Archive for the 'Employment Issues' Category

Copyright and Code: Can a Software Developer Take a Shortcut?

 
By Richard Stobbe

Let’s say an employee is hired as a software engineer to develop an application for the employer.  The employee completes the project, and the software program is launched as a commercial product. Copyright is registered in the software, showing the employee as author, and the employer as owner.  So far so good.

The employee leaves, and her company launches its own software product, which seems to compete directly with the software that was created for her former employer. Ok, now we have a problem.

Or do we?  These are the basic facts in the interesting case of Knowmadics v. Cinnamon and LDX Inc., 2019 ONSC 6549 (CanLII), where an ex-employee left her employment in 2017, and within two months of signing a Non-Disclosure Agreement, her company LDX was offering software products that seemed to contain similar features and competed directly with Knowmadics, the former employer.

Knowmadics sued its former employee, claiming that the LDX software infringed the copyright of Knowmadics. The claim also alleged breach of the Employment Agreement, a Subcontractor Agreement, and a Non-Disclosure Agreement.

An analysis of the code showed that there were similarities and overlap between the software written for Knowmadics, the former employer, and the software sold by Ms. Cinnamon, the former employee through her company LDX.  However, Ms. Cinnamon raised a defence that makes perfect sense in light of the way that many software projects evolve: any similarities, the employee argued, were due to the simple fact that she used her own prior code in developing the program for Knowmadics, during her employment, and that same code was incorporated into a database that she wrote for an earlier client, and the same code was subsequently incorporated into the software she wrote for her own company, LDX. So of course it has similar features, it’s all from the code originally authored by the same developer.

To borrow from the court’s analysis: “The relevant issue as far as the database goes is a legal one for the Court to determine at trial: once Ms. Cinnamon delivered SilverEye to Knowmadics incorporating that prior database without identifying that she was doing so, and Knowmadics copyrighted SilverEye with that database code and schema, was Ms. Cinnamon then permitted under copyright law or her agreements with Knowmadics to take a shortcut and use the same code and schema to create a competing software with the same functionalities?  This is a serious issue to be determined at trial…”

The reported decision dealt with a pre-trial injunction application. The order granted by the court simply maintained the status quo pending trial, so the merits of this case are still to be decided. If it does proceed to trial, this case will engage some very interesting issues around copyright, software, originality and licensing of code.

Stay tuned.

 

Calgary – 07:00 MT

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Meeting Mike Tyson does not constitute consideration for Canadian copyright assignment

By Richard Stobbe

When is a contract really a contract and when is it just a type of unenforceable promise that can be revoked or cancelled?

Glasz c. Choko, 2018 QCCS 5020 (CanLII) is a case about ownership of raw documentary footage of Mike Tyson, the well-known boxer, and whether an email exchange was enough to form a binding contract between a promoter and a filmmaker.

The idea of “consideration” is supposed to be one of the important elements of an enforceable contract. There must be something of value exchanging hands between two parties as part of a contract. But that “something of value” can take many forms. The old English cases talk about a mere peppercorn as sufficient consideration.

In this case, a boxing the promoter, Mr. Choko, promised a pair of filmmakers that he had a special relationship with Mike Tyson, and could give them special access to obtain behind-the-scenes footage of Mr. Tyson during his visit to Toronto in 2014. An email was exchanged on September 4, 2014, in which the filmmakers agreed that, in exchange for gaining this access, the copyright in the footage would be owned by the promoter, Mr. Choko.

The filmmakers later revoked their assignment.

The parties sued each other for ownership of the footage. Let’s unpack this dispute: the footage is an original cinematographic work within the meaning of section 2 of the Copyright ActThe issues are: Was the work produced in the course of employment? If not, was the copyright ownership to the footage assigned to Mr. Choko by virtue of the Sept. 4th email? And were the filmmakers entitled to cancel or revoke that assignment?

There was no employment relationship, that much was clear. And the filmmaker argued that the agreement was not an enforceable contract since there was a failure of consideration, and that the promoter misrepresented the facts when he insisted on owning the footage personally. In fact, he misrepresented how well he really knew the Tyson family, and mislead the filmmakers when he said that Mrs. Tyson has specifically requested that the promoter should be the owner of the footage. She made no such request.

The promoter, Mr. Choko, argued that these filmmakers would never had the chance to meet Mike Tyson without his introduction: thus, the experience of meeting Mr. Tyson should be enough to meet the requirement for “consideration” in exchange for the assignment of copyright. However, the court was not convinced: “every creative work can arguably be said to involve an experience…” If we accepted an “experience” as sufficient consideration then there would never be a need to remunerate the author for the assignment of copyright in his or her work, since there would always be an experience of some kind.

Take note: Meeting Mr. Tyson was insufficient consideration for the purposes of an assignment Canadian copyright law.

For advice on copyright issues, whether or not involving Mr. Tyson, please contact Richard Stobbe.

 

Calgary – 07:00 MDT

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What’s the current state of the law in Canada on internet contracts?

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E-commerce Legal Review (Part 1): Uber’s Arbitration Clause Struck Down

By Richard Stobbe

Today we start a three-part series reviewing e-commerce agreements, click-through agreements, and online ‘terms of service’ or ‘terms of use’. Users agree to these terms every day.  What’s the current state of the law in Canada on internet contracts?  

 

Almost a year ago, we wrote about a case where Uber drivers challenged Uber’s user online terms.  (See: Uber vs. Drivers: Canadian Court Upholds App Terms). Uber drivers claimed that they should have the benefit of local laws which protect employees. This case was at the centre of the debate about whether Uber’s drivers are customers, independent contractors, or employees. Uber’s counter argument was that the drivers’ claim should not proceed because, under the terms of use, all of the drivers agreed to settle disputes by arbitration in the Netherlands.

So the court had to wrestle with this question:  Should the arbitration clause in the terms of use be upheld? Or should the drivers be entitled to have their day in court in Canada? 

The original class-action case was decided in favour of Uber. The court upheld the app terms of service, and deferred this dispute to an arbitrator in the Netherlands. The court applied the Supreme Court of Canada reasoning in Seidel v. TELUS Communications Inc. (applying the competence-competence analysis). The first Heller decision was appealed.

In the second Heller decision ( Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII)), the Ontario Court of Appeal struck down Uber’s mandatory arbitration clause for several reasons:

  1. The arbitration clause was found to be invalid on the basis of unconscionability. On this point, the court noted that the cost to initiate the mandatory arbitration process under Uber’s terms would cost a driver more than USD$14,000 (noting that the average Uber driver might earn $400 – $600 per week ).
  2. The court agreed that if the arbitration clause was valid, then the claim would fall within that clause. However, the court said this case fell one step prior to that: the validity of the arbitration clause itself was in issue. In that light, the competence-competence principle had no application to this case. The arbitration clause was not valid, the court decided, therefore the jurisdiction issue did not even arise.
  3. The court reasoned that employers (with Uber standing in the position of employer for these purposes) should not be entitled to contract out of the Employment Standards Act  (ESA) on behalf of their employees. The choice to proceed by way of arbitration should be in the hands of the employee. “It is [the employee’s] choice whether to take that route,” said the Court, “and he is only barred from making a complaint if he chooses to take it. The Arbitration Clause essentially transfers that choice to Uber who then forces the appellant (and all other drivers) out of the complaints process.”
  4. The court raised a number of public policy considerations – including the problems regarding the result that would come out of the arbitration process in the Netherlands, the problems associated with an arbitration ruling that would not benefit others for a determination of the underlying issues. In other words, other drivers in the class would be deprived of a remedy if each driver was forced through arbitration, whereas a complaint under the Ontario Employment Standards Act would set a precedent that others could rely on. “The issue of whether persons, in the position of the appellant, are properly considered independent contractors or employees is an important issue for all persons in Ontario,” said the Court. “The issue of whether such persons are entitled to the protections of the ESA is equally important. Like the privacy issue raised in Douez, the characterization of these persons as independent contractors or employees for the purposes of Ontario law is an issue that ought to be determined by a court in Ontario.”

In the final result, the Court concluded that the mandatory arbitration clause amounted to an illegal contracting out of an employment standard, contrary to the Employment Standards Act (Ontario), assuming the drivers are indeed employees. Separately, the Court decided the arbitration clause was unconscionable at common law, and therefore invalid under the (Ontario) Arbitration Act.

Lessons for business?

  • The court of appeal sent a clear message that expensive and unwieldy mandatory arbitration clauses such as the one used by Uber will risk being struck down for unconcsionability.
  • Aside from the issue of unconscionability, such clauses are at risk on other public policy  grounds, where local courts wish to assert local laws. In this case, it was the ESA. Courts have shown themselves to be wary of permitting platform providers (such as Uber and Facebook) to use the terms of service to contract out of local laws. See Douez v. Facebook, Inc., [2017] 1 SCR 751, 2017 SCC 33 (CanLII), where the SCC found that Facebook’s forum selection clause was unenforceable, although for a set of confusing reasons (the majority in Douez did not address the issue of unconscionability). In Douez, it was a local privacy law that was at issue (British Columbia’s Privacy Act).

 

Get advice on your online contracts to ensure that they will not be at risk of being struck down based on this latest guidance from the Court.

Calgary – 07:00 MST

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Ownership of Inventions by Employees

By Richard Stobbe

A group of employees invented a patentable invention. Advanced Video obtained the patent,  and then moved to sue a competitor for infringement. The alleged infringer challenged Advanced Video’s right to sue, pointing out that Advanced Video did not have standing to sue for infringement, since it never obtained the transfer of patent rights from the employee-inventor.

The U.S. case Advanced Video Technologies LLC v. HTC Corporation reviews the narrow issue of whether a co-inventor of the patent transferred her co-ownership interests in the patent under the terms of an employment agreement.

The patent in question listed three co-inventors: Benny Woo, Xiaoming Li, and Vivian Hsiun. The invention was created while the three co-inventors were employed with Infochips Systems Inc. (“Infochips”), a predecessor of Advanced Video.  Through a series of steps, two of the inventors, Mr. Woo and Ms. Li assigned their coownership interests in the patent to Advanced Video. The co-ownership interests of Ms. Hsiun were the subject of this lawsuit.  Advanced Video claimed that it obtained Ms. Hsiun’s co-ownership interests in the invention through the original employment agreement with that employee.

A review of Ms. Hsiun’s employment agreement indicated that the clause in question was pretty clear:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company. (Emphasis added)

For emphasis, the employment agreement went on to say:

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company. (Emphasis added)

Translation? The employee agrees that she will assign to the employer all rights to any and all inventions developed by the employee during employment.

Surprisingly, the court decided this language did not clearly convey the rights to the invention, since the word “will” invoked a promise to do something in the future and did not effect a present assignment of the rights.

This was merely a promise to assign, not an actual immediate transfer of the invention.

While this is a U.S. case, it neatly illustrates the risks associated with the fine print in employment agreements: to avoid the problem faced by Advanced Video, it’s valuable for employment agreements to automatically and immediately assign and transfer rights to inventions, and to avoid any language that suggests a future obligation or future promise to assign.

The lesson for business in any industry is clear: ensure that your employment agreements – and by extension, independent contractor and consulting agreements – are clear. Intellectual property and ownership of inventions should be clearly addressed. Get advice from experienced counsel to ensure that the IP legal issues are covered – including confidentiality, consideration, invention ownership, IP assignment, non-competition and non-solicitation.

 

Related Reading:  Employee Ownership of Patentable Inventions
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IP Assets After Death (Part 1)

By Richard Stobbe

Can an inventor be granted a patent posthumously?

The answer is a clear yes, as illustrated by the experience of one well-known inventor: Steve Jobs is named as an inventor on hundreds of U.S. utility and design patents, over 140 of which have been awarded since his death in 2011. The Patent Act provides for a patent to issue after the death of the inventor, and the issued patent rights would be treated  like any other asset of the inventor’s estate.

The Patent Act refers to “legal representatives” of an inventor which includes “heirs, executors, …assigns,… and all other persons claiming through or under applicants for patents and patentees of inventions.”

There are a few important implications here: A patent may be granted posthumously to the personal representatives of the estate of the deceased inventor.

This also means that executors of the estate of a deceased inventor are entitled to apply for and be granted a patent under the Act. Employers can also benefit from patent rights granted in the name of a deceased inventor, where those rights have been assigned under contract during the life of the inventor, such as a contract of employment.

The term of the patent rights remain the same: 20 years from the filing date, regardless of the date of death of the inventor.

There are well-established rules on filing protocols in the case of deceased inventors, in both national and international phase applications: make sure you seek experienced counsel when facing this situation.

 

Calgary – 07:00 MST

 

 

 

 

 

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Uber vs. Drivers: Canadian Court Upholds App Terms

 

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By Richard Stobbe

One of Uber’s drivers, an Ontario resident named David Heller, sued Uber under a class action claim seeking $400 million in damages. What did poor Uber do to deserve this? According to the claim, drivers should be considered employees of Uber and entitled to the benefits of Ontario’s Employment Standards Act (See: Heller v. Uber Technologies Inc., 2018 ONSC 718 (CanLII)).

As the court phrased it, while “millions of businesses and persons use Uber’s software Apps, there is a fierce debate about whether the users are customers, independent contractors, or employees.” If all of the drivers are to be treated as employees, the costs to Uber would skyrocket. Uber, of course, resisted this lawsuit, arguing that according to the app terms of service, the drivers actually enter into an agreement with Uber B.V., an entity incorporated under the laws of the Netherlands. By clicking or tapping “I agree” in the app terms of service, the drivers also accept a certain dispute resolution clause: by contract, the parties pick arbitration in Amsterdam to resolve any disputes.

Really, at this stage Uber’s defence was not to say “this claim should not proceed because all of the drivers are independent contractors, not employees”. Rather, Uber argued that “this claim should not proceed because all of the drivers agreed to settle disputes with us by arbitration in the Netherlands.”

So the court had to wrestle with this question:  Should the dispute resolution clause in the click-through terms be upheld? Or should the drivers be entitled to have their day in court in Canada? 

The law in this area is very interesting and frankly, a bit muddled. This is because there are two distinct issues in this legal thicket: a forum-selection clause (the laws of the Netherlands govern any interpretation of the agreement), and a dispute resolution clause (here, arbitration is the parties’ chosen method to resolve any disputes under the agreement). For these two different issues, Canadian courts have applied different tests to determine whether such clauses should be upheld:

  1. In the case of forum selection clause, the Supreme Court of Canada (SCC) tells us that the rule from Z.I. Pompey Industries is that a forum selection clause should be enforced unless there is “strong cause” not to enforce it.  In the context of a consumer contract (as opposed to a “commercial agreement”), the SCC says there may be strong reasons to refrain from enforcing a forum selection clause (such as unequal bargaining power between the parties, the convenience and expense of litigation in another jurisdiction, public policy reasons, and the interests of justice). In the commercial context (as opposed to a consumer agreement), forum selection clauses are generally upheld.
  2. In the case of upholding arbitration clauses, the courts have applied a different analysis: arbitration is generally favoured as a means to settle disputes, using the “competence-competence principle”. Again, it’s an SCC decision that gives us guidance on this: unless there is clear legislative language to the contrary, or the dispute falls outside the scope of the arbitration agreement, courts must enforce arbitration agreements.

The court said this case “is not about a discretionary court jurisdiction where there is a forum selection clause to refuse to stay proceedings where a strong cause might justify refusing a stay; rather, it is about a very strong legislative direction under the Arbitration Act, 1991 or the International Commercial Arbitration Act, 2017 and numerous cases that hold that courts should only refuse a reference to arbitration if it is clear that the dispute falls outside the arbitration agreement.”

Applying the competence-competence analysis, the court (in my view) properly ruled in favour of Uber, upheld the app terms of service, and deferred this dispute to the arbitrator in the Netherlands.  This class action, as a result, must hit the brakes.

The decision is reportedly under appeal.

 

Calgary – 07:00 MST

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Competing After Employment (Part 2)

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By Richard Stobbe

A few weeks ago, Jawbone, a fitness tracking hardware and software maker, sued its arch-rival Fitbit, alleging that Fitbit lured its employees away to obtain access Jawbone’s confidential information and product plans. How would this play out in Canada? In our earlier post (Competing After Employment (Part 1)) we considered a case in which the employer could not describe the confidential information with enough specificity and detail, and the employer was unable to get its injunction form the court.

In Brandt Engineering Products Ltd v Rockford Engineering Works Ltd., 2014 SKQB 339 (CanLII), the employer enjoyed a different result.

After several employees left BEPL to join a competitor, BEPL sued its competitor alleging that the former employees of BEPL each breached their fiduciary duties, breached confidence, and breached their employment contracts, among other things. BEPL sought an injunction to prevent the use of confidential information by the ex-employees and their new employer.

The court noted that “each of these individuals were either professionals or they were engaged in doing, assisting or supporting the work of the professional/design team at BEPL. I am satisfied from the evidence that each of them would have been aware of the confidential and proprietary nature of the designs, processes, customer and supplier lists and generally and specifically financial, organizational and technical information respecting BEPL and its operations. Whether by virtue of their employment contracts, their status as professionals, the confidentiality and proprietary notices which much of BEPL’s documentation contained, or the role that each of the individual defendants played as members of the design group at BEPL, each could not help but be aware of and recognize the confidential and proprietary nature and character of much of the information to which they had access and were privy.” (Emphasis added)

It was discovered during the course of the lawsuit that the ex-employees had downloaded or removed various confidential documents (“approximately 9,713 documents” burned onto discs and a “banker’s box of BEPL materials”) and provided some of this information to the new employer, BEPL’s competitor.

The court granted the injunction restricting the ex-employees and their new employer from using confidential information and upholding the non-solicitation covenants. The court made a few important points which bear repeating:

1. “Where employees have a non-competition clause in their contract of employment or they are determined to be employees having fiduciary obligations – the employee has a continuing duty to maintain confidences for a reasonable period of time and the employee is not permitted to actively solicit the former employer’s customers nor to use confidential information to the employee’s own employment advantage…”

2. “An interim injunction should not issue for the sole purpose of eliminating competition or effectively reducing it. In cases such as this, the purpose of the injunction is to constrain improper competition — that is to say the use or potential use by former employees of confidential and proprietary information, the property of and acquired from a previous employer to whom the employees owe a fiduciary duty of confidentiality, to compete with that employer.”

3. It is also worth noting that:
– the terms of the employment agreements as well as internal confidentiality notices helped bolster the argument that these ex-employees were aware of their confidentiality obligations, and
– the evidence of misappropriation of specific documents avoided the problem in the JTT Electronics case regarding the need to describe the confidential information with enough specificity and detail.

In summary, this case succeeded in enjoining improper competition by departing employees. Get advice on departing employees, restrictive covenants and intellectual property protection from experienced counsel.

Calgary – 07:00 MDT

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Employee Ownership of Patentable Inventions

By Richard Stobbe

A startup in the oil-and-gas service sector sought to improve downhole well stimulation technology. After a few years, differences between the three founders culminated in the ouster of Mr. Groves, one of the founders. Mr. Groves was removed as President and then his employment was terminated. The company had, during those few years, filed for patent protection on a number of inventions which were invented by Mr. Groves. After his termination, he promptly sued his former employer based on a claim of ownership of those inventions which were created during the course of his employment.

In the recent decision in Groves v Canasonics Inc., 2015 ABQB 314 (CanLII), the court noted that the employment agreement between Mr. Groves and Canasonics included the following condition:

“The Company shall own any and all Copyright and Intellectual Property created in the course of Employment. Further, in the event there is a period when the Employee might be considered an independent contractor, all Copyright created and any Intellectual Property created shall be owned by the Company.” The Court had no trouble in concluding that the inventions were patented in the U.S. and Canada by their inventor, Mr. Groves in his capacity as an employee, who then assigned the inventions to Canasonics as the employer pursuant to terms of the employment agreement.

The lesson for business in any industry is clear: ensure that your employment agreements – and by extension, independent contractor and consulting agreements – are clear. Intellectual property and ownership of inventions should be clearly addressed. Get advice from experienced counsel to ensure that the IP legal issues are covered – including confidentiality, consideration, invention ownership, IP assignment, non-competition and non-solicitation.

Calgary – 07:00 MDT

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Competing After Employment (Part 1)

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By Richard Stobbe

A key employee departs. The employer, worried that confidential information has leaked out of the company, scrambles to respond. After a frenzied period of preparation, the employer starts a lawsuit and seeks an injunction against the ex-employee.

In these two recent Canadian cases, those same basic facts apply but with very different results. First, let’s look at the BC case decided in December 2014 (JTT Electronics Ltd. v. Farmer, 2014 BCSC 2413). In that case, the employer sued the ex-employee and the employee countered with an argument that the employer could not actually identify the confidential info it sought to protect.

The Court agreed, noting: “The need to identify with some reasonable degree of specificity what a plaintiff asserts is confidential or proprietary serves three important and related functions.” To summarize:

  1. It enables the ex-employee to respond to the lawsuit, and to bring into question whether the purported confidential information is actually confidential or whether it is information that is in the public domain.
  2. If the employer can establish that specific information in its possession is confidential, and the remaining elements of an injunction are made out, the ex-employee can understand (by virtue of the court order) what it is that he or she can or cannot do.
  3. Unless there is a “reasonable level of precision or definition”, it is difficult or impossible for the court to enforce the order.

Because the employer could not describe the confidential information with enough specificity and detail, the order was not granted.

Next, the non-solicitation and non-competition clauses which purportedly bound the ex-employee were, by the court’s analysis, “undefined”, “ambiguous”, “overly broad”, since they appeared to impose a worldwide ban which imposed a “blanket prohibition of unlimited geographic scope on any post-employment competition” by the ex-employee. On that basis, the Court refused to grant an order to enforce these restrictive covenants. 

Lessons for business?

  • “Confidential information” is broadly understood to be “anything that is valuable because it is secret to the company.” But in the case of an injunction application, courts will require a clear, specific definition of what exactly constitutes confidential information in this case, as it relates to this company and this ex-employee. While the definition in the underlying agreement – for example, a confidentiality agreement, non-disclosure agreement, employment agreement or even a shareholders agreement – is likely to remain broad, the specificity must come into play at the point where the court order is sought.
  • Ensure that non-competition restrictions are carefully drafted, are reasonable in their scope, and consistently use defined terms. For example, in this case, the defined term “Business” was given a particular meaning in one section, but the seemingly generic term “business” was used in another section. This caused the court to question why the two terms would be different, and merely added to the court’s finding of ambiguity.

 

Calgary – 07:00 MST

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Ownership of Photograph by Employee

By Richard Stobbe

While our last post dealt with the creation of photographs and other works of authorship by primates, robots and divine beings, this story is a little more grounded in facts that you might see in the average work day.

When an employee takes a photograph, who owns copyright in the image?

In Mejia v. LaSalle College International Vancouver Inc., 2014 BCSC 1559, a BC court reviewed this question in the context of an employment-related complaint (there were other issues including wrongful dismissal and defamation which we won’t go into). Here, an instructor at LaSalle College in Vancouver took a photograph, and later alleged that the college infringed his copyright in the picture after he discovered that it was being used on LaSalle’s Facebook page.

The main issue was whether the picture was taken in the course of employment. The instructor argued that the photograph was taken during his personal time, on his own camera. He tendered evidence from camera metadata to establish the details of the camera, time and date. He argued that s. 13(3) of the Copyright Act did not apply because he was not employed to take photos. He sought $20,000 in statutory damages. The college argued that the photo was taken of students in the classroom and was within the scope of employment, and copyright would properly belong to the college as the employer, under s. 13(3) of the Act.

The court, after reviewing all of this, decided that the instructor was not hired as a photographer. While an instructor could engage in a wide variety of activities during his employment activities, the court decided that “the taking of photographs was not an activity that was generally considered to be within the duties of the plaintiff instructor, and there was no contractual agreement that he do so.” It was, in short, not connected with the instructor’s employment. In the end, the photograph was not made in the course of employment. Therefore, under s. 13(1) of the Copyright Act, the instructor was the first owner of copyright, and the college was found to have infringed copyright by posting it to Facebook.

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Social Media & Non-Competition Clauses

In our earlier post (Are Non-Competition Restrictions Enforceable?), we reviewed “restrictive covenants” – these are clauses under which employees are bound by restrictions such as non-competition restrictions, non-solicitation obligations, and other controls on the employee’s behaviour which bind the employee after termination.

In Eagle Professional Resources v. MacMullin, 2013 ONSC 2501, the court considered a dispute between two competitors – Eagle and Maplesoft.

Eagle alleged that its ex-employees took confidential information from Eagle, and began soliciting clients, employees, and contractors of Eagle to work for Maplesoft. The defendant ex-employees argued that they did not use any confidential information to solicit business. They asserted that any contact information that they used was already publicly available through LinkedIn or Facebook accounts.

When reviewing the enforceability of restrictive covenants in the employment context, the court reiterated a three-part test (when in doubt, there is always a handy three-part test ): 

  • Does the employer have a proprietary interest entitled to protection? 
  • Are the temporal and spatial features of the restrictive covenant too broad? (Put another way, are there reasonable limits in time and geographic space?)
  • Is the covenant unenforceable as being against competition generally, as opposed to a more limited covenant against solicitation of former clients?

The court concluded that “there is no evidence from Eagle, other than a very bald assertion, that it had any proprietary interest entitled to protection. According to the Defendants, the information that they learned at Eagle was all publicly available and obtained from such sources as social media websites.” There are a few take-aways from this decision:

  1. When drafting restrictive covenants in the employment context, non-solicitation and confidentiality clauses are more likely to stand up, whereas non-competition clauses are likely to be struck down as unenforceable, as in this case. Make sure to have your agreements reviewed;
  2. If a “confidential customer list” is virtually the same as the employee’s LinkedIn or Facebook contacts, then there will be no proprietary interest to protect, since the information will be publicly visible to anyone.
  3. The court will assume that the employer will lead with its strongest evidence. Compelling evidence of specific cases of solicitation or competition is critical for success in an application by the employer – as the court quipped “Lead with trump or risk losing”. In this case, the evidence was ambiguous or it fell outside the non-competition period.

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Alberta Privacy Law Update: PIPA Declared Invalid

In the case of Alberta (Information and Privacy Commissioner) v. United Food and Commercial Workers, Local 401, 2013 SCC 62, released last Friday, the Supreme Court of Canada has declared the Alberta Personal Information Protection Act (PIPA) invalid in its entirety.

This case pits constitutional rights against privacy rights. The court reviewed a claim of privacy rights infringement arising from a long strike during which both the Union and the employer recorded and photographed individuals crossing the picketline. Some of those who were photographed crossing the picketline filed privacy complaints when the Union posted those pictures online.

As a consent-based privacy law, PIPA establishes a general requirement to obtain consent for any collection, use or disclosure of personal information. According to the court: “The central issue is whether PIPA achieves a constitutionally acceptable balance between the interests of individuals in controlling the collection, use and disclosure of their personal information and a union’s freedom of expression. PIPA does not include any mechanisms by which a union’s constitutional right to freedom of expression may be balanced with the interests protected by the legislation.” Thus, in the end, the entire Act has been declared constitutionally invalid, and in a unique way of avoiding a gap in the law, the court’s declaration has been suspended for 1 year, to allow the Alberta legislature to fix the law.

Stay tuned.

Calgary – 07:00 MST

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All Tied Up: Restrictive Covenants After Sale of a Business

Restrictive covenants attempt to tie up a business person who sells a business, in order to restrict that person from competing against the business they just sold. In an earlier post (Are Non-Competition Restrictions Enforceable?), we reviewed restrictive covenants in the context of employment agreements. The Supreme Court of Canada recently weighed in on the topic of restrictive covenants in the context of a commercial transaction. While this is not specifically an intellectual property law topic, it is a very common issue faced by technology companies.

In Payette v. Guay Inc. , 2013 SCC 45, the court reviewed the enforceability of non-competition and non-solicitation clauses in an asset purchase and sale agreement. While there was also a restrictive covenant in place in an employment agreement, the case really turned on the enforceability of the restrictions arising from the purchase and sale agreement. The court was clear that different rules apply to each type of agreement. The court provides the following guidance for those negotiating restrictive covenants:

  • “In the commercial context, a restrictive covenant is lawful unless it can be established on a balance of probabilities that its scope is unreasonable having regard to the context in which it was negotiated.”
  • “A non-competition covenant will be found to be reasonable and lawful provided that it is limited, as to its term and to the territory and activities to which it applies, to whatever is necessary for the protection of the legitimate interests of the party in whose favour it was granted.” In this case, a five year period was reasonable in light of the highly specialized nature of the business.
  • “While it is true that in the case of a non-competition covenant, the territory to which the covenant applies must be identified, a determination that a non-solicitation covenant is reasonable and lawful does not generally require a territorial limitation.” In this case, there was no territorial limitation in the case of the non-solicitation clause, but the clause was still upheld as reasonable.

This decision is good news for buyers who are acquiring a business and wish to impose enforceable non-competition and non-solicitation restrictions on the seller. The Supreme Court of Canada is clear that different rules apply in the employment context and anyone negotiating these agreements should take note.

Calgary – 07:00 MDT

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Trade-Secrets and the Departing Employee

Concerned about departing employees who might have confidential information about your business and clients? Or maybe you are the ex-employee and you are unsure of where the line is drawn when departing one job to start another.

In Plaza Consulting Inc. v. Grieve et al , 2013 ONSC 5338 (CanLII), the court addressed an injunction application by QA Consultants, a Canadian company offering software testing and quality assurance services, against former employees and consultants who started a competing business. The court provides some guidance on how these matters are held, when ex-employees are accused of misappropriating confidential information and poaching customers. In this case, the court says:

  • Whether dealing with employees who allegedly misappropriate their former employer’s business methods in breach of a restrictive covenant or in breach of fiduciary duties, the employer must at the very least establish that it “has a proprietary interest that is entitled to protection.” Aon Consulting Inc. v Watson Wyatt & Co., 2005 CarswellOnt 3706, at para 16 (SCJ). Here, the court concludes that the confidential information in question is “highly generic”. Remember that “[a] trade secret cannot be within the realm of general skills or knowledge.”
  • A party who receives allegedly confidential information and who is accused of misusing it must have done so to the detriment of the party that provided the information in the first place. International Corona Resources Ltd. v Lac Minerals Ltd. 1989 CanLII 34 (SCC), (1989), 26 CPR (3d) 97, at 103(SCC). In this case, the court found that the information in question was not used to the detriment of the plaintiff.
  • In the case of the allegations of solicitation of former clients or employees of QA Consultants, the court indicated that, in these agreements, the restrictive covenants were sufficiently vague that the allegations made against the ex-employees were not “clear” breaches of those covenants. The vague definition in the agreements did not help the case. Ultimately, the injunction application was dismissed.

Remember to get advice on the restrictive covenants in employment agreements. Both employees, consultants and employers should understand the scope of confidentiality obligations and non-solicitation restrictions.

New Alberta Privacy Decision: Cloud Providers Take Note

Consider this: A service organization we’ll call CloudCo collects and compiles personal information from its corporate customer. The individual whose personal information is being collected has a relationship directly with the corporate customer, but not with CloudCo. The personal information has been shared with CloudCo without the individual’s knowledge or consent. Sound familiar?

Many cloud service providers host personal information without any direct relationship with the individual. Maybe they rely on assurances from their own customer. Or they may simply collect personal information without thinking through the privacy implications. 

This recent decision of the Information & Privacy Commissioner of Alberta (Professional Drivers Bureau of Canada Inc. Case File Number P1884) deals with the collection of personal information of truck drivers by a private service company, called the “Professional Drivers Bureau”. This company collected personal information about drivers from trucking companies, created a database of information, and then offered a search service, by which trucking companies paid a fee for a report on the driver. In that report, the personal information about the driver was disclosed to the trucking company. The personal information was gleaned and compiled into a database over a long period of time, and it became clear during the Commissioner’s investigation that the individuals never consented to this collection, use and disclosure. The Commissioner ultimately decided that the “Professional Drivers Bureau” was in breach of Alberta privacy laws because it never obtained consent directly from the individual truck drivers.

What can other service companies – including cloud service providers – take away from this case?

  • Cloud service providers should consider if they are “collecting” any personal information themselves, or merely providing a service which allows their customer to store information in the cloud. When a service provider collects personal information, it must obtain consent. In this case, the service provider did not provide any notice to the individual of its collection of her personal information, did not indicate its purposes, did not provide the name of someone who could answer her questions. It apparently did not inform the trucking companies about its purposes in collecting the personal information. All of this was in contravention of privacy laws.
  • If a service provider is merely providing space on a server, the terms of service should address privacy issues, and make it clear that no personal information is collected, used or disclosed by the cloud provider. 
  • Termination issues should also be addressed in the agreement. What happens to that data when the service relationship ends?
  • Consider the position of the trucking company: in this case, the trucking company shared personal information about individuals with the “Bureau”. When personal information is disclosed in such a way, the trucking company should be asking: Was this disclosure authorized by the individual? What is the purpose of the disclosure? What contractual restrictions are placed on the recipient, to ensure that the personal information is used in accordance with the consent from the individual. In the cloud context, this means contractual terms that directly address the privacy issues.
  • Get privacy advice when entering into cloud-based service agreements.

Calgary – 11:00 MDT

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Social Media Law (Part 1: The Rogue Employee)

images.jpgSocial media law was not a topic on offer when I went to law school. Now, it’s a subject that’s hard to avoid for any business that has a consumer-facing social media presence. Here are two recent cases that illustrate the potential pitfalls as this area of law becomes more complex and more interesting:

Last week, HMV’s Twitter feed was hijacked by an employee who live-tweeted employee terminations from the company’s official Twitter account. Perhaps “hijacked” isn’t the right word, since the employee apparently had access to the account as part of her employment duties, though that position likely did not involve posting descriptions of firings as “Mass execution of loyal employees”. The next day the ex-employee (“Poppy Rose”) helpfully tweeted a reminder to the company that “you need to go to ‘settings’ and revoke my account access as an admin“. The lessons for business?

    • Many companies are slow to grasp the power of social media. Don’t underestimate the viral nature – both good and bad – of this tool. Though the offending tweets were deleted by the company, this became a national story within a few minutes. From the company’s perspective, it required careful handling to avoid any brand damage.
    • This highlights the need for a Social Media Policy for employees, to deal with the legal pitfalls of social media and particularly those employees who are engaged directly in social media sphere on behalf of the company. The ownership and control of corproate social media accounts is a simple but important element of such a policy.

Related Reading: Who Owns Social Media Contacts: Employers or Employees?

Calgary – 07:00 MST

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Privacy: “Get Over It”?

Not so fast. In 1999, the CEO of Sun Microsystems famously said: “You have zero privacy anyway. Get over it.”  The Supreme Court of Canada apparently disagrees.

The Supreme Court of Canada (SCC) released their decision in R. v. Cole last week. While this does stray from our usual review of intellectual property law, it is an important decision impacting the overlapping areas of privacy and technology. The SCC has decided that it’s reasonable for Canadians to expect privacy in the information contained on computers used for personal purposes “at least where personal use is permitted or reasonably expected.” In this analysis, ownership of the computer or laptop (or tablet, smartphone, etc.) factors into the decision of what’s reasonable, but is not conclusive. Similarly, an employer’s policies may be taken into consideration, but won’t be determinative. In other words, regardless of who owns the hardware or what the policy says, courts will consider “the totality of the circumstances in order to determine whether privacy is a reasonable expectation in the particular situation.”

Even where the laptop is owned by the employer and the workplace policy informs employees that their use will be monitored – these factors may result in a lower expectation of privacy but the expectation of privacy, according to the SCC, does not disappear as easily as you might think.

Lessons for business? Employers must tread carefully and get advice when monitoring or accessing the personal information of employees on workplace computers, laptops, tablets, smartphones and virtual systems.

Related Reading: Our earlier post: Privacy in a workplace laptop, reviewing the Ontario Court of Appeal decision in R. v. Cole, 2011 ONCA 218.

Calgary – 07:00 MDT

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ipblog.ca & applaw.ca

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Bookmark ipblog.ca on your iPhone, iPad, Android tablet or mobile device for updates and developments in Canadian intellectual property law, including practical information and commentary on intellectual property business issues, technology commercialization and developments in the law, copyright and patent questions, trade-mark law, software and IT outsourcing, and related areas including privacy and cleantech licensing.

ipblog has been published since 2006.  In 2009, we added applaw.ca to our site, covering legal developments in the growing mobile application industry.

We have surpassed 1 million page-views from readers around the world. It’s hard to compete against YouTube cats… but we try.

Thanks to all of our readers. We’ll be taking a break during the month of August, and will resume in September, 2012.

Calgary – 07:00 MDT

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IP Issues in Corporate-Commercial Transactions

 

My article on “Intellectual Property Issues in Corporate-Commercial Transactions” is published in the Field Law newsletter The Medium.

Calgary – 07:00 MDT

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Liability for Online Comments

 

This post by my colleague Dan Carroll provides a great review of the many issues in online defamation, including civil and criminal liability. 

Related Reading:

Calgary – 07:00 MDT

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