Smart Contracts (Part 4): Ricardian Contracts and the Internet of Agreements

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By Richard Stobbe

As we’ve reviewed before, the term “smart contract” is a misnomer. (For background, see Smart Contracts (Part 3): Opportunities & Limits of Smart Contracts.) The so-called smart contract isn’t really a “contract” at all : it’s the portion of the transaction that can be automated and executed through software code. Hence, we prefer the term “programmatically executed transactions” — not as catchy, but maybe more accurate.

The written legal prose, or what we might think of as a ‘traditional contract’, sets out a bunch of contract terms, usually in arcane legalese, that describe certain elements of the relationship. Parts of that ‘traditional contract’ can be automated and delegated to software. However, once concluded, the traditional legal contract usually sits in one silo, and the software code is developed and sits in another silo, completely divorced one from the other.

The evolution of research and software tools has permitted the so-called Ricardian contract to function as a bridge between these silos. Based on the work of Ian Grigg, a Ricardian contract is conceived as a single document that has a number of elements that permit it (1) to function as a “contract” in the way the law would recognize a contract, so the thing has legal integrity, (2) to be readable by humans, in legal prose, (3) to be readable by software, like software reads a database or a input fields, (4) to be signed digitally, and (5) to be integrated with cryptographic identifiers that imbue the transaction process with technical integrity and verifiability. This is where blockchain or distributed ledger technology comes in handy.

The document should be readable by both humans and machines. It integrates the ‘traditional contract’ with the ‘smart contract’, since the elements or parameters that can be automated and implemented by software are read into the code straight from the contract terms.

Can this form the basis for software developers and lawyers to play in the same sandbox?

There are a number of developments in this arena where “legal” and “software” overlap, and Ricardian contracts are merely one iteration of this concept: for more background, Meng Wong’s presentation on Computable Contracts is a must-see.  His Legalese contracts are intended to allow legal terms and conditions to be represented in machine-understandable way, with or without a blockchain deployment. OpenLaw is another version of this approach : blockchain-enabled contracts that delegate certain functions to software. There are a whole range of options and variations of this.

In theory, this sets up an “Internet of Agreements” system that is designed to execute deals and transactions automatically with distributed ledger ecommerce technology through interwoven contracts and software across disparate platforms.

How far away is this legal-techno-dream?

For some applications, particularly in financial services, it’s much closer. Versions of these technologies are being beta-tested and implemented by global banks.  Since many of these implementations will be between entities in back rooms of the financial services industry, they will be invisible to the average consumer.  For many sectors – let’s say for example, the development of a full-stack land transfer technology – where smart contracts have to interface with existing immovable legal or institutional structures, this is a long way off.

 

Calgary – 07:00

 

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QuadrigaCX and the Missing Millions: A Crypto Cautionary Tale

By Richard Stobbe

For those who want blockchain-enabled cryptocurrencies to be deployed in mature, mainstream industry sectors (energy, insurance, financial services), it doesn’t help to have headlines like “How crypto exchange QuadrigaCX lost access to $190 million of customers’ money” (from Global News), or “Crypto CEO Dies Holding Only Passwords That Can Unlock Millions in Customer Coins” (that one from Bloomberg).

But let’s face it: those headlines appear to capture the essence of the current cloud of uncertainty that shrouds QuadrigaCX, a well-known Vancouver-based cryptocurrency exchange.

The company recently filed for creditor protection in a Nova Scotia court, after the reported sudden death of founder and CEO Gerald Cotten.  From reports of the company’s court filings, Mr. Cotten died with the recovery codes to the offline “cold storage” vaults containing access to customers’ cryptocurrency assets.

On February 5, 2019, the Nova Scotia court granted bankruptcy protection under the CCAA (Companies’ Creditors Arrangement Act) and appointed Ernst & Young as monitors to investigate the accessibility of any funds to reimburse the approximately 115,000 customers. A 30-day stay of proceedings was ordered, effectively shielding the company from further lawsuits as this investigation continues.

If no-one knows the access codes aside from the deceased founder, then the offline accounts, which reportedly hold millions of dollars worth of crypto assets, may be irretrievably lost.

What does this mean for the adoption of cryptocurrencies or other tokens that are powered by the same blockchain technologies that underpin BitCoin?

Cryptocurrency had a spotty reputation to begin with, and the current speculation and various internet-fuelled conspiracy theories surrounding QuadrigaCX do not give a person confidence.  You mean, I can take a risk by buying cryptocurrency hoping it’s going to rise in value, and then face the added risk that even if the value does increase, the multimillion dollar asset might suddenly disappear because one person held all the passwords? Apparently, yes.

Can one also lose millions in highly regulated industries by buying stocks or investing with Ponzi schemes?  Undoubtedly, yes. Somehow, the loss of traditional dollars does not shake investor confidence the way the collapse of QuadrigaCX might shake consumer confidence in BitCoin.

Maybe that’s because the history of crypto is a blip when compared to fiat currency. And maybe it’s because banks and others who handle consumer investments are subject to complex regulation, insurance requirements, registration requirements, securities commissions, financial superintendents, regulatory reporting and compliance obligations, and a system of censure in the case of a breach of those regulations.  After all, the QuadrigaCX exchange was not so much an investment vehicle; it was more akin to a bank.  When banks fail, confidence is understandably shaken.

The real cautionary tale may be that a mature and measured approach to cryptocurrency regulation may help instill confidence in the sector, and this may help pave the way for the strategic use of distributed-ledger technologies that are associated with cryptocurrency coins and tokens.

 

Calgary – 07:00 MST

 

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Tech Companies Take Note: Google Hit with $76 Million GDPR Fine

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By Richard Stobbe

The National Data Protection Commission (CNIL), France’s data protection authority, came down on Google with a €50 million penalty for breach of the EU’s General Data Protection Regulation (“GDPR”).

CNIL was responding to complaints from two privacy advocacy groups who called out Google for lacking a valid legal basis to process the personal data of EU users of Google services, particularly for ads personalization purposes. Although Google’s European headquarters are situated in Ireland, that country did not take the role of “lead authority” for DPA purposes, since processing of EU users’ data occurred through Google’s U.S. operations, rather than through its Irish division. This left the field open for France to take over the file and render a decision on the complaint.

The GDPR establishes a “one-stop-shop” which is designed for greater certainty for those organizations doing business in the EU. A business should only have to deal with the Data Protection Authority (“DPA”) of the country where its “main establishment” is located.

A DPA is, under the GDPR regime, an independent public authority tasked with supervising enforcement of data protection laws, with investigative powers and corrective authority. There is one DPA in each EU member state.

Google, according to CNIL, failed on two main counts based on the GDPR principles of transparency, information and consent:

  • First, Google’s explanation of data processing purposes is not clear nor comprehensive. “Users are not able to fully understand the extent of the processing operations carried out by GOOGLE,” says CNIL, and Google’s processing operations are “massive and intrusive” due to the sheer scope of the company’s services and the high volume of data which is collected and processed by Google.
  • Second, consent was not validly obtained, because the specific uses are not made clear to the user. This is the case even though the user of Google’s services can modify some options and configure some features of personalized ads. Just because some user configuration is allowed, that does not mean Google is in compliance with GDPR requirements.
  • CNIL was not impressed with the configuration options for ads personalization. To the extent configuration is made available to Google’s users, the choices are “pre-ticked”. The GDPR requires “unambiguous” consent, requiring a specific affirmative action from the user (for example, by clicking a non-pre-ticked box ). At the point of account creation, when a user clicks “I agree to the processing of my information as described above and further explained in the Privacy Policy“, the user gives consent in full, for all processing operations. However the CNIL notes that “the GDPR provides that the consent is ‘specific’ only if it is given distinctly for each purpose.”

This is the first penalty issued by France’s DPA.

Should Canadian companies be concerned? Any company that is engaged in processing of EU resident data will be subject to the GDPR, not just those who have a permanent establishment in the EU.

 

Calgary – 07:00 MST

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Pour a Glass of Trademarks

By Richard Stobbe

In time for the holidays, this is tale of competing brands sloshing around the marketplace. Please enjoy responsibly.

Diageo North America, Inc. is purveyor of some of the world’s best-known brands of spirits and beer, some of which are probably in your cupboard somewhere: Crown Royal, Baileys, Smirnoff, Johnny Walker, Captain Morgan, Tanquery and Gordon’s Gin, Guinness and Kilkenny, among many others.  In two parallel trademark disputes, Diageo recently faced off with Constellation Brands, one of Canada’s largest producers and distributors of wines.

In Constellation Brands Canada, Inc. v Diageo North America, Inc., 2018 TMOB 133 (CanLII), Diageo applied for the trademarks:

  • MAKE IT NAKED for use in association with distilled spirits, namely rum and rum-flavoured beverages.
  • DON’T WORRY DRINK NAKED & Design also for use in association with distilled spirits, namely rum and rum-flavoured beverages.

In Arterra Wines Canada, Inc. v Diageo North America, Inc., 2018 TMOB 134 (CanLII), Diageo applied to register three variations of the trademark:

  • THE NAKED TURTLE for use in association with distilled spirits, namely rum and rum-flavoured beverages (vodka and beer excluded).

Constellation Brands/Arterra Wines owns the popular NAKED GRAPE family of trademarks, for use in association with wine, wine spritzers, and icewine.   These guys sell a lot of wine: between 2008-2015 yearly sales of NAKED GRAPE branded wines ranged between $16-26 million across Canada.

Are the Diageo marks confusing with the NAKED GRAPE marks?

Interestingly, the legal test for confusion reflects the modern consumer: The test to be applied is a matter of first impression in the mind of a casual consumer somewhat in a hurry who sees the mark at a time when he or she has no more than an imperfect recollection of the prior brand, and does not pause to give the matter any detailed consideration or scrutiny.  Hmmm.. apparently we’re a nation of consumers in a hurry and we don’t pause to give things any detailed scrutiny.  Let’s leave the philosophical implications for a future discussion.

Test to Determine Confusion

The test to determine the issue of confusion is found in the Trademarks Act: the use of one trademark causes confusion with another trademark if the use of both marks in the same area would likely lead a consumer to infer that the associated goods are both manufactured and sold by the same person.  Courts look at:

  1. the inherent distinctiveness of the trade-marks and the extent to which they have become known;
  2. the length of time the trade-marks have been in use;
  3. the nature of the goods and services or business;
  4. the nature of the trade; and
  5. the degree of resemblance between the trade-marks in appearance, or sound or in the ideas suggested by them; oh, and don’t forget
  6. “all the relevant surrounding circumstances.”

In the end, three of the five Diageo marks were refused. For the marks MAKE IT NAKED, DON’T WORRY DRINK NAKED & Design and THE NAKED TURTLE Design, the final decision was that a casual consumer with an imperfect recollection of the NAKED GRAPE trademark who encounters rum or rum flavoured beverages sold under any of these brands may think that these goods are sold by the owner of the NAKED GRAPE mark, due to resemblance between the marks.

One Design Survives

However, one of the design marks was permitted to go ahead:  The Naked Turtle Design – front label (Application No. 1592265) was one of the variations among Diageo’s applications. Here, the decision was different since the most striking aspect of this mark was the phrase THE NAKED TURTLE and the depiction of the turtle lounging in a hammock between two palm trees. As turtles do.  For this mark, it was considered to be more different than alike as a matter of first impression.

Turtle1592265

One Word Mark Survives

The opposition was also refused for one of the word marks ( THE NAKED TURTLE) (Application No. 1561944). For this application, there was no reasonable likelihood of confusion between the trade-marks even though the nature of the goods and channels of the trade overlaps.

What are the lessons in this case?

  • Sub-brands are becoming more and more important within a competitive marketplace such as sales of alcoholic beverages.
  • This illustrates the extent to which highly competitive industry subsectors will clash even where the products are different within the sector – distilled spirits, such as rum, are very different from wines, wine spritzers, and icewine. One is an alcoholic beverage made from the fermentation of grapes and one is a spirit produced through distillation. However, the goods and channel of trade are considered to overlap, even though the products are sold in different areas of the store.
  • In its defence, Diageo tried to cite other alcoholic beverages where the word “naked” appears in the label: Back Forty Naked Pig Pale Ale, Four Vines Naked Chardonnay, Naked on Roller Skates, Naked Winery wines, Nøgne Ø Naked Kiss Imperial Porter, Barenaked Vodka, and Snoqualmie Naked Riesling.  This is considered “cheeky advertising” according to the decision. Diageo argued that because there are other such brands available, consumers are accustomed to seeing this term with alcoholic beverages and thus can distinguish between marks that include this element.  The decision-maker was not convinced, and dismissed this as “limited evidence” of the use of this term by other parties in Canada.
  • Diageo pursued a strategy of filing a range of applications, both word marks and design marks, including both the front and back labels of the bottle. This strategy proved to be successful – or, at least it help avert complete disaster.  Unless it’s challenged on appeal, two of Diageo’s marks will proceed to registration, permitting Diageo to carve out registered trademark protection for its NAKED TURTLE brand.

 

To review trademark strategies for distilled, brewed or fermented products, contact us at craftlawyers.ca or visit us on the Instagram.

Calgary – 07:00 MST

 

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Who owns copyright in something that’s part of the law? (Fair Dealing and Crown Copyright)

By Richard Stobbe

A certain code is adopted into law. Someone sells copies of that code, but they’re sued for copyright infringement.  So… who owns the copyright? If the government owns copyright, then how can a reproduction of the law be considered infringement?  If the government does not own copyright, then how did the code become part of the law in the first place?

These are the vexing questions that the Federal Court of Appeal tackled in a new and interesting decision on Crown copyright and fair dealing.

In P.S. Knight Co. Ltd. v. Canadian Standards Association, 2018 FCA 222, the court reviewed  copyright issues surrounding the Canadian Electrical Code, which has been adopted by federal and provincial legislation: for example, in Alberta, the Electrical Code Regulation formally declares the Canadian Electrical Code, Part 1 (Twenty‑third edition) to be “in force” in the province in respect of electrical systems. This means that the Code is essentially part of the law of the land, and there are penalties for any failure to comply.  In fact, Alberta, Newfoundland, Ontario and Yukon expressly require that the Canadian Electrical Code be made available to the public in some form.

This is a commercial dispute that stretches back to the late 1960s, when Knight began developing products that competed with the publications of the Canadian Standards Association (CSA). Knight even created a simplified version of the Code (the Electrical Code Simplified).  Through a series of events, Knight eventually sought to reproduce and sell the entire Canadian Electrical Code as its own publication, at a discount, undercutting the CSA price.  That’s when the CSA sued for copyright infringement. The CSA obtained an order for Knight to deliver up all infringing copies of the Code, Part I (the CSA Electrical Code or the Code), and ordered Knight Co. to pay statutory damages and costs of close to $100,000.

Knight appealed.

The Federal Court of Appeal dismissed Knight’s appeal, deciding that the Code is protected by copyright, even though it was developed and authored by committee. Just because the CSA made the Code available to be part of the mandated standard for the country, this doesn‘t mean the CSA gave up its own copyright interests in the Code.   The court also found that the Crown did not own copyright in the Code.  As for the defence of ‘fair dealing’, the court weighed the various factors – the purpose of the dealing, character of the dealing, amount of the dealing, alternatives to the dealing, nature of the work and the effect of the dealing. It the court’s analysis, these factors “overwhelmingly“ supported the conclusion that Knight’s copying and sale of the Code did not qualify as “fair dealing.”

In a strong dissent, Justice Webb seemed to appreciate the absurdity of penalizing someone from reproducing a Canadian law.

“What is in issue in this case,” according to the dissent, “is the right to publish certain works that have become part of the laws of Canada. …. Since the Code was considered as part of the text of the Regulations when it was incorporated by reference, it is the same as if it had been reproduced in full in the Regulations and, therefore, is part of the Regulations. Since the Reproduction of Federal Law Order permits any person to copy any enactment, the Crown has already granted P.S. Knight Co. Ltd. the right to copy the Code.”

 

Calgary – 07:00 MST

 

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LEGO vs. LEPIN: Battle of the Brick Makers!

By Richard Stobbe

LepinCaptureIn any counterfeit battle involving the LEGO brand, we could have riffed off the successful line of LEGO Star Wars sets and made reference to the Attack of the Clones. But that’s been done, and anyway the recent legal battle between LEGO Group and a Chinese knock-off cut across more than just the Star Wars line: Shantou Meizhi Model Co., Ltd. essentially replicated the whole line of LEGO-brand products, including the popular Star Wars sets, licensed from Disney, the Friends line, the City, Technic and Creator product lines, as well as sets based on licensed movie franchises, like the Harry Potter and Batman lines.  Lepin even sells a knock-off replica of the LEGO replica of the VW Camper Van, which sells under the “Lepin” brand for USD$48.00 (the Lego version sells for US$120).

The LEGO Group recently announced a win in Guangzhou Yuexiu District Court in China, based on unfair competition and infringement of its intellectual property rights in 3-dimensional artworks of 18 LEGO sets, and a number of LEGO Minifigures. This resulted in an injunction prohibiting the production, sale or promotion of the infringing sets, and a damage award of RMB 4.5 million.

While this decision is hailed as a win for LEGO, and a blow in favour of IP rights enforcement in China, the commercial reality is that 18 sets is a drop in the proverbial ocean of counterfeits for LEGO.  A quick spin around the Lepin website shows that there is a sprawling product line available to the marketplace, most of which are direct copies of the corresponding LEGO sets. These are copies in appearance at least, since the quality of the Lepin product is … different, when compared to the quality of LEGO branded merchandise, according to some online reviews.

The connectable plastic brick which was popularized by LEGO is not, in itself, protectable from the IP perspective (patents expired long ago, and the trademarks in the brick shape were struck down in Canada). This permits entry by competitors such as MEGA-BLOKS, a company that sells a virtually identical interlocking brick, but under a distinctive brand, with original set designs, and rival licensing deals of its own – featuring the likes of Pokémon, Sesame Street, John Deere and Star Trek.

While the bricks are just bricks, the LEGO trademarks are protectable, and as LEGO established, so are the rights in three-dimensional set designs, packaging art and other elements that were shamelessly copied by the busy folks at Lepin.

Protection of market share is a complex undertaking, where an intellectual property strategy is one element.  Looking for advice on how to protect your business using IP as a tool? Contact our IP advisors to start the conversation.

Related Reading: Battle of the Blocks (looking at the battle between Lego and Mega Blocks in Canada).

 

Calgary – 07:00 MT

 

 

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Smart Contracts (Part 3): Opportunities & Limits of Smart Contracts

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By Richard Stobbe

In Part 1 (Can Smart Contracts Really be Smart?), we looked at “smart contracts”, what might be called “programmatically executed transactions” or PETs. This concept refers to computers programmed to automatically executes certain transaction steps, provided certain conditions are met, illustrated by the vending machine analogy.

In Part 2 (Smart Contracts (Part 2): Intermediaries? We Don’t Need No Stinkin’ Intermediaries!), we pointed out that users of private shared (DLT) ledger systems must be aware of the attendant costs of switching to new intermediaries, and the legacy costs of continued dependence on old intermediaries.  To borrow a phrase from The Who, “Meet the new boss… same as the old boss.”  In other words, don’t be fooled into thinking that intermediaries will disappear; they merely change. Managing the intermediaries remains a challenge.

In this final instalment of our series, we look at the opportunities and limits of smart contracts. I want to emphasize a few points:

  1. Placing Smart Contracts in Context: First, it’s worth emphasizing that smart contracts or PETs are merely one element of the whole DLT permissioned ledger ecosystem. The smart contract enables and implements certain important transactional steps, but those steps fit within the broader context of a matrix of contractual relations between the participants. Many of those relationships will be governed by “traditional” contracts. This traditional contract architecture enables the smart contract workflow.  The take-home point here is that traditional contracts will remain a part of these business relationships, just as intermediaries will remain part of business relations. Let me provide an example: the Apple iTunes ecosystem contains a number of programmatically executed transactions. When a consumer chooses a movie rental, a song download or a music subscription, the order fulfilment and payment processing is entirely automated by software. However, users cannot participate in that ecosystem, nor can Apple obtain content from content producers, without an overarching set of traditional contracts: end user license agreements, royalty agreements, content licenses, agreements with payment providers. Those traditional contracts enable the PET, just as the PET enables the final transaction fulfillment.
  2. Changing Smart Contracts:  Once a PET is set loose, we think of it as a self-actuating contract: it cannot be changed or altered or stopped by humans.  The inability of humans to intervene is seen as a positive attribute – it removes the capriciousness of individuals and guarantees a specific pre-determined machine-driven outcome. But what if the parties decide (humans being humans) that they want the contract to be suspended or altered? Where humans control the progression of steps, they can decide to change, stop or reverse at any point in the workflow. Of course we’re assuming that this is a change or reversal to which both parties agree. But what is the mechanism to hit “pause”, or change a smart contract once it’s in midflight?  That remains a challenge of smart contracts, particularly as PET workflows gain complexity using blockchain-based technologies.
    • One solution may be found within those traditional contracts, which can be drafted in such a way that they allow for a remedy in the event of a change in circumstances to which both sides agree, even after the PET has started executing the steps it was told to execute. In other words, the machine may complete the tasks it was told to do, but the humans may decide (contractually) to control the ultimate outcome, based on a consensus mechanism that can override the machine after the fact.  This does have risks – it injects uncertainty into the final outcome. It also carries benefits – it adds flexibility to the process.
    • Another solution may be found in the notion of “hybrid contracts” which are composed in both machine-readable form (code) and human-readable form (legal prose).  This allows the parties to implement the consensus using a smart contract mechanism, and at the same time allows the parties to open up and change the contract terms using more traditional contract methods.
  3. Terminating Smart Contracts:  Finally, consider how one party might terminate the smart contract relationship. If the process is delegated to self-executing blockchain code, how can the relationship be terminated?  Again, where one party retains the ability to unilaterally terminate a PET, the final outcome is uncertain, and one of the chief benefits of smart contracts is lost. Too much flexibility will undermine the integrity of the process.  On the other hand, too much rigidity might slow adoption of certain smart-contract workflows, especially as transaction value increases. A multilateral permissioned mechanism to terminate the smart contract must be considered within the system. Participants in a smart contract permissioned ledger will also have to consider what happens with the data that sits on the (permanent, immutable) ledger after termination. When building the contract matrix, consider what is “ledgerized”, what remains in non-ledgerized participant databases, and what happens to the ledgerized data after contract termination.

 

If you need advice in this area, please get in touch with our Emerging Technology Group.

 

Calgary – 07:00 MST

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What happens to IP on bankruptcy?

By Richard Stobbe

The government introduced changes to some of the rules governing what happens to intellectual property on bankruptcy. If it becomes law, Budget Bill C-86 would enact changes to the Bankruptcy and Insolvency Act  (BIA) and the Companies’ Creditors Arrangement Act (CCAA) to clarify that intellectual property users can preserve their usage rights, even if:

  • intellectual property rights are sold or disposed of in the course of a bankruptcy or insolvency proceeding, or
  • if the trustee or receiver seeks to disclaim or cancel the license agreement relating to IP rights.

If the bankrupt company is an owner of IP, that owner has licensed the IP to a user or licensee, and the intellectual property is included in a sale or disposition by the trustee, the proposed changes in Bill C-86 make it clear that the sale or disposition does not affect the licensee’s right to continue to use the IP during the term of the agreement. This is conditional on the licensee continuing to perform its obligations under the agreement in relation to the use of the intellectual property.

The same applies if the trustee seeks to disclaim or resiliate the license agreement – such a step won’t impact the licensee’s right to use the IP during the term of the agreement as long as the licensee continues to perform its obligations under the agreement in relation to the use of the intellectual property.

These changes clarify and expand the 2009 rules in Section 65.11(7) of the BIA  and a similar provision in s. 32(6) of the CCAA. In particular, these amendments would extend the rules to cover sale, disposition, disclaimer or resiliation of an IP license agreement, whether by a trustee or a receiver.

This will solve the problem encountered in Golden Opportunities Fund Inc. v Phenomenome Discoveries Inc., 2016 SKQB 306 (CanLII), where the court noted that section 65.11(7) of the BIA was narrowly construed to only apply to trustees, and thus has no bearing on a court-appointed receivership.

Stay tuned for the progress of these proposed amendments.

Related Reading, if you’re into this sort of thing:

 

Calgary – 07:00 MST

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Cryptocurrency Decision: Enforcing Blockchain Rights

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By Richard Stobbe

A seemingly simple dispute lands on the desk of a judge in Vancouver, BC. By analogy, it could be described like this:

  • A Canadian purchased 530 units of foreign currency #1 from a Singapore-based currency trader.
  • By mistake, the currency trader transferred 530 units of currency #2 to the account of the Canadian.
  • It turns out that 530 units of currency #1 are worth $780.
  • You guessed it, 530 units of currency #2 are worth $495,000.
  • Whoops.
  • The Singaporean currency trader immediately contacts the Canadian and asks that the currency be returned, to correct the mistake.

Seems simple, right? The Canadian is only entitled to keep the currency worth $780, and he should be ordered to return the balance.

Now, let’s complicate matters somewhat. The recent decision in Copytrack Pte Ltd. v Wall, 2018 BCSC 1709 (CanLII), one of the early decisions dealing directly with blockchain rights, addresses this scenario but with a few twists:

Copytrack is a Singapore-based company which has established a service to allow copyright owners, such as photographers, to enforce their copyrights internationally. Copyright owners do this by registering their images with Copytrack, and then deploying software to detect instances of online infringement. When infringement is detected, the copyright owner extracts a payment from the infringer, and Copytrack earns a fee.  This copyright enforcement business is not new. However, riding the wave of interest in blockchain and smart contracts, Copytrack has launched a new blockchain-based copyright registry coupled with a set of cryptocurrency tokens, to permit the tracking of copyrights using a blockchain ledger, and payments using blockchain-based cryptocurrency.  Therefore, instead of traditional fiat currency, like US dollars and Euros, which is underpinned by a highly regulated international financial services industry, this case involves different cryptocurrency tokens.

When Copytrack started selling CPY tokens to support their new system, a Canadian, Mr. Wall, subscribed for 580 CPY tokens at a price of about $780.  Copytrack transferred 580 Ether tokens to his online wallet by mistake, enriching the account with almost half a million dollars worth of cryptocurrency.  Mr. Wall essentially argued that someone hacked into his account and transferred those 530 Ether tokens out of his virtual wallet.  Since he lacked control over those units of cryptocurrency, he was unable to return them to Copytrack.

The argument by Copytrack was based in an old legal principle of conversion – this is the idea that an owner has certain rights in a situation where goods (including funds) are wrongfully disposed of, which has the effect of denying the rightful owner of the benefit of those goods.  With a stretch, the court seemed prepared to apply this legal principle to intangible cryptocurrency tokens, even though the issue was not really argued, legal research was apparently not presented, the proper characterization of cryptocurrency tokens was unclear to the court, the evidentiary record was inadequate, and in the words of the judge the whole thing “is a complex and as of yet undecided question that is not suitable for determination by way of a summary judgment application.”

Nevertheless, the court made an order on this summary judgement application. Perhaps this illustrates how usefully flexible the law can be, when it wants to be. The court ordered “that Copytrack be entitled to trace and recover the 529.8273791 Ether Tokens received by Wall from Copytrack on 15 February 2018 in whatsoever hands those Ether Tokens may currently be held.”

How, exactly, this order will be enforced remains to be seen. It is likely that the resolution of this particular dispute will move out of the courts and into a private settlement, with the result that these issues will remain complex and undecided as far as the court is concerned. A few takeaways from this decision:

  1. As with all new technologies, the court requires support and, in some cases, expert evidence, to understand the technical background and place things in context. This case is no different, but the comments from the court suggest something was lacking here: “Nowhere in its submission did Copytrack address the question of whether cryptocurrency, including the Ether Tokens, are in fact goods or the question of if or how cryptocurrency could be subject to claims for conversion and wrongful detention.”
  2. It is interesting to note that blockchain-based currencies, such as the CPY and Ether tokens at issue in this case, are susceptible to claims of hacking. “The evidence of what has happened to the Ether Tokens since is somewhat murky”, the court notes dryly. This flies in the face of one of the central claims advanced by blockchain advocates: transactions are stored on an immutable open ledger that tracks every step in a traceable, transparent and irreversible record. If the records are open and immutable, how can there be any confusion about these transfers? How do we reconcile these two seemingly contradictory positions?  The answer is somewhere in the ‘last mile’ between the ledgerized tokens (which sit on a blockchain), and the cryptocurrency exchanges and virtual wallets (using ‘non-blockchain’ user-interface software for the trading and management of various cryptocurrency accounts). It may be infeasible to hack blockchain ledgers, but it’s relatively feasible to hack the exchange or wallet. This remains a vulnerability in existing systems.
  3. Lastly, this decision is one of the first in Canada directly addressing the enforcement of rights to ownership of cryptocurrency. Clearly, the law in this area requires further development – even in answering the basic questions of whether cryptocurrency qualifies as an asset covered by the doctrines of conversion and detinue (answer: it probably does). This also illustrates the requirement for traditional dispute resolution mechanisms between international parties, even in disputes involving a smart-contract company such as Copytrack. The fine-print in agreements between industry players will remain important when resolving such disputes in the future.

Seek experienced counsel when confronting cryptocurrency issues, smart contracts and blockchain-based rights.

Calgary – 07:00 MST

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#Illegal #Infringement : Defamation & Social Media

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By Richard Stobbe

Can a hashtag constitute defamation?

In an Ontario case involving a music collaboration gone wrong, the answer apparently is yes. The dispute involved Mr. Johnson, who was allegedly a songwriter and music producer. Ms. Rakhmanova was also a song writer and signer. The two musicians collaborated on several tracks which were later the subject of a bitter dispute.

According to the judgement, Mr. Johnson released the tracks online, over the objections of Ms. Rakhmanova. At one point, after the songs were mixed and mastered, Ms. Rakhmanova requested that Mr. Johnson sign a recording contract, to memorialize the joint-authorship and ownership of the tracks, including equal publishing credit. Mr. Johnson refused to sign the contract since, according to the judgement, he intended to claim sole ownership over the three songs. Ms. Rakhmanova withdrew her consent to the release of her melodies and vocal tracks.  By then, however, the track had already been released online.  Mr. Johnson failed to properly account for any revenue or royalties, and did not include proper attribution of Ms. Rakhmanova’s contributions: her picture and name were omitted from certain track names.

Ms. Rakhmanova then launched a series of online communications – through emails, Facebook, Twitter, Instagram accounts and SoundCloud posts – demanding removal of the content, and generally calling out Mr. Johnson for his conduct that, in her view, could be described as “…#stealing“, “infringing of my copyright“, “#piracy” “#plagiarism“, “#Infringement“, “#Illegal“, and characterizing Mr. Johnson as akin to “con artists who shamelessly peddle stolen acappellas“…

In Johnson v. Rakhmanova, 2018 ONSC 5258 (CanLII), the Court reviewed a defamation claim by Mr. Johnson, based on comments of this type. Interestingly, the Court flagged the defamatory elements in the various extracts, specifically highlighting certain hashtags such as “#piracy” “#plagiarism”, “#Infringement”, “#Illegal”. While none of the social media posts consisted of only hashtags (there was always more content included in the post), it is worth noting that, for certain posts, the judge highlighted the hashtag alone as constituting the only defamatory element. This suggests that, in the right context, a well-placed hashtag can constitute a defamatory statement.

A finding of defamation raises a presumption that the words complained of were false, that they were communicated with malice and that the plaintiff suffered damage.  That presumption of falsity is rebutted by the defendant proving truth or justification.  In the end, the Court took the view that most of these defamatory statements were accurate and truthful and therefore justified. And therefore not defamatory. The court dismissed Mr. Johnson’s defamation claim in any event, and awarded costs to Ms. Rakhmanova.

 

Calgary -7:00 MST

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Enforcing Rights Online: Copyright Infringement & “Norwich Orders”

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By Richard Stobbe

When a copyright owner seeks to enforce against online copyright infringement, it often faces a problem: who is engaging in the infringing activity?  If the old adage holds true – on the internet, nobody knows you’re a dog – then the corollary is that there must be a lot of canines engaged in online copyright infringement.

Of course a copyright owner can only enforce its rights against online infringement if it knows the identity of the infringer.  The Canadian solution, which is enshrined in the Copyright Act,  is the so-called “notice-and-notice” regime, which allows a copyright holder to send a notice to the ISP (internet service provider), and the ISP is obliged by the Copyright Act to send that notice to the alleged infringer, who still remains anonymous.  The notice of infringement is passed along… but the infringing content remains online.  Since the “notice-and-notice” regime is not much of an enforcement tool, the path eventually leads copyright holders to seek a court order (called a Norwich order) to disclose the identity of those alleged infringers.  (See our previous articles about Norwich Orders for background.)

In Rogers Communications Inc. v. Voltage Pictures, LLC, 2018 SCC 38, a film production company (Voltage) alleged copyright infringement by certain anonymous internet users. Allegedly, films were being shared using peer-to-peer file sharing networks. Yes, apparently peer-to-peer file sharing networks are still a thing. Voltage sued one anonymous alleged infringer and brought a motion for a Norwich order to compel the ISP (Rogers) to disclose the identity of the infringer.

Now we get to a practical problem: who pays for the disclosure of these records?

Pointing to sections 41.25  and 41.26  of the Copyright Act, Voltage argued that the disclosure order be made without anything payable to Rogers. In essence, Voltage argued that the “notice and notice” regime does two things: it creates a statutory obligation to forward the notice of claimed infringement to the anonymous infringer. The Act also prohibit ISPs from charging a fee for complying with these “notice-and-notice” obligations. In response, Rogers argued that there is a distinction between sending the notice to the anonymous infringer (for which it cannot charge a fee) and disclosing the identity of that (alleged) infringer pursuant to a Norwich order. The Act does not specify that ISPs are prohibited from charging a fee for this step.

The Supreme Court of Canada (SCC) agreed that there is a distinction to be made: on the one hand, an ISP has obligations under the Copyright Act  to ensure the accuracy of its records for the purposes of the notice and notice regime, and on the other hand, an ISP may be obliged, under a Norwich order to actually identify a person from its records. In a nutshell, the court reasoned that ISPs must retain records under the Act, in a form and manner that permits an ISP to identify the name and address of the person to whom notice is forwarded for the “notice-and-notice” purposes. But the Act does not require that these records be kept in a form and manner which would permit a copyright owner or a court to identify that person.  The copyright owner would only be entitled to receive that kind of information from an ISP under the terms of a Norwich order. The Norwich order is a process that falls outside the ISP’s obligations under the notice and notice regime. In the end, an ISP can recover its costs of compliance with a Norwich order, but ISPs cannot be compensated for every cost that it incurs in complying with such an order:

Recoverable costs must be reasonable and must arise from compliance with the Norwich order. Where costs should have been borne by an ISP in performing its statutory obligations under the notice and notice regime, these costs cannot be characterized as either reasonable or as arising from compliance with a Norwich order, and cannot be recovered.

According to Rogers, there are eight steps in its process to disclose the identity of one of its subscribers in response to a Norwich order.  The SCC made reference to this eight-step process, but wasn’t in a position to decide which of these steps overlap with Rogers’ obligations under the Act (for which Rogers was not entitled to reimbursement) and the steps which are “reasonable costs of compliance” (for which Rogers was entitled to reimbursement). The question was returned to the lower court for determination.

For copyright owners, its clear that ISPs will not shoulder the entire cost of disclosing the identity of subscribers at the Norwich stage. How much of that cost will have to borne by copyright holders is, unfortunately, still not very clear.  For ISPs, this decision is a mixed bag – Rogers makes a solid argument that the costs of compliance with Norwich orders are relatively high, compared with the automated notice-and-notice procedures. While it will benefit ISPs to be able to charge some of these fees to the copyright owner, we don’t have clear guidance on the specifics.  The matter will have to be determined on a case-by-case basis, depending on the ISP and their own internal procedures.

Looking for advice on Norwich orders and enforcement against online copyright infringement? Look for experienced counsel to guide you through this process.

 

Calgary – 7:00 MST

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AI and Copyright and Art

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By Richard Stobbe

At the intersection of this Venn diagram  [ Artificial Intelligence + Copyright + Art ] lies the work of a Paris-based collective.

Obvious

By means of an AI algorithm, these artists have generated a series of portraits that have caught the attention of the art world, mainly because Christie’s, the auction house,  has agreed to place these works of art on the auction block. Christie’s markets themselves as “the first auction house to offer a work of art created by an algorithm”.  The series of portraits is notionally “signed” (𝒎𝒊𝒏 𝑮 𝒎𝒂𝒙 𝑫 𝔼𝒙 [𝒍𝒐𝒈 𝑫 (𝒙))] + 𝔼𝒛 [𝒍𝒐𝒈(𝟏 − 𝑫(𝑮(𝒛)))]), denoting the algorithm as the author.

We have an AI engine that was programmed to analyze a range of prior works of art and create a new work of art. So where does this leave copyright? Clearly, the computer software that generated the artwork was authored by a human; whereas the final portrait (if it can be called that) was generated by the software.  Can a work created by software enjoy copyright protection?

While Canadian courts have not yet tackled this question, the US Copyright Office in its Compendium of US Copyright Office Practices has made it clear that copyright requires human authorship: “…when a work is created with a computer program, any elements of the work that are generated solely by the program are not registerable…”

This is reminiscent of the famous “Monkey Selfie” case that made headlines a few years ago, where the Copyright Office came to the same conclusion: without a human author, there’s no copyright.

Calgary – 0:700 MST

Photo Credit: Obvious Art

 

 

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Unregistered Trademarks versus Registered Trademarks: Who Wins?

By Richard Stobbe

In 2015, an Ontario craft brewer, Beau’s All Natural Brewing Company (Beau’s) applied for a trademark for B-SIDE BREWING LABEL, for use in association with Ontario craft beers.  In its application, Beau’s claimed that it had used this mark since July 2013.

A California wine producer, Steelbird Ghetto, was using a similar mark, B SIDE, in association with wine. In May, 2016 (about 15 months after Beau’s application was filed), Steelbird eventually filed its own trademark application for B SIDE, for use in association with wine.

Steelbird did not oppose the registration of Beau’s mark, but wrote a letter to Beau’s in July 2016, raising the question of whether Beau’s had actually used the B-SIDE BREWING LABEL mark since 2013, and providing a copy of its own newly filed trademark application for B SIDE .

Beau’s wrote back, asserting that it had used its B-SIDE mark in association with its Kissmeyer Nordic Pale Ale since 2013. Steelbird challenged this claim, pointing to Beau’s listings with the Liquor Control Board of Ontario (LCBO), which showed a release date of November 2014 for the Kissmeyer Nordic Pale Ale. Steelbird alleged that the Kissmeyer Nordic Pale Ale label did not contain any reference to B-SIDE BREWING LABEL, the mark in question.  When Steelbird asked Beau’s to withdraw its trademark application, Beau’s ignored this request and took registration in September 2016.

At that point, B-SIDE BREWING LABEL was a registered trademark for beer, based on use in Canada since July, 2013.  B SIDE for wine was an unregistered trademark, still pending in the trademarks office, claiming use in Canada since October 2011.

If a new brand is used, and even registered, claiming use since 2013, can it be defeated by a confusingly similar unregistered mark which has been used since 2011? In Canada, trademark rights are based on use, not registration.  So on these facts, where the unregistered mark can claim earlier use, it wins over the mark which is used later, even if that later mark is registered.

This is the conclusion in the recent decision Steelbird Ghetto Properties LLC v. Beau’s All Natural Brewing Company Ltd., 2018 FC 630 (CanLII).. In that lawsuit, Steelbird applied to strike out Beau’s registration, and filed documentary evidence to support its claim. Beau’s elected not to respond.  Based on the evidence, the court allowed Steelbird’s application on the basis that Beau’s registered trademark was confusingly similar to the unregistered trademark previously used by Steelbird.

What are the lessons for brand owners?

  • This case raises a couple of interesting points. First, it’s a great illustration that trademark rights are based on use, not registration. All other things being equal, an earlier used mark will generally win over a later mark. This holds true even if that later mark is registered, and the pre-existing mark is unregistered.
  • When assessing the products in question (wine vs. beer) the court tool the view that “both products are alcoholic beverages and, therefore fall within the same class of goods”. Technically speaking, beer falls into Nice International Class 32, and wine falls into Class 33, which covers alcoholic beverages other than beer. But that doesn’t matter much when the court points out that both are sold on shelves in the local beer and wine store.
  • This case also illustrates the value of clear documentary evidence to prove the dates of first use of a trademark. If a trademark is ever subject to a challenge, this evidence can be crucial to support claims made in the trademark application. Clear evidence may help defeat a challenger or may support an attack against a competitor’s mark.
  • Lastly, this story shows the value of seeking early protection. The wine producer used its B SIDE mark since 2011 but did not seek protection until 2016, presumably after it noticed that Beau’s had filed an application. If they had obtained their own registration before 2015, then Beau’s may have avoided the use of a similar B-SIDE mark, knowing it would conflict with an existing registered mark for wine. An early trademark registration is much more efficient and much cheaper than a court application for expungement.

To obtain advice on trademarks and brand protection, contact trademark counsel.

Calgary – 07:00 MST

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Ownership of Inventions by Employees

By Richard Stobbe

A group of employees invented a patentable invention. Advanced Video obtained the patent,  and then moved to sue a competitor for infringement. The alleged infringer challenged Advanced Video’s right to sue, pointing out that Advanced Video did not have standing to sue for infringement, since it never obtained the transfer of patent rights from the employee-inventor.

The U.S. case Advanced Video Technologies LLC v. HTC Corporation reviews the narrow issue of whether a co-inventor of the patent transferred her co-ownership interests in the patent under the terms of an employment agreement.

The patent in question listed three co-inventors: Benny Woo, Xiaoming Li, and Vivian Hsiun. The invention was created while the three co-inventors were employed with Infochips Systems Inc. (“Infochips”), a predecessor of Advanced Video.  Through a series of steps, two of the inventors, Mr. Woo and Ms. Li assigned their coownership interests in the patent to Advanced Video. The co-ownership interests of Ms. Hsiun were the subject of this lawsuit.  Advanced Video claimed that it obtained Ms. Hsiun’s co-ownership interests in the invention through the original employment agreement with that employee.

A review of Ms. Hsiun’s employment agreement indicated that the clause in question was pretty clear:

I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company. (Emphasis added)

For emphasis, the employment agreement went on to say:

I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have infringement [sic] of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company. (Emphasis added)

Translation? The employee agrees that she will assign to the employer all rights to any and all inventions developed by the employee during employment.

Surprisingly, the court decided this language did not clearly convey the rights to the invention, since the word “will” invoked a promise to do something in the future and did not effect a present assignment of the rights.

This was merely a promise to assign, not an actual immediate transfer of the invention.

While this is a U.S. case, it neatly illustrates the risks associated with the fine print in employment agreements: to avoid the problem faced by Advanced Video, it’s valuable for employment agreements to automatically and immediately assign and transfer rights to inventions, and to avoid any language that suggests a future obligation or future promise to assign.

The lesson for business in any industry is clear: ensure that your employment agreements – and by extension, independent contractor and consulting agreements – are clear. Intellectual property and ownership of inventions should be clearly addressed. Get advice from experienced counsel to ensure that the IP legal issues are covered – including confidentiality, consideration, invention ownership, IP assignment, non-competition and non-solicitation.

 

Related Reading:  Employee Ownership of Patentable Inventions
Calgary – 07:00 MST

 

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CASL Enforcement: The Anti-Malware Provisions

By Richard Stobbe

Canada’s Anti-Spam Law (affectionately known as CASL) is best known as a means to combat unwanted email and other commercial electronic messages, but the law also contains anti-malware provisions. We first reviewed those software-related provisions in 2014, when the legislation was being rolled out. Essentially, you can’t install software onto someone’s computer or device without getting their consent.

The CRTC recently announced an enforcement action against two Ontario companies, Datablocks and Sunlight Media, and assessed a Notice of Violation carrying penalties of $250,000, for allegedly aiding in the installation of malware through the distribution of online advertising. The penalty can be disputed by the two companies.

This recent notice of a possible penalty comes hot on the heels of a search warrant which was executed in January, 2016.  So, that means the legislation came into force in January, 2015… the first search warrant was in 2016… the first penalties were assessed in July 2018. Not exactly an enforcement blitz.

Perhaps the take-home message from this case is that the companies in question are alleged to have accepted anonymous clients who then deployed malware to the computer systems of Canadians using the infrastructure and operations of Datablocks and Sunlight Media.  It may be good practice for vendors to implement some version of the “know your client” rules that currently apply to banks, financial advisors, lawyers and other professional advisors. At a minimum, compliance should involve written agreements with clients or customers, and according to the CRTC, neither Datablocks nor Sunlight had written contracts in place with their clients regarding compliance with CASL, or monitoring measures in place to guard against this risk.

 

Calgary – 07:00

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Can an old trademark be reborn… with a new owner?

By Richard Stobbe

When a Canadian woman looked to buy CUBAN LUNCH brand chocolate bars for her mother, she found the product was discontinued.

CubanLunch

It appears that an Albertan, Crystal Regehr Westergard, saw an entrepreneurial opportunity.  After realizing the product had been abandoned by the original manufacturer, and the Winnipeg factory that made Cuban Lunch closed down nearly three decades ago, she decided to remake the product herself, and revive the trademark. The original trademark CUBAN LUNCH was registered in Canada in 1983 for “Confectionery namely chocolate bars”, claiming use in Canada since December 1948. After being passed through a number of different owners throughout the late 1990s up until 2013, the original trademark was finally expunged from the register at the Canadian Intellectual Property Office in 2015 for failure to renew. 1948-2015. Not a bad run for a candy bar brand.  This is usually the end of the line for an aging trademark, where the product has been discontinued.

The Westergards submitted a new trademark application to the Canadian Intellectual Property Office for the CUBAN LUNCH trademark, listing the same goods, and claiming use since May 2017.

This raises an interesting trademark question: Can an old, retired trademark be reborn with a new owner?

In Canada, trademark rights are based on use. Once use begins, trademark rights come alive. When use ceases, trademark rights die out. It’s important to remember that the registered rights recorded in the trademarks office are merely reflective of the actual use of that mark in the marketplace.  To use the more eloquent phrasing of the Supreme Court of Canada: “Registration itself does not confer priority of title to a trade-mark.  At common law, it was use of a trade-mark that conferred the exclusive right to the trade-mark.  While the Trade-marks Act provides additional rights to a registered trade-mark holder than were available at common law, registration is only available once the right to the trade-mark has been established by use.” (Emphasis added) (Masterpiece Inc. v. Alavida Lifestyles Inc., [2011] 2 SCR 387, 2011 SCC 27 (CanLII))

Trademark rights lapse and die all the time, where the rights are no longer used, and are therefore legally extinguished.  In theory, there is no reason why a new business owner cannot commence use of a “dead” mark and notionally adopt that mark as their own, breathing new life into the trademark rights through their own use of the mark with their own product.  Of course, it’s important to note that even if registered rights lapse (for example, for failure to pay renewal fees), the underlying common law rights might continue. Let’s say a registration lapsed because of a clerical oversight; this oversight alone would not impact the underlying commercial use of the mark which might be alive and well.  As noted above, registration is merely an official recordal of the rights endowed by actual use.

In the case of the CUBAN LUNCH mark, the reports appear to indicate that the original mark suffered a death both in actual commercial use and in registration. If that’s the case, then the original trademark is no longer a trademark, and those words are free to be adopted by a new owner.

Now… it’s high noon. Where do we buy a CUBAN LUNCH ?

 

Calgary – 07:00

 

 

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Smart Contracts (Part 2): Intermediaries? We don’t need no stinkin’ intermediaries!

By Richard Stobbe

In Part 1 (Can Smart Contracts Really be Smart?), we looked at smart contracts, and how “smart” they really are – if you need some background, start there.

Smart contracts (or “programmatically executed transactions”) have been touted as a possible solution to a range of business problems, as well as the death knell for intermediaries. By deploying DLT on a private shared ledger, the power of the blockchain is harnessed to leapfrog past traditional intermediaries. This enables more efficient transactions, free from the constraints and incremental expenses imposed by banks, auditors, governments, regulators, lawyers, accountants and others who take a pound of flesh from the transaction workflow.

By shuffling off the intermediaries, the smart contract is free to move efficiently in the economy, saving time and money for participants. To adapt a phrase from the Humphrey Bogart vehicle The Treasure of Sierra Madre: Intermediaries? We don’t need no stinkin’ intermediaries! At least… that’s the current hope for blockchain-powered smart contracts.

Are there any concerns with this vision?  One of the current constraints in the smart contract ecosystem is the gap between tokenized indicators of value on the ledger, and the almighty dollar. Or the euro. The pound sterling. The yen. The yuan. Or whatever fiat currency you may wish to use to transact business in the real world. As much as we’d like to envision a post-money world, the reality is like the QWERTY keyboard. Or the Microsoft operating system. It may not be the best. But it’s got massive market penetration. In the case of the QWERTY keyboard, we’ve been stuck with it since the 1800s. In the case of  money as a currency, since the 11th century.

Ten centuries of market inertia is not easy to shift.

That gap – between the digital representations of value, and real world money – must be efficiently closed for smart contracts to gain widespread traction. Maybe eventually we’ll move past “money” in the way voice-activation moves past the QWERTY keyboard. But that’s a long way off.

In the meantime, smart contracts powered by DLT will have to peg a tokenized “dollar” to a real dollar in the sense that the token is backed by the dollar: this is the concept of a fiat-collateralized digital representation of a real dollar, or a stablecoin.  “You deposit dollars into a bank account and issue stablecoins 1:1 against those dollars.” This has obvious advantages over a crypto-collateralized coin, which suffers from wildly unpredictable price fluctuations. A stablecoin is simple and resistant to price-volatility. However, “It requires centralization in that you have to trust the custodian, so the custodian must be trustworthy. You’ll also want auditors to periodically audit the custodian, which can be expensive.”

But wait, we already have a trusted centralized custodian of collateralized digital representations of value: It’s called a bank!

As noted in Blockchain and Shared Ledgers: “You could say that the technology service provider is replacing the traditional third party intermediary on a private shared ledger – in the way that they are maintaining and operating the shared ledger technology systems …” (My emphasis).

To put this another way, does this mean software companies are the new banks? The concern here is that users of private shared ledgers will not shuffle off intermediaries; rather they’ll swap one intermediary for another.

I’m just as happy as the next guy to grumble about banks, but they will likely be with us for a while, complete with the government regulatory environment, the industry watchdogs, the legacy payment rails, and centuries of inertia. I’m not saying the banks can’t be disrupted. But the disruptors will also take their pound of flesh.

Ok, maybe we do need intermediaries after all. Users of private shared ledger systems must be aware of the attendant costs of switching to new intermediaries, and the legacy costs of continued dependence on old intermediaries.  Where smart contracts on private shared ledger platforms can efficiently bridge the gap with traditional payment ecosystems , there will be some fruitful opportunities.

 

Looking for legal advice on smart contracts, DLT and private ledger consortium? Contact the Field Law Emerging Technology Group.

Calgary – 07:00 MT

 

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IP Assets After Death (Part 1)

By Richard Stobbe

Can an inventor be granted a patent posthumously?

The answer is a clear yes, as illustrated by the experience of one well-known inventor: Steve Jobs is named as an inventor on hundreds of U.S. utility and design patents, over 140 of which have been awarded since his death in 2011. The Patent Act provides for a patent to issue after the death of the inventor, and the issued patent rights would be treated  like any other asset of the inventor’s estate.

The Patent Act refers to “legal representatives” of an inventor which includes “heirs, executors, …assigns,… and all other persons claiming through or under applicants for patents and patentees of inventions.”

There are a few important implications here: A patent may be granted posthumously to the personal representatives of the estate of the deceased inventor.

This also means that executors of the estate of a deceased inventor are entitled to apply for and be granted a patent under the Act. Employers can also benefit from patent rights granted in the name of a deceased inventor, where those rights have been assigned under contract during the life of the inventor, such as a contract of employment.

The term of the patent rights remain the same: 20 years from the filing date, regardless of the date of death of the inventor.

There are well-established rules on filing protocols in the case of deceased inventors, in both national and international phase applications: make sure you seek experienced counsel when facing this situation.

 

Calgary – 07:00 MST

 

 

 

 

 

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BEER BEER as a trademark… for “beer”?

By Richard Stobbe

There is a rule in Canadian trademarks law that you can’t get a trademark for a word that describes the product you’re selling. Makes sense, right? No-one should have a monopoly over a word that is descriptive of the thing they’re selling. Such a term should be open to everyone to use.

Drummond Brewing applied to register BEER BEER as a trademark for “beer”.  Wait, let’s re-read the paragraph above. Isn’t BEER BEER clearly descriptive when used in association with the sale of beer?  Drummond, apparently, did not think so when it filed its application claiming use since 2009. They held this opinion despite an earlier decision (Coors Global Properties, Inc. v. Drummond Brewing Company, 2011 TMOB 44 (March 11, 2011)) which found BEER BEER to be clearly descriptive.

There is well-known decision from the early 1980s (Pizza Pizza Ltd. v. Registrar of Trade Marks (1982), 67 C.P.R. (2d) 202), where the court decided that the mark PIZZA PIZZA was found not to be clearly descriptive of “pizza” since the expression PIZZA PIZZA was not a linguistic construction that is a part of normally acceptable spoken or written English.  If it works for pizza, why not beer?

In the decision Molson Canada 2005 v Drummond Brewing Company Ltd., 2017 TMOB 78 (CanLII),  Molson opposed this trademark, and Drummond fought back, insisting that the mark was not descriptive. Numerous experts from both sides weighed in on the meaning of the term BEER BEER as a linguistic construction. One expert provided an opinion as a sociolinguist after  consulting scholarly literature, fellow linguists, and the Corpus of English Contrastive Focus Reduplications, a collection of 203 examples of naturally occurring utterances featuring contrastive reduplicative constructions, as published in the scholarly journal Natural language and Linguistic Theory (NLLT), 2004.

I’m not making this stuff up.

In the end, common-sense prevailed and the decision-maker found that the mark BEER BEER was clearly descriptive of the product. The mark was found to be unregistrable as a trademark.

 

Calgary – 07:00 MST

 

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Google vs. Equustek: Google Loses Another Round

By Richard Stobbe

How far can Canadian courts reach when making orders that seek to control the conduct of foreign companies outside of Canada? This controversial question is still being decided, bit by bit, in both Canadian and US courts.  In our past posts we have written about a 2014 pre-trial temporary court order that required Google to de-index certain sites from Google’s worldwide search results, based on an underlying lawsuit that the plaintiff, Equustek, brought against the defendants back in 2011.  Google challenged the order requiring it to delist worldwide search results, and fought this order all the way up to the Supreme Court of Canada… where Google lost.

On July 24, 2017, approximately one month after the SCC decision, Google filed a complaint in US Federal Court, seeking an order that the injunction issued by the BC court is unlawful and unenforceable in the United States. That order was granted, first on a preliminary application on November 2, 2017 and then in a final ruling on December 14, 2017. With that US court decision in hand, Google came back to the BC court which had issued the original order, to vary the scope of that order.

On April 16, 2018, in Equustek Solutions Inc. v Jack, 2018 BCSC 610 (CanLII), the BC court again rejected Google’s requests. The BC court said that the US decision (which was in Google’s favour) did not establish that the injunction requires Google to violate American law. And without any significant change in circumstances, the court reasoned, there was no reason to change the original order.  As a result, the temporary order against Google – which has been in place since 2014 – remains in place, pending outcome of the trial.

The outcome of that trial will be closely watched. As I mentioned in my earlier article, there has been very little analysis of Equustek’s IP rights by any of the different levels of court. Since this entire case involved pre-trial remedies, the merits of the underlying allegations and the strength of Equustek’s IP rights have never been tested at trial. In order for the injunction to make sense, one must assume that the IP rights were valid. Even if they are valid, it is questionable whether Equustek’s rights are worldwide in nature since there was no evidence of any worldwide patent rights or international trademark portfolio.  We can only hope that the trial decision, and Google’s decision to appeal the latest BC court decision, will clarify these issues.

 

Calgary – 07:00 MDT

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