Taking Preventive Measures

Photo of Door LockWe have seen it many times before. A businessman or businesswoman attends our office outraged that another business is blatantly copying their product. They want action taken and want it taken now. Copyright protection has no time limitation. If we can claim copyright protection on the product, we can take immediate action. However, design protection and patent protection each have a time limitation. If an application for design protection or patent protection has not been filed within 12 months of the first public disclosure of the product, it is no longer possible to obtain design protection or patent protection. Sadly, we must sometimes advise the businessman or businesswoman that they missed their deadline (sometimes by several years) and have no recourse. We cannot over emphasize the importance of taking early action to protect your product. Unfortunately, due to time limitations, a decision must sometimes be made before it is clear whether or not your product has significant commercial potential. Equally important is the name of the business and the name of the product or service. The law recognizes “common law” Trademark rights, if a competitor is using a similar Trademark in a geographical area in which you have worked hard to establish a reputation for your business. However, you cannot rely upon a “common law” Trademark if the use by another business is not in a geographical area in which your business operates and has an established reputation. We were recently consulted by a client who received a “cease and desist” letter from a legal firm. A person, who was aware of our client, took the concept to a different city a few years ago and started using very similar Trademarks. To make matters worse, they subsequently filed and obtained Federal Trademark Registrations. The legal firm is now demanding our client change the name of their service business and Trademarks used in association with the service. In order to deal with this threat, the client is going to have to ask the Federal Court to invalidate the Federal Trademark Registration on the basis that it would never have been granted by the Trademarks Office had the facts been known. Unlike other types of property, such as real estate and automobiles, it is possible to lose control of “Intellectual Property” assets. The title of this article is “taking preventative measures”. The intended message is to caution you to take steps to protect your Intellectual Property assets as soon as you realize that you have created something of value that others may wish to take and use for their own purposes.

Protecting Video Games

IMGP1188There are certain steps that one should automatically take to protect a video game.  Early in the development process, the proposed name for the game should be protected by filing a Trademark application in Canada. In Canada, a Trademark can be applied for based upon proposed use and  the applicant is given an initial period of 3 years within which to launch.   There is a 6 month foreign filing period for Trademarks.  Prior to the end of that 6 month period, one should apply for United States Trademark protection claiming priority from the Canadian Trademark application .  Claiming priority from the Canadian Trademark application allows you to reach back to your Canadian filing date and also enables you to slow the U.S. Trademark process down so you don’t have to pay extension fees or lose the Trademark if your launch date is delayed.  As soon as there is a working copy of the game, copyright protection should be applied for in Canada, as copyright registration simplifies proving ownership.     Registering copyright in Canada is a simple process that involves filling out an online form.  Most clients do not automatically file for copyright protection in the United States, as the United States requires that a copy of the object code be filed with the Library of Congress.  Prior to launch of the video game, unique features should be reviewed to determine whether they are sufficiently important to be considered for patent protection.  If you have a unique feature that gives you an edge, patent protection can keep competitors from imitating that aspect of your video game.  If you want to see what the video game industry is doing, look at recently issued patents. U.S. Patent 9,095,776 issued August 4, 2015 entitled “Video game extremity control and object interaction” discloses a skateboarding video game in which a skateboarder can grab a skateboard to do a grab trick and change position on the skateboard to do other tricks.  U.S. Patent 9,089,778 issued July 28, 2015 entitled “Video game with expedited combat” recites a methodology for determining whether a combatant dies after a single hit or a greater number of hits by setting forth a scheme of “spending” parameters and “recovery units”.  U.S. Patent 9,079,097 issued July 14, 2015 entitled “Video game with replaceable tiles having selectable physics”, describes a tile game in which tiles are moveable to fill spaces.  The “selectable physics” for the tiles relates to specified direction of movement and speed of movement, and under  certain playing conditions, the “selectable physics” of the tiles change.  U.S. Patent 9,072,974 issued July 7, 2015 entitled “Game play changes to a video game based upon social network polls”,  protects a concept in which a social network of players can influence game play.  U.S. Patent 9,039,532 issued May 26, 2015 entitled “Interactive video game with toys having functionality unlocked through game play”; the title accurately describes the focus of this patent.

Be Aware Of Rights in Musical Works

IMG_0168 - rotatedCanada has a number of collective societies that collect royalties on behalf of rights holders in musical works.  These rights holders include composers and music publishers.  For recorded music the rights holders also include music companies that produce recordings of songs, along with performers who perform on those recordings.   The royalties that the collective societies collect are set by the Copyright Board of Canada. One of my first involvements in Copyright Law involved a client who owned a club at which live music was performed.  He had received a letter from one of the collective societies threatening legal action if royalties were not paid.  A few years later I received a series of similar calls when the Copyright Board first set a tariff for skating rinks and the collective societies started sending out letters.  Today the following tariffs are in place, identified by number and brief description as follows: #1 commercial radio, #2 television, #3 cabarets, cafes, clubs, cocktail bars, dining rooms, lounges, restaurants, roadhouses, taverns, #4 live performances at concert halls and theatres and other places of entertainment, #5 exhibitions and fairs, #6 motion picture theatres, #7 skating rinks, #8 receptions, conventions and fashion shows, #9 sporting events, #10 parks, parades, streets & public areas, #11 circuses, ice shows, light shows, comedy shows, magic shows, #12 theme parks, #13 public conveyances (e.g., airplanes, buses), #14 performance of individual works, #15 background music not covered by 16, #16 background music suppliers (e.g., music on hold), #17 pay television services, #18 recorded music for dancing, #19 fitness activities & dance instruction, #20 karaoke bars, #21 recreational facilities run by municipalities or colleges, #22 internet streaming, #23 hotel or motel in-room service, #24 ringtones, and #25 satellite radio.  Upon reflection, you will appreciate how frequently you are involved in an activity for which someone is required to pay a royalty pursuant to these tariffs. The collective societies include the Society of Composers, Authors and Music Publisher (SOCAN), the Canadian Musical Reproduction Rights Agency (CMRRA), the Society for Reproduction Rights of Authors, Composers & Publishers in Canada (SODRAC), Musician Rights Organization (MROC), RE:SOUND, and CONNECT Music Licensing.   If you are involved in one of the activities that trigger a royalty, we urge you to alert the organizer to check out the applicable tariff, if they are not already enrolled.

News For Music Aficionados

IMG_0166Copyright in a sound recording previously was for a term of 50 years after the end of the calendar year in which the first fixation of the sound recording occurs.    A new Canadian law extends that term by providing that, if the sound recording is published before the copyright expires, the copyright continues until the earlier of the end of 70 years after the end of the calendar year in which the first publication of the sound recording occurs and the end of 100 years after the end of the calendar year in which that first fixation occurs.  If copyright has already expired, the new law will not have the effect of reviving the expired copyright.  All of your favourite sound recording from 1966 that would have become “public domain” at the end of 2016, will now remain protected by copyright by an additional 20 years until 2036.  The Sony Bono Copyright Extension Act enacted in the United States in 1998 had similar provisions extending copyright for 120 years after creation or 95 years after publication, whichever endpoint is earlier.  It is interesting to note that the sound recording of “Four Strong Winds” by Ian and Sylvia Tyson which hit the billboard charts in 1963 has now entered the public domain, as it had expired prior to the new law coming into effect.   However, it is just that particular sound recording that is public domain, as Ian Tyson still holds the rights to the music and lyrics as the author for his life plus 50 years.

Are You Using Unlicensed Software?

Are you aware of BSA-THE SOFTWARE ALLIANCE?  I wasn’t, until I was asked to represent businesses that had been threatened with legal action. The Software Alliance has a mandate to take action against persons with counterfeit or unlicensed software.   Members of the Software Alliance include Adobe, Apple, AutoDesk, IBM, Intuit, Microsoft and a number of less familiar names in the software realm.  More information and a full list of their members can be viewed at their website bsa.org.  The Software Alliance investigates approximately 15,000 complaints a year.  The public is invited to report instances of counterfeit or unlicensed software at the website nopiracy.ca.  The Software Alliance then investigates the matter.  As a pre-condition to any settlement discussions, the Software Alliance demands a list of all of the software on your computers, along with the serial numbers for the software and (where possible) particulars of purchase.   Where there is a discrepancy identified, payment is expected of infringement and software licences purchased to bring the business into good standing.   The handful of businesses that I represented all had unlicensed software.  In one case, my client had 20 computers running Adobe and only had 10 licenses.  There were also problems with upgrades, as the business had only upgraded 3 of those licenses to a newer version of Adobe, but were using the newer version on all 20 computers.   As part of the terms of settlement, the Software Alliance reserves the right to publish details of the settlement to deter other businesses.  Published on their website at the time of writing is a settlement by an Ontario nursery business (identified by name) that paid $54,613.00 to conclude their settlement.    Frequently, businesses get “sloppy” regarding keeping track of software.   New computers are purchased and necessary software is simply copied onto the new machine.   If you feel that your business could be using unlicensed software, I recommend that you conduct a “self audit” to check your potential exposure should the Software Alliance knock on your door.  I also urge you to assign someone in your office with the task of monitoring software installations and keeping records of software purchases.

Recent Case on the use of Metatags – Red Label Vacations v. 411 Travel Buys

Red Label Vacations v. 411 Travel Buys (2015 FC 19) is a recent decision of the Federal Court of Canada that clarifies trademark law as it relates to the use of metatags on websites.  A metatag is a word or small phrase that is embedded in a website but is not visible on the actual webpage(s).  When a person types a phrase into a search engine, such as Google, the search engine uses an algorithm to search the Internet for web pages containing the particular words. Metatags are merely one of the factors that affect search results.  However, generally, the greater the number of times a search term appears in metatags and in the text of the webpage itself, the greater the likelihood that a search engine will rank the website higher in the search results (page 1 of the results list as opposed to page 6, for example). Red Label is a travel business that offers online travel information services and bookings through its website redtag.ca.  Red Label has three registered trademarks: “redtag.ca”, “redtag.ca vacations” and “Shop. Compare. Payless!! Guaranteed”.   411 Travel is an online travel agency offering information to customers through its website.  Red Label uses Google Analytics to monitor traffic on its website.   When Red Label experienced a lull in web traffic, their investigation revealed that 411 Travel had been using Red Label’s registered trademarks as metatags.   As a result, some people searching for the Red Label website, instead ended up at the 411 Travel website providing the same travel services. Red Label alleged lost revenue of $760,000.  US trademark law has a doctrine of “initial interest confusion”, under which trademark confusion (and thus infringement of a registered trademark) occurs when a customer seeking a particular brand of goods or services, is drawn to a competitor’s business through the competitor’s use of the first company’s trade name or trademark to misdirect the customer’s initial interest.  The judge in the Red Label case, Justice Manson, held that the doctrine of “initial interest confusion” does not apply in Canada.  Justice Manson concluded that a search engine merely gives the consumer a choice of independent and distinct links that he or she may choose from, rather than directing a consumer to a particular competitor.  Rankings may affect the choice to be made, but nevertheless, such a choice exists.  Justice Manson declined to find that the use of metatags alone constituted “passing off” or “trademark infringement”.   Here, there was no use of any of Red Label’s trademarks or trade names on 411’s visible website. The website was clearly identified as 411 Travel Buys’ website. There was no likelihood of deception as to the source of the services provided on the 411 Travel Buys website, and the consumer was free to select the link to the Red Label website and disregard the 411 Travel Buys website.  Please drop the writer an email at dthompson@tcllp.ca if you have any comments as to whether this was a “just” result.

Financing Ventures Through Crowdfunding

A number of our clients have been asking about crowdfunding as a possible way to finance their new ventures.  Here is what we have learned.  Crowdfunding is a form of funding made possible by social media, in which a large number of people contribute small amounts toward a venture.   In order to avoid onerous securities regulations directed to public share offerings, in crowdfunding campaigns, the contributors do not obtain an ownership interest in the venture.  Each contribution is akin to a donation and typically, in exchange for a contribution, each contributor is given some form of thank you “perk”, depending on the amount of the contribution.   Most contributions in a crowdfunding campaign will be under $25 and the average contribution will likely be in the $75 range. For contributions under $10 the contributor may just receive a thank you message, for contributions of $25 the contributor may receive a key chain, and for contributions of $75 the contributor may receive a t-shirt. In addition, there are usually product discounts and early purchase incentives.   Generally, the amount contributed represents approximately 5 times the value of the perk.  Crowdfunding was initially used for “arts” funding, relating to music, theater, art, film/video, dance, etc.  Statistics released by one crowdfunding platform indicate there have been 49,000 campaigns relating to music, of which 40% reached their target goal and 84,000 campaigns relating to film/video projects, of which 24% reached their target goal.  The use of crowdfunding by small business is relatively new, with only 20,000 campaigns, of which a relatively dismal 3% reached their goal.  The reason for the low success rate is that initial campaigns were ill prepared.  Successful campaigns tend to set forth a very specific project with a targeted appeal to contributors that have personal reasons to support it.  The target should be a relatively small and reasonably attainable goal. The average campaign is conducted over a period of 35 days.  It is critical that 30% of the target be obtained within the first 3 days of the campaign (presumably through existing contacts) in order to create a “momentum” that will encourage members of the public to get on board.  There is much to do in advance of a crowdfunding campaign.   The party seeking crowdfunding should have a website, a 3 minute video that tells a compelling story, 7-9 levels of attractive perks, over 900 Facebook friends and a full-blown publicity campaign to get the word out as the launch date approaches. In order to raise just $25,000 at an average contribution of $75, will require 334 contributors of which a third will typically be Facebook friends.  There must be something about the new venture that spurs to action members of the public who were not previously aware of the venture.  Perhaps the new venture sells a safety product and the campaign is targeted toward friends and family of workers who are frequently exposed to the very danger the safety product addresses.  In summary, if the project is one that inspires the target audience to proudly wear t-shirts to demonstrate their support, crowdfunding may be suitable.  If the project is more difficult for the public to relate to, we recommend against crowdfunding, as most of us really do not need another t-shirt and, if we did, could purchase one for less than $75.

The Intellectual Property (IP) Audit

You have an idea that has potential and decide to become an internet entrepreneur.  You secure a domain name.  You hire a programmer to write the code to make your website function, a graphics firm to create a logo and a web design firm to set up the content and “look and feel” of the website.  You raise some money from investors, create a start-up corporation and approach a large corporation about “partnering”.  Initial discussions are positive, and you are told that a legal firm for the large corporation will be contacting your lawyer to make some due diligence inquiries.  The first group of questions the lawyer is going to ask relate to the domain name.  Is it owned by the start-up corporation or is it still sitting in your personal name?   It should be owned by the start-up corporation.  Did you have any searches performed in Canada and the United States in order to determine whether your use of the domain name could potentially infringe someone else’s rights?  The large corporation does not want any problems. Have you taken steps to file a Trademark in Canada and the United States to protect the domain name?   The large corporation wants protection against copycat websites.  The second group of questions the lawyer is going to ask relate to the content of the website. Do you have an agreement transferring all rights in the software code from the programmer to the start-up corporation? Do you have an agreement transferring all rights in the logo from the graphics firm to the start-up corporation?  Do you have an agreement transferring all rights in the website content from the web design firm to the start-up corporation?  Many of the contracts used by programmers, graphics firms and web design firms, make them the owners of the copyright. Moral rights prevent alteration of copyright materials without express permission from the creator.  Have “waivers” of these moral rights been obtained, so changes can be made in future?  Is there patent protection, or has this at least been explored before public disclosure deadlines preclude patent protection?   The third group of questions the lawyer is going to ask relate to employees, subcontractors, and shareholders.  Did the subcontractors sign non-disclosure agreements with non-compete provisions?  Do the employees have employment contracts with non-disclosure and non-compete provisions?  Is there a shareholder agreement in place, with termination provisions in the event of a dispute with non-compete provisions?  It all comes down to whether the Intellectual Property and Contractual provisions that the large corporation expects to see are in place.   If so, are the Intellectual Property and Contractual provisions with the correct legal entity, i.e. the start-up corporation?  Look at your own business.   Are you ready for the call?

Design Protection (A Simplified Explanation)

Design protection focuses upon the shape, configuration and “look” of a product. The accompanying video is intended to provide a simplified explanation of what Design protection does and does not cover.

Here is a transcript of the video

Design Protection protects the way an object looks – an object such as a chair.  I recommend design protection whenever the design cannot be removed from the chair.  For example, when you have a chair with a unique back.  I don’t recommend design protection when the design could be removed from the chair.  For example, if you had a picture of Mickey Mouse.  A picture of Mickey Mouse could be applied to a lunch box, a mug, or anything.  It doesn’t have to be part of the design, so I recommend that you protect something like that, which can be separated from the chair, by copyright instead.  The weakness of design protection is Design Protection protects the way your chair looks, but a competitor can get around your design entirely by making a chair that looks different.  So that’s your summary – a simplified explanation of design.

A New Perspective on Craft Sales

Large chain stores generally do not want to create a listing for a single product. That means that an inventor seeking to sell a product through the chain store, must do so through a distributor who already is doing business with the chain. In exchange, the distributor charges 30%. The chain store will have a standard mark up, typically 50%. The chain store has high fixed expenses and need a constant turnover of inventory in order to make money. If inventory of a particular product does not turn over within a reasonable time period, the chain store will cease carrying the product. In order to ensure turnover, products must be priced to sell. This results in the chain store dictating to suppliers what the retail price must be. For example, if the chain store determines the retail price is to be $10.00, the wholesale price must be $5.00 in order to do business with the chain store. Once the distributor’s 30% is deducted from the $5.00, this leaves the inventor with $3.50 Out of the $3.50, the inventor must pay for materials and labour; the remainder (if any) the inventor retains as profit.
When products are mass produced, there are “economies of scale” that results in the per unit price being reduced. However, in the early stages of a product’s development, the product runs are typically small. There are a number of reasons for this. The first reason is that the product is still in development and changes are being made. The second reason is that most inventors have limited resources, they cannot afford to produce in mass quantities. The third reason is that it has not, as yet, been confirmed that there is a market for the product. The inventor does not want to end up with 10 boxes full of products gathering dust in the garage.
In order to survive in the early stages, the inventor must look for ways to test the market for the new product that will see the inventor receiving a higher return which will offset the higher cost of producing products in small runs. Selling the product on a website dedicated to the product is the modern answer to that dilemma. However, while the internet allows the inventor to potentially reach a global audience, products can become lost on the internet. The most effective way to interact with the buying public while retaining most of the sales proceeds is still at small venues; what are commonly referred to as farmers markets, flea markets, and craft sales. The public vote with their dollars. If they do not have an interest in your product, that will be painfully apparent and you will barely recoup the cost of your market stall. If there is a lot of activity, the public will tell you if the price is too high or it will become apparent by poor sales numbers. I hope that the foregoing will give you a new perspective. The Xmas craft sales season is upon us. If you see a new and innovative product as you wander around the craft sales, I hope you will remember this article and treat the vendor with respect. He or she may be a budding entrepreneur who is merely passing through a test market stage on the way to greater success.