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.

What It Takes To Be Successful

I have worked for a number of persons who established new businesses and, eventually, became multi-millionaires. This gives me some insight as to what it takes to become successful. Any advice I may give in this article must be taken with a grain of salt for, although I am modestly successful, I am not in the same league as the successful clients of whom I speak. Contrary to popular opinion, hard work is not enough. My successful clients studied trends in the industries they served. They then surmised that there would be an ever increasing demand for a particular group of products or services, should that trend continue. When they guessed correctly, they rode the “wave” of that trend to success. The greater the impact of the trend on the industry, the greater the degree of success. As my client/friend, Bill, puts it “We planned carefully and I knew we were going to be successful, but I had no idea that we would be this successful”.

For Bill, the trend hit stronger than he had imagined and carried his business to heights beyond his wildest dreams. What if the trend does not materialize to the extent you imagined? Another client, Steve, built his business on a need for products and methodologies for the non-destructive testing of integrated circuits. Unfortunately, there was a downturn in the sector and his potential market dried up. Steve had to either shut down the business or refocus. He took stock of the sensor technologies he had developed for the purpose of non-destructive testing and has now refocused selling sensor technologies for the purpose of wireless equipment condition monitoring.

If you are considering establishing a new business, you will want to give yourself every opportunity to be successful. If you are interested in starting a high-tech business, or any business based on an innovative idea, I recommend that you take advantage of any available programs aimed at assisting high-tech start-ups. For example, the Accelerate Tectoria program offered by VIATeC (based in Victoria) and the SquareOne program offered by Innovation Island (based in Nanaimo). These organizations work with the B.C. Innovation Council to increase the number of successful companies that start and grow in the region. Their 6-month programs are designed to help new businesses overcome any obstacles and accelerate their go-to-market strategy. They provide access to business mentors in the community and professionals (accountants, lawyers, marketers). They have Entrepreneurs-in-Residence who have start-up experience in management positions. They provide access to a work station & workshops put on by experts on topics of interest to managers/owners of new ventures. To check out ViaTec go to viatec.ca. For more information about Accelerate Tectoria go to acceleratetectoria.com or contact Patrick Woodward (pwoodward@viatec.ca). To check out Innovation Island go to Innovationisland.ca. For more information about SquareOne go to thinkbigatsquareone.com or contact Josh Brocklebank (joshua.brocklebank@gmail.com).

When to Fight and When to Settle

I received a settlement cheque today on a patent infringement action. Although the cheque is for several thousand dollars, I estimate that the other side would have paid as much in legal fees had they chosen to fight. You can say what you like about the manner in which the other side found themselves in that position; I am of the opinion that the opposing lawyer acted with integrity in extracting his client from a difficult situation. The opposing lawyer’s client also gets full marks for accepting his lawyer’s advice and making the decision to write the cheque to end the dispute. I have another file on my desk in which the response to the infringement claim has been much different. The opposing lawyer is being as difficult as possible, hoping that my client will get discouraged and will go away. This strategy undoubtedly works in some situations where the infringement has ended anyway and further legal action to recover damages for past infringement may seem to be just not “worth it”. However, in this case, the infringement continues. Far from being discouraged, my client is irritated and becoming more determined; I have received instructions to move the litigation forward. I will first seek to have their defence struck and to obtain a summary finding of infringement. I will then seek an order for recovery of all of their profits. The other lawyer and his client appear to believe they are in a safe position, because on paper the client has been losing money. However, in calculating profits, the court takes revenues received and deducts only materials and labour. The court will not consider the fact the owner of the business has monthly payments on a bank loan, overhead costs, and draws a management salary in order to survive. I am just as often on the other end of these type of disputes. I am currently acting on behalf of Lighthouse Brewing regarding a controversy with one of their brand names. I have great respect for Michael Bierman of Lighthouse Brewing who made the tough decision early and is currently in the process of changing the brand to avoid the controversy. Making these kind of decisions early in a dispute serves to prevent a small problem from becoming a huge problem. Win or lose, it always costs money to fight.

Photographers Rights

Once or twice a month, we receive calls from photographers, regarding unauthorized use by a third party of one of their photographs. These calls often relate to a digital image that the photographer has posted online (e.g., on Facebook), that has subsequently been incorporated into a commercial website.Under Canada’s Copyright Act, a photograph is an “artistic work”, and is subject to protection for the life of the author plus 50 years. Copyright includes the sole right to produce or reproduce a work or any substantial part in any material form whatever. It is an infringement of copyright for any person to do, without the consent of the owner of the copyright, anything that only the owner of the copyright has the right to do.In the event of infringement of copyright in a photograph, the photographer has three years within which to seek relief from the Court. The Copyright Act provides for remedies in the form of an injunction to stop use of the photograph and damages for what the copyright owner has lost. A professional photographer may be able prove such loss through evidence of prices paid for images in the past, but an amateur photographer generally has no history of past sales. In addition to damages, the copyright owner can seek part of the profits the infringer has made from the infringement. However, it may difficult to show that the use of a photograph directly resulted in any profit; for example, a photograph of an eagle used on the website of a plumbing company. Fortunately, the Copyright Act also provides for “statutory damages” of not less than $500 and not more than $20,000, where the infringement is for commercial purposes. For a professional photographer, the unauthorized user may be their own customer. Unless the parties agree otherwise, when a photograph is commissioned by a customer, the photographer owns the copyright in the photograph and the customer may only use the photograph for private or non-commercial purposes. Under the Copyright Act, photographers also have “moral rights”, which include the right to maintain the integrity of the work and the right to be named as the author of the work. Moral rights may be infringed where a photograph is altered (e.g., cropped) in a manner that is harmful to the photographer’s reputation or where the photographer’s name is removed from the image.A summary of the law in this area would not be complete without a mention of the powerful “fair dealing” exception under the Copyright Act. Fair dealing for the purpose of news reporting does not infringe copyright if the source and, if available, the name of the photographer, are mentioned. In the case of Allen v. Toronto Star Newspapers, Allen was a professional photographer who had taken a photograph of politician Sheila Copps. A number of years later, Ms. Copps ran for the leadership of the Liberal Party and the photograph was used by the Toronto Star without permission. The Court held that the purpose of the reproduction was to aid in the representation of a news story relating to the leadership aspirations of the politician and, as such, fell within the fair dealing exception.

Ownership Rights vs. Public Domain and User Rights

This article is intended to be a brief outline of aspects of Canadian law relating to intellectual property and the public domain.  When intellectual-property ownership rights exist in a product, a purchaser of the product will generally only obtain limited “user rights”.  In contrast, when something is in the “public domain” there are no ownership rights and it is available for any member of the public to use without permission and without limitation.  As an intellectual-property lawyer, a general failure by members of the public to understand this distinction and how ownership rights are created or lost, keeps me busy.
When an inventor creates a patentable invention, the invention enters the public domain 12 months after public disclosure, unless an application is filed with the Patent Office within that period.  A patent gives the inventor ownership rights, subject to payment of an annual fee, for a period of 20 years from the filing date of the application; after which the invention will enter the “public domain”.   For example, Alexander Graham Bell’s patents relating to the telephone are all public domain.
When a person creates an attractive design for a functional object, such as a chair; the design enters the public domain 12 months after public disclosure unless an application is filed with the Industrial Design Office within that period.  An industrial design registration gives the designer ownership rights in the design, subject to a 5 year renewal fee, for a period of 10 years; after which the design will enter the “public domain”.   For example, when one sees the same chair made by numerous companies, it is a strong indication that the design is in the public domain.
When a user purchases an article that is protected by a patent or industrial design registration, the user acquires a “user right” to use that article without paying further payments to the inventor.  The user also acquires a “user right” to conduct normal maintenance to keep the article in good condition.  However, the “user right” does not include the right to reconstruct major components of the article.
Regrettably, inventors and designers attending our office to seek protection are often shocked to discover that they have missed their time period and that their creations are now public domain.
Another form of intellectual property, copyright, relates to written works, recordings, software, music etc. Unlike patents and industrial designs, copyright arises automatically upon the  creation of a suitable work; registration is merely an optional public notification that need not take place within a specified time period.  The usual term of copyright is the life of the author plus 50 years; once copyright in a work has expired, the work enters the public domain.  For example, the works of  Shakespeare, Jane Austen and Charles Dickens are all in the public domain.  The rules concerning photographs are slightly different; the photographer acquires rights for a period of 50 years from the date the photograph was taken.  “User rights” in the copyright area are primarily limited to personal use, the user may not distribute or make a commercial use of the literary work, although the law has carved out special exceptions, such as: news reporting, persons with disabilities (e.g., audio books for the blind), libraries, and education.  The most common legal issues in this area relate to users using text or photographs for commercial purposes, such as on a commercial website.
In your personal and business dealings you will encounter some items or materials that are clearly public domain, some that clearly have limited user rights and some that you are uncertain into which category they fall.  If in doubt, I urge you to seek legal advice and avoid potential legal problems.