By Richard Stobbe

There has been much speculation about the impact of 3D printing on the enforcement of IP rights. But very few decisions. Now, finally, a case you can sink your teeth into: ClearCorrect v. ITC, 2014-1527 deals squarely with a patent infringement allegation which focuses on 3D-printing technology.

This case relates to the production of orthodontic appliances known as teeth aligners. According to patents owned by Align Technology, their aligners “are configured to be placed successively on the patient’s teeth and to incrementally reposition the teeth from an initial tooth arrangement, through a plurality of intermediate tooth arrangements, and to a final tooth arrangement…” as listed in the ’880 patent. (As soon as you see the word “plurality”, you just know you’re reading a good patent.)

ClearCorrect, a competitor of Align Technology, produced aligners by means of 3D-printed digital models of aligners. ClearCorrect electronically transmitted digital files to its subsidiary ClearCorrect Pakistan (thus skirting the US patent rights) where digital models of the aligners were created and configured. ClearCorrect Pakistan then electronically transmitted these digital models back to ClearCorrect US, where the digital models were 3D-printed into physical models. From there, aligners were manufactured using the physical models.

The patent owner alleged that the transmission of these digital three-dimensional models should be stopped at the border, just like any infringing “article” would be stopped. Typically, an owner of US patent rights can employ the resources of the ITC to stop and seize articles – take for example, a piece of equipment or a consumer product – which infringes a US patent. This prevents the infringing articles from being imported into the US, even if they are manufactured overseas. In this case, the court had to decide if digital three-dimensional files constituted “articles” for these purposes.

In the end, the court considered articles to be “material things” and decided that the 3D-printable digital files were not “articles”. Thus, the ITC lacked jurisdiction to prevent the entry of these files into the US. (Exactly how it could prevent the transmission of the files is another matter entirely.)

Something to chew on while we wait to see if the decision will be appealed.

Calgary – 07:00 MT

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By Richard Stobbe

Naruto the monkey must abandon his budding photography career and go back to using his opposable thumbs towards some other end. To bring the monkey-selfie case to a close, the US District Court outlined its careful reasoning for rejecting the copyright claims of Naruto, a six-year-old crested macaque. (If you missed the background story, see our earlier post.)

The decision in Naruto v. Slater (US District Court No. Calif. Case 15-cv-04324-WHO) is, if nothing else, a study in restraint. The judge reviews cases involving other non-human claimants, such as the 2004 decision dealing with a claim advanced on behalf of the world’s whales, porpoises, and dolphins, regarding violations of the US Endangered Species Act.

In its final analysis, the court concluded: “Naruto is not an ‘author’ within the meaning of the Copyright Act. Next Friends argue that this result is ‘antithetical’ to the ‘tremendous [public] interest in animal art.’ Perhaps. But that is an argument that should be made to Congress and the President, not to me. The issue for me is whether Next Friends have demonstrated that the Copyright Act confers standing upon Naruto. In light of the plain language of the Copyright Act, past judicial interpretations of the Act’s authorship requirement, and guidance from the Copyright Office, they have not.”

Calgary – 07:00 MT

By Richard Stobbe

Copyright attempts to balance the rights of authors with the rights of users. It’s this tension – copyrights vs. user rights – that makes copyright so fascinating (…to some people).

In 2012, Parliament enacted some changes to Canadian copyright law, which included a number of so-called “user rights” or exceptions to infringement, some of which were conditional on rules dealing with the circumvention of technological protection measures. I’ll give you an example: under section 29.23, recording a TV program for time shifting on your PVR is not an infringement of copyright as long as you did not circumvent a technological protection measure (or “TPM”). So circumvention of a TPM can take you outside the benefit of the exception, with the result that the recording would constitute an infringement.

No court has had a chance to review the rules around TPMs… until the decision in 1395804 Ontario Limited (Blacklock’s Reporter) v Canadian Vintners Association (CVA), 2015 CanLII 65885 (ON SCSM), an Ontario decision which interprets circumvention of a TPM.

A “technological protection measure” is, according to the Copyright Act any “effective technology, device or component” that controls access to a work and whose use is authorized by the copyright owner. It is deliberately broad. The Blacklock’s case dealt with a subscription-based online newsletter published by Blacklock’s. When their CEO was mentioned in a Blacklock’s article, the CVA bypassed the subscriber paywall to access the article. Did the CVA hack into the system and then scrape and republish the Blacklock’s content? No (although such conduct might have justified the $13,000 in copyright infringement damages that were awarded by the judge). The CVA obtained a copy of the article via email, from a colleague who did have a subscription.

According to this case, circumventing a technological protection measure includes obtaining a copy of an article by email, where the article sits behind a paywall. The good news is that no hacking skills are required!

Since this case will not be appealed, it stands as the leading case, although it has been called controversial, bizarre and an extraordinary misreading of copyright law. Since it is the decision of an Ontario small-claims court, it is not binding on other courts in Canada. And since Blacklock’s is pursuing copyright infringement claims against others – there are 10 claims currently filed in the Federal Court – this issue should be canvassed at the Federal Court where further clarification may emerge. Stay tuned.

Calgary – 07:00 MT

By Richard Stobbe

Imprisonment in intellectual property infringement cases is rare – although not unheard of. The message from a recent Canadian Federal Court decision is… don’t mess with the Court. They expect compliance with their orders and a contempt order can lead to a “warrant of committal”, resulting in imprisonment.

In 2013, a Federal Court ruled that Hightimes Smokeshop and its officer and director, Ameen Muhammad had infringed the “HIGH TIMES” trademark owned by Trans-High Corporation (See: Trans-High Corporation v Hightimes Smokeshop and Gifts Inc., 2013 FC 1190 (CanLII)). In spite of this judgment, the judgement was ignored, and trademark infringement continued on the shop signage, sales receipts and printed materials of Hightimes Smokeshop.

Then in June 2015, Hightimes Smokeshop and Mr. Muhammad each pleaded guilty to five counts of contempt which resulted in the issuance of a Contempt Order, and an award of $62,500 in costs, payable by Hightimes Smokeshop and Mr. Muhammad, jointly and severally. However, that Contempt Order was also ignored and no money was paid to Trans-High Corporation.

In Trans-High Corporation v. Hightimes Smokeshop and Gifts Inc., 2015 FC 1104 (CanLII), Trans-High Corporation brought another motion to compel compliance with the Contempt Order, citing a ruling by the Supreme Court of Canada, that a person who is ordered by a court to pay money may be imprisoned for contempt if he or she shows “a certain degree of intention to evade his or her obligations”; or, put another way “he or she is unwilling to pay the debt despite having the ability to pay” (see paragraph 11).

The Court issued a warrant for the arrest and imprisonment of Mr. Muhammad, arising from contempt in a trademark infringement case.

Calgary – 07:00 MT

New York artist Maya Hayuk was approached by an advertising agency working for Starbucks, to see if she would assist them with a proposed advertising campaign. Ms. Hayuk is known internationally for her paintings using bold colors, and vibrant geometric shapes – rays, lines, stripes and circles.

She declined the offer to work with Starbucks (too busy) and was surprised when she saw the final marketing campaign for the Starbucks Frappuccino product. The marketing materials, including artwork on Frappuccino cups, websites, and on signage at Starbucks’ retail locations and promotional videos, were strikingly similar to Hayuk’s artworks. The artist promptly launched a copyright infringement lawsuit against both Starbucks and its advertising agency, claiming that Starbucks created artwork that was substantially similar to her paintings and further, the Starbucks material appropriated the “total concept and feel” of her paintings, even though there was no “carbon copy” of any particular painting.

Last week, A US District Court handed down its decision in Hayuk v. Starbucks Corp and 71andSunny Partners LLC (PDF) (Case No. 15cv4887-LTS SDNY). It is well settled that copyright does not protect an artist’s style or elements of her ideas. The court denied the claim that any copyright infringement occurred. In analyzing the two images, the court notes that the proper analysis is not to dissect, crop or rotate particular elements or pieces of the two works and lay the isolated parts side-by-side, but rather to look at substantial similarity of the works as a whole. The court concluded that “Although the two sets of works can be said to share the use of overlapping colored rays in a general sense, such elements fall into the unprotectible category of ‘raw materials’ or ideas in the public domain.” [Emphasis added] Thus, there could be no finding of substantial similarity and the claims were dismissed.

Calgary – 07:00 MT

By Richard Stobbe

The Google and Equustek Saga has garnered attention across Canada and even among US commentators (something rare for Canadian decisions). In September, 2015, Google Inc. filed an application for leave to appeal the decision to the Supreme Court of Canada (SCC), and as of January, 2016, the leave application materials have been submitted to the court. With luck, the SCC will take up the case, and we’ll see a decision in late 2016.

If the case does proceed, you can expect the intervenors to line up for a place at the table.

The Electronic Frontier Foundation (EFF), for example, unsuccessfully argued against the “dangerous ruling” at the BC Court of Appeal level, and they can be expected to advance their arguments at the SCC. Their position is that “a worldwide injunction would set a dangerous precedent that could later be used to limit the legal and equitable rights of others to receive speech.” The EFF raised US free speech arguments – okay, so the US Constitution may not be persuasive at the Canadian court, but worth a try. They maintain that “No single country should have veto power over Internet speech.”

Further reading: Is Google “Feeling Lucky” at the Supreme Court?

Stay tuned for more updates – this is one to watch.

Calgary – 07:00 MT

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By Richard Stobbe

This is a case that became something of a lightning rod in the storm of subscriber privacy rights vs. copyright. As we wrote in our earlier post, a copyright owner can only enforce its rights against online infringement if it knows the identity of the infringer. It can seek a court order (called a Norwich order) to disclose the identity of those alleged infringers. Canadian law is clear that “A court order is required in every case as a condition precedent to the release of subscriber information.”

Such an order was used by Voltage Pictures to obtain the names and addresses of some 2,000 subscribers of an ISP known TekSavvy Solutions Inc. TekSavvy sought reimbursement of its costs for complying with the order: TekSavvy claimed recovery of a total of $346,480.68. Voltage offered to pay $884.00. The lower court concluded that Voltage should pay $21,557.50 to cover TekSavvy’s legal costs, administrative costs, and disbursements of abiding with the Order.

TekSavvy appealed that order.

In Voltage Pictures LLC v. John Doe, 2015 FC 1364 (CanLII), the court awarded TekSavvy an additional amount of $11,822.50. A win? Not really, considering how much they claimed, and what it would have cost to run the appeal.

The court also wagged a finger at TekSavvy. Since TekSavvy was only obliged to deliver the subscriber info after payment of its costs, the payment issue resulted in a significant delay in the supply of the subscriber names. The court complained that “…Voltage has not been able to obtain the information that it was lawfully entitled to for more than two years after Prothonotary Aalto’s Order. The failure to provide this information, on all accounts, appears to be due to TekSavvy’s unwarranted and excessive cost claims in the amount now of $350,000…”

It went on to note that “…the background circumstantial results do not sit well with the Court. They confirm that the policy in these types of motions should normally be to facilitate the plaintiff’s legitimate efforts to obtain the information from ISPs on the prima facie illegal activities of its subscribers. In my view, courts should be careful not to allow the ISP’s intervention to unduly interfere in the copyright holder’s efforts to pursue the subscribers, except where a good case is made out to do so. While it may be a practice to require prepayment of the ISP’s costs of the motion, the court must not let this issue delay unnecessarily the execution of the order to the extent possible. Reasonable security for costs may be preferable in some cases.” [Emphasis added]

As with the earlier decision, this case serves as guidance to copyright holders who are seeking the information of anonymous infringers, and to ISPs who must balance the privacy rights of subscribers.

Calgary – 07:00 MT

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By Richard Stobbe

What if a competitor cut and paste the metatags from your website and used them on the competitor’s site? Is there a remedy under Canadian law? Are metatags subject to trademark protection? The answer is… it depends.

Red Label Vacations (redtag.ca) sued its rival 411 Travel Buys for use of metatags, including “Red Tag Vacations” in the 411 Travel Buys website. The Federal Court dismissed the trademark and copyright claims of Red Label Vacations (see: No copyright or trademark protection for metatags). Red Label Vacations appealed.

In Red Label Vacations Inc. v. 411 Travel Buys Limited, 2015 FCA 290, the Federal Court of Appeal dismissed the appeal, and upheld the lower court decision.

The court agreed that 411 Travel Buys had copied the metatags from Red Label’s site, but noted that none of the metatags appeared in the visible portion of the 411 Travel Buys website. Therefore, consumers did not see any of the metatags. In that sense, there was no “use” of the metatags as trademarks for the purposes of determining infringement.

Interestingly, there was one instance where the metatags were visible, and that was in the Google search result, where the words “Book Online with Red Tag Vacations & Pay Less Guaranteed” appeared in connection with the 411 Travel Buys site. The court considered that this would have the effect of sending consumers to Red Label’s site.

The court did leave the door ajar for other metatag trademark infringement cases, noting “in some situations, inserting a registered trade-mark (or a trade-mark that is confusing with a registered trade-mark) in a metatag may constitute advertising of services that would give rise to a claim for infringement…” [Emphasis added]

Calgary – 07:00 MT

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By Richard Stobbe

As an update to our earlier post, we note that the Intellectual Property Institute of Canada, in its most recent bulletin, is estimating that the anticipated changes to Canada’s intellectual property laws – including the overhaul of trademark laws under new Trademarks Regulations, as well as changes to the Patent Rules and Industrial Design Regulations – will not begin until late 2016. This pushes the patent law changes into late 2017, with the trademark amendments to be implemented by early 2018.

The impact of the Trans-Pacific Partnership (TPP) on Canada’s IP laws is still being assessed. If ratified in Canada, the TPP is expected to require further consequential amendments to Canadian laws – such as copyright term extensions.

Stay tuned. Just don’t hold your breath.

Calgary – 07:00 MT

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By Richard Stobbe

A confidentiality agreement is signed. So… confidentiality is covered, right?

This 2014 case, nClosures Inc. v. Block and Company, Inc., No.13-3906 & 14-1097 (7th Cir., Oct. 22, 2014), shows that the answer is “not so fast”. In the nClosures case, two companies entered into a confidentiality agreement to explore a potential business deal to manufacture iPad cases based on nClosures’ so-called “Rhino” and “Rhino Elite” designs. However, the first confidentiality agreement was specifically directed to the purpose of initial discussions exploring the possibility of a deal. nClosures disclosed its confidential Rhino and Rhino Elite designs to Block.

However, in the following months, the parties circulated a draft manufacturing agreement but did not ultimately sign any written agreement, nor did they address confidentiality obligations that extended beyond those initial discussions. Eventually, the parties settled on a vague verbal arrangement to manufacture and sell iPad cases.

In this decision, the U.S. Seventh Circuit Court of Appeals provides us an important reminder. For confidentiality to apply, that first agreement is important, but remember:

1. As the business relationship expands beyond those initial discussions, additional confidentiality obligations should be imposed, to cover the new expanded purposes;

2. A non-disclosure or confidentiality agreement is not effective if the disclosing party does not make reasonable efforts to preserve confidentiality over its confidential information. In this case, the court found that nClosures had disclosed the same confidential design information to other contractors and designers without any confidentiality obligations.

In the words of the Court: “…no additional confidentiality agreements were required of individuals who accessed the design files for the Rhino or Rhino Elite devices. Additionally, neither the Rhino nor the Rhino Elite drawings were marked with words such as ‘confidential’ or ‘contains proprietary information’. Furthermore, the drawings were not kept under lock and key, nor were they stored on a computer with limited access.”

Lessons for business? A confidentiality agreement is an important first step, but it must be followed up with additional confidentiality agreements as the relationship evolves, and it must be backed-up with internal policies of proper marking, restricted access, and lock-and-key protections, in order to preserve confidentiality.

Calgary – 07:00 MT

By Richard Stobbe

The CBC, like all television broadcasters, makes copies of various works – such as music and other content – in the course of preparing programs for broadcast. So-called “synchronization copies” are used to add musical works to a program. Then a “master copy” is made, when the music synchronization is complete. The master copy of the completed program is loaded for broadcast, and various internal copies are made of the master copy. These copies are called “broadcast‑incidental copies”. In a nutshell, these are copies made in the process of production of a program, as distinct from the broadcast of the program.

In one of the more esoteric copyright topics to make it to the Supreme Court, the decision in Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57 (CanLII), examined whether these “broadcast‑incidental copies” require a separate license because they would constitute an infringement of copyright if made without consent of the copyright owner. Or, rather, are they caught within the standard broadcast license that CBC would have negotiated with rightsholders, such as SODRAC, and thus they wouldn’t require a separate license… Still with me?

The Court decided that “broadcast‑incidental copying” engages the reproduction right in Section 3 of the Copyright Act. These so-called “ephemeral copies” are not exempted by ss. 30.8 and 30.9 of the Act. The Court noted that “While balance between user and right‑holder interests and technological neutrality are central to Canadian copyright law, they cannot change the express terms of the Act.” Importantly, the Court also cautioned that “The principle of technological neutrality recognizes that, absent parliamentary intent to the contrary, the Act should not be interpreted or applied to favour or discriminate against any particular form of technology.”

In the end the decision was sent back down to the Copyright Board for reconsideration of valuation of the license in accordance with the principles of technological neutrality and the balance between balance between user and right‑holder interests.

Calgary – 07:00 MT

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By Richard Stobbe

A U.S. court recently decided that it would take jurisdiction over a seller who sold allegedly infringing products through online retailers such as Amazon.com. PetEdge Inc. a Massachusetts-based manufacturer, owns a patent and certain trademarks for its folding steps to enable pets to climb onto a bed.

Alleging patent and trademark infringement, PetEdge wanted to sue rival Fortress Secure Solutions, based in Washington State, a company with no operations, personnel or offices in Massachusetts.

To justify its lawsuit in Massachusetts district court, PetEdge argued – and the court agreed – that Fortress purposefully directed its sales to Massachusetts residents by making its sales through Amazon.com, and the infringement claims arose from those activities. Thus, the court took jurisdiction over the out-of-state defendant.

Lessons for business?

Canadian retailers should take note that if they use national retailers such as Amazon.com to sell products into the U.S., the use of this distribution channel could result in a local state court taking jurisdiction over the Canadian seller, under the same analysis applied to Fortress.

Thanks to Finnegan LLP for their link to the decision: PetEdge, Inc. v. Fortress Secure Solutions, LLC

Calgary – 07:00 MT

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By Richard Stobbe

Defamatory content on the internet?? Throw a metaphorical rock into the ether and you’ll hit something that meets the definition of defamatory content. In order to establish a claim for defamation, a plaintiff must establish that:
(a) the words are defamatory, in the sense that they would tend to lower the plaintiff’s reputation in the eyes of a “reasonable person”;
(b) the words refer to the plaintiff; and
(c) the words were published, in the sense that they were communicated to at least one person other than the plaintiff.

In Canada, this is the same basic test whether the medium is an old-school print newspaper, a neighbourhood newsletter, a personal blog, or an online comments section. While defamation can be difficult to establish, the law appears to have settled on a few rules around linking to allegedly defamatory content. Two recent U.S. cases addressed this issue, and U.S. commentators have even pointed back for guidance to a watershed Canadian case from 2011 (which we wrote about here).

In Life Designs Ranch Inc. v. Sommer the court reaffirmed that linking to defamatory content does not, by itself, constitute a publication of that content: “…a URL is not qualitatively different from a mere reference. Therefore, we hold Mr. Sommer did not republish allegedly defamatory material when he posted on his website: ‘For more info click or cut and paste the link ….’ ”

Going one step further, what if the link is more than just a link? The court in Slozer and Donches v Slattery reviewed a situation where the defamatory content was linked in a post, and then that post was “Liked” on Facebook by the defendant. The court said: “…by providing a link to the challenged posting, without reiterating the content of that posting did not initiate a republication. Her motivations and her designation of the link with a “like” as alleged by Appellants, is not equivalent to a reiteration of the defamatory content as to constitute republication.”

Calgary – 10:00 MT

By Richard Stobbe

The Monkey Selfie Caper apparently has legs, as they say in the news business. Long legs with opposable toes. (For background, see our earlier post: Monkey See, Monkey Do… However Monkey Does Not Enjoy Copyright Protection )

On September 21, PETA announced that it had filed a copyright infringement lawsuit in U.S. federal court in San Francisco. PETA is suing “the owner of the camera, photographer David J. Slater and his company, Wildlife Personalities Ltd., which both claim copyright ownership of the photos that Naruto indisputably took. Also named as a defendant is the San Francisco–based publishing company Blurb, Inc., which published a collection of Slater’s photographs, including two selfies taken by Naruto. The lawsuit seeks to have Naruto declared the “author” and owner of his photograph. … U.S. copyright law doesn’t prohibit an animal from owning a copyright, and since Naruto took the photo, he owns the copyright, as any human would.”

Yes, you heard that right, the crested macaque is the plaintiff in a copyright infringement lawsuit. April 1st is still 5 months away, but with luck the federal court will have ruled on some preliminary motions by then.

Stay tuned.

Calgary – 07:00 MT

By Richard Stobbe

Change is not always good, particularly in the world of registered trademarks. If your trademark changes over time – due to the vagaries of marketing trends, fashion, style – you may find that your mark no longer matches the form in which it was registered. Minor changes will be tolerated. Major changes can be fatal to the mark.

As noted in our earlier post “It is important that a mark is used as registered. Where the mark changes over time, the mark owner should consider filing a new application for the modified form of the mark. Otherwise, the evidence of usage may show use of the modified mark, which may not be accepted as evidence of use of the mark as it was registered.”

This point was illustrated in the recent decision in Guess? IP Holder L.P. v Les Montres Marciano Inc., 2015 TMOB 108 (CanLII), in which the design mark SPORT MARCIANO which was registered in association with watches, had evolved over time to show the word MARCIANO alone, as shown above.

The result was that Guess – the mark owner – could not tender evidence of any use of the mark SPORT MARCIANO in association with watches.

The registration was cancelled.

Lessons for business? Get advice on your brand portfolio – not just during the initial searching and registration process, but also during the lifecycle of your marks, including change management, the development of brand guidelines and enforcement protocols.

Calgary – 07:00 MT

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By Richard Stobbe

Let’s consider that contract you’re about to sign. Does it contain a limitation of liability? And if so, are those even enforceable? It’s been several years since we last wrote about limitations of liability and exclusion clauses (See: Limitations of Liability: Do they work?) and it’s time for another look.

A limitation of liability seeks to reduce or cap one party’s liability to a certain dollar amount – usually a nominal amount. An exclusion clause is a bit different – the exclusion clause seeks to preclude any contractual claim whatsoever.

To understand the current state of the law, we have to look at the decision in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII), 315 D.L.R. (4th) 385, where the Supreme Court of Canada laid down a three-part framework. This test requires the court to determine:

(a) whether, as a matter of interpretation, the exclusion clause applies to the circumstances established in the evidence;

(b) if the exclusion clause applies, whether the clause was unconscionable and therefore invalid, at the time the contract was made; and

(c) if the clause is held to be valid under (b), whether the Court should nevertheless refuse to enforce the exclusion clause, because of an “overriding public policy, proof of which lies on the other party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts”.

We can illustrate this if we apply these concepts to a recent Alberta case. In this case, the court considered a limitation of liability in the context of a standard form industry contract, the terms of which were negotiated between the Canadian Association of Oilwell Drilling Contractors and the Canadian Association of Petroleum Producers. Anyone doing business in the Alberta oilpatch will have seen one of these agreements, or something similar.

The court describes this agreement as a bilateral no-fault contract, where one party takes responsibility for damage or loss of its own equipment, regardless of how that damage or loss was caused. Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd., 2015 ABQB 433 (CanLII) dealt with a situation where one of Precision’s employees caused damage to Yangarra’s well. In the end Yangarra lost $300,000 worth of equipment down the well, which was abandoned. Add the cost of fishing operations to retrieve the lost equipment (about $720,000), and add the cost of drilling a relief well (about $2.5 million). All of this could be traced to the conduct of one of Precision’s employees – ouch.

Despite all of this, the court decided that the bilateral risk allocation (exclusion of liability) clauses in the contract between Yangarra and Precision applied to allocate these costs to Yangarra, regardless of who caused the losses. The court decided that enforcing this limitation of liability clause was neither unconscionable nor contrary to public policy. The clause was upheld, and Precision escaped liability.

Calgary – 07:00

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By Richard Stobbe

I don’t think I’m going out on a limb by speculating that someone, somewhere is preparing a class-action suit based on the recently disclosed hack of Apple’s app ecosystem.

How did it happen? In a nutshell, hackers were able to infect a version of Apple’s Xcode software package for iOS app developers. A number of iOS developers – primarily in China, according to recent reports – downloaded this corrupted version of Xcode, then used it to compile their apps. This corrupted version was not the “official” Apple version; it was accessed from a third-party file-sharing site. Apps compiled with this version of Xcode were infected with malware known as XcodeGhost. These corrupted apps were uploaded and distributed through Apple’s Chinese App Store. In this way the XcodeGhost malware snuck past Apple’s own code review protocols and, through the wonder of app store downloads, it infected millions of iOS devices around the world.

The malware does a number of nasty things – including fishing for a user’s iCloud password.

This case provides a good case study for how risk is allocated in license agreements and terms of service. What do Apple’s terms say about this kind of thing? In Canada, the App Store Terms and Conditions govern a user’s contractual relationship with Apple for the use of the App Store. On the face of it, these terms disclaim liability for any “…LOSS, CORRUPTION, ATTACK, VIRUSES, INTERFERENCE, HACKING, OR OTHER SECURITY INTRUSION, AND APPLE CANADA DISCLAIMS ANY LIABILITY RELATING THERETO.”

Apple could be expected to argue that this clause deflects liability. And if Apple is found liable, then it would seek the cover of its limitation of liability clause. In the current version of the terms, Apple claims an overall limit of liability of $50. Let’s not forget that “hundreds of millions of users” are potentially affected.

As a preliminary step however, Apple would be expected to argue that the law of the State of California governs the contract, and Apple would be arguing that any remedy must be sought in a California court (see our post the other day: Forum Selection in Online Terms).

Will this limit of liability and forum-selection clause hold up to the scrutiny of Canadian courts if there is a claim against Apple?

Calgary – 07:00 MT

By Richard Stobbe

Let’s say you’re a Canadian company doing business with a US supplier – which law should govern the contract? ‘Forum selection’ and ‘governing law’ refer to the practice of choosing the applicable law and venue for resolving disputes in a contract.

Software vendors and cloud service providers often include these clauses in their standard-form contracts as a means of ensuring that they enjoy home-turf advantage in the event of disputes. This is very common in consumer-facing contracts, such as Facebook’s Terms of Service. That contract says: “e laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions.”

In our earlier post (Two Privacy Class Actions: Facebook and Apple), we looked at a BC decision which reviewed the question of whether the Facebook terms (which apply California law) should be enforced in Canada or whether they should give way to local law. The lower court accepted that, on its face, the Terms of Service were valid, clear and enforceable and the lower court went on to decide that Facebook’s Forum Selection Clause should be set aside in this case, and the claim should proceed in a B.C. court.

Facebook appealed that decision: Douez v. Facebook, Inc., 2015 BCCA 279 (CanLII), (See this link to the Court of Appeal decision). The appeal court reversed and decided that the Forum Selection Clause should be enforced.

Interestingly, the court said “As a matter of B.C. law, no state (including B.C.) may unilaterally arrogate exclusive adjudicative jurisdiction for itself by purporting to apply its jurisdictional rules extraterritorially.” (See the debate regarding the Google and Equustek decision for a different perspective on the extraterritorial reach of B.C. courts.)

The Douez decision was fundamentally a class-action breach of privacy claim, and that claim was stopped through the Forum Selection Clause.

Calgary – 07:00 MT

By Richard Stobbe

In our previous posts (See Part 1 and Part 2), we reviewed restrictive covenants and cancellation rights under franchise laws. In a recent decision out of the Ontario Court of Appeal, the dispute focussed on the right of rescission. As the court put it, the case of Caffé Demetre Franchising Corp. v. 2249027 Ontario Inc., 2015 ONCA 258 (CanLII) “is another case from the franchise world involving whether the franchisor met its disclosure obligations…”

Specifically, the franchisee complained that the franchisor’s disclosure document was deficient – so deficient, in fact, that it entitled the franchisee to rescind the franchise agreement. In the disclosure document, the franchisor failed to disclose ongoing litigation commenced by the franchisor against a competitor. Was this failure a material deficiency giving rise to a right of rescission?

A disclosure document must disclose “all material facts”. A material fact is described in the legislation as any information about the business or operations of the franchisor, or about the franchise system “that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or the decision to acquire the franchise.”

The court in this Ontario case decided that the failure to disclose the franchisor’s litigation was a deficiency but not “sufficiently significant” that the franchisees were entitled to rescission. To qualify as a deficiency that gives rise to a right of rescission, the disclosure document must suffer from “stark and material deficiencies,” such that a court can conclude that it amounts to no disclosure at all. It is worth noting that the court was clear that litigation must be disclosed if it falls within the description contained in s. 2(5) of the Ontario regulations (the equivalent in Alberta is the Franchises Regulation, Alta Reg 240/1995), which mandates disclosure of any past or pending lawsuit or court order which involves allegations of “misrepresentation, unfair or deceptive business practices” including a failure to provide proper franchise disclosure. If the litigation in question involved any of these issues, then the decision would have been different.

Calgary – 07:00

By Richard Stobbe

If you are a patent owner, you are entitled to damages if someone infringes your patent. The measure of damages is compensatory damages, lost profits or a “reasonable royalty”. Is it fair for the infringer to say that the damages should be reduced because the infringer could have made the same sales using an available alternative that did not infringe the patent?

Marck sued its rival Apotex for patent infringement for sales of the drug lovastatin. The trial judge awarded Merck a total damages award of $119 million. In the decision in Apotex Inc. v. Merck & Co., Inc. 2015 FCA 171, the court considered Apotex’s argument about “non-infringing alternatives”. In a nutshell, Apotex was saying, okay, we infringed when we sold lovastatin using the patent process, but we could have made the same sales of lovastatin using another process that did not infringe. Therefore, the measure of damages should be lower, since the loss of profits could still have been suffered by the patent holder without any patent infringement.

The court describes it this way: “The principal issue raised on this appeal is whether, when calculating damages for patent infringement, it is relevant to consider the availability of non-infringing alternative products available to the infringer. For the reasons that follow I have concluded that, as a matter of law, the availability of a non-infringing alternative is a relevant consideration. The issue arises in the following context: Apotex has been found liable for patent infringement. On the issue of remedy, Apotex submits that the damages it is liable for should be reduced because it had available a non-infringing product that it could and would have used.” (Emphasis added) In other words, the patent holder’s sales could have been reduced simply by legitimate competition as opposed to infringement. In the end, the court agreed that non-infringing alternatives should be considered, but disagreed that there was any non-infringing alternative available in this case.

The damages award (one of the largest damage awards in Canada) remained in place and Apotex’s appeal was dismissed. This kicks open the door to arguments about using “non-infringing alternatives” to reduce damages in future patent infringement lawsuits.

Calgary – 05:00 MT