Legal Actions Against Those Who Use Social Media

YELP is an online service that was founded in 2004 to help people find local businesses.  People can establish a YELP account for free.  Similarly, businesses can setup an account for free, post photos and send messages of special offers to their customers. YELP makes money by selling ads to local businesses, such as dentists, pet sitters and moving companies.  A feature of YELP is the ability of a customer to post a review of a business after he or she has used the services or products of the business.  Each review reflects a customer’s personal experience and “tells it like it was”.   This means that some of the reviews are beneficial to the reputation of a business, as they are “glowing” reviews that describe a positive experience.   This also means that some reviews are harmful to the reputation of a business, as they are “critical” reviews that describe a negative experience.  YELP does not permit paying advertisers to change or re-order the reviews they receive. YELP recently advised that some customers have received legal threats from businesses after posting critical reviews.  In some cases legal proceedings have actually been commenced.  One example given was a dentist, who on five different occasions has initiated legal actions against customers (former patients) who posted critical reviews.   Another example given was that of a professional pet sitting company who sued a customer after a critical review suggested that the pet sitter had killed their fish.  Another example given was that of a moving company who sued a customer after a critical review awarded them just one star. The objective of such legal actions is to get the critical reviews taken down.  YELP has expressed concern that the threat of legal action will silence customers who would otherwise post critical reviews.  In order to combat this activity, YELP has tagged certain business accounts with a “Consumer Alert” which is reproduced below:

Consumer Alert: Questionable Legal Threats
This business may be trying to abuse the legal system in an effort to stifle free speech, including issuing questionable legal threats against reviewers.  As a reminder, reviewers who share their experiences have a First Amendment right to express their opinions on YELP.

Freedom of speech is enshrined in United States law as part of the First Amendment to the United States Constitution.  In Canada, our equivalent is “The Canadian Charter of Rights and Freedoms”, which lists “fundamental freedoms, including “freedom of thought, belief, opinion and expression”.  Unlike their American counterparts, Canadian judges have given more weight to the value of personal reputation than to free speech. I recommend that Canadian customers posting critical YELP reviews stick to the facts.  Any embellishment that goes beyond the facts may give the business or an individual from the business an opening to sue under the laws of libel.

Limitations of Non-Disclosure Agreements

Non-Disclosure PhotoI recently read an article entitled “The scope and limitations of Non-Disclosure Agreements”.  The article explained that a non-disclosure agreement is an agreement in which a party receiving information (Receiving Party) agrees to take reasonable precautions to protect from disclosure information received from a party disclosing information (Disclosing Party).   The article then went on to list a series of matters that must be addressed in a well drafted non-disclosure agreement, including: identifying the information that is to be protected, identifying that the information is being disclosed in order to permit the Receiving Party to complete a specified task for the Disclosing Party, setting forth rules regarding disclosure to employees and safe storage of the information while the task is being undertaken and  requiring the destruction or return of the information when the Receiving Party has completed the specified task.  The article also touched upon remedies available to the Disclosing Party in the event of a breach of the agreement.  Although the article was well written, in my opinion, the author neglected to touch upon a significant limitation of non-disclosure agreements.   Most non-disclosure agreements contain the following provision: “The Receiving Party shall have no obligation with respect to such information where the information has become publicly known through no wrongful act of the Receiving Party”.   Entrepreneurs carefully go around and have non-disclosure agreements signed by parties who are assisting them by manufacturing and supplying components.   Non-disclosure agreements are also signed by parties who are assisting in the preparation of business plans, creating brand names and logos, setting up websites, and setting up marketing plans.  Finally, non-disclosure agreements are signed by parties being approached for investment capital and by parties being approached to assist in marketing and wholesale distribution.   Then on the day of the launch of the product or service, all of the Receiving Parties who signed non-disclosure agreements are released from their obligations, as the Disclosing Party has publicly released the information and thus that information has become “publicly known through no wrongful act of the Receiving Party”.     Non-disclosure agreements are fine for having preliminary discussions, but  once the Receiving Party is working with you, a further agreement needs to be put in place that prevents the Receiving Party from competing with you while they are working with you and for a period of time (for example 2 years) after they cease working with you.  As a practical matter, one or more of the parties you are relying upon as a member of your team may have better connections and more resources than you do.  Once they are released from their obligations under the non-disclosure agreement by your public disclosure, they may come to the realization that they are in an excellent position to deliver the product or service and they no longer need you.  Of course, they will delay acting until they have the opportunity to gauge the market response to your new product or service.  Get the additional agreements signed.  After you have taken all the risks and proven there is a market for the product or service, there will be imitators.  Make sure the imitators are not parties who you thought were members of your team.

THE NAME GAME – OBTAINING A TRADEMARK

This is a SLIDESHARE presentation given to the Better Business Bureau at a “Lunch N Learn” on August 17, 2016.    Some names that businesses choose are simply NOT PROTECTABLE.  This presentation is intended to make persons selecting business names aware of the rules used by the Trademarks Office in reviewing and approving Trademarks.  Included is an overview of unregistered and registered Trademarks.  If you are only acting locally and have no internet presence, it is not critical that you register your Trademark.  If you are doing business over the internet, it is critical that you obtain Trademark protect in Canada and in many cases also in the United States. http://www.slideshare.net/ThompsonCooperLLP/the-name-game-protecting-product-or-business-names

New Developments in the Canadian Music Business

SOCAN (the Society of Composers, Authors and Music Publishers of Canada) collects royalties based upon tariffs approved by the Copyright Board of Canada for Canadian performances of songs for Canadian and international songwriters and music publishers. Tariffs have been set for recorded or live music ranging from concerts to restaurants to fitness classes.  Of particular relevance to this article are the tariffs for performance of songs on the internet and on mobile devices. In May of 2016 SOCAN announced that it had acquired Seattle-based MediaNet.  This was followed by an announcement by SOCAN in July of 2016 that it had acquired New York-based Audiam.  As with all performing rights organizations, SOCAN’s main functions are firstly to determine what music is being performed and, secondly, to collect the applicable royalty prescribed by Canadian law.  Collection of royalties relating to the internet and mobile devices create technological challenges.   MediaNet has more than 51 million sound recordings in its database, each containing a unique audio identifier.  By acquiring MediaNet, SOCAN will be able to identify digital performances from around the world in real-time. Audiam similarly, has one of the world’s most complete databases of sound recording and underlying song/composition metadata.  In addition, Audiam has technology to proactively find works that are not licensed and for which royalties have not been paid. With the combined strength of MediaNet and Audiam, SOCAN can identify the use of music on digital services such as Spotify, Apple Music, YouTube, and Google Play.  When songs are performed, in addition to royalties compensating the songwriters and music publishers, there are also royalties compensating the artists who perform the songs and music recording companies.  Prior to acquiring Audiam, SOCAN was not involved in collecting royalties for performing artists and music recording companies.  In contrast, a significant portion of the business of Audiam was the collection of royalties for performing artists and music recording companies.  With the acquisition of Audiam, SOCAN now has the capability to collect songwriter-music publisher royalties and performing artist-music recording companies royalties.  With changes brought on by the internet, songwriters and performing artists had become frustrated by the ineffectiveness of the performing rights organizations in the collection of royalties, resulting in a fracturing, with new performing rights organizations being formed by the disenchanted.  Through its acquisition of MediaNet and Audiam, SOCAN has greatly increased its ability to be effective at identifying uses of music on the internet and collect royalties.   SOCAN’s acquisition of Audiam’s expertise in collecting royalties for performing artists and music labels, has been heralded by some commentators as an important new development that raises the possibility of SOCAN becoming a “one stop shop” on the Canadian music scene.  The fact that MediaNet and Audiam are U.S. based also suggests that SOCAN will become more active in collecting royalties in the United States.

Trademarks that are Scandalous, Obscene or Immoral

Grumpy DougIn Re Simon Shiao Tam, a decision of the United States Court of Appeals for the Federal Circuit rendered December 22, 2015, was recently brought to my attention.   Mr. Tam named his band “THE SLANTS” to make a statement about racial and cultural issues in the United States.  When he applied for Trademark protection, his application to register THE SLANTS was rejected as being “disparaging” of oriental people pursuant to a section of U.S. Federal law that bars registration of Trademarks that consist of “immoral, deceptive or scandalous matter or matter that may disparage … persons, living or dead, institutions, beliefs, or national symbols or bring them into contempt of disrepute”.   Mr. Tam won his case through a constitutional argument.  The First Amendment to the US Constitution reads in part, “Congress shall make no law … abridging the freedom of speech”. The Court of Appeals indicated that it is a bedrock principle of the First Amendment that the government may not penalize private speech merely because it disapproves of the message it conveys.  The Court of Appeals found the provisions regarding “disparaging” Trademarks unconstitutional and commented, without deciding, that the prohibition against registering immoral or scandalous Trademarks may similarly be unconstitutional. The Tam case has wide implications.  There has been a much publicized dispute between native groups and the Washington Redskins Football team over their use of the disparaging term “Redskins”.    The Court of Appeals noted that there are currently awaiting appeal other Trademarks applications raising First Amendment issues including:
STOP THE ISLAMISATION OF AMERICA,
AMISHHOMO,
THE CHRISTIAN PROSTITUTE,
MORMAN WHISKEY,
HAVE YOU HEARD THAT SATAN IS A REPUBLICAN,
RIDE HARD RETARD,
MARRIAGE IS FOR FAGS,
DEMOCRATS SHOULDN’T BREED,
2 DYKE MINIMUM,
URBAN INJUN,
DON’T BE A WET BACK,
FAGDOG,
N.I.G.G.A. (NATURALLY INTELLIGENT GOD GIFTED AFRICANS).
There is a similar provision under Canadian law (section 9(1)(j)), that prohibits the registration of Trademarks that are scandalous, obscene or immoral.  The writer has handled a few cases where this objection has been raised.   The leading Canadian  court decision, which  dealt with an application to register BUBBYTRAP (for women’s bras), requires  Canadian Trade-marks Examiners to take into consideration evolving standards of what Canadians would consider scandalous, obscene  or immoral.    The writer was successful in convincing the Trademark Branch that the Trademark CALIFORNICATE was not one that the Canadian public would view as scandalous obscene or immoral. The Tam case in the United States raises an interesting issue, as to whether the Canadian Trademark law regarding scandalous, obscene and immoral Trademarks is contrary to the provisions concerning “freedom of thought, belief, opinion and expression” in our Canadian Charter of Rights and Freedoms.  Is the U.S. approach to the freedom of speech the best approach?  Personally, I would prefer that there be some limits on Trademarks that are scandalous, obscene or immoral in order to avoid a stream of swear words and off colour expressions being protected by Trademark.   What are your views?  Communicate with the writer at dthompson@tcllp.ca.

PATENT & DESIGNS FOR CORPORATE LAWYERS

Attached is a SLIDESHARE link that relates to a presentation given to the COWICHAN VALLEY BAR ASSOCIATION on July 26, 2016.   The presentation was intended to give this gathering of experienced corporate lawyers background on the law relating to patents and designs, along with some practical insight based upon my years of experience.  It was an enjoyable evening and there was a great dialog that arose out of questions that were asked.http://www.slideshare.net/ThompsonCooperLLP/patents-designs-for-corporate-lawyers

Balancing of Interests under Copyright Law

johnny-automatic-scales-of-justice-300pxCopyright law often includes a consideration of a “balancing the rights”, usually balancing the rights of content users and the rights of content creators.  Some recent court decisions illustrate how this “balancing” takes place and explore some new issues in copyright law. Maltz v. Witterick (a decision issued by the Federal Court of Canada in May 2016) relates to balancing rights as between two competing content creators.  A writer by the name of Jennifer Witterick was “inspired” to write a fictional novel after viewing a documentary produced by Maltz and some others regarding the life of Francizska Halamajowa and her daughter Helena, who hid three Jewish families when the German army occupied Poland during the Second World War.   Upon becoming aware of the novel, Maltz noted a number of factual similarities between the documentary and the novel, and commenced an action for copyright infringement against the author Witterick and the author’s publisher.  By way of background, the Courts have long held that copyright does not apply to historical facts, such as the German occupation of Poland during the Second World War.  The Judge in Maltz v. Witterick noted that the novel was a fictional story aimed at young readers and had a much different “feel” than the documentary.  The only thing that had been taken were some factual underpinnings for the story.  Counsel for Maltz argued that there was a difference between historical facts in which no one can own copyright and “small facts” drawn from diary entries relating to events on a particular date. In  concluding that the writer Witterick’s use of some actual facts from the life of Halamajowa did not amount to infringement, the Judge made a finding that facts are facts and no one owns copyright in them no matter what their relative size or significance.  A second case, Geophysical Services Incorporated v. Encana et al (a decision of the Alberta Court of Queen’s Bench in April 2016) relates to balancing rights as between content creators and public authorities.  Geophysical Services Incorporated (GSI) was in the business of selling seismic data.   This seismic data was filed with a government board pursuant to a regulatory regime established under the Canada Petroleum Resources Act (CPRA).  After a period of 5 years, the seismic data was made available to the public by the board.   GSI commenced a legal action for copyright infringement against Encana and many other companies that were making use of the seismic data without GSI’s permission.  The Judge confirmed that GSI owned copyright in its seismic data, but held that to the extent that the regulatory regime of the CPRA conflicts with the Copyright Act, the CPRA regulatory regime prevails. The wording of the CPRA, properly interpreted, allows for disclosure without restriction after a defined period of time. It is a complete and specific code that applies to all oil and gas information in the offshore and frontier lands, including seismic data. Its provisions supplant any more general pieces of legislation, such as the Copyright Act.  Both of the foregoing decisions have been met with criticism.  The Maltz v. Witterick case is criticized as it allows a party to use intimate details of someone else’s life without compensation. The Geophysical services v. Encana et al case is criticized as amounting to expropriation by the government without compensation.  What do you think?  Please communicate your views to dthompson@tcllp.ca

Legal Aspects of Art

The link below leads to SLIDESHARE of a presentation sponsored by Community Arts Council of Greater Victoria that I gave at the Victoria College of Art on Wednesday June 29, 2016.

 

Link: http://www.slideshare.net/ThompsonCooperLLP/community-arts-council

Questions and Answers regarding Licensing Technology

LicensingQuestion:  I filed for patent protection. Should I still have potential Licensees sign a secrecy agreement?
Answer:  Secrecy Agreements can get in the way of licensing discussions. Many companies you approach will not sign secrecy agreements.  In fact, large companies often require you to sign an agreement confirming that they are not bound by secrecy.   If discussions are going well, do not hesitate to reveal more information. Bear in mind that a patent application is not “made public” until 18 months after its filing date. The company you are negotiating with can only see such information as you choose to share with them.  If you feel that they are just pumping you for information, do not share more information until they show their good faith by placing a serious proposal before you. These types of proposals are called Letters of Intent, they contain a financial proposal that is subject to receiving and reviewing further information.

Question:  What should I ask for?

Answer:   Generally it is best to capture the company’s interest and then invite them to make the first proposal.   There are a number of reasons for this.  A first reason is that you may undervalue the technology, whereas if you let them make the first proposal you generally will get more.  A second reason is that you may overvalue the technology.  If the company feels you have unrealistic expectations, the company may break off negotiations. A third reason is that every industry has “industry norms”, for example 5% is a typical royalty in some industries.  A fourth reason is that many companies have a “history” of past dealings that they are influenced by (i.e., “this is how we generally structure our licensing deals”).  If you can get a company to make any form of proposal at all, there is potentially a deal to be made.  The greatest problem in licensing is facing the enormous inertia in every industry.  Unless a prospective licensee is actively looking for a better way of doing things, it can be difficult to get their attention if what the industry has been doing for years is still “working” just fine.  An industry executive can lose his or her position spending money on a solution when there was no generally understood problem.

Question:  What should I expect to see in the proposals received from companies?

Answer:  It is unlikely that you will be offered a single large lump sum payment.    Instead you are likely to receive an offer that includes an initial payment of $10,000 to $50,000 and a royalty percentage of sales.  The reason for this is that an executive who pays a huge lump sum on a technology that does not work out is placing his or her career in jeopardy.   If the technology proves itself over time, a buyout offer may come down the road.

Question:  How do I know if the proposal is reasonable?

Answer:   There are “rules of thumb” that are applied to gauge whether a proposal makes sense.  One such rule is the “rule of 25”.   The rule of 25 is sometimes criticized as not taking into account all factors.  This is true, but it works for many situations.   Under the Rule of 25, the labour and materials required to manufacture a product are deducted from a wholesale price for the product to arrive at a gross profit figure.  This gross profit figure intentionally does not include overhead, advertising or administrative costs.   According to the Rule of 25, the company is taking all of the risks and should be entitled to 75% of the gross profit.  You receive 25% of the gross profit for bringing this opportunity to them and providing patent protection to protect their market.  However, the final royalty percentage is never set out in a license agreement as 25% of percent of gross profit. Instead the royalty is converted to a percentage of the wholesale invoice price.  The reason for this is that you need a number that can easily by audited by an inspection of customer invoices.

We stated above that the Rule of 25 does not take into account all factors.  For example, the Rule of 25 does not take into account additional costs that may be incurred in preparing to manufacture a new product.  This can easily be accommodated through a “step royalty”.   A step royalty is a royalty that steps up or down, depending upon the circumstances.  To accommodate the costs incurred in preparing to manufacture, you may agree to take a lower royalty until those costs are recovered and then your royalty will “step up” to a higher level.  Step royalties are used in a variety of situations.  For example, to get volumes up, royalties sometimes “step down” with volume.  In such a situation there may be a royalty of 7 % on the first 50,000 units sold each year, a royalty of 5% on the next 50,000 sold each year and a royalty of 4% on all units over 100,000 sold each year.

Question: Is there any rule of thumb for assessing a lump sum offer?

Answer:  Accounting firms can make projections to determine the amount of royalties expected to be generated over the life of a patent. The accounting firms can then give you a “current value assessment” so that you have a calculation of what lump sum is appropriate as a replacement for the royalty.  This works well when you have been receiving royalties for a number of years.   When the product has not even been on the market and has no sales history, the number is essentially a creative fiction, even working from the best information available.  Even when royalties have been paid for a number of years, the accounting firm must make some assumptions regarding changes to product price due to cost of living and growth of market share that may turn out to be false.  When you have a large lump sum offer presented to you, consider what the alternatives are and how receiving the funds will affect your life.

One client of mine received a 10 million dollar offer and turned it down.  The reason was that he was perfectly happy with the quarterly royalties he was receiving and it did not take an accountant to see that he would be making well over 10 million dollars over the next 5 years by simply keeping his existing royalty stream.  Another client of mine received a 2 million dollar offer and accepted it.  There were no sales.  He could not afford to put the product on the market himself.  If the 2 million dollar offer was withdrawn he had no viable alternative.  He had a wife, two young children, a mortgage and debts incurred in developing the technology.  Receiving the 2 million dollars now would have a major positive impact on his life.

Question:  What should I look out for in any proposal?

Answer:  It is a mistake to focus just on the financial details of the offer.  One should look carefully at what obligations are being imposed back upon you.   Those obligations could cost you more than you will receive.  Who has to pay the expenses associated with completing and maintaining patents in Canada and the United States? If the company wants foreign patent protection, who has to pay the expenses associated with completing and maintaining the foreign patents?  Who has to pay the expenses associated with enforcing the patent against infringers?
If you have granted an “exclusive” license (which often is the case), you need minimum performance requirements to ensure that your technology is not shelved.

On a human level, you and your technology need a “champion” within the company.  Someone you feel is committed to the technology and will drive the implementation of the technology within the company.   Preferably, someone you can relate to.

VIATEC AWARDS – Employee of the Year and Team of the Year

Award winnerThompson Cooper is proud to sponsor the “Employee of the Year” at the ViaTec Award.  The nominees are:
•Aleksey Vorona – xMatters
•Aurora Walker and Rob O’Dwyer – Pretio Interactive
•Matt Martin – Crowd Content

Congratulations to the Employees of the Year – Aurora Walker and Rob O’Dwyer

We feel that this is important as employees are the backbone of every business.

 

Thompson Cooper is also proud to sponsor Team of the Year.  The nominees are:
•Archipelago Marine Research
•Atomic Crayon
•Change.org
•HP Advanced Solutions
•Smart Dolphins
•StarFish Medical

These are exceptional teams, some of whom have previously been nominated.

Congratulations to the Team of the Year from Starfish Medical