Archive for April, 2014

Are you a Canadian business running an #onlinecontest?

Social media is not just a marketing novelty – it has become the essential tool for running a promotional contest. Have a look at any big brand contest and you’re hard pressed to find one without a social media component. Many Canadian businesses also seek to extend their reach into the US market through promotional contests.

If you are in that category, take note of this recent FTC action against shoe-maker Cole Haan. At the conclusion of their investigation, the FTC warned that the structure of the contest was misleading to consumers since it employed contestants to create Pinterest boards using the #wanderingsole tag, which turned these pins into endorsements for Cole Haan products (…which was the whole point of the contest…). However, FTC rules are clear that the connection between endorsers and marketers should be made clear. While no penalty was levied against Cole Haan, this letter has served as notice to the rest of the industry that the FTC will be watching such contests to ensure that these endorsements are made sufficiently clear.

In Canada, the Competition Bureau oversees false and misleading advertisements, including the apparent endorsement of products by paid endorsers.

The business lessons are clear: a successful social media contest can back-fire if you get more publicity from an FTC or Competition Bureau investigation than from the contest. Not to mention potential penalties. Get advice on your social media policy and contest rules before you launch the next campaign.

Calgary – 07:00 MDT

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Patent Infringement Lawsuits Against Software End-Users

Are you a Canadian software vendor with customers in the USA? Let’s say your US end-user customer is sued for patent infringement in the US based on use of your software, but the lawsuit avoids naming your company. In other words, your customers are sued, but you are not.

Ok, so you avoided a lawsuit. However, for business reasons you may want to be “in the ring” to assist your end-user customers to defend the infringement claims. One of the defences to infringement is to challenge the validity of the patent in question. But if your company is not named, how do you raise that defence? In order to seek a “declaratory judgment” that the patent is invalid, you need something called “standing” – a right to make your case in court. If you are defending an infringement allegation (if you are named in the lawsuit), you have that standing as a defendant. But if not, you have to ask the court for standing… sound complicated?

This is what happened to Microsoft, when its end-users were sued for patent infringement by Datatern. Datatern, not wanting to lock horns with Microsoft (for obvious reasons) just named the software end-users in the patent infringement lawsuit. In Microsoft Corporation v. Datatern, Inc. (Fed. Cir. 2014), Microsoft sought standing to have the patents declared invalid.

The Federal Circuit Court of Appeals in the US said that Microsoft does not have the “right to bring the declaratory judgment action solely because their customers have been sued for direct infringement”. To bring an invalidity declaratory judgment action against DataTern, Microsoft needed something more. The court indicated that:

  • Microsoft would need to show a controversy between Microsoft and the patent holder as to Microsoft’s liability for:
    • induced infringement, or
    • contributory infringement,

    based on the alleged acts of direct infringement by the end-user customers; or

  • Microsoft would have standing if it had a contractual obligation to indemnify its customers against the infringement claim. In this case, there was no indemnity obligation.

The use of Microsoft-provided documentation by Datatern in the patent infringement lawsuit was enough to establish standing for Microsoft, since this implied that Microsoft encouraged (or “induced”) the infringing use. However, this only applied to some of the patents in question.

Wherever Datatern used third-party (non-Microsoft) documentation to evidence the alleged infringement, Microsoft was too far removed from the controversy and there was no implied assertion that Microsoft induced the infringement. Microsoft could not establish the necessary controversy between it and Datatern, the patent holder. In connection with that particular patent, Microsoft lacked standing and its declaratory judgment action to challenge the validity of the patent could not proceed.

Remember this is a US case, but Canadian software vendors should review these patent infringement issues with counsel (including the costs and benefits of IP infringement indemnity clauses) to ensure that their end-user license agreements manage the risks in light of this decision.

Calgary – 07:00 MDT

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Unilateral Changes to Online Terms: do they work?

Consumers wonder what exactly has changed when they are confronted with a new set of online terms, in a cloud-based service, website terms or software license. We reviewed this issue in an earlier post, which looked at changes to online terms in the middle of the product lifecycle. Amendments are often introduced due to changes in the law or changes in product functionality.

Instagram amended its terms of use in early 2013. In Rodriguez v. Instagram , CGC-13-532875 (San Francisco Sup. Ct. Feb 28, 2014), a US court reviewed a complaint alleging that Instagram’s new terms consituted a breach of good faith and fair dealing. The court noted that: “The New Terms modified the original terms in three allegedly material respects:

  1. in the Original Terms, Instagram disclaimed any ownership rights in content users post on Instagram, whereas in the New Terms Instagram disclaimed ownership of content users post on Instagram;
  2. in the Original Terms, Instagram was afforded a non-exclusive limited license to use, modify, delete from, add to, publicly perform, publicly display, reproduce, and translate content users posted on Instagram, whereas under the New Terms Instagram has a transferable and sub-licensable license to use the content users post, with the two allegedly material aspects being (i) the addition of sublicensing authority; and (ii) removal of any limitations on the scope of the license; and
  3. the New Terms add a liability waiver.”

The New Terms were structured so that users accepted the terms by continuing to use Instagram after the effective date. A user could decline acceptance by ceasing all use of Instagram. The plaintiff in this case did continue use of Instagram after the New Terms were introduced. This opened up the argument for Instagram that this user consented to be bound by the New Terms. The lack of a click-through was not fatal to Instagram’s case. As a result, this decision seems like a bright spot for cloud service providers and software licensors – after all, it seems to permit unilateral amendment clauses in online terms without forcing users into a mandatory click-through screen. The court also seems to accept that the new terms can apply retroactively to user-generated content that pre-dates the New Terms. However, a note of caution should be sounded for cloud computing providers and software vendors:

  • unilateral amendments to online terms should always be handled carefully;
  • consider in advance whether amendments are permitted under the current terms before imposing new terms;
  • due to the facts of this particular plaintiff, the court did not address the question of what would be done with user content if the user had ceased use of the service – i.e. if the user had not impliedly consented by continued use;
  • consider how to log or track user consent (either active consent or implied “continued-use” consent) by users.

Calgary – 07:00 MDT

Indemnities in a Software License: Article in The Licensing Journal

The article “Software Licenses & Indemnities: What Obligations Are You Taking On?” was published in the February 2014 edition of The Licensing Journal.

Calgary – 07:00 MDT

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