For Canadian inventors and patent owners, the US is almost always the first jurisdiction in which patent protection is pursued.  Last Friday the U.S. House of Representatives passed a long-awaited comprehensive Patent Reform bill that will implement sweeping changes to the U.S. Patent system when it becomes law.  The Senate is expected to pass their bill later this year. For a copy of the bill as passed thus far and further discussion, click here.  Highlights include:

• Switch: from first-to-invent system to first-to-file system.
• Damages: damages would be tied to the “economic value [of the invention] properly attributable to the patent’s specific contribution over the prior art”, reducing many damage awards.
• Treble Damages:  the instances where treble damages will be awarded are restricted, reducing damage awards.
• Post-Grant Review: post-grant review proceedings would be available within 12–months of issuance .
• Open Examination: Opening of the system for making submissions of prior art for any patent or pending application.
• Venue and Jurisdiction: Restrictions on venue would likely remove the popular E.D.Texas as a choice for patent infringement lawsuits.

 

The progress of this bill is being closely watched and still hotly debated in the patent and licensing community in the US.
Calgary – 10:15 MST

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In the midst of the dot-com boom, a brilliant bit of ad copy appeared to promote one of the many overnight companies riding the wave of interest in the “New Economy”. It read “Thanks Old Economy, we’ll take it from here…” and it captured the brash, over-confident tenor of the times.  

It has become clear since then that the “Old Economy” still has lots of life in it, and the “New Economy” has survived its growing pains to become slightly more mature. 

KPMG has authored an interesting look at “Enterprise 2.0: Fad or Future?“, the process of applying Web 2.0 technologies to increase efficiency and effectiveness within business.  Many traditional sectors of industry are now adopting new models of transacting business – models that would have appeared revolutionary even to the dot-com boomers in 1999.  And many new companies in the information-media sector are building value in a traditional way, with actual revenue.  In both cases, intellectual property legal issues from copyright to trade-mark to patents are front and centre and require careful management, the old fashioned way.

 

Calgary – 10:17 MST

Maybe the journey of a thousand infringements starts with one bottle of “Future Cola”.

The ongoing battle between Groupe Danone and its Chinese joint-venture partner Wahaha is now well documented around the internet.  In recent months, the dispute has spiralled into litigation, arbitration, and competing press-releases. 

In 1996, pursuing a model that is popular with many Western companies, Groupe Danone, the French food-and-beverage giant, decided to jump-start its foray into China by partnering with a well-positioned local player.  Wahaha, a successful Chinese beverage maker, already had a growing business in iced tea, fruit drinks, water and soft drinks.  Its “Future Cola” brand, with red packaging reminiscent of another well-known cola product, is already making inroads into the US market.

The joint venture seemed to be a mutually profitable arrangement until allegations started surfacing this year that Wahaha was producing and selling identical products on its own, outside the scope of the joint-venture, essentially cutting Danone out of these sales and infringing the intellectual property provisions of the JV agreement. Danone does not seem to have faith in the ability of the Chinese legal system to enforce its intellectual property rights, and has opted for a lawsuit in the US and an arbitration claim in Sweden.  Wahaha responded by initiating its own arbitration claim on home turf in China.

Whatever the outcome, the dispute now stands as a cautionary tale for Western companies doing business in China. Make sure you get good local counsel, have a back-up plan for enforcement and be careful who you partner with.  Hot opportunities abound, but beware: even the biggest players can get their fingers burned when playing in China. 

 

Calgary – 10:22 MST

In the US case of Asch Webhosting, Inc. v. Adelphia Business Solutions Inv., LLC, No. 04-2593, 2007 WL 2122044 (D.N.J. July 23, 2007)  (Link to Evan Brown’s Post) the court upheld a limitation of liability clause in a dispute between an internet services provider (ISP) and its customer. 

After the customer was accused of spamming, in violation of the ISP’s acceptable use policy, the ISP decided to terminate service, giving the customer 30 days to find a new provider.  At the end of the 30 days, the ISP cut-off service as threatened, prompting the customer to sue for $1.4 million in consequential damages. 

The court upheld a limitation of liability clause in the service contract, which capped the ISP’s liability at the amount paid by the customer for the services.  The court reviewed several factors in coming to its conclusion:

• This was a business-to-business contract, with equal bargaining power between the parties;
• The customer was given ample warning of the impending cut-off;
• The clause was clear and unambiguous;
• The ISP relied on spamming complaints in good faith and there was no evidence that the ISP’s actions were malicious or in bad faith.

So you mean the fine print is there for a reason after all?? 

 

Calgary – 11:25 MST

Online sales in Canada grew by 40% to $49.9 billion last year.  In the retail sector alone, more than 15% of retailers in Canada made online sales in 2006, up from only 10% the previous year.  A pair of new Supreme Court of Canada decisions has clarified e-commerce law in Canada by upholding mandatory arbitration clauses and class-action waivers. 

1.    Dell:  For a few days in 2003, Dell’s website contained a pricing error where certain handhelds were incorrectly offered at fire-sale prices. Although Dell moved quickly to correct the errors, a number of consumers managed to place online orders at the incorrect prices.  Dell refused to honour those orders.  In response, the consumers tried to institute a class action lawsuit against Dell.  Dell insisted that the matter had to go to arbitration under the terms of the online contract.  Enter the lawyers.

In the resulting case of  Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, the Supreme Court of Canada upheld Dell’s online contract and the case was referred back to arbitration.  Although Dell’s online contract did not appear on the sales page (it was merely referred to via a hyperlink) the Court decided that this was not fatal to the enforceability of the contract.

2.    Rogers:  The case of Rogers Wireless Inc. v. Muroff, 2007 SCC 35 involved a dispute about wireless roaming charges.  In that case, the Court applied the same principles as in Dell and upheld a mandatory arbitration clause in the Rogers service contract. 

As we noted in our earlier post mandatory arbitration clauses and class-action waivers are now ineffective in Ontario and Quebec under consumer protection legislation. 

 

Calgary – 10:45 MST

In an earlier post we discussed the use of copyright to control product distribution.  In the 2005 case of Euro Excellence, Inc. v. Kraft Canada Inc., the Federal Court of Appeal upheld an injunction against an unauthorized distributor of “grey market” Toblerone chocolate bars, based on an innovative claim of copyright infringement.  Under that decision, copyright seemed to provide a useful tool against parallel importers, where legitimate products are imported into a territory outside the official manufacturer’s supply chain.  Trade-mark law does not provide any help in this area after the decision in Coca-Cola v. Pardhan, another Federal Court of Appeal decision.  Copyright however seemed suitable to the task.

The case was appealed up to the Supreme Court of Canada and in its convoluted decision (Euro-Excellence Inc. v. Kraft Canada Inc., 2007 SCC 37), the Court now appears to have removed copyright as a tool in parallel importation cases.  The majority agreed that copyright protection should extend to product labels and agreed that if a work is entitled to copyright protection, then it should be protected like any work, without an analysis of whether the work is “incidental” or whether the copyright holder has a “legitimate economic interest”.  But the majority decision also made it clear that copyright is no longer a viable option for manufacturers in parallel import or “grey market” cases in Canada where the local distributor relies on an exclusive license to prevent importation. 

 

Calgary – 12:30 MST

After Talk America bought AOL’s long distance telephony business, it amended several terms in the service contract, adding an arbitration clause, a class-action waiver and a New York choice-of-laws clause.  Talk America implemented these amendments by posting them to its website.

When a customer tried to sue Talk America, lawyers attempted to deflect the lawsuit, invoking the mandatory arbitration clause and citing the class-action waiver.  However, in this case the customer had originally signed on with AOL, prior to the amendments made by Talk America. 

In Douglas v. U.S. District Court for the Central District of California, No. 06-75424 (9th Cir. July 18, 2007) the Court of Appeals put these amendments to the test.  Generally the court decided that the online postings were not binding on the customer, noting “Parties have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.” 

In Canada, this issue was considered by the Ontario Superior Court in its 2002 decision in Kanitz v. Rogers Cable Inc. (2002), 58 O.R. (3d) 299.  In Kanitz, Rogers posted the amendments on its customer support webpage and the court decided that Rogers had provided its customers with sufficient notice of the amendments.  Mandatory arbitration provisions and class-action waivers (such as the ones at issue in Kanitz) are now ineffective in Ontario under consumer protection legislation that was introduced in July, 2005 in response to the Kanitz decision.

How does a company amend its service contracts? Very carefully.

Online postings of contract amendments are more likely to be effective when the original contract permits such changes, the customer is provided with sufficient notice of the changes, and the notice provides a clear explanation of the changes.  The changes must comply with local consumer protection legislation.

 

Calgary – 12:30 MST

The dot-asia top-level domain (for example: www.yourcompany.asia) is the Asian cousin of the dot-eu domain which was launched for Europe in 2006. The new dot-asia domain will be introduced in phases, starting in October 2007. 

According to the preliminary information provided by the registrar, anyone can be a registrant for dot-asia domains.  In order to satisfy the eligibility requirements, one of the associated contacts for the applied domain must be a “legal entity in Asia” which means either a natural person or an organization such as a corporation within the Asia-Pacific region as defined by ICANN.

Trade-mark owners whose trade-marks were applied for in the designated Asia-Pacific region prior to March 16, 2004 will be eligible for advanced registration during the dot-asia sunrise period . Canadian companies with trade-marks in Asia should review their eligibility and consider submitting their applications to take advantage of the sunrise period.  This kind of preventive measure can save significant costs when compared with chasing cybersquatters after the general registration opens.

 

Calgary – 14:35 MST

In a trade-mark battle between Hyundai and its Canadian auto-parts manufacturer, Hyundai has scored a victory (Cross-Canada Auto Body Supply (Windsor) Limited v. Hyundai Motor America 2007 FC 580 (CanLII)).  Hyundai is the subsidiary of the well-known Korean auto manufacturer, and is engaged in a trade-mark infringement lawsuit with its Canadian auto-parts maker, Cross-Canada Auto Body Supply.  As part of its defence strategy in the infringement lawsuit, Cross-Canada tried to exploit a vulnerability in Hyundai’s Canadian marks.  Cross-Canada used this vulnerability to launch an attack on the validity of five of Hyundai’s trade-marks.  This can be an effective strategy: If Cross-Canada could win an order that the Hyundai marks were invalid, then Hyundai’s infringement lawsuit would fail.  

Ultimately, Hyundai beat back this challenge by tendering expert survey evidence of the public’s perception of the Hyundai marks.  Survey evidence of this type is not cheap, but when a company’s core marks are at stake, this kind of expenditure is necessary.  Hyundai convinced the court with this evidence and upheld the validity of all but one of its marks.

The lessons for business?

• In trade-mark litigation, an effective defence strategy will include all options, including expungement proceedings, and (of course) possible settlement;  
• For the trade-mark owner, expert evidence can be critical to convince the court of the public’s perceptions of the mark.
• Preventive measures (in Hyundai’s case, recording the assignment of the trade-marks earlier could have reduced their vulnerability) are always cheaper than reactive measures.

 

 

Calgary – 12:34 MST

 

 

 

 

A few weeks ago the Alberta Securities Commission released its review of the Canadian capital markets, comparing Alberta to the markets in Ontario and BC.  The Alberta Capital Market: A Comparative Overview 2007 Report  provides some interesting perspectives on where Alberta stands in different industries in relation to its cousins to the east and west.

While on the topic of capital markets, technology companies are always open to new sources of financing. Here are a few sites which provide some information for entrepreneurs:

• Ask the VC has good content which is generated on a question-and-answer basis. It is US-based, so the tax issues will not apply to Canadian entrepreneurs.
• Canadian Entrepreneur has a Canadian focus and some interesting articles for growing companies such as “Anatomy of a Startup”.

Calgary – 10:35 MST

In previous posts we have reviewed the enforceability of click-through agreements.  The US Tenth Circuit Court of Appeals has recently upheld eBay’s user agreement.  In Nazaruk v. eBay, Inc., 2007 WL 1417287 (10th Cir. May 15, 2007), a lawsuit was brought in Utah, arising out of eBay’s feedback forum.  eBay sought to dismiss the lawsuit, asserting that eBay’s user agreement mandated California as the proper venue. eBay won at the trial level.  The court agreed with eBay that “eBay’s User Agreement, the operative document governing the relationship between Ms. Nazaruk and eBay, contained a forum-selection clause (Santa Clara County, California) that was both enforceable and mandatory.”

The appeal court upheld the enforceability of the user agreement and dismissed the suit. 

 

Calgary – 10:23 MST

General Mills sells a rolled fruit snack under the trademark FRUIT BY THE FOOT, and has obtained not one but two patents: U.S. Patent Nos. 5,284,667 (“Rolled Food Item Fabricating Methods”) and 5,723,163 (“Rolled Food Item”).  How mashed fruit and corn syrup can be a patentable invention is a separate issue. 

General Mills sued Farley, a rival maker of rolled fruit snacks, for patent infringement.  The parties settled out of court, and the resulting agreement made it clear that Farley’s successors would benefit from the settlement terms if Farley sold its entire “rolled food product business”.  Farley later sold its assets to Kraft Foods, and Kraft Foods in turn sold part of the Farley assets to a third company. General Mills then sued Kraft for patent infringement.

Did Kraft’s sale of part of the Farley assets strip Kraft of the protection in the settlement agreement, and expose it to a patent infringement suit by General Mills?  The Federal Circuit Court of Appeals said no, in General Mills v. Kraft Foods (Fed. Cir. 2007) stating that there was nothing in the agreement to deprive Kraft of protection as Farley’s successor.  General Mill’s “covenant not to sue” applied to Kraft as successor.

The lessons for business?

• When buying intellectual assets, ensure your lawyers review any past litigation and any Settlement Agreements to assess the scope of protection for successors;
• General Mills wanted to control the onward sale of assets through the settlement agreement – this is possible, but the terms must be clear in the settlement agreement and this case provides some guidelines on how that should be done;
• And yes, even rolled fruit can be an intellectual asset.

 

Calgary – 09:54 MST

 

Microsoft’s acquisition last week of aQuantive for $6 billion in cash shows the lengths that technology companies will go to muscle into the online advertising market.  Microsoft paid a substantial premium at $66.50 per share, compared with aQuantive’s closing price on Thursday of $35.87 per share.  The deal follows on the heels of Google’s $3.1 billion acquisition of DoubleClick Inc. in April.  A pair of recent US decisions considered the law relating to search engines and online advertising:

In Site Pro-1, Inc. v. Better Metal, LLC (E.D.N.Y. May 9, 2007), the court decided that keyword triggering and metatag usage in online advertising does not qualify as trademark use and therefore cannot constitute infringement.  For the court, the question was whether the trademark was placed visibly on any goods, displays, containers, or advertisements – if the trademark was not displayed to consumers, no infringement could take place.  This analysis differs from decisions elsewhere in the US, so the debate continues. 

In Perfect 10, Inc. v. Amazon.com, Inc. (9th Cir. May 16, 2007), the Court of Appeal decided that Google’s display of thumbnail images in search results should be considered “fair use” and therefore did not constitute copyright infringement.  While this decision is generally considered good for search engines, the court also left open the question of contributory infringement, and when search engines can take advantage of the defences available under the DMCA .

 

Calgary – 11:45 MST

A Canadian company with a database of customer information including names, email addresses and account information, wants to find a service provider to handle the information. A US company seems to provide the best solution and so the Canadian company hires the US provider to host, manage and handle all of the customer data. What should the Canadian company be aware of? Do privacy laws apply?

The trans-border outsourcing of personal-information is becoming more common and requires an awareness of privacy law implications. The easy answer is yes, privacy laws apply. The more complex question is which privacy laws apply?

Canadian privacy laws and recent decisions by Privacy Commissioners at both the federal and provincial level make it clear that companies are responsible for ensuring that they maintain contractual control over personal information handling practices by external service providers. The trans-border nature of the data flow does not mean that Canadian laws won’t apply or that Canadian companies can simply opt out of Canadian jurisdiction. In fact, the Federal Court has recently decided that the Privacy Commissioner can and should investigate complaints relating to the trans-border flow of personal information.

The outsourcing of services to the US raises concerns about the US Government’s ability to access that information under the USA PATRIOT Act. In a 2005 investigation into the outsourcing of financial services to the US, the Privacy Commissioner of Canada noted that:

“[T]he Act cannot prevent U.S. authorities from lawfully accessing the personal information of Canadians held by organizations in Canada or in the United States, nor can it force Canadian companies to stop outsourcing to foreign-based service providers. What the Act does demand is that organizations be transparent about their personal information handling practices and protect customer personal information in the hands of foreign-based third-party service providers to the extent possible by contractual means.”

In a 2006 decision involving a Canadian security company’s handling of personal information by its U.S.-based parent company, the Commissioner was satisfied that the outsourcing of personal information was handled appropriately. The company informed its customers of the practice and permitted customers to opt-out of the outsourcing. The fact that the disclosure was between parent-subsidiary relationship meant that the personal information was not technically disclosed to a third-party, and these factors resulted in the Commissioner approving the handling of personal information in this case.

Careful management of the privacy issues allows Canadian businesses to handle outsourcing and reduce the risks of a customer complaint or investigation by the Commissioner.

 

Calgary – 10:25 MST

Maybe imitation is the sincerest form of flattery.  It also may be the most profitable. 

There is much debate about the enforcement of intellectual property rights in China.  Canadian companies engaging in business there require lawyers with local contacts and expertise to manage the various aspects of intellectual property protection: everything from confidentiality agreements governing the use of manufacturing specifications to software piracy and trade-mark enforcement. 

Witness the state-owned Shijingshan Amusement Park which is a full-fledged knock-off of a Disney-style Magic Kingdom outside Beijing (pictures and video here).  Their catchy slogan is self-explanatory: “Disneyland is too far.”

 

Calgary – 15:35 MST

A recent US Federal Court case, CollegeNET, Inc. v. XAP Corp., 2007 WL 927946 (D. Or.), involved two rivals in the competitive college application business.  CollegeNET sued XAP for patent infringement in 2003, and then added an unfair competition claim in 2004.  A jury returned a verdict in favour of CollegeNET.  What’s interesting is that the unfair competition claim resulted in a damage award of $4.5 million for a deceptive privacy policy (compared with the $4 million patent infringement award). 

XAP’s privacy policy stated that personal data wouldn’t be released to third parties “without the user’s express consent and direction.” In the XAP online application process students were asked the following opt-in question: “Are you interested in receiving information about student loans and financial aid?” If the students answered “yes,” XAP forwarded the students’ personal information to its third-party “partners” for a fee.

This was considered to constitute unfair competition, since students were lured away from CollegeNET to use the free XAP system, not realizing that their personal information was being sold to financial institutions and others.

There are two lessons:

• First, for Canadian companies doing business online with US customers, a well-drafted privacy policy is critical; the pitfalls are not only within the realm of Canadian privacy laws but also in US privacy and trade laws;
• Second, IP lawyers should think creatively about the possible claims as they did here: a successful intellectual property infringement claim was bolstered and (in terms of the damage award) surpassed by an unfair competition award based on the privacy policy.   

The decision can be accessed here.

 

Calgary – 15:30 MST 

There are no shortage of studies ranking the value of brands – usually Coca-Cola is at or near the top and the rest of the world’s brands jockey for position after that.  This time around, Google has edged into first place – maybe a sign of the times.

In the latest study, a Canadian company has made the top 100. The study pegs the brand value of the Royal Bank of Canada at US$13.6 billion, number 39 on the top-100, ahead of popular consumer brands like Pepsi, Nike and Sony. 

Another Canadian favourite, Tim Horton’s, is ranked number 5 in the fast-food category, beating out international franchise icons like Pizza Hut and Burger King. 

While this doesn’t mean that Tim’s or RBC has generated the kind of international recognition enjoyed by Nike, Sony or Pizza Hut, it does mean that some Canadian brands generate enough income for their owners that they are ranked in the big leagues.  If you have recently paid a “convenience fee” at an RBC ATM to get cash to pay for your double-double, then you are doing your part to help Canadian brands.

 

Calgary – 14:24 MST

On April 10th, we posted an article about Online Defamation.  This week, a very interesting new online defamation lawsuit  was launched in Canada catching two high-profile defendants: Blogspot.com, Google’s free blog-hosting site, and Wikipedia, the online encyclopedia. 

The suit was filed by Wayne Crookes who alleges that he suffered defamation at the hands of anonymous posts to those sites.  The question will be whether the operators of the sites can be held liable for defamatory postings.  As we noted in our earlier post, online content-providers such as Google and Wikipedia cannot take advantage of the traditional protections provided to newspaper publishers or broadcasters.  The law in Canada could use some further clarity in this area, and this case may provide it.

 

Calgary – 09:50 MST   

 

A trade-mark battle over the letter “M” has finally made its way through court, resulting in an injuction against Nissan Canada for passing off.  The Federal Court has issued its decision in BMW Canada Inc. vs. NISSAN Canada Inc. in March 2007.  BMW sued Nissan for infringement of its “M” family of trade-marks, alleging that the use of the letter “M” by Nissan in connection with its Infiniti luxury cars constituted trade-mark infringement and passing off.  BMW’s lawyers compiled survey evidence to show the extent of the reputation of the “M” trade-mark in Canada.  The Court was not convinced that Nissan’s use of the letter “M” met the test for infringement, but agreed with the allegation regarding passing off.  There is a three-part test for passing-off :

• the existence of goodwill,
• deception of the public due to a misrepresentation and
• actual or potential damage to the plaintiff.

The judge was convinced and issued an order to stop Nissan in its tracks.  Nissan promptly applied for a stay of the injunction.

The lessons for business?  Trade-mark searches will uncover potential issues with competitor’s marks and experienced counsel can assist in interpreting the search results and providing guidance.  The cost of rebranding (let alone damages) makes a trade-mark search look like a pretty good preventative measure.

 

Calgary – 15:50 MST

As Canadian companies branch out into foreign markets, it is inevitable that they will confront local trade-mark issues.  It even happens to the titans of the brand-name world. Lawyers for Starbucks Corp. are attempting to stop a new chain of coffee shops in India.  The chain is the brainchild of Shahnaz Husain, an Indian businesswoman, who  plans to use the trade-mark “Starstruck“.

Starbucks is concerned that a coffee-shop chain with a similar name will eat into local market share.  There are plenty of Canadian examples. Take the profusion of knock-offs of Canadian wine  in the Chinese market. A few local wine labels famously billed themselves as ”Whistler Estates, Canada ice wine” and “Toronto Ice Wine”.  The local effect is to erode market share for Canadian companies selling the genuine article.

Addressing international trade-mark issues requires:

• an awareness of the local business environment including the connotations of your trade-mark in the local language and culture;
• an awareness of the local options available for trade-mark protection and dispute resolution; and
• access to expertise in local trade-mark law.

Calgary – 14:52 MST