weekly. It discusses “app law“ issues such as end-user licensing, copyright disputes, app-related trade-mark issues, trade-secrets, privacy and app development agreements.  [Link here for a preview of the digital edition]

Calgary – 09:00 MST 

The proposed Climate Change Accountability Act was passed by the House but killed in the Senate on Wednesday, marking an end to this attempt to set Canadian targets for atmos­pheric greenhouse gases. The bill also touched on funds or incentives for technology that could be implemented to reduce GHG emissions and the establishment of a federal carbon-credit trading scheme.
Calgary – 08:00 MST

In our post last month [Business Method Patents in Canada ], we noted the groundbreaking decision that upheld Amazon’s 1-click patent, and established that business methods are patentable in Canada. It now appears the Commissioner of Patents has decided to appeal that decision. The uncertainty is back. Businesses will have to wait until the outcome of this appeal to determine the scope of patentability of business methods in Canada.

Calgary – 08:00 MST

One company files a Canadian trade-mark application for IREWARD based on “proposed use” for a customer loyalty program. In other words, they intend to use it, but haven’t yet launched their service. However, they know that when they do start using the mark, they’ll benefit from their October 15th filing date.  A month later, unaware of the first mark, another company files an application for IREWARDS, a mark that is virtually identical, also for a customer loyalty program. This time, it’s based on actual use of the mark.  They have a November 16th filing date, meaning that they arrived at the trade-marks office one month later than the competing mark.

So, who wins?

Both marks were filed in 2001. After a lengthy battle, the decision in Indigo Books & Music, Inc. v. Preferred One Inc., 2010 TMOB 100 (CanLII) was recently handed down.  Indigo (a Canadian retail book store chain) was the later applicant for the IREWARDS mark. They commenced substantial use of their mark immediately, expending millions of dollars in advertising, merchandising and promotion.  Preferred One, the original applicant for the IREWARD mark never commenced use of their mark. Indeed, they put their program on hold when they found out that their opponent was a powerful national retailer.  This proved to be fatal to their mark.  Indigo eventually won the case since they could show that Preferred One’s mark was confusing with their mark as of the date of the opposition in 2004, by which time Indigo’s IREWARDS brand was firmly established across Canada.

Lessons for business?

• Search With Caution: Indigo conducted trade-mark searches before they filed. But their searches did not disclose Preferred One’s earlier IREWARD mark, since that application had not yet been indexed by the trade-marks office database. There is a lag of several months before marks will show up on search results. Thus, it is important to remember that searches are important, but not perfect due to this lag time at the trade-marks office.
• Invest in Your Brand: This case was really determined by the business realities of Indigo’s brand investment. If they had not invested so heavily in the promotion of their mark, they would not have been able to show distinctiveness at the relevant date.

Calgary – 08:00 MST

The Canadian government’s proposed reform of the Copyright Act has passed “Second Reading”. For those of you who are a little rusty on your Canadian parliamentary procedure, this means that Bill C-32 will next go to committee for analysis and debate. Everyone will try to score political points in committee. After that, the Bill may proceed with or without amendments, or in theory it could still be killed after the committee stage.  The digital lock provisions are still among the Bill’s most contentious issues. 

While we’re on the topic of legislation, Bill C-28, the government’s long-overdue Anti-Spam Bill, has passed the committee stage and is being sent back to the House of Commons for “Third Reading”.

Calgary – 08:00 MST

 

Here are two more interesting cases involving apps for sale through the App Store. These cases arise from an alleged breach of open source software licenses. In this case, the open source code was licensed under the terms of the GPL. When GPL-licensed code is used or embedded in an iPhone app, does the licensing of that app through Apple’s iTunes terms and conditions result in a breach of the terms of the GPL? 

• In the first case, relating to an OSS application known as “GNU Go”, the Free Software Foundation complained that the licensing of the iPhone version through the App Store was a violation of Section 6 of the GPL. In response to the complaint, Apple simply removed the app. the FSF complains that Apple’s remedy is to “disappear” the app (as though they are a military junta… some might take that view), rather than licensing the app under the GPL.
• The second case involves the VLC Media Player, an OSS application ported to the iOS platform. Again, there was a complaint and an allegation of copyright infringement against Apple, on the basis that the GPL was breached. This app is (as of early November) still available in the App Store. 

Apple is not blind to the issue. In fact, Apple’s agreement with its developers is clear that apps should not violate the terms of any open-source licenses, and the developer will be liable for any such violation. One idea is for developers to invoke their contractual ability to use their own end-user terms, and insert the GPL at that juncture, subject of course to the mandatory terms imposed by Apple, that all end-user licenses must contain.  This would be up to the developer to implement, not Apple.

Calgary – 08:00 MT

Last year, app-developer Storm8 made headlines when allegations surfaced that it gathered the phone numbers from its end-users’ phones without authorization, through software built into its iPhone apps.  The case of Turner v Storm8 LLC, (Case No. 09-cv-05234-CW) (N.D. Cal.) represented a nationwide class of persons who downloaded and accessed Storm8 games. That class action has now reached Settlement.

Calgary – 09:00 MT

Today the Canadian Intellectual Property Office (CIPO) closed its 30-day comment period on proposed changes allowing for fast-tracking of clean tech patent applications. CIPO currently permits expedited examination of a patent application upon request and payment of a fee. The Patent Rules will be amended to expand the existing criteria to allow accelerated examination of patent applications relating to “green technologies.”  There is no definition of “green technologies”. To take advantage of the fast-track program, applicants must submit a declaration as to the technology’s ability to “resolve or mitigate environmental impacts or conserve the natural environment and resources if commercialized.” No additional fee would be required.  It will be interesting to see how the process will ultimately be implemented, how declarations will be scrutinized, and how much quicker examination will take place. No additional CIPO resources have been committed to this program, so it remains to be seen whether success in expediting a high volume of green technology inventions will draw resources away from routine examinations.

With comments closed, the changes to the Patent Rules can proceed to the next stage. Canada will then join the US, Australia, Israel, Japan, South Korea and the UK in a fast-track program for cleantech patents.  The USPTO is also planning to extend and expand its own “Green Technology Pilot Program“.

Calgary – 09:00 MT

It’s not that far-fetched. Companies who sign a contract can agree in advance to resolve their disputes through arbitration.  The law that governs that arbitration, and even the place of arbitration, can all be determined in a “dispute resolution clause”. These kinds of clauses are often overlooked while the parties focus on the business points – such as price, delivery, and deadlines. However, a dispute resolution clause will suddenly be front-and-centre when the parties start squabbling, and one of them wants to get a remedy in Canada. For example, in one recent Alberta case (PetroKazakhstan Inc. v. Lukoil Overseas Kumkol B.V.), arbitration was triggered by one of the parties, and the Alberta Court decided that the breach of contract questions fell within the scope of the arbitration under the law of Kazakhstan.

What about intellectual property licensing agreements?  The same idea holds true. Canadian courts will uphold arbitration clauses. When negotiating your license, spend some time considering the dispute resolution clauses and the potential advantages of arbitration: for example, confidentiality, neutrality, and a resolution process that can be – compared to litigation – relatively quick and inexpensive.  In Bad Ass Coffee Co. of Hawaii Inc. v. Bad Ass Enterprises Inc., a Canadian licensee was held to a clause that compelled arbitration in Utah. The Canadian Court refused to grant a remedy and the licensee was bound by the decision of the US arbitrator.

Related Event: November 4, 2010 – The Licensing Executives Society – Meeting of the Calgary Chapter on the topic of “Arbitration and ADR Clauses in International License Agreements” Presented by Stephen Burns, Bennett Jones and Jim McCartney, McCartney ADR; panel moderated by Richard Stobbe: Link to Register

Calgary – 09:00 MT

 

When parties are negotiating a new business deal – maybe an investment, joint-venture, research or a pilot project – they often agree to joint ownership of the resulting intellectual property, as an easy starting point.  Let’s look at one case involving trade-marks. 

Trade-mark law in Canada is clear that each trade-mark should have one owner.  That means one company, one person, one entity can own the mark… or, if there are two people who co-own a trade-mark, they must apply to register the mark as a partnership.  In JAG Flocomponents N.A. c. Archmetal Industries Corporation, 2010 FC 627 (2010), two companies entered into a contract in which they agreed to co-ownership of the mark FUSION. This flowed from the catch-all clause in their agreement that: “Any new products, designs, patents, inventions, calculations, and other intellectual property which arise directly or indirectly pursuant to or in consequence of this agreement shall be deemed to [sic] equally owned by the parties hereto.”  The FUSION mark was part of the “other intellectual property” caught by the agreement.

After a falling-out, one company registered the FUSION mark in its own name.  After a court battle over ownership, the court decided that the registration should be expunged. Since the parties agreed to co-ownership of the mark, the trade-mark application by one party rendered the registration invalid. 

Lessons for business?

• Beware of catch-all “joint ownership” clauses, as they should be carefully considered. Should any of the intellectual property be jointly owned? And if so, think through the implications of each situation. Important rights will flow from jointly owned patents or trade-marks, for example.
• As a practice point, a material misrepresentation in a trade-mark application (in this case, that little detail about joint ownership was left out) can result in expungement of the mark.  

Calgary – 09:00 

You download the software…you click “I accept”.  Now, who is on the hook? 

Two recent cases illustrate the different ways that End-User License Agreements (EULAs) will be upheld by the courts.

• Canada: In Bérubé v. Rational Entertainment Limited, 2010 ONSC 5545 (CanLII), a user in Ontario clicked through a license agreement when she opened an account with PokerStars, an online gaming site. The user later sued the site operator, claiming various damages. The user attempted to avoid the terms of the end-user license agreement by arguing that it was a standard-form contract that was against public policy because it was an online gambling site. (Online gambling is not legal in Ontario…though governments in Ontario and BC are getting into the business themselves). The court disagreed. A clause in the EULA was clear that “…the Software is not for use by …individuals connecting to the Site from jurisdictions from which it is illegal to do so.  PokerStars is not able to verify the legality of the Service in each jurisdiction and it is the User’s responsibility to verify such matter.” The case was dismissed based on the terms of the EULA, to which the user had assented.
• US:  A software vendor hired a subcontractor to install its software at the offices of the end-user – in this case, the US Air Force. The subcontractor allegedly made unauthorized copies of the software, so the software vendor sued the subcontractor, claiming breach of the terms of the EULA. The subcontractor denied that it was bound by the EULA. In BMMSoft Inc. v. White Oaks Techology Inc., 2010 WL 3340555 (N.D.Cal. August 25, 2010), the court decided that the subcontractor was not bound by the EULA, since it had clicked acceptance on behalf of the end user – the US Air Force – not on its own behalf.  The subcontractor had clicked through the EULA as agent for the end-user customer.

Software vendors and online service providers can take comfort that properly-worded end-user terms are binding. They also need to get advice so they know who will be bound by those terms.

Calgary – 09:00 MT

In my review of iPhone App Law, I have discussed the case of Turner v Storm8 (Complaint), a 2009 US federal class action lawsuit that alleged a privacy breach by an iPhone app developer.  The lawsuit alleged that Storm8, creator of “iMobster” and “Vampires Live,” wrote its software to collect phone numbers automatically when players downloaded the games. The developer blamed this privacy breach on a software glitch. 

The Wall Street Journal has reported a similar breach by Facebook app developers. Many of the most popular Facebook apps have been transmitting Facebook ID numbers to at least 25 advertising and data firms.  This information can be cross-referenced to compile detailed profiles of Internet users. In this case, the breach goes far beyond phone numbers, and appears to implicate a range of rich personal data that makes up the Facebook world. The practice would violate the terms under which Facebook permits developers to sell apps, and may violate the app developers’ own privacy policies. But that is cold comfort if it’s your identity that is compromised.

Lessons for business?

• A risk of this type is not confined to Facebook apps – privacy breaches could be caused by any third-party app developer, whether it’s on the Facebook, Android or iOS platform;
• If you engage a developer to create an app for your company, make sure your terms clearly address privacy issues. A breach of this type can be fatal to the app, and can spread to implicate the whole company if the breach is serious;
• If you are a developer, ensure that you carefully manage privacy issues. If the collection of information is warranted, it should be done properly. In Canada, the collection of personal information can be permitted if there is informed consent by the end-user. And you need to compare your information-handling practices against the terms of the SDK – for example, Apple’s iOS terms are clear that developers will be liable in the event of any breach of a user’s privacy rights.

Calgary – 10:00 MT

In our post earlier this year (Business Method Patents: Amazon Clicks Through) we reviewed the story of Amazon’s battle with the Canadian patent office over its famous  1-click patent. South of the border, the USPTO confirmed the patentability of many of the Amazon’s claims earlier this year.

Yesterday, the Canadian Federal Court handed down its decision upholding the patent. The court was clear: “At its core, the question is whether a ‘business method’ is patentable under Canadian law. …the Court concludes that a ‘business method’ can be patented in appropriate circumstances.”  The court scolded the patent office for rewriting patent law in its rejection of the application. This is a major (and long-awaited) clarification of the law in Canada and will require time to assess its practical impact on patent applications. It is important to note that the Court sent the application back to the patent office to be re-examined, so the patent has not yet issued.

On that point, the Canadian Intellectual Property Office is currently reviewing its Manual of Patent Office Procedure (MOPOP) Chapter 16 – Computer Implemented Inventions. This chapter will need some re-thinking in light of the court’s guidance in Amazon.

In both the Amazon case in Canada, and the recent Bilski case in the US, the courts have indicated that the “machine-or-transformation” test should not be applied to patentability analysis in all cases, and that each application must be determined on its merits. In other words, there has been some guidance but no clear rules to apply to all applications. The state of Canadian law (unless this decision is appealed) is now clear that business methods can be patented in Canada, with careful drafting.

Calgary – 11:30 MT

 

The Clean Tech sector is IP-intense, and patent protection strategy is front and centre for most clean tech companies. According to the Clean Energy Patent Growth Index (CEPGI), patent filings are on the rise in the Clean Tech sector. Results from the second quarter of 2010 show that U.S. issued patents are up in this sector almost 60 percent over the second quarter of 2009.  For Canadian companies in the Clean Tech industry, intellectual protection strategies will often start with patent prosecution in the US and internationally through the PCT international patent application system.  Canadian inventors can take advantage of the “IPC Green Inventory”, which was developed by the IPC Committee of Experts to facilitate patent searches relating to so-called Environmentally Sound Technologies (ESTs). 

Patent filings are up, and stock-market performance is encouraging in an otherwise rocky financial landscape. The Canadian S&P/TSX Clean Technology Index (launched in March, 2010) has now been up for 6 months tracking the results of TSX-listed companies whose core business is in “green technologies and sustainable infrastructure solutions.” 

Calgary – 09:00 MT