As we posted in IT Outsourcing during the “Climb Out” and IP Licenses and Bankruptcy, Canada’s bankruptcy laws have historically permitted certain contracts – including intellectual property licenses – to be “disclaimed” in the course of the bankruptcy of the licensor.

Under amendments to the CCAA and to the Bankruptcy and Insolvency Act  brought into force last week, licensees may now take advantage of US-style protections which permit continued use of licensed intellectual property, even in the face of a disclaimer by a bankrupt licensor.  The disclaimer will not affect the licensee’s right to enforce an exclusive right to use the IP, provided the licensee continues to perform its obligations (including continued payment of license fees) under the terms of the license.

Licensors are encouraged to have their standard-form licenses reviewed in light of these amendments.  Licensees should seek advice in the event of the bankruptcy of their licensor.

Calgary – 07:50 MST

Three recent decisions tackle this issue: 

In the US decision of Cornelius v. DeLuca, 2009 WL 2568044 (E.D. Mo. Aug. 18, 2009), bodybuilding.com (an online retailer of fitness and bodybuilding products), was sued over the content of certain comments posted to the bodybuilding.com website. The plaintiffs complained that the comments were designed to harm the plaintiffs’ business. This decision considered whether the operator of bodybuilding.com should be liable for those user comments.  In the US, there is a standard defence for website operators (Section 230 of the Communications Decency Act), but that defence can be punctured if the operator was in a “conspiracy” relationship with the persons posting the comments.  The court found no such conspiracy and so the website operator was found to be not liable, and the claim was dismissed.  

In Canada, in the decision this month in Warman v. Lemire 2009 CHRT 26, a Human Rights Tribunal found that a site operator should not be liable for comments if the operator had no notice or knowledge of the comments.  This is a “hate speech” case, not a corporate defamation case as in the Cornelius v. DeLuca decision above. Also, it’s worth noting that this comes from a Human Rights Tribunal, not a Canadian court. The decision maker said: “I do not see how liability for hate messages posted by anonymous or pseudonymous third parties should be ‘attributed’ to a message board operator if it has not been established that he or she has notice or knowledge of these postings.” Several comments and articles were reviewed, and in one of the cases, the impugned article was posted or uploaded by the administrator or webmaster.  In that instance the operator was found to be responsible.  However, the operator escaped punishment on constitutional grounds.  The decision is expected to be appealed.

The BC Court of Appeal’s decision last week in Crookes v. Newton 2009 BCCA 392 considered liability for hyperlinks. In that decision (one of many generated by Mr. Crookes’ lawsuits), the Court of Appeal agreed that Mr. Newton was not liable for hyperlinks to defamatory content. The Court reasoned that “reference to an article containing defamatory content without repetition of the comment itself should not be found to be a republication of such defamatory content”.  In other words, if someone merely hyperlinks to a defamatory site, that alone does not make that person a “publisher” of the material found at the hyperlinked site.  This will help clarify the liability of website hosts or operators, since user comments which merely link to defamatory or other offending material, will not attract liability.

Calgary – 09:15 MST

Updated Sept. 22 16:42 MST

Blockbuster operates an online movie rental service in the US, which is subject to a user agreement.  In the recent US decision in Harris v. Blockbuster Inc., 2009 WL 1011732 (N.D. Tex. April 15, 2009), Blockbuster tried to deflect a customer’s lawsuit by using a standard mandatory arbitration clause in the user agreement. If the arbitration clause was valid, then the lawsuit would be dismissed and the complaint would be diverted from court to arbitration. Blockbuster’s user agreement indicated that Blockbuster could: “…at any time, and at its sole discretion, modify these Terms and Conditions of Use, including without limitation the Privacy Policy, with or without notice…”

The Court reasoned that the arbitration clause was “illusory” because Blockbuster could, under its amendment clause, make unilateral changes to the arbitration terms, even after a complaint was made. 

Lessons for business?

• For online terms, make sure your amendment clause is not completely arbitrary. Amendments should only be permitted with reasonable notice.
• When notice of amendments is given, ensure that changes are brought to the attention of users. In some cases it might be appropriate to email copies or mail hard copies of the amended terms to users.
• Obtain advice on a “saving provision”, which could have preserved Blockbuster’s mandatory arbitration clause.

Calgary – 10:45 MST

In some countries (notably, the UK and South Korea, and now Australia) cleantech inventions are being earmarked to receive expedited examination in the patent office (See for example: Green Channel for Patent Applications (UK), and this announcement about changes at the Korean IP Office, plus this post about Australia’s plans). This practice covers “environmentally-friendly technologies”, such as those in the fields of prevention of water pollution and air pollution, waste disposal technologies, recycling, and others.  Sure, this should be a good thing for the environment, but make no mistake – this is also about maintaining a national competitive edge as patented cleantech inventions gain importance in the global economy. 

Should Canada implement such a procedure?

Calgary – 10:30 MST

Putting a lime in your beer is nothing new. But branding it apparently is. US brewing giant Anheuser-Busch Companies Inc. and Canadian Brick Brewing Co. Ltd. are locked in an intellectual property dispute over their labels for lime-flavoured beer. The makers of “Bud Light Lime” complain that Brick’s “Red Baron Lime” is an infringement of copyright and trade-mark rights in the label.  Have a look and decide.  This dispute leaves aside the more important question of why beer needs to come pre-packaged with lime in the first place.

This isn’t the first brand battle for Brick.  Earlier this year, Brick agreed to change its Red Baron labels in the face of a lawsuit by Labatt.

Calgary – 9:45 MST

The importance of IT outsourcing – as a way to reduce costs and manage risks – has been brought into sharp focus during the economic downturn.  The recession may have bottomed, but by all accounts the “climb out” will be long and slow. Here are a few pointers to consider for the negotiation and management of outsourcing agreements:

• Unstable Suppliers:  It is important to conduct due diligence on IT service suppliers, since their financial stability may have been impacted by the loss or instability of their own customers. This due diligence review process can be built into outsourcing agreements, providing an opportunity to periodically re-assess the stability of the supplier. While this does not guarantee that the supplier will remain solvent, it can provide critical lead-time to plan contingencies in case the supplier goes bankrupt.
• Termination Issues: If the supplier does go bankrupt, it is important to recognize that Canadian bankruptcy laws give the court broad latitude to intervene in bankrupt companies. This means that standard termination clauses (which permit termination in the event of bankruptcy), and security interests granted under provincial legislation such as the PPSA, can be set aside by the court (for example, see: SR Telecom & Co. v. Apex – Micro Manufacturing Corporation, 2008 BCSC 1768). Also remember that software licenses can be cancelled if the IT supplier’s assets are sold within a court-approved bankruptcy. (Related reading: Update: Changes to Canada’s Bankruptcy Laws , IP Licenses and Bankruptcy).  Source-code escrow is another possible solution.
• Business Continuity Issues:   Outsourcing mission-critical functions can involve significant risks for business continuity.  For example, outsourcing agreements often include the remote hosting of important data, in servers that may be located in another part of the country, in the US, or offshore.  An outsourcing contract should oblige the IT supplier to assist with data migration and transition in the event of termination. At a minimum, the IT supplier should deliver the data, but in the case of a bankrupt or unstable supplier, this obligation may be difficult to enforce. Consider a mandatory automatic back-up system to outside servers that can be controlled by your organization, so that critical data is secure, even if the service is interrupted.
• Industry Guidelines: In certain sectors, outsourcing guidelines must be observed. Federally regulated financial entities (FREs), should take note of the updated guidelines released this year by the Office of the Superintendent of Financial Institutions (OSFI) “Guideline B-10 on Outsourcing Business Activities, Functions and Processes“ PDF File). Section 7 (Risk Management) of these guidelines can also serve as “best-practices” for other sectors.

Calgary – 11:45 MST

Starting today, Sustainable Development Technology Canada (SDTC) is accepting applications from Canadian companies for funding of clean technologies. Statements of Interest (SOI) are being accepted from today until October 21st for preliminary screening in the fields of Energy Exploration & Production, Power Generation, Energy Efficiency, Transportation, Agriculture, Forestry and Mining and Waste Management.  SDTC is a funding arm established by the Canadian government.

Calgary – 14:30 MST