Archive for December, 2016

IP Licenses & Bankruptcy (Part 2 – Seismic Data)

 

By Richard Stobbe

What happens to a license for seismic data when the licensee suffers a bankruptcy event?

In Part 1, we looked at a case of bankruptcy of the IP owner.

However, what about the case where the licensee is bankrupt? In the case of seismic, we’re talking about the bankruptcy of the company that is licensed to use the seismic data.  Most seismic data agreements are licenses to use a certain dataset subject to certain restrictions. Remember, licences are simply contractual rights.  A trustee or receiver of a bankrupt licensee is not bound by the contracts of the bankrupt company, nor is the trustee or receiver personally liable for the performance of those contracts.

The only limitation is that a trustee cannot disclaim or cancel a contract that has granted a property right. However, a seismic data license agreement does not grant a property right; it does not transfer a property interest in the data. It’s merely a contractual right to use. Bankruptcy trustees have the ability to disclaim these license agreements.

Can a trustee transfer the license to a new owner? If the seismic data license is not otherwise terminated on bankruptcy of the licensee, and depending on the assignment provisions within that license agreement, then it may be possible for the trustee to transfer the license to a new licensee. Transfer fees are often payable under the terms of the license. Assuming transfer is permitted, the transfer is not a transfer of ownership of the underlying dataset, but a transfer of the license agreement which grants a right to use that dataset.

The underlying seismic data is copyright-protected data that is owned by a particular owner. Even if a copy of that dataset is “sold” to a new owner in the course of a bankruptcy sale, it does not result in a transfer of ownership of the copyright in the seismic data, but rather merely a transfer of the license agreement to use that data subject to certain restrictions and conditions.

A purchaser who acquires a seismic data license as part of a bankruptcy sale is merely acquiring a limited right to use, not an unrestricted ownership interest in the data. The purchaser is stepping into the shoes of the bankrupt licensee and can only acquire the scope of rights enjoyed by the original licensee – neither more nor less. Any use of that data by the new licensee outside the scope of those rights would be a breach of the license agreement, and may constitute copyright infringement.

 

Calgary – 10:00 MT

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Google v. The Court: Free Speech and IP Rights (Part 2)

 
By Richard Stobbe

Last week, hearings concluded in the important case of Google Inc. v. Equustek Solutions Inc., et al.  The Supreme Court of Canada (SCC) will render its judgment in writing, and the current expectation is that it will clarify the limits of extraterritoriality, and the unique issues of protected expression in the context of IP rights and search engines.

In Part 1, I admonished Google, saying “you’re not a natural person and you don’t enjoy Charter rights.” Some commentators have pointed out that this is too broad, and that’s a fair comment.  Indeed, it’s worth clarifying that corporate entities can benefit from certain Charter rights, and can challenge a law on the basis of unconstitutionality. The Court has also held that freedom of expression under s. 2(b) can include commercial expression, and that government action to unreasonably restrict that expression can properly be the subject of a Charter challenge.

The counter-argument about delimiting corporate enjoyment of Charter rights is grounded in a line of cases stretching back to the SCC’s 1989 decision in Irwin Toy where the court was clear that the term “everyone” in s. 7 of the Charter, read in light of the rest of that section, excludes “corporations and other artificial entities incapable of enjoying life, liberty or security of the person, and includes only human beings”.

Thus, in Irwin Toy and Dywidag Systems v. Zutphen Brothers  (see also: Mancuso v. Canada (National Health and Welfare), 2015 FCA 227 (CanLII)), the SCC has consistently held that corporations do not have the capacity to enjoy certain Charter-protected interests – particularly life, liberty and security of the person – since these are attributes of human beings and not artificial persons such as corporate entities.

It is also worth noting that the Charter is understood to place restrictions on government, but does not provide a right of a corporation to enforce Charter rights as against another corporation. Put another way, one corporation cannot raise a claim that another corporation has violated its Charter rights. While there can be no doubt that a corporation cannot avail itself of the protection offered by section 7 of the Charter, a corporate entity can avail itself of Charter protections related to unreasonable limits on commercial expression, where such limits have been placed on the corporate entity by the government – for example, by a law or regulation enacted by provincial or federal governments.

There is a good argument that the limited Charter rights that are afforded to corporate entities should not extend to permit a corporation to complain of a Charter violation where its “commercial expression” is restricted at the behest of another corporation in the context of an intellectual property infringement dispute.

 

Calgary – 07:00 MT

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Google v. The Court: Free Speech and IP Rights (Part 1)

 
By Richard Stobbe

Google Inc. v. Equustek Solutions Inc., et al., the long-running case involving a court’s ability to restrict online search results, and Google’s obligations to restrict search results has finally reached the Supreme Court of Canada (SCC). Hearings are proceeding this week, and the list of intervenors jostling for position at the podium is like a who’s-who of free speech advocates and media lobby groups. Here is a list of many of the intervenors who will have representatives in attendance, some of whom have their 10 minutes of fame to speak at the hearing:

  • The Attorney General of Canada,
  • Attorney General of Ontario,
  • Canadian Civil Liberties Association,
  • OpenMedia Engagement Network,
  • Reporters Committee for Freedom of the Press,
  • American Society of News Editors,
  • Association of Alternative Newsmedia,
  • Center for Investigative Reporting,
  • Dow Jones & Company, Inc.,
  • First Amendment Coalition,
  • First Look Media Works Inc.,
  • New England First Amendment Coalition,
  • Newspaper Association of America,
  • AOL Inc.,
  • California Newspaper Publishers Association,
  • Associated Press,
  • Investigative Reporting Workshop at American University,
  • Online News Association and the Society of Professional Journalists (joint as the Media Coalition),
  • Human Rights Watch,
  • ARTICLE 19,
  • Open Net (Korea),
  • Software Freedom Law Centre and the Center for Technology and Society (joint),
  • Wikimedia Foundation,
  • British Columbia Civil Liberties Association,
  • Electronic Frontier Foundation,
  • International Federation of the Phonographic Industry,
  • Music Canada,
  • Canadian Publishers’ Council,
  • Association of Canadian Publishers,
  • International Confederation of Societies of Authors and Composers,
  • International Confederation of Music Publishers and the Worldwide Independent Network (joint) and
  • International Federation of Film Producers Associations.

The line-up at Starbucks must have been killer.

The case has generated a lot of interest, including this recent article (Should Canadian Courts Have the Power to Censor Search Results?) which speaks to the underlying unease that many have with the precedent that could be set and its wider implications for free speech.

You may recall that this case is originally about IP rights, not free speech rights. Equustek sued Datalink Technologies for infringement of the IP rights of Equustek. The original lawsuit was based on trademark infringement and misappropriation of trade secrets. Equustek successfully obtained injunctions prohibiting this infringement. It was Equustek’s efforts at stopping the ongoing online infringement, however, that first led to the injunction prohibiting Google from serving up search results which directed customers to the infringing websites.

It is common for an intellectual property infringer (as the defendant Datalink was in this case) to be ordered to remove offending material from a website. Even an intermediary such as YouTube or another social media platform, can be compelled to remove infringing material – infringing trademarks, counterfeit products, even defamatory materials. That is not unusual, nor should it automatically touch off a debate about free speech rights and government censorship.

This is because the Charter-protected rights of freedom of speech are much different from the enforcement of IP rights.

The Court of Appeal did turn its attention to free speech issues, noting that “courts should be very cautious in making orders that might place limits on expression in another country. Where there is a realistic possibility that an order with extraterritorial effect may offend another state’s core values, the order should not be made.  In the case before us, there is no realistic assertion that the judge’s order will offend the sensibilities of any other nation. It has not been suggested that the order prohibiting the defendants from advertising wares that violate the intellectual property rights of the plaintiffs offends the core values of any nation. The order made against Google is a very limited ancillary order designed to ensure that the plaintiffs’ core rights are respected.”

Thus, the fear cannot be that this order against Google impinges on free-speech rights; rather, there is a broader fear about the ability of any court to order a search engine to restrict certain search results in a way that might be used to restrict free speech rights in other situations.  In Canada, the Charter guarantees that everyone has the right to: “freedom of …expression, including freedom of the press and other media of communication…” It is important to remember that in Canada a corporation is not entitled to guarantees found in Section 7 of the Charter. (See: Irwin Toy Ltd. v. Quebec (Attorney General), 1989 CanLII 87 (SCC), [1989] 1 S.C.R. 927)

So, while there have been complaints that Charter rights have been given short shrift in the lower court decisions dealing with the injunction against Google, it’s worth remembering that Google cannot avail itself of these protections. Sorry Google, but you’re not a natural person and you don’t enjoy Charter rights. [See Part 2 for more discussion on a corporation’s entitlement to Charter protections.]

Although free speech will be hotly debated at the courthouse, the Google case is, perhaps, not the appropriate case to test the limits of free speech. This is a case about IP rights enforcement, not government censorship.

 

Calgary – 07:00 MT

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IP Licenses & Bankruptcy Laws (Part 1)

By Richard Stobbe

When a company goes through bankruptcy, it’s a process that can up-end all of the company’s contractual relationships. When that bankrupt company is a licensor of intellectual property, then the license agreement can be one of the contracts that is impacted. A recent decision has clarified the rights of licensees in the context of bankruptcy.

In our earlier post – Changes to Canada’s Bankruptcy Laws – we reviewed changes to the Bankruptcy and Insolvency Act (BIA) back in 2009. These changes have now been interpreted by the courts, some seven years later.

In Golden Opportunities Fund Inc. v Phenomenome Discoveries Inc., 2016 SKQB 306 (CanLII),  the court reviewed a license between a parent and its wholly-owned subsidiary. Through a license agreement, a startup licensor, which was the owner of a patent covering an invention pertaining to the testing and analysis of blood samples, licensed a patented invention to its wholly-owned subsidiary, Phenomenome Discoveries Inc. (PDI). PDI, in turn was the owner of any improvements that it developed in the patented invention, subject to a license of those improvements back to the parent company.

PDI went bankrupt. The parent company objected when the court-appointed receiver tried to sell the improvements to a new owner, free and clear of the obligations in the license agreement. In other words, the parent company wanted the right to continue its use of the licensed improvements and objected that the court-appointed receiver tried to sell those improvements without honoring the existing license agreement.

In particular, the parent company based its argument on those 2009 changes to Canada’s bankruptcy laws, arguing that licensees were now permitted keep using the licensed IP, even if the licensor went bankrupt, as long as the licensee continues to perform its obligations under the license agreement. Put another way, the changes in section 65.11 of the BIA should operate to prohibit a receiver from disclaiming or cancelling an agreement pertaining to intellectual property. The court disagreed.

The court clarified that “Section 65.11(7) of the BIA has no bearing on a court-appointed receivership.” Instead the decision in “Body Blue continues to apply to licences within the context of court-appointed receiverships. Licences are simply contractual rights.” (Note, the Body Blue case is discussed here.)

The court went on to note that a receiver is not bound by the contracts of the bankrupt company, nor is the receiver personally liable for the performance of those contracts. The only limitation is that a receiver cannot disclaim or cancel a contract that has granted a property right. However, IP license agreements do not grant a property right, but are merely a contractual right to use. Court-appointed receivers can disclaim these license agreements and can sell or dispose of the licensed IP free and clear of the license obligations, despite the language of Section 65.11(7) of the BIA.

Calgary – 10:00 MT

 

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