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By Richard Stobbe

Sierra Trading Post is an Internet retailer of brand-name outdoor gear, family apparel, footwear, sporting goods. Sierra lists comparison prices on its site to show consumers that its goods are competitively priced.

Chen, the plaintiff, sued Sierra, claiming the website’s comparison prices were false, deceptive, or misleading. The internet retailer defended by asserting that the lawsuit should be dismissed: Sierra pointed out that users of its site agreed to binding arbitration in the Terms of Use.  Chen countered, arguing that he had never seen the Terms of Use and so they were not binding.

In Chen v. Sierra Trading Post, Inc., 2019 WL 3564659 (W.D. Wash. Aug. 6, 2019), a US court decision, the court reviewed the issues. There was no disagreement that the choice-of-law and arbitration clauses appeared in the Terms of Use. The question, as with so many of these cases, is around the set-up of Sierra’s check-out screen. Were the Terms of Use brought to the attention of the user, so that the user consented to those terms at the point of purchase, thus evidencing a mutual agreement between the parties to be bound by those terms?

Both Canadian and US cases have been tolerant of a range of possibilities for a check-out procedure, and the placement of “click-through” terms. This applies equally to e-commerce sites, software licensing, subscription services, or online waivers. Ideally, the terms are made available for the user to read at the point of checkout, and the user or consumer has a clear opportunity to indicate assent to those terms. In some cases, the courts have accepted terms that are linked, where assent is indicated by a check-box.

While there is no specific bright-line test, the idea is to make it as easy as possible for a consumer to know (1) that there are terms and (2) that they are taking a positive step to agree to those terms.

In this case, STP claimed that Chen would have had notice of the Terms of Use via the website’s “Checkout” page where, a few lines below the “Place my order” button, a line says “By placing your order you agree to our Terms & Privacy Policy”. The court noted that “The Consent line contains hyperlinks to STP’s TOU and Privacy Policy.”

On balance, the court agreed to uphold the Terms of Use and compel arbitration.  While this was a win for Sierra, the click-through process could easily have been much more robust. For example, rather than “Place my order”, the checkout button could have said said “By Placing my order I agree to the Terms of Use” or a separate radio button could have been placed beside the Terms of Use and Privacy Policy to indicate assent.

Internet retailers, online service providers, software vendors and anyone imposing terms through click-through contracts should ensure that their check-out process is reviewed: make it as easy as possible for a court to agree that those terms are binding.

Calgary – 07:00 MST

By Richard Stobbe

A streaming service known as “GoldTV” was in the business of rebroadcasting television programing through online broadcasting or streaming services to Canadian consumers. This had the effect of eating into the core business model of traditional Canadian broadcasters such as Bell Media and Rogers. Can a broadcast company fight back against this type of streaming service by seeking a site-blocking order?

Based on copyright infringement allegations, the broadcasters took GoldTV to court and obtained interim court orders.  Despite the issuance of the interim and interlocutory injunctions directly against GoldTV, some of the offending services remained accessible, and the alleged infringement continued. Basically, GoldTV remained anonymous and (practically speaking) beyond the reach of the Canadian courts.  Bell Media and Rogers then sought an order to compel Canadian ISPs to block access to GoldTV’s sites.

We know that, under Canadian law, non-party actors can be ordered by a Canadian court to take certain steps. In Google Inc. v. Equustek Solutions Inc., 2017 SCC 34 (CanLII), the Supreme Court of Canada approved a court order that required Google to globally de-index the websites of a company in breach of several court orders.  The Court affirmed that injunctions can be issued against someone who is not a party to the underlying litigation.

In this recent decision, Bell Media Inc. v. GoldTV.Biz, 2019 FC 1432 (CanLII),  the court confirmed that it can order ISPs, such as Bell Canada, Fido, Telus and Shaw, to block the offending GoldTV sites. Although there are obvious analogies to the Equustek case, the court in GoldTV indicated an order of this nature has not previously issued in Canada but has in other jurisdictions, including the United Kingdom. Equustek involved de-indexing from a search engine, whereas the GoldTV case involves site-blocking. The court issued the site-blocking order, with a 2-year sunset clause.

Teksavvy Solutions (one of the ISPs bound by the order) has appealed this decision to the Federal Court of Appeal (PDF).

Stay tuned.

Calgary – 07:00 MST

 
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

By Richard Stobbe

In a recent pair of decisions, the law around bitcoin, crypto-assets and blockchain-enabled tokens is continuing to evolve:

1.  3iQ and “The Bitcoin Fund”

In 3iQ Corp (Re), 2019 ONSEC 37 (CanLII), the Ontario Securities Commission has ruled in favour of a bitcoin fund manager in an interesting decision that pits the development of a novel asset class (a bitcoin fund) against legal prospectus requirements, the public interest jurisdiction of the Securities Commission, and the purposes and principles of the Securities Act itself.

A fund manager – 3iQ – wanted to launch a so-called “bitcoin fund” to enable members of the public to invest in a managed fund that was dedicated to bitcoin. Initially, the Director denied a receipt for The Bitcoin Fund’s prospectus because of concerns about bitcoin, namely: concerns about the crypto-asset’s liquidity, integrity of the markets for that cryptocoin, and concerns about this fund’s ability to value and safeguard the asset and file audited financial statements.

In a hearing to appeal the initial refusal, the Commissioner issued reasons allowing the prospectus for this fund. Among the issues was the question of whether bitcoin is an “illiquid asset” as defined in NI 81‑102.  If so, the proposed fund would not comply with the restriction against holding illiquid assets in section 2.4 of NI 81‑102.  While the Commissioner did not go so far as to declare that bitcoin is NOT an illiquid asset, the conclusion was: “Staff has not demonstrated that bitcoin is an illiquid asset,” which arrives at the same point. As for the question of protecting the public interest, the Commissioner turned a bit philosophical about the role of the Securities Commission in acting as guardian of the public.

To take a risky asset like a bitcoin fund and “professionalize” the investment process by pooling investor funds under a professional management structure is a way to mitigate those risks – something that the Commission should encourage, not discourage.  “Capital market participants”, quipped the Commissioner, “should be encouraged to engage with the Commission, and not incentivized to avoid doing so.” This is the case especially when it provides an alternative to investors acquiring bitcoin through unregulated vehicles.

… And what do “unregulated vehicles” look like? That bring us to the next case.

2.  The “Einstein Exchange” crypto-asset trading platform 

On November 1, 2019, the BC Securities Commission was concerned enough about rumours of imminent collapse at a cryptocoin exchange that it applied to court for an order appointing an interim receiver to seize and protect any assets of the so-called “Einstein Exchange”. The exchange was an unauthorized Vancouver-based crypto-asset trading platform.  Better known as an “unregulated vehicle”.

Grant Thornton acted as interim receiver and as outlined in its Receiver’s Report, the receiver executed a Friday night search and seizure to sift through the allegations that the Einstein Group owed customers between $8 and $10 million USD.  After itemizing the cash, assets, and the state of any cryptocurrency wallets under the control of the “Einstein Exchange”, the receiver determined that the Einstein Group had less than $45,000 in cash and cryptocurrency.

The receiver was quickly discharged and the BCSC investigation continues.

Calgary – 07:00 MT

By Richard Stobbe

It’s time to update our 2015 post about copyright in survey plans!  In the course of their work, land surveyors in Ontario prepare a survey document, and that document is routinely scanned into the province’s land registry database. Copies of survey documents can be ordered from the registry for a fee.

Land surveyors commenced a copyright class action lawsuit against Teranet Inc., the manager of the land registry system in Ontario.  The case travelled all the way up to Canada’s top court and in Keatley Surveying Ltd. v. Teranet Inc.  2019 SCC 43 the Supreme Court of Canada (SCC) rendered a decision on the appeal: Copyright in plans of survey registered or deposited in the land registry office belongs to the Province of Ontario under s. 12 of the Copyright Act.

Section 12 of the Copyright Act provides a statutory basis for Crown copyright.

Under this section, the Crown holds copyright in any work “prepared or published by or under the direction or control of Her Majesty”.

The court aimed to balance the rights of the Crown in works that are prepared or published under the control of the Crown, where it’s necessary to guarantee the authenticity, accuracy and integrity of the works. However, the scope of Crown copyright should not expropriate the copyright of creators and authors.

Basically, Crown copyright applies where:

1. The work is prepared by a Crown employee in the course of his or her employment or
2. The Crown determines whether and how a work will be made, even if the work is produced by an independent contractor.

In both situations, the Crown exercises “direction and control” for the purposes of Section 12 of the Act.

In the Teranet case, the main question was whether the registered and deposited survey plans were published by or under the “direction or control” of the Crown. The court concluded that “When either the Crown or Teranet publishes the registered or deposited plans of survey, copyright vests in the Crown because the Crown exercises direction or control over the publication process.”

Applying the principle of technological neutrality, the court indicated that the province’s use of new technologies (after digitization of the survey plans and publication process) did not change the court’s assessment of whether the Crown has copyright by virtue of s. 12. Finally, because the Crown owns copyright in the survey plans pursuant to s. 12 of the Act, there could be no infringement under the electronic registry system, and the class action was dismissed.

Background Reading:

Copyright in Survey Plans

Calgary – 07:00 MST

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By Richard Stobbe

The idea of a ‘smart contract’ has been a lot of things: it’s upheld as the next big thing, a beacon of change for society, a nail in the coffin of an inefficient legal services profession, and it’s criticized as a misnomer for ‘dumb code’.  Our review of smart contracts continues with this question:  Are ‘smart contracts’ in need of specific laws and regulations in Canada?

In other words, is ‘smart contract’ law broken and in need of fixing?

(Need a quick primer on smart contracts? Can Smart Contracts Really be Smart?)

For those who may recall, the advent of other technologies has caused similar hand-wringing. For example the courts have, over the years, dealt with contract formation involving the telephone, radio, telex and fax … and email … yes, and the formation of contracts by tapping “I accept” on a screen.

There is a very good argument that the existing electronic transactions laws in Canada adequately cover the most common situations where so-called ‘smart contracts’ would be used in commercial relationships. For example, the Alberta Electronic Transactions Act (a piece of legislation that was introduced almost 20 years ago, when people talked about the “information superhighway”), was intentionally designed to be technology neutral.

The term “electronic signature” is defined in that law as “electronic information that a person creates or adopts in order to sign a record and that is in, attached to or associated with the record”. It’s so broad that the term can arguably apply to any number of possible applications, including situations where someone approves a transactional step within a smart contract work flow. Of course, this still has to be tested in court, where a judge would apply the law in an assessment of the specific facts of a particular dispute.

Does that create uncertainty? Yes, to a degree.

But the risks associated with that approach are preferable to the alternative. The alternative is to go the way of Arkansas, or other jurisdictions who have decided to wade in by prescriptively defining “smart contracts”.   For example, a 2019 law in Arkansas – “An Act Concerning Blockchain Technology” HB 1944 – amends that state’s electronic transactions law by defining “blockchain distributed ledger technology,” “blockchain technology” and “smart contract.”  By imposing specific definitions, these laws may have the unintended effect of excluding certain technologies that should be included, or catching use cases that were not intended to be caught.  This would be the equivalent of trying, in 2001, to define an electronic transaction by looking at  Amazon’s 1-click checkout. Sure, it was innovative at that time, but to peg a legal definition to that technology would have been short-sighted and unnecessarily constraining.

A second problem is a lack of standardization or uniformity in how different jurisdictions are choosing to define these technologies. This creates more uncertainty than a reliance on existing electronic transactions laws.

As blockchain and smart contract technology develops, the rush to have legal definitions cast in stone is premature and unwarranted.

Related Reading:

Blockchain Legislation – Too Soon?

Calgary – 07:00 MST

By Richard Stobbe

As we wrote about a year ago (See: What happens to IP on bankruptcy? ), we have been anticipating amendments to the Bankruptcy and Insolvency Act (BIA) and Companies’ Creditors Arrangement Act (CCAA) relating to IP licenses in cases where the IP licensor becomes insolvent. We now know that these changes will come into force November 1, 2019.

When it becomes law, Bill C-86 will enact changes to Canadian bankruptcy laws to clarify that intellectual property users can preserve their usage rights, even if:

• intellectual property rights are sold or disposed of in the course of a bankruptcy or insolvency proceeding, or
• if the trustee or receiver seeks to disclaim or cancel the license agreement relating to IP rights.

If the bankrupt company is an owner of IP, that owner has licensed the IP to a user or licensee, and the intellectual property is included in a sale or disposition by the trustee, the changes in Bill C-86 make it clear that the sale or disposition does not affect the licensee’s right to continue to use the IP during the term of the agreement. This is conditional on the licensee continuing to perform its obligations under the agreement in relation to the use of the intellectual property.

For more background, see:

• IP Licenses & Bankruptcy Laws (Part 1)
• IP Licenses & Bankruptcy (Part 2 – Seismic Data)

Calgary 07:00 MST

By Richard Stobbe

Is there copyright in the setting of a Netflix series?

It’s time for a dose of stereotypical Canadian culture, and you can’t do much better than another copyright battle over Anne of Green Gables!  With Sullivan v. Northwood Media Inc., 2019 ONSC 9 (CanLII) we can add to the  long list of cases surrounding the fictional character Anne. This newest case deals with a copyright claim by Sullivan Entertainment against the producers of a CBC / Netflix version entitled “ANNE with an E” (2017).

First, a newsflash: The Anne of Green Gables books were written by Lucy Maud Montgomery and originally published beginning in 1908.

Sullivan, of course, is known as the producer of a popular television version of the Anne of Green Gables novels, starting with “Anne of Green Gables” (1985), the copyright in which is registered under Canadian Copyright Registration No. 358612.

Enter the latest incarnation of the AGG story, a CBC series produced by Northwood Media, now streaming on Netflix.

Sullivan alleges that Northwood, the producer of the latest Netflix version, has copied certain elements that were created by Sullivan in its TV series from the 1980s, elements that were not in the original novels.  This copyright claim forces an examination of the scope or range of copying that is permitted around setting, plot concepts, imagery, and production or design elements.

Wait… are plot concepts and settings even protectable?  In copyright law, we know that ideas are not, on their own, protectable; copyright protects the expression of ideas.  Here, Sullivan as the owner of the copyright in its television production alleges that the Netflix series infringes copyright by copying scenes, not literally but through non-literal copying of a substantial part of the original protected work.

For example, Sullivan alleges that the Netflix version copies settings or conceptual elements such as:

• the decision to set the story in the late 1890s (the choice made in the Sullivan version), as opposed to the 1870s (the choice made by the original author in the Anne of Green Gables novel).
• the use of steam trains, replicated from a scene in one of the Sullivan episodes (apparently steam trains would not have been historically accurate in a 1870s setting);
• copying the concept and scene of a class spelling bee, to establish the rivalry between Anne Shirley and Gilbert Blythe;
• depictions and staging of scenes such as Anne’s life with the Hammond family or Matthew Cuthbert passing by the hose of Mrs. Lynde’s on his way to the train station to pick up Anne.

The allegations are not that the scenes are literally cut-and-paste from the original, but that the copying of settings, concepts and staging is copying of “a substantial part” of the original for the purposes of establishing copyright infringement.

In the words of the court in Cinar Corporation v. Robinson, 2013 SCC 73, copyright can protect “a feature or combination of features of the work, abstracted from it rather than forming a discrete part…. [T]he original elements in the plot of a play or novel may be a substantial part, so that copyright may be infringed by a work which does not reproduce a single sentence of the original.”

(See our earlier article:  Supreme Court on Copyright Infringement & Protection of Ideas )

The preliminary decision in Sullivan v. Northwood Media Inc. is about a pre-trial procedure related to document discovery, and once it goes to trial, the outcome will be interesting to see. This case is a series worth watching.

Calgary – 07:00 MT

By Richard Stobbe

An obituary aggregation site – yes, there is such a thing – was in the business of reposting obituaries, both text and photos, taken from the sites of Canadian funeral homes and newspapers.  This database of obituaries was a way to attract visitors who could then buy flowers and ‘virtual candles’ on the same page as the obituary, to generate profits.

Not surprisingly, someone complained.

Thomson v. Afterlife Network Inc., 2019 FC 545 (CanLII) was a class action lawsuit against the obituary aggregation company, Afterlife, for copyright infringement, based on the unauthorized copying and publication of over a million obituaries. Shortly after the class action lawsuit was launched, the Afterlife site shut itself down.

Class action members expressed that “an obituary they had written for a family member, often accompanied by a photograph, had been posted on Afterlife’s website without their permission. The evidence of many Class Members is that they had written the obituaries in a personal way and that their discovery that the obituaries had been reproduced with the addition of sales of candles and other advertising was an emotional blow to them. In some cases, inconsistent information was added, for example, inaccurate details about the deceased or options to order flowers where the family had specifically discouraged flowers. The Class Members also describe Afterlife’s conduct, in seeking to profit from their bereavement and in conveying to the public that the families were benefiting from sales of virtual candles or other advertising, as reprehensible, outrageous and exploitative.”

The court had no trouble in establishing copyright protection for the obituaries as well as the photos.

The court also quickly concluded that Afterlife has republished this content without the permission of the original authors.

Damages need not be proven where statutory damages are invoked.  Since statutory damages (Section 38.1 of the Copyright Act) allow for not less than $500 and not more than $20,000 per infringement, the court saw that the minimum of $500 multiplied by the estimated two million separate infringements (at least one photo plus a block of text in each of the 1 million copied obituaries), would result in a minimum damage award of around $1 billion.  Seeing this as grossly disproportionate, the court awarded $10 million in statutory damages, and another $10 million in aggravated damages, which can be awarded for compensatory purposes.  Strangely, the court did not award punitive damages for this case of “obituary piracy”, that the court agreed was high-handed, reprehensible and “represents a marked departure from standards of decency”.

Although this case may be noted for its significant statutory damage award, it also deal with a moral rights claim by the original authors of the obituaries. Under Canadian copyright law, “moral rights” protect the integrity of a work and are engaged where the author’s honour or reputation is prejudiced by the distortion or modification of the original work, or by using the work in association with a product, service, cause or institution.

The court struggled to find a moral rights infringement, since it was given evidence of the subjective elements of the infringement (the authors expressed that they were understandably mortified that others would think that they were somehow profiting from bereavement). However, the court noted that there is both a subjective and objective aspect in order to establish infringement of moral rights. The objective element was missing here.

In the end, a $20 million damage award was granted against Afterlife.

Calgary – 07:00 MT

By Richard Stobbe

Local Alberta breweries Elite Brewing (visited, love the carbon fibre bar) and Bow River Brewing have been on the receiving end of a cease and desist letter from the City of Calgary over a beer label for Fort Calgary ISA (a “richly hopped lighter bodied India session ale”).

The complaint by the City related to the unauthorized use of “FORT CALGARY”, which is an official mark owned by the City.

But wait, isn’t “FORT CALGARY” also an historical landmark and a place name?

From reading our other articles on geographical locations as trademarks, you might wonder how this works.  You might say “Hang on… if a trademark is based on a geographic name, and a trademarks examiner decides that the geographic name is the same as the actual place of origin of the products, won’t the trademark be considered ‘clearly descriptive’ and thus unregistrable as a trademark? Furthermore, if the geographic name is NOT the same as the actual place of origin of the goods and services, the trademark will be considered ‘deceptively misdescriptive’ since the ordinary consumer would be misled into the belief that the products originated from the location of that geographic name. If that’s true, then how can a trademark owner assert rights over a geographic location?”

Yes, yes, that’s all true, with some exceptions, but according to Canadian trademark law there is also something called an official mark, which is what the City of Calgary owns. This is a rare species of super-mark that effectively sidesteps all of those petty concerns regarding geographical locations, ‘clearly descriptive’ and ‘deceptively misdescriptive’.

By virtue of its status as a government entity, the City can assert rights in certain marks that it adopts under Section 9 of the Trademarks Act.  These rights form the legal basis for the City’s recent cease and desist letter regarding the FORT CALGARY beer label.

This case has some unique elements due to the special rights that the City claims under the Trademarks Act, but the general message is the same: craft brewers can benefit from some preliminary trademark clearance searching when they launch a brand or a new beer name. And they should seek advice if they’re on the receiving end of this kind of letter.

In the end, the brewers reportedly agreed to sell out their remaining stock and refrain from further use of the Fort Calgary label, and the City agreed not to commence a lawsuit.

Need advice on beer trademarks and clearance searching? Contact craftlawyers.ca.

Calgary – 10:00 MT

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By Richard Stobbe

In February 2019, we reviewed the story of QuadrigaCX, and raised the question of how this would impact the adoption of cryptocurrencies or other tokens that are powered by the same blockchain or distributed ledger technologies (DLT) that underpin BitCoin. In particular we suggested that some regulatory oversight might be warranted. See: QuadrigaCX and the Missing Millions: A Crypto Cautionary Tale .

In March 2019 the Joint Canadian Securities Administrators (CSA) and IIROC (Investment Industry Regulatory Organization of Canada) issued a Proposed Framework for Crypto-Asset Trading Platforms (PDF). From a regulator’s perspective, many of these crypto-questions fall into the crack between CSA and IIROC.

Setting the stage to close that gap with regulatory engagement in Canada, the report notes that there are over 2,000 “crypto assets” in the wild, some trading for fiat currencies and others for various types of crypto-tokens, using over 200 different platforms. “Many of these Platforms,” say the report’s authors, “operate globally and without any regulatory oversight.”

There are a variety of crypto assets but currently they can generally be categorized from a regulatory perspective in one of two ways:

1. Either they are akin to a commodity or currency, often referred to as “utility tokens”, which are created to allow holders to access or purchase goods or services on a DLT network. Crypto assets that are a “form of payment or means of exchange on a decentralized network, such as bitcoin”, says the report, “are not currently in and of themselves, securities or derivatives. Instead, they have certain features that are analogous to existing commodities such as currencies and precious metals”;
2. Alternatively, crypto assets can be more akin to tokenized versions of traditional securities, derivatives or investment contracts, in the sense that they operate like shares in a company, or an interest in assets. If the crypto assets mimic the features of securities or derivatives, and are traded on an exchange platform, then that platform should be subject to existing securities regulatory requirements.

One of the regulatory problems is that the feature-sets of many crypto assets continually blur the lines between “currency” and “security”. Existing securities legislation may still apply to exchange platforms that offer trading of crypto assets even if those are tokens more like commodities, particularly where the investor’s contractual right to the cryptocurrency asset behaves like a security or derivative. Among the challenges that are unique to crypto exchange platforms is that these tokens and coins trade on a global basis, both on exchange platforms and off, both inside and outside regular trading hours, without any central source for pricing or reliable reference data. The values are “illiquid and highly volatile”. From a market surveillance point of view, this makes the regulatory enforcement uniquely challenging.

Essentially, the CSA/IIROC proposed platform framework would apply to “Crypto-Asset Trading Platforms” that are subject to securities legislation and that may not otherwise fit into other existing regulatory categories. Among the recommendations in the paper, crypto-trading platforms may have to become registered as investment dealers and meet compliance requirements for IIROC dealer and marketplace members.

Notably, this regulatory scheme would apply both to Platforms that operate in Canada and to those that have Canadian participants.

Enforcement is not really addressed here, but that’s another debate altogether.

The comment period is open until May 15, 2019.

Additional Reading: CSA Staff Notice 46-307 Cryptocurrency Offerings and CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens, NI 21-101 Marketplace Operation, NI 23-101 Trading Rules and NI 23-103 Electronic Trading and Direct Access to Marketplaces.

Calgary – 07:00 MST

By Richard Stobbe

There are a number of monumental changes coming soon (June, 2019) to the trademark regime in Canada. One small change was actually first introduced in 2018, a change that may come in handy in some trademark disputes once the rest of the new provisions are in force. 

The concept of “bad faith” became a formal part of the Trademarks Act in Canada in late 2018, and it remains to be seen how it might be developed as a tool to prevent unmeritorious applications or registrations. 

One of the fears among some trademark owners is the perception that “use” has been dropped as a requirement for registration, clearing a pathway for trademark squatters who file extortionist or opportunistic applications where legitimate use was never intended. In fact, “use” remains a fundamental requirement under Canadian trademark law, but it is true that under the revised Act, a “Declaration of Use” will be dropped as a necessary step before registration; it is currently required for applications filed on the basis of proposed use, and that requirement falls away under the revised  Act.

The ability to attack a trademark on the basis of “bad faith” is supposed to provide an easier way to challenge opportunistic applications which might be filed without any intention of actual commercial use.  This is a new ground for invalidating a trademark registration or  opposing an application, which is embedded in Section 18 of the Act (“The registration of a trade-mark is invalid …. if the application for registration was filed in bad faith”). There is no definition of “bad faith” in the Act but at least one Canadian case considered the issue several years ago:  HomeAway.com, Inc. v. Hrdlicka, 2012 FC 1467 (CanLII)  

In HomeAway, the Federal Court considered a case where an individual, Mr. Hrdlicka, filed an application for the mark VRBO, and obtained a registration for that mark in association with “Vacation real estate listing services”. 

The VRBO mark is, of course, an acronym for “vacation rental by owner”, and a well-known brand owned by HomeAway.com Inc.  Mr. Hrdlicka obtained registration of the mark in Canada because he apparently filed a blank “Declaration of Use”, thus somehow securing the registration despite the lack of any declaration of use, or any actual evidence of use in Canada.  The Federal Court found that the applicant never used VRBO as a trade-mark in Canada (until dubious evidence emerged after the dispute arose), and that, at the time he applied to register that trade-mark in Canada, Mr. Hrdlicka was aware of HomeAway’s business. The evidence showed that he registered the mark for the purpose of selling it back to HomeAway “for a large sum of money and/or for employment or royalties.”  This is reminiscent of many dot-ca domain name disputes. 

As a result, the Federal Court concluded that Mr. Hrdlicka, in filing the application for registration, “had no bona fide intent of using it in a legitimate commercial way in Canada. His intent was to extort money or other consideration from HomeAway. Such activity should not be condoned or encouraged.” The court decided to expunge the registration, relying on its general powers under Section 57 of the Act. 

This is precisely the circumstance that concerns current brand owners in light of the pending changes to the Trademarks Act: opportunistic registration, no bona fide purpose, and no evidence of actual use.

While the term “bad faith” does not actually appear in the HomeAway judgement, the result is clear: the application or registration of a mark without any bona fide intent or legitimate commercial use, will be considered to be filed for an improper purpose, and such conduct lacking good faith intent should be considered “bad faith” within the scope of Section 18(e).  

It remains to be seen whether courts apply this decision to future Section 18(e) challenges.

Calgary – 07:00 MST

By Richard Stobbe

Here’s a familiar picture:  You are a Canadian business and you use a service provider outside of the country to process data. Let’s say this data includes personal information. This could be as simple as using Gmail for corporate email, or using Amazon Web Services (AWS) for data hosting, or hiring a UK company for CRM data processing services. 

Until now, the Federal Office of the Privacy Commissioner (OPC) has taken the position that data processing of this type is a “use” of personal information by the entity that collected the data for the purposes of the Personal Information Protection and Electronic Documents Act (PIPEDA).  Such use would require the consent of the individual for the initial collection, but would not require additional consent for the data processing by an out-of-country service provider, provided there was consent for that use at the time the information was first collected.  

The privacy laws of some provinces contain notification requirements in certain cases, though not express consent requirements, for the use of service providers outside of Canada.  For example, Alberta’s Personal Information Protection Act, Section 13.1, indicates that an organization that transfers personal information to a service provider outside Canada must notify the individual in question. 

The OPC’s guidance, dating from 2009, took a similar approach, allowing Canadian companies to address the cross-border data processing through notification to the individual.  In many cases, a company’s privacy policy might simply indicate in a general way that personal information may be processed in countries outside of Canada by foreign service providers. In the words of the commissioner in 2009:  “[a]ssuming the  information is being used for the purpose it was originally collected, additional consent for the transfer is not required.”  As long as consumers were informed of transborder transfers of personal information, and the risk that local authorities will have access to information, the organization was meeting its obligations under PIPEDA. 

A recent consultation paper published by the OPC has signalled a potential change to that approach.  If the changes are adopted by the OPC, this will represent a significant shift in data-handling practices for many Canadian companies. 

Draft guidance from the OPC, issued April 9, 2019, indicates that recent high profile cross-border data breaches, such as the incident involving Equifax, have inspired a stricter consent-based approach.  Today, the OPC issued a supplementary discussion document to explain the reasons for the proposed changes. (See: Consultation on Transborder Dataflows)

Reversing 10 years of guidance on this issue, the OPC now explains that a transfer of personal information between one organization and another should be understood as a “disclosure” according to the common understanding of that term in privacy laws. 

If the draft guidelines are adopted by the OPC, any cross-border transfers of personal data to an outsourced service provider would be considered a “disclosure”, mandating a new consent, as opposed to a “use” which could be covered by the initial consent at the time of collection.  Depending on the circumstances, the type of disclosure and the type of information, this could require express consent, and it’s not clear how this would apply to existing transborder data-processing agreements, or whether additional detail would  be required for consent purposes, or if the specific names of the service providers would be required as part of the consent. This could significantly impact data-processing, e-commerce operations, and the consent practices of many Canadian businesses. 

Consultations are open until June 4, 2019. Please stay tuned for further updates on this issue and if you want to seek advice on your company’s privacy obligations, please contact us.

Calgary – 16:00 MST

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 Act.  The 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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By Richard Stobbe

Go-karting in Saskatchewan as an internet law case?  Yes, and you’ll see why. In Quilichini v Wilson’s Greenhouse, 2017 SKQB 10 (CanLII), a go-kart participant is injured and sues the service provider. The service provider holds up the waiver as a complete defence, saying it contains a release of all claims.

In this case, the waiver is  provided to all participants through a kiosk system, where an electronic waiver is presented in a series of electronic pages on a computer screen. Participants have to click “next” to move from one page to the next; and finally click the “I agree” button on the electronic waiver before they can participate in the activity.

Variations of this happen everyday across Canada when users click “I agree”, “I accept” or some variation of a click, tap or swipe to indicate assent to a set of terms.

• Can legally binding contracts be formed in this way?
• And another question, even if it works for common-place transactions like a shopping-cart check-out, does it work for something as important as a release and waiver of the right to sue for personal injury?

The answer is a clear yes, according to the facts of this case. The judge in Quilichini had no trouble finding that the participant’s electronic agreement was just as effective as a signed hard-copy of the agreement. The participant had a full opportunity to read the waiver, and there was nothing obscure in the presentation of the waiver, or the choice whether or not to accept it. The court concluded: “there can be no question but that when the plaintiff clicked ‘I agree’, he was intending to accept and assume responsibility for any possible risk involved and knew he was agreeing to discharge or release the defendants from all claims or liabilities arising, in any way, from his participation.”

This conclusion is based in part on Canadian provincial laws such as Alberta’s Electronic Transactions Act, SA 2001, c E-5.5, (there’s an equivalent in Saskatchewan and other provinces), which generally indicate that if there is a legal requirement that a record be signed, that requirement is satisfied by an electronic signature. There are exceptions of course, such as wills or transfers of land.

In the Quilichini  decision, the court didn’t look outside the Saskatchewan Electronic Information and Documents Act, 2000. But there are other authorities to support the proposition that binding contracts can be formed online in a number of ways. Decisions such as Kanitz v. Rogers Cable Inc., 2002 CanLII 49415 (ON SC), even deal with passive assent, where a user is deemed to be bound by something even absent a formal “click-through” button. Kanitz dealt with the question of whether internet service subscribers were bound by a subscription agreement, where that agreement was amended, then merely posted to the service provider’s site, rather than requiring a new signature or a fresh “click-through”. The subscribers were bound by the terms merely by continuing to use the service after the amended terms were posted.

In considering this, the Court in Kanitz said: “…we are dealing in this case with a different mode of doing business than has heretofore been generally considered by the courts. [remember… this was 2002] We are here dealing with people who wish to avail themselves of an electronic environment and the electronic services that are available through it. It does not seem unreasonable for persons who are seeking electronic access to all manner of goods, services and products, along with information, communication, entertainment and other resources, to have the legal attributes of their relationship with the very entity that is providing such electronic access, defined and communicated to them through that electronic format. I conclude, therefore, that there was adequate notice given to customers of the changes to the user agreement which then bound the plaintiffs when they continued to use the defendant’s service.” [Emphasis added]

This is not to say that ALL electronic contracts are always enforceable, or that all amendments will be enforceable even without a proper mechanism to collect the consent of users. However, it does provide a measure of confidence for Canadian internet business, that the underlying legal foundation will support the enforceability of contractual relationships when business is conducted online.

Want to review your own internet agreements and electronic contracting workflows to ensure they are binding and enforceable? Contact Richard Stobbe.

Calgary – 07:00 MST

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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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By Richard Stobbe

As we’ve reviewed before, the term “smart contract” is a misnomer. (For background, see Smart Contracts (Part 3): Opportunities & Limits of Smart Contracts.) The so-called smart contract isn’t really a “contract” at all : it’s the portion of the transaction that can be automated and executed through software code. Hence, we prefer the term “programmatically executed transactions” — not as catchy, but maybe more accurate.

The written legal prose, or what we might think of as a ‘traditional contract’, sets out a bunch of contract terms, usually in arcane legalese, that describe certain elements of the relationship. Parts of that ‘traditional contract’ can be automated and delegated to software. However, once concluded, the traditional legal contract usually sits in one silo, and the software code is developed and sits in another silo, completely divorced one from the other.

The evolution of research and software tools has permitted the so-called Ricardian contract to function as a bridge between these silos. Based on the work of Ian Grigg, a Ricardian contract is conceived as a single document that has a number of elements that permit it (1) to function as a “contract” in the way the law would recognize a contract, so the thing has legal integrity, (2) to be readable by humans, in legal prose, (3) to be readable by software, like software reads a database or a input fields, (4) to be signed digitally, and (5) to be integrated with cryptographic identifiers that imbue the transaction process with technical integrity and verifiability. This is where blockchain or distributed ledger technology comes in handy.

The document should be readable by both humans and machines. It integrates the ‘traditional contract’ with the ‘smart contract’, since the elements or parameters that can be automated and implemented by software are read into the code straight from the contract terms.

Can this form the basis for software developers and lawyers to play in the same sandbox?

There are a number of developments in this arena where “legal” and “software” overlap, and Ricardian contracts are merely one iteration of this concept: for more background, Meng Wong’s presentation on Computable Contracts is a must-see.  His Legalese contracts are intended to allow legal terms and conditions to be represented in machine-understandable way, with or without a blockchain deployment. OpenLaw is another version of this approach : blockchain-enabled contracts that delegate certain functions to software. There are a whole range of options and variations of this.

In theory, this sets up an “Internet of Agreements” system that is designed to execute deals and transactions automatically with distributed ledger ecommerce technology through interwoven contracts and software across disparate platforms.

How far away is this legal-techno-dream?

For some applications, particularly in financial services, it’s much closer. Versions of these technologies are being beta-tested and implemented by global banks.  Since many of these implementations will be between entities in back rooms of the financial services industry, they will be invisible to the average consumer.  For many sectors – let’s say for example, the development of a full-stack land transfer technology - where smart contracts have to interface with existing immovable legal or institutional structures, this is a long way off.

Calgary – 07:00

By Richard Stobbe

For those who want blockchain-enabled cryptocurrencies to be deployed in mature, mainstream industry sectors (energy, insurance, financial services), it doesn’t help to have headlines like “How crypto exchange QuadrigaCX lost access to $190 million of customers’ money” (from Global News), or “Crypto CEO Dies Holding Only Passwords That Can Unlock Millions in Customer Coins” (that one from Bloomberg).

But let’s face it: those headlines appear to capture the essence of the current cloud of uncertainty that shrouds QuadrigaCX, a well-known Vancouver-based cryptocurrency exchange.

The company recently filed for creditor protection in a Nova Scotia court, after the reported sudden death of founder and CEO Gerald Cotten.  From reports of the company’s court filings, Mr. Cotten died with the recovery codes to the offline “cold storage” vaults containing access to customers’ cryptocurrency assets.

On February 5, 2019, the Nova Scotia court granted bankruptcy protection under the CCAA (Companies’ Creditors Arrangement Act) and appointed Ernst & Young as monitors to investigate the accessibility of any funds to reimburse the approximately 115,000 customers. A 30-day stay of proceedings was ordered, effectively shielding the company from further lawsuits as this investigation continues.

If no-one knows the access codes aside from the deceased founder, then the offline accounts, which reportedly hold millions of dollars worth of crypto assets, may be irretrievably lost.

What does this mean for the adoption of cryptocurrencies or other tokens that are powered by the same blockchain technologies that underpin BitCoin?

Cryptocurrency had a spotty reputation to begin with, and the current speculation and various internet-fuelled conspiracy theories surrounding QuadrigaCX do not give a person confidence.  You mean, I can take a risk by buying cryptocurrency hoping it’s going to rise in value, and then face the added risk that even if the value does increase, the multimillion dollar asset might suddenly disappear because one person held all the passwords? Apparently, yes.

Can one also lose millions in highly regulated industries by buying stocks or investing with Ponzi schemes?  Undoubtedly, yes. Somehow, the loss of traditional dollars does not shake investor confidence the way the collapse of QuadrigaCX might shake consumer confidence in BitCoin.

Maybe that’s because the history of crypto is a blip when compared to fiat currency. And maybe it’s because banks and others who handle consumer investments are subject to complex regulation, insurance requirements, registration requirements, securities commissions, financial superintendents, regulatory reporting and compliance obligations, and a system of censure in the case of a breach of those regulations.  After all, the QuadrigaCX exchange was not so much an investment vehicle; it was more akin to a bank.  When banks fail, confidence is understandably shaken.

The real cautionary tale may be that a mature and measured approach to cryptocurrency regulation may help instill confidence in the sector, and this may help pave the way for the strategic use of distributed-ledger technologies that are associated with cryptocurrency coins and tokens.

Calgary – 07:00 MST

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By Richard Stobbe

The National Data Protection Commission (CNIL), France’s data protection authority, came down on Google with a €50 million penalty for breach of the EU’s General Data Protection Regulation (“GDPR”).

CNIL was responding to complaints from two privacy advocacy groups who called out Google for lacking a valid legal basis to process the personal data of EU users of Google services, particularly for ads personalization purposes. Although Google’s European headquarters are situated in Ireland, that country did not take the role of “lead authority” for DPA purposes, since processing of EU users’ data occurred through Google’s U.S. operations, rather than through its Irish division. This left the field open for France to take over the file and render a decision on the complaint.

The GDPR establishes a “one-stop-shop” which is designed for greater certainty for those organizations doing business in the EU. A business should only have to deal with the Data Protection Authority (“DPA”) of the country where its “main establishment” is located.

A DPA is, under the GDPR regime, an independent public authority tasked with supervising enforcement of data protection laws, with investigative powers and corrective authority. There is one DPA in each EU member state.

Google, according to CNIL, failed on two main counts based on the GDPR principles of transparency, information and consent:

• First, Google’s explanation of data processing purposes is not clear nor comprehensive. “Users are not able to fully understand the extent of the processing operations carried out by GOOGLE,” says CNIL, and Google’s processing operations are “massive and intrusive” due to the sheer scope of the company’s services and the high volume of data which is collected and processed by Google.
• Second, consent was not validly obtained, because the specific uses are not made clear to the user. This is the case even though the user of Google’s services can modify some options and configure some features of personalized ads. Just because some user configuration is allowed, that does not mean Google is in compliance with GDPR requirements.
• CNIL was not impressed with the configuration options for ads personalization. To the extent configuration is made available to Google’s users, the choices are “pre-ticked”. The GDPR requires “unambiguous” consent, requiring a specific affirmative action from the user (for example, by clicking a non-pre-ticked box ). At the point of account creation, when a user clicks “I agree to the processing of my information as described above and further explained in the Privacy Policy“, the user gives consent in full, for all processing operations. However the CNIL notes that “the GDPR provides that the consent is ‘specific’ only if it is given distinctly for each purpose.”

This is the first penalty issued by France’s DPA.

Should Canadian companies be concerned? Any company that is engaged in processing of EU resident data will be subject to the GDPR, not just those who have a permanent establishment in the EU.

Calgary – 07:00 MST

By Richard Stobbe

In time for the holidays, this is tale of competing brands sloshing around the marketplace. Please enjoy responsibly.

Diageo North America, Inc. is purveyor of some of the world’s best-known brands of spirits and beer, some of which are probably in your cupboard somewhere: Crown Royal, Baileys, Smirnoff, Johnny Walker, Captain Morgan, Tanquery and Gordon’s Gin, Guinness and Kilkenny, among many others.  In two parallel trademark disputes, Diageo recently faced off with Constellation Brands, one of Canada’s largest producers and distributors of wines.

In Constellation Brands Canada, Inc. v Diageo North America, Inc., 2018 TMOB 133 (CanLII), Diageo applied for the trademarks:

• MAKE IT NAKED for use in association with distilled spirits, namely rum and rum-flavoured beverages.
• DON’T WORRY DRINK NAKED & Design also for use in association with distilled spirits, namely rum and rum-flavoured beverages.

In Arterra Wines Canada, Inc. v Diageo North America, Inc., 2018 TMOB 134 (CanLII), Diageo applied to register three variations of the trademark:

• THE NAKED TURTLE for use in association with distilled spirits, namely rum and rum-flavoured beverages (vodka and beer excluded).

Constellation Brands/Arterra Wines owns the popular NAKED GRAPE family of trademarks, for use in association with wine, wine spritzers, and icewine.   These guys sell a lot of wine: between 2008-2015 yearly sales of NAKED GRAPE branded wines ranged between $16-26 million across Canada.

Are the Diageo marks confusing with the NAKED GRAPE marks?

Interestingly, the legal test for confusion reflects the modern consumer: The test to be applied is a matter of first impression in the mind of a casual consumer somewhat in a hurry who sees the mark at a time when he or she has no more than an imperfect recollection of the prior brand, and does not pause to give the matter any detailed consideration or scrutiny.  Hmmm.. apparently we’re a nation of consumers in a hurry and we don’t pause to give things any detailed scrutiny.  Let’s leave the philosophical implications for a future discussion.

Test to Determine Confusion

The test to determine the issue of confusion is found in the Trademarks Act: the use of one trademark causes confusion with another trademark if the use of both marks in the same area would likely lead a consumer to infer that the associated goods are both manufactured and sold by the same person.  Courts look at:

1. the inherent distinctiveness of the trade-marks and the extent to which they have become known;
2. the length of time the trade-marks have been in use;
3. the nature of the goods and services or business;
4. the nature of the trade; and
5. the degree of resemblance between the trade-marks in appearance, or sound or in the ideas suggested by them; oh, and don’t forget
6. “all the relevant surrounding circumstances.”

In the end, three of the five Diageo marks were refused. For the marks MAKE IT NAKED, DON’T WORRY DRINK NAKED & Design and THE NAKED TURTLE Design, the final decision was that a casual consumer with an imperfect recollection of the NAKED GRAPE trademark who encounters rum or rum flavoured beverages sold under any of these brands may think that these goods are sold by the owner of the NAKED GRAPE mark, due to resemblance between the marks.

One Design Survives

However, one of the design marks was permitted to go ahead:  The Naked Turtle Design – front label (Application No. 1592265) was one of the variations among Diageo’s applications. Here, the decision was different since the most striking aspect of this mark was the phrase THE NAKED TURTLE and the depiction of the turtle lounging in a hammock between two palm trees. As turtles do.  For this mark, it was considered to be more different than alike as a matter of first impression.

One Word Mark Survives

The opposition was also refused for one of the word marks ( THE NAKED TURTLE) (Application No. 1561944). For this application, there was no reasonable likelihood of confusion between the trade-marks even though the nature of the goods and channels of the trade overlaps.

What are the lessons in this case?

• Sub-brands are becoming more and more important within a competitive marketplace such as sales of alcoholic beverages.
• This illustrates the extent to which highly competitive industry subsectors will clash even where the products are different within the sector – distilled spirits, such as rum, are very different from wines, wine spritzers, and icewine. One is an alcoholic beverage made from the fermentation of grapes and one is a spirit produced through distillation. However, the goods and channel of trade are considered to overlap, even though the products are sold in different areas of the store.
• In its defence, Diageo tried to cite other alcoholic beverages where the word “naked” appears in the label: Back Forty Naked Pig Pale Ale, Four Vines Naked Chardonnay, Naked on Roller Skates, Naked Winery wines, Nøgne Ø Naked Kiss Imperial Porter, Barenaked Vodka, and Snoqualmie Naked Riesling.  This is considered “cheeky advertising” according to the decision. Diageo argued that because there are other such brands available, consumers are accustomed to seeing this term with alcoholic beverages and thus can distinguish between marks that include this element.  The decision-maker was not convinced, and dismissed this as “limited evidence” of the use of this term by other parties in Canada.
• Diageo pursued a strategy of filing a range of applications, both word marks and design marks, including both the front and back labels of the bottle. This strategy proved to be successful – or, at least it help avert complete disaster.  Unless it’s challenged on appeal, two of Diageo’s marks will proceed to registration, permitting Diageo to carve out registered trademark protection for its NAKED TURTLE brand.

To review trademark strategies for distilled, brewed or fermented products, contact us at craftlawyers.ca or visit us on the Instagram.

Calgary – 07:00 MST