What happens when a licensor becomes insolvent?

When Body Blue Inc., a Canadian consumer products company, stumbled financially, a receiver was appointed in Canada under the Bankruptcy and Insolvency Act.  In its attempt to restructure the company and satisfy creditors, the receiver sold the company’s assets in May, 2006 for $7 million to a competitor consumer products company.  The assets expressly included certain technology which was the subject of an earlier license to Herbal Care, a US health products company. 

Herbal Care argued that its license remained unaffected.  However, a Canadian Court can allow a trustee to transfer the technology assets of a bankrupt company free and clear of any existing license.

In the final decision in Royal Bank of Canada v. Body Blue Inc., 2008 CanLII 19227 (ON S.C.), the Canadian Court affirmed that the new owner acquired the transferred assets free and clear of any claim of Herbal Care.  Herbal Care lost its license when the assets were transferred during the bankruptcy.

This result can be contrasted with Synergism Arithmetically Compounded Inc. v. Parkwood Hills Foodland Inc., 2000 CanLII 22781 (ON S.C.), where certain intellectual property assets – in this case, an insolvent company’s trade-marks and franchise agreements – were the subject of a security agreement.  A secured creditor stepped in, enforced its security, and acquired all the insolvent company’s trade-marks and franchise agreements.  Because the trade-marks were acquired by the secured creditor outside the bankruptcy, they never passed through the hands of the trustee, and they were transferred with the license rights intact.  Thus the new owner was entitled to sue for breach of the license, and trade-mark infringement, since it had acquired those rights along with the trade-mark assets.

As always, careful drafting and preventive steps can mitigate these risks.

Links to the case decisions:

Royal Bank of Canada v. Body Blue Inc.

Synergism Arithmetically Compounded Inc. v. Parkwood Hills Foodland Inc.
Calgary – 10:00 MST

 

A recent survey shows that departing employees are leaving the office with more than the photos of their kids – they’re walking off with trade secrets and confidential company information. A majority of the survey respondents said they burned confidential information onto a CD or DVD, around 40% dragged it to a USB drive or e-mailed documents to themselves. 

In Canada, the Supreme Court of Canada recently weighed in on this area of law. In RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54 , virtually all of the investment advisors at an RBC branch walked out one day (without notice) and joined RBC’s competitor, Merrill Lynch.  RBC sued its departing employees and also sued Merrill Lynch and its manager.  The case went up through trial, to the BC Court of Appeal, and was appealed up to the Supreme Court of Canada.  The court decided that the departing employees owed a duty of “good faith” to RBC, but that none of them was a “fiduciary”  – a special category which applies to employees with a special relationship to the corporation, such as senior managers, executives, directors and officers.  In the absence of a non-competition clause or fiduciary relationship, the departing employees had the legal right to leave RBC and to compete with their former employer. However, the court was clear that a departing employee might be liable for specific wrongs, such as improper use of confidential information of the former employer. 

Watch for our seminar on this and other topics at our Events page.

 

Calgary 11:30 MST

American computer giant Dell Inc. has launched a challenge against Canadian computer maker Psion Teklogix Inc. and its ownership of the trade-mark NETBOOK.  Psion registered the mark NETBOOK in both Canada and the US in 2000 (based on its original application filed in 1996), and now Dell is challenging that registration.  Lawyers for Dell argue that Psion has abandoned the mark by failing to use it in connection with laptops, or alternatively, they argue that the mark is generic and therefore not eligible to function as a trade-mark, since “the primary significance of the term to the relevant public is as the name for small and inexpensive laptop computers.”  Psion has an uphill battle since competitors are using the mark in a generic way, and are even filing trade-mark applications, including for COBY NETBOOK, WIND NETBOOK and G NETBOOK for personal computers, all of which erode the distinctiveness of NETBOOK as a mark that identifies Psion. To protect this mark the owner will have to fight off Dell’s challenge, oppose the multiple trade-mark applications by competitors, then go out and sue infringers across the industry. 

A good example of a once-unique mark that has fallen into a “dead zone” which makes it expensive to salvage.  The lesson for brand owners is two-fold: use-it-or-lose-it, and fiercely defend at the first sign of infringement.

Related reading: Generic Domain Names in Canada  and Update: Generic Trade-marks  

Calgary – 10:30 MST

 

UPS has a label-printing and shipment-tracking software program that is installed on a customer’s computer. So what happens when the UPS technician (rather than the customer’s own employee) installs the software, scrolls past the license agreement, and clicks “I accept”?

This situation was reviewed in the recent case of Via Viente Taiwan, L.P. v. United Parcel Service, Inc., 2009 WL 398729 (E.D. Tex. February 17, 2009).  When UPS was sued in Texas, it tried to deflect the lawsuit to the State of Georgia, the forum selected in the license agreement.  The customer argued that the license agreement was not binding because it was the UPS employee who clicked through, and the customer never actually agreed to the terms. The court upheld the agreement (and the forum-selection clause) because the customer should have been aware that the license agreement was part of the deal when it signed the general UPS Carrier Agreement that required the use of the software. Secondly, the court reasoned that the UPS technician likely would have been supervised by Via Viente employees during the software installation. Lastly, the customer had enjoyed the benefit of the agreement – including the UPS shipping services and the use of the software – so it wouldn’t have been fair to permit it to “pick and choose” and avoid the terms of the license agreement. The lawsuit was transferred to the Northern District of Georgia.

 

Calgary – 10:00 MST

A few weeks ago, Facebook attempted to revise its Terms of Service – the online contract that governs the relationship with Facebook users.  Revising a contract can be tricky at the best of times, let alone an online contract with 175 million users from around the world. 

When word leaked that someone had actually read the fine print, and the fine print extended Facebook’s rights to user content, there was a groundswell of protest, and a quick retreat by Facebook.  Yesterday the company reverted to its old Terms of Service, and users claimed victory.  However, the fine print, even in the old Terms of Service, still permits Facebook to use your photos, profiles (including name, image, and likeness), messages, notes, text, information etc. “for any purpose, commercial, advertising, or otherwise, on or in connection with the Site or the promotion thereof...”  This expires when you remove your content, but millions of users have still granted Facebook extremely broad rights to their personal information and images, so it is interesting that these terms are being considered a triumph. (What was that one about the frog in boiling water?)

Under Canadian and US law, a company must be very careful to ensure that amendments to online contracts are enforceable (see: Online Contract Amendment Not Binding).

Calgary – 10:35 MST

The Canadian Intellectual Property Office has announced that the Trade-marks Opposition Board will be changing its practice, effective March 31, 2009, pursuant to the new Practice in Trade-mark Opposition Proceedings. Here’s a summary of the changes:

• The new practice will simplify the procedure and time-lines for granting extensions of time, and will clarify when extensions of time can be granted in exceptional circumstances.
• Parties will be encouraged to mediate and settle disputes early in the process, including through the use of a “cooling-off” period.
• A new practice is introduced for scheduling hearings.

Calgary – 14:30 MST

In January, the federal Privacy Commissioner released Guidelines for Processing Personal Data Across Borders (PDF Copy of Guidelines). These guidelines set out the Commissioner’s view of how the Federal Personal Information Protection and Electronic Documents Act (PIPEDA) will be applied to transfers of personal information across borders. It’s worth noting that the document does not review obligations for public sector entities.  Transborder transfers of personal data would include transfers across provincial as well as national boundaries since PIPEDA does not distinguish between domestic and international transfers of data.  So if your organization is outsourcing data handling to a service provider in another province or another country, these guidelines will be applicable.

Calgary – 10:30 MST

The Government has issued a Request For Information on open source software to assist it in developing guidelines related to the “planning, acquisition, use and disposal of No Charge Licensed Software (NCLS).”  The term NCLS is apparently intended to include all forms of software which is available without charge – from “true” open source software, freeware, shareware, to free proporietary downloads such as Adobe readers, iTunes, Google toolbars, etc.  The RFI closes February 19, 2009.

This obviously reflects the growing use of open source software within the public sector, and the need for consistent guidelines.  The guidelines, once developed, will likely be of interest to both public sector and private sector organizations.

Calgary –  09:30 MST

In a recent story that made national newspapers here, it was suggested that McGill University’s new advertising campaign had somehow stepped on the toes of American Larry Smith, editor of an online magazine.  Mr. Smith raised an allegation that somehow the idea of a six-word summary was protectable under intellectual property laws – trade-marks, or copyright, or something.  Such an idea is certainly not protectable, so McGill has nothing to worry about and Mr. Smith is off-base. 

Calgary – 15:00 MST

The Eastern District of Texas has gained notoriety as a magnet for patent lawsuits.  Plaintiffs will commence lawsuits there with the hope that pro-patent-owner juries will be convinced to decide the case in favour of the patent owner and award significant damages.  The district also has a reputation for moving patent cases along efficiently, which can benefit a well-prepared plaintiff.

The Fifth Circuit Federal Court of Appeals issued its decision in the case of Re TS Tech USA Corp. a few weeks ago, and agreed to transfer a case from the Eastern District of Texas to the Southern District of Ohio, on the basis that the lawsuit had more of a connection to Ohio than Texas.  This could trigger transfers of other patent lawsuits that do not have the required level of connection to Texas. Defendants TS Tech USA Corp, TS Tech North America, Inc. are based in Ohio and the Plaintiff Lear Corporation is a Delaware corporation based in Michigan.

In earlier posts ( Welcome to Texas: Keep Your Powder Dry ; Patent Infringement Update ), we noted cases involving Canadian companies caught up in patent lawsuits commenced in Texas.  The case of Re TS Tech USA Corp. also dealt with a Canadian defenant, auto-parts manufacturer TS Tech Canada, Inc., based in Ontario.  The TS Tech decision is one more strategic tool for Canadian defendants to challenge jurisdiction.

Calgary – 10:00 MST

Some people take their whisky seriously. The Scottish Whisky Association takes the topic very seriously. They were concerned that the use of the word “Glen”, in connection with a Canadian whisky, would mislead consumers into thinking the drink was from Scotland. So concerned, they sued Glenora Distillers, the Canadian distiller of GLEN BRETON whisky all the way up to the Federal Court of Appeal. 

For lawyers, it’s a trade-mark issue: Has the word “Glen” in association with “single malt whisky” become recognized in Canada as designating Scotland as the origin of whiskies? In a decision last year (Scotch Whisky Association v. Glenora Distillers International Ltd. 2008 FC 425 Date: April 3, 2008) the court agreed with the Scotch Whisky Association, and decided that the word “Glen” would confuse consumers.  The court refused to permit Glenora to register the trade-mark GLEN BRETON for single-malt whisky. 

Last week, the Federal Court of Appeal reversed that decision and agreed with the distiller. It’s worth noting that the product is not marketed as “scotch”, but as “Canada’s only single-malt whisky”. The appeal judges decided that the word “Glen” would not mislead consumers, and permited the trade-mark application to proceed. The Scotch Whisky Association is rumoured to be considering an appeal – this time, all the way up to the Supreme Court of Canada.  If they do appeal, the next decision won’t be expected until sometime in 2011, about 8 years from when the contest began. Just enough time to permit the bottling of the next batch of GLEN BRETON 8-year-old single malt.

Calgary – 10:45 MST 

 

In December, the Free Software Foundation (FSF) launched a lawsuit alleging that Cisco has breached the terms of the GNU GPL and LGPL (the General Public License and Lesser General Public License), thereby infringing copyright in the licensed programs. For more information, see the press release and a copy of the complaint filed by the FSF.

Last year in Jacobsen v. Katzer (US Court of Appeals for the Federal Circuit, August 13, 2008), an appeal-level court considered the ability of a copyright holder to distribute software under an open source license, and also obtain a remedy for any breaches of the license terms. In the decision, the court overturned the lower-court decision and decided that the open source license did not permit a licensee to modify and distribute the copyrighted materials without abiding by the copyright notice and modification-tracking conditions.  The case was sent back to the lower level for reconsideration, but it makes clear that:

• the licensor enjoys “economic rights” under the open source license; these “economic rights” come in the form of various intangible economic benefits, even in the absence of traditional royalties or license fees, and
• a licensee is not entitled to disregard the conditions attached to open source licenses.

In early January, a new ruling was issued by the lower court in Jacobsen v. Katzer.  Since the plaintiff failed to specify any damages, the contract claim was dismissed. The court also denied the injunction application (which would have barred Katzer from using the open-source code), on the basis that irreparable harm had not been established.  This shows that open-source licenses will always bump up against the practical realities of commercial litigation: to get a remedy, plaintiffs will still need to show damages and convince the court of the need for an injunction, just like in any lawsuit.

Canadian courts have yet to consider open-source software issues directly, but Canadian law will draw upon this growing body of American caselaw when the time comes.

Calgary – 10:00 MST

Lawyers are often criticized for arguing over semi-colons and prepositions. Here is one case where the word “of” and “in” were debated up to the Ninth Circuit Court of Appeal.

In the recent decision in Doe 1 v. AOL LLC, 2009 WL 103657 (9th Cir. Jan. 16, 2009), AOL was sued in California in a class-action suit.  AOL tried to deflect the California lawsuit based on the “venue selection clause” in its online member agreement.  That clause stipulated that lawsuits had to be brought in the State of Virginia. However, the court refused to uphold the agreement because Virginia state courts do not permit class action lawsuits.  The phrase in the agreement referred to “the courts of Virginia”, which the court interpreted as meaning state court – the equivalent of our provincial courts. If it had referred to “the courts in Virginia” then the court may have agreed with AOL’s argument that this would include both state and federal courts.  In that situation, the agreement would have been upheld, since federal courts permit class action lawsuits. 

The Canadian case of Desjean v. Intermix Media Inc. [2007] 4 F.C.R. 151 (F.C.), also deals with the issue of jurisdiction.  In that case, a Canadian internet user tried to launch a class-action lawsuit against Intermix Media Inc., a California-based company.  The  complaint alleged that spyware and adware were bundled with free software downloaded from the Intermix site.  Intermix did have an online license agreement and defended by arguing that the Canadian Federal Court lacked jurisdiction over Intermix and that the license agreement chose California law. In other words, Intermix argued that there was no “real and substantial connection” between Canada and Intermix. Specifically, the American company had no offices, employees, servers or bank accounts in Canada, and conducted no marketing or advertising in Canada.  The Federal Court agreed with Intermix and the Federal Court of Appeal upheld this decision. 

One more e-commerce case: in Mehmet v. Paypal, Inc., 2008 WL 3495541 (N.D. Cal. Aug. 12, 2008). the court upheld the consequential damages waiver in PayPal’s user agreement. 

The business lessons:

• ensure your online agreements are enforceable; 
• in Canada, laws in Ontario and Quebec deal with online agreements and the right to institute class-action proceedings, so special care should be taken where online customers are located in those jurisdictions;
• the venue selection clauses in online agreements may have to be reviewed in light of the AOL decision;
• even for free downloads, an online license should be put in place to address jurisdiction issues.

Calgary – 11:15 MST

To follow-up on our post last year [IP and Internet Law in 2008 ], here are a few issues to watch in ’09:

US Patent Reform 

Although the US Patent Reform Act of 2007 stalled in the US Senate in 2008, it is expected to be brought back onto the government agenda in 2009 as part of the Obama administration’s plan for innovation.  Look for this to be moved forward once the burning economic issues have been addressed. 

Filesharing 

The recording industry tried multiple tactics in 2008. They pursued file-sharing sites rather than individuals. Their lawsuit against Quebec Torrent resulted in a win-by-default, and it is likely that they will pursue other file-sharing sites in Canada, citing this as a precedent. As expected, the recording industry also made a move against individuals using new anti-piracy legislation.  This trend can be expected to continue in 2009. 

Canadian Copyright Reform

While the government continues to grapple with economic and constitutional issues, it is unlikely that copyright reform will be high on the list.  If we do get a revised copyright reform bill, debate can be expected to drag on until the end of the year. 

Olympic Marks

With the 2010 Olympics coming to Canada in a little over a year, ambush marketing and Olympic advertising will likely generate lots of interesting trade-mark disputes.  As seen in Beijing, the efforts of the Olympic “trade-marks police” will bring this issue to the fore, and will provide an opportunity to test the new Olympic and Paralympic Marks Act.

Calgary – 2:45 MST

 

It’s clear that Microsoft has been monitoring an infringer who made headlines last year when he was hit with a substantial damage award for selling pirated Microsoft software. At the time Mr. Cerrelli, the director of the corporate defendant, was personally liable due to his direct involvement and knowledge of the copyright infringement.  As an update to our earlier post, the Quebec man last week pled guilty to contempt of court for side-stepping the original Federal Court order and selling pirated software through a different company.  He was fined $100,000 for contempt and faces jail time if the fines are not paid. 

 

Calgary – 10:00 MST

Many Canadian companies are hoping that sales to China’s growing consumer class will help cushion the blow of the US economic downturn. Any penetration into the Chinese market will inevitably involve brand battles for consumer products. Take this recent example, where a Chinese distiller was fined for infringing the famous Johnnie Walker Black Label brand. The competing products are pictured – one the original brand and one a Chinese product sold under the brand “Polonius - 12 Years”.  Last month a Chinese court fined the Chinese company 1.25 million yuan (about $225,000 CAD) for infringement of the trade-mark and distinctive shape of the bottle. 

Calgary – 15:30 MST

Can an exchange of email form a contract? To create an enforceable contract, the parties have to intend to be bound by their agreement at the moment the contract is formed. This can happen in different ways, including via email.  In the recent decision in  Basis Technology Corporation v. Amazon.com, Inc. 71 Mass. App. Ct. 29, the court ruled that email communications between the parties’ lawyers constituted a sufficiently complete and unambiguous agreement, and that both parties intended to be bound by that communication of terms.

The court will not look at whether the parties think they have agreed, but what an “objective reasonable bystander would conclude based on all of the material facts.”  If that objective analysis shows that the parties intended to form a contract and the essential terms of that contract can be determined with a reasonable degree of certainty, then the contract will be enforceable.

In Leoppky v. Meston, 2008 ABQB 45 (CanLII), a recent Alberta case, the court concluded that there was an agreement between the parties, formed by a string of emails.

In another interesting twist to this concept, many companies (including internet service providers) reserve the right to amend their “terms of service” by sending the amended terms to customers via email. Last month, AT&T in the U.S. sent out an email notice to its customers, advising of amendments to the standard terms of service.  However, for some customers, AT&T’s own filter identified the email as spam and diverted it into the junk folder.  Depending on the terms, the company might have trouble enforceing the change if challenged in court.

Related Reading: E-Commerce Update

Calgary – 11:45 MST

 

Alberta has produced what appears to be Canada’s first anti-camcording conviction.

Revisions to the criminal code, which target movie piracy in theatres, were used to obtain a conviction against a Calgary man who was banned from movie theatres for a year and fined $1,500. The convicted man was also prohibited from purchasing or owning video recording equipment during his probation period. There does not appear to be any evidence that he was in the business of distributing or uploading pirated videos. The Canadian Motion Picture Distributors Association was apparently pressing for jail time.

Calgary – 20:45 MST

In the battles between generic and brand-name pharmaceutical companies, this decision can be considered a major clarification of the law.

Last week the Supreme Court of Canada (SCC) released its decision in Apotex Inc. v. Sanofi-Synthelabo Canada Inc., 2008 SCC 61. This patent litigation case centres around so-called “selection patents”. Selection patents claim “an advantage for a compound within a previously disclosed class of compounds which has not been disclosed in the prior patent”, as described by the court. Unlike originating or genus patents, which cover an originating invention involving a new reaction or a new compound, selection patents build on previously disclosed classes of compounds but identify a new use or benefit of the compound undisclosed in the originating patent. In this particular circumstance, Apotex (the generic manufacturer) claimed that one of Sanofi’s selection patents was invalid because it was covered within one of Sanofi’s earlier originating patents. The court disagreed with Apotex and upheld Sanofi’s selection patent. The win is significant for Sanofi since it covers the drug company’s second-best-selling drug, and the patent does not expire until 2012, giving the company 4 more years of monopoly over generic manufacturers.

As for the complaint from generics that big pharma is engaging in “evergreening” to continue their monopolies long past the time intended by the Patent Act, the court stated: “Strategies that attempt to extend the time limit of exclusivity of a patent may be contrary to the objectives of the Patent Act, depending on the circumstances, but a generalized concern about evergreening is not a justification for an attack on the doctrine of selection patents. A selection patent may be sought by a party other than the inventor or owner of the original genus patent so that evergreening does not arise. In addition, selection patents encourage improvements over the subject matter of the original genus patent because that selection does something better than or different from what was claimed in the genus patent.”
Related Reading: Pharma Patent Decision Released

Calgary – 17:45 MST

It was announced last night that Barack Obama will become the next US President. Entrepreneurial Americans across the nation are taking the opportunity to file trade-mark applications inspired by the President-elect. Here are a few of the more interesting ones filed in the USPTO in the last year:

• BROCCOLI OBAMA – filed for “A vegetable recipe”
• OBAMALLAMA – for plush and stuffed toys and political memorabilia
• WHO’S YO’BAMA NOW? – for athletic apparel, namely, shirts, pants, jackets, footwear, hats and caps, athletic uniforms; Button-front aloha shirts
• THE REAL OBAMA GIRL  – for audio and video recordings; digital music downloadable from the Internet
• OBAMA BABY – for customized imprinting of company names and logos on promotional merchandise, apparel and corporate gifts
• OBAMANOS! – for imprinting messages on wearing apparel, accessories and mugs
• IRISH FOR O’BAMA – Bumper stickers
• OBAMANATION – for yoga/exercise pants, loungewear and scarves
• O.B.A.M.A. OUR BEST ANSWER FOR MANAGING AMERICA – for T-Shirts, Sweaters, and Hats.

And my personal favourite:

• BEARAK OBAMA – for teddy bears

Now if only Canadian politicians inspired such branding activity.

Calgary – 11:20 MST