Archive for September, 2014

Update on Injunction Against Google (Equustek Solutions Inc. v. Google Inc.)

By Richard Stobbe

Last summer, Google was ordered by a Canadian court to de-index certain offending websites which were selling goods that were the subject of an intellectual property (IP) infringement claim (Equustek Solutions Inc. v. Jack, 2014 BCSC 1063 (CanLII), see our earlier post: Court Orders Google to Remove Site from Worldwide Search Results).

The underlying dispute involved a trade-secret misappropriation and passing-off claim by a manufacturer against a rival company. Google appealed the lower court decision. In Equustek Solutions Inc. v. Google Inc., 2014 BCCA 295 (CanLII), the BC Court of Appeal has rendered a decision.

Google applied for a stay of the original injunction on a number of grounds, including the argument that the original order was “unprecedented in Canadian law”, the order was “overly broad”, and that the order will have a “direct and irreversible impact” on Google. Google argued that it would suffer “irreparable harm” for two reasons: first, Google customers would be impacted, although it was not clear how exactly; and second, Google argued that this Canadian court order would open the floodgates to other similar orders against Google in other jurisdictions.

The appeal court acknowleged the importance of the case, musing that “the order of the court below raises profound issues as to the competence of Canadian courts to issue global injunctions that affect what content users around the world can access on the Internet.”

However, after balancing the arguments, the Court of Appeal did not grant the stay, so the injunction remains in place.

There are a few interesting points about this decision:

  • Although Google was not a party to the original lawsuit (remember, it was an IP dispute between two rival manufacturers) and no-one claimed anything against Google itself, Google took the extraordinary step of undertaking to pay damages to Equustek, for damage it might suffer if the injunction was lifted. Google said it would track traffic to the offending websites (which it is supposed to de-index) and disclose that information to Equustek. If Equustek lost profits as result of traffic to these sites, then Google would make good the damages.
  • Equustek counter-argued that this was cold comfort, asking: “What value is it to have the right to sue Google for damages?”  If access to the offending websites was not blocked by Google, said Equustek, then Equustek would still face the burden of proving damages, and then suing Google for those damages, and in the meantime its intellectual property would continue to be devalued.

The appeal will go ahead, and while the appeal is underway, the order against Google will remain. This is one to watch.

Calgary – 07:00 MST

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    Crowdfunding: Tips for the Start-Up

    By Richard Stobbe

    If you are a start-up considering the crowdfunding route, let’s talk. Here are a few tips to consider:

    • IP: Most crowdfunding portals require extensive disclosure of the start-up’s business plans and product prototypes. That makes sense – after all, investors want to know what they’re investing in. The start-up should consider the scope of disclosure in light of intellectual property issues. Will the technical info, drawings, or descriptions constitute a public disclosure of the company’s inventions, and if so, this may impact patentability, in Canada or the US or other important markets. Consider patent issues, and also make sure you mark your trademarks and display copyright notices where appropriate.
    • Securities Laws: Raising money from investors? In Canada, perhaps the best way to approach the issue is not to ask “is crowdfunding legal?“. Rather, decide what you want to accomplish and then make sure your efforts are compliant with current laws. Every company must comply with securities laws. An offering to sell shares requires a prospectus or an exemption, and there are a number of exemptions which may be suitable for your start-up. “Crowdfunding” is a nebulous term, and depending on how it is implemented, it may run afoul of current securities laws, or it may be so cost-prohibitive to your start-up that you will choose a different path. The crowdfunding exemption is being developed. Some provinces (such as Saskatchewan) have implemented rules permitting equity crowdfunding. Other provinces such as Alberta are considering such rules.
    • Corporate Issues: As equity crowdfunding rules become more mature, you should consider the implications. Let’s say the rules permit equity crowdfunding in your province. You want to raise $1.5 million (which is the maximum under the proposed Crowdfunding Exemption).  Let’s say each investor kicks in $2,500 for shares in the company (which is the maximum single investment under the proposed Crowdfunding Exemption). That’s 600 shareholders. That means 600 people (most of whom are total strangers) own a piece of your company. Next, you want to raise $2 million from venture capital investors. How will VCs view your company if they are joining 600 minority shareholders? Equity crowdfunding may be a great option for your start-up, it may be the way to get your product to market. Or it may be a bad fit in light of your long-term strategy. Either way, you should go in with your eyes open so you know what you are signing up for.

    Get some practical advice as you consider your financing options.

    Calgary – 07:00 MST

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    Crowdfunding: A Canadian Update

    By Richard Stobbe

    A Canadian company, Vrvana, Inc. is seeking $350,000 through Kickstarter, to finance its development of a virtual reality headset marketed as the Totem. Vrvana has elected to pursue a reward-based crowdfunding model. For example, minimal donations of $15 come with a newsletter subscription and event invitations. The top end contribution of $8,000 will net a Totem VR headset and a dinner date with the team of engineers.

    Crowdfunding attracts headlines and cash, but in Canada the rules and laws surrounding equity crowdfunding are still in development. The securities or equity-based model of crowdfunding refers to small investments in exchange for securities – which has a broad definition meant to capture shares in the start-up company, including pref shares or convertible securities, non-convertible debt securities, or units of a limited partnership. In plain terms, a company could use this method of crowdfunding to raise money by selling a piece of the company, rather than selling products or services.

    In Canada, a number of provinces are considering some varation of crowdfunding rules, either for a “Crowdfunding Exemption” or a “Start-up Exemption” or both. Ontario, B.C., Manitoba, Quebec, New Brunswick and Nova Scotia are considering the exemptions. Alberta is considering the public comments, but has not formally published any proposed rules.

    Here are the highlights of the proposed Start-up Exemption for crowdfunding in a number of Canadian provinces.

    • There is a cap. The start-up can only raise a  maximum of $150,000 under each offering.
    • The distribution cannot remain open for more than 90 days.
    • There is a limit on the number of times the company can go back to the trough each year – the exemption only be used twice each calendar year.
    • The offering document must disclose the minimum and maximum offering size.
    • One crowdfunding offering at a time. A start-up cannot have two concurrent offerings.
    • The offering materials must be made available to potential investors through a regulated portal (like Kickstarter), which will also be subject to rules.
    • Investor are restricted on what they can contribute – there is a cap of $1,500 for each investment under the exemption.
    • Securities are subject to an indefinite hold period.
    • There are other restrictions, such as the requirement for the start-up to file a report of distribution within 30 days of the closing of the distribution.

    The proposed Crowdfunding Exemption is a variation, with a few notable differences: it would have higher thresholds and would be open to both reporting issuers and non-reporting issuers:

    • The company would be able to raise up to $1.5 million during every 12 month period.
    • Investors could invest up to $2,500 per single investment, with an aggregate cap of $10,000 per calendar year.

    Remember this is currently proposed, but not yet “legal”. The comment period closed in June, 2014, and Canadian securities regulators are considering comments. Rule changes will not likely come into effect until 2015. However, Saskatchewan has already launched its Equity Crowdfunding Exemption which is similar to the Start-up Exemption summarized above.

    In the US, the 2012 Jumpstart Our Business Startups Act (JOBS Act) promised new rules on equity crowdfunding. While the federal rules have not yet been finalized, equity crowdfunding is currently allowed in a number of states that have passed “intrastate” rules. For example, a Maryland company may raise funds from Maryland investors. A dozen US states are considering such rules. Make sure you get US legal advice if you are considering crowdfunding from US investors.

    This is a complex area of law, and the current landscape is more splintered than harmonized. If you are a start-up, get some practical advice as you consider your financing options.

    Calgary – 07:00 MST

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    Ownership of Photograph by Employee

    By Richard Stobbe

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

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

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

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

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

    Calgary – 07:00 MST

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    Monkey See, Monkey Do… However Monkey Does Not Enjoy Copyright Protection

    By Richard Stobbe

    I know this story crested a few weeks ago, but who can resist it? A famous 1998 Molson Canadian ad posed a Canadian version of the infinite monkey theorem. The cheeky ad, showing a seemingly endless array of monkeys on typewriters, sidestepped the more important question about whether the monkeys as authors would enjoy copyright protection over the works they created.

    A wildlife photographer’s dispute with Wikimedia over ownership of photographs taken by primates in Indonesia has brought international attention to this pressing issue. The “Compendium of U.S. Copyright Office Practices, Third Edition” now explicitly states that photographs by monkeys are not eligible for copyright protection. Nor are elephant-paintings deserving of copyright. “Likewise,” the Compendium notes dryly, “the Office cannot register a work purportedly created by divine or supernatural beings.” Robots are also out of luck.

    There is no word on whether Canada is directly addressing this question.

    Calgary – 09:00 MST

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