Archive for December, 2015

Non-Disclosure & Confidentiality: A Cautionary Tale

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By Richard Stobbe

A confidentiality agreement is signed. So… confidentiality is covered, right?

This 2014 case, nClosures Inc. v. Block and Company, Inc., No.13-3906 & 14-1097 (7th Cir., Oct. 22, 2014), shows that the answer is “not so fast”. In the nClosures case, two companies entered into a confidentiality agreement to explore a potential business deal to manufacture iPad cases based on nClosures’ so-called “Rhino” and “Rhino Elite” designs. However, the first confidentiality agreement was specifically directed to the purpose of initial discussions exploring the possibility of a deal. nClosures disclosed its confidential Rhino and Rhino Elite designs to Block.

However, in the following months, the parties circulated a draft manufacturing agreement but did not ultimately sign any written agreement, nor did they address confidentiality obligations that extended beyond those initial discussions. Eventually, the parties settled on a vague verbal arrangement to manufacture and sell iPad cases.

In this decision, the U.S. Seventh Circuit Court of Appeals provides us an important reminder. For confidentiality to apply, that first agreement is important, but remember:

1. As the business relationship expands beyond those initial discussions, additional confidentiality obligations should be imposed, to cover the new expanded purposes;

2. A non-disclosure or confidentiality agreement is not effective if the disclosing party does not make reasonable efforts to preserve confidentiality over its confidential information. In this case, the court found that nClosures had disclosed the same confidential design information to other contractors and designers without any confidentiality obligations.

In the words of the Court: “…no additional confidentiality agreements were required of individuals who accessed the design files for the Rhino or Rhino Elite devices. Additionally, neither the Rhino nor the Rhino Elite drawings were marked with words such as ‘confidential’ or ‘contains proprietary information’. Furthermore, the drawings were not kept under lock and key, nor were they stored on a computer with limited access.”

Lessons for business? A confidentiality agreement is an important first step, but it must be followed up with additional confidentiality agreements as the relationship evolves, and it must be backed-up with internal policies of proper marking, restricted access, and lock-and-key protections, in order to preserve confidentiality.

Calgary – 07:00 MT

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CBC v. SODRAC: Supreme Court on Canadian Copyright

By Richard Stobbe

The CBC, like all television broadcasters, makes copies of various works – such as music and other content – in the course of preparing programs for broadcast. So-called “synchronization copies” are used to add musical works to a program. Then a “master copy” is made, when the music synchronization is complete. The master copy of the completed program is loaded for broadcast, and various internal copies are made of the master copy. These copies are called “broadcast‑incidental copies”. In a nutshell, these are copies made in the process of production of a program, as distinct from the broadcast of the program.

In one of the more esoteric copyright topics to make it to the Supreme Court, the decision in Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57 (CanLII), examined whether these “broadcast‑incidental copies” require a separate license because they would constitute an infringement of copyright if made without consent of the copyright owner. Or, rather, are they caught within the standard broadcast license that CBC would have negotiated with rightsholders, such as SODRAC, and thus they wouldn’t require a separate license… Still with me?

The Court decided that “broadcast‑incidental copying” engages the reproduction right in Section 3 of the Copyright Act. These so-called “ephemeral copies” are not exempted by ss. 30.8 and 30.9 of the Act. The Court noted that “While balance between user and right‑holder interests and technological neutrality are central to Canadian copyright law, they cannot change the express terms of the Act.” Importantly, the Court also cautioned that “The principle of technological neutrality recognizes that, absent parliamentary intent to the contrary, the Act should not be interpreted or applied to favour or discriminate against any particular form of technology.”

In the end the decision was sent back down to the Copyright Board for reconsideration of valuation of the license in accordance with the principles of technological neutrality and the balance between balance between user and right‑holder interests.

Calgary – 07:00 MT

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Infringing Sales Through Amazon

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By Richard Stobbe

A U.S. court recently decided that it would take jurisdiction over a seller who sold allegedly infringing products through online retailers such as Amazon.com. PetEdge Inc. a Massachusetts-based manufacturer, owns a patent and certain trademarks for its folding steps to enable pets to climb onto a bed.

Alleging patent and trademark infringement, PetEdge wanted to sue rival Fortress Secure Solutions, based in Washington State, a company with no operations, personnel or offices in Massachusetts.

To justify its lawsuit in Massachusetts district court, PetEdge argued – and the court agreed – that Fortress purposefully directed its sales to Massachusetts residents by making its sales through Amazon.com, and the infringement claims arose from those activities. Thus, the court took jurisdiction over the out-of-state defendant.

Lessons for business?

Canadian retailers should take note that if they use national retailers such as Amazon.com to sell products into the U.S., the use of this distribution channel could result in a local state court taking jurisdiction over the Canadian seller, under the same analysis applied to Fortress.

Thanks to Finnegan LLP for their link to the decision: PetEdge, Inc. v. Fortress Secure Solutions, LLC

Calgary – 07:00 MT

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