Video Game Developer’s Worst Nightmare

PlayStation-5You spent over 1200 hours in developing a video game and that video game is now successful.  At some time during development, a friend had some free time and assisted by creating images of a couple of cars, accessory items like fuel cans and trees, and some background scenery.   The “friend”, hearing about the success of the video game, demanded 25% of the profits from the video game for his contribution.  You respond by removing the images from the video game.   This did not satisfy the now former-friend, who sued you claiming there was an express profit sharing agreement, claiming that even in the absence of an express profit sharing agreement his contributions made him a co-author of the video game and thus entitled to a share of the profits, and alternatively, that he was entitled to compensation commensurate with the value of his contribution.  This is the fact scenario from a Quebec case, Seggie v. Roofdog Games Inc, where Seggie, the “friend”, made a claim against a video game developer by the name of Germain and Germain’s company, Roofdog Games Inc.   Under the Canadian Copyright Act, except for some specified exceptions (including making a work subject to copyright in the course of employment) and absent an agreement to the contrary, the author of a work is the first owner of copyright in the work, and joint-authors (also referred to as co-authors) are the first co-owners of copyright.  The Judge in the Seggie case set out the following factors to consider in determining whether video game developers are “co-authors”:  1) each co-author must have made a substantial contribution, 2) the co-authors must work collaboratively toward a common goal, 3) there must be an implication that the co-authors must have intended a jointly-authored work, and 4) the contributions of the co-authors must be blended together and not distinguishable one from the other.  The Judge found the Seggie was not a co-author, as his contributions were minor in comparison to those of Germain, the disparity in contributions and other background evidence did not indicate that they were working toward a common goal or suggest an intention for a jointly-authored work, and Seggie’s contributions remained distinguishable from those of Germain.  However, the Judge found that Seggie owned copyright in the images of cars, fuel cans, trees and background scenery he had provided to Germain.  Since it was unclear that Seggie had permanently renounced his right to compensation for the use of the images, Germain was ordered to pay compensation for the use of the images in the sum of $10,000.  There is a lesson here for video game developers.  You should document in writing the relationship and, if applicable, compensation due anyone who makes even a minor contribution during the development of your video game.

The Copyright Act and Paywalls

Companies or individuals who wish to bypass paywalls should be aware that a Canadian court  recently held an association liable for copyright infringement because it requested and obtained a paywall-protected news article from a third party with a subscription to the news site.

The articles, images, and audio and video files found on the Internet are all works subject to copyright, meaning that some entity (e.g., an individual or company) owns copyright and thus has “the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever.” It is an illegal infringement of copyright to do what the copyright owner has the sole right to do, without the owner’s permission.  These aspect of copyright law are widely understood (though often ignored, e.g., music file sharing).

Less well known is a relatively new aspect of Canada’s copyright law relating to technical protection measures.  Under our Copyright Act: a technical protection measure is defined as any effective technology that in the ordinary course of its operation controls access to a work subject to copyright; and it is illegal to circumvent a technical protection measure.

A paywall is a system that prevents Internet users from accessing webpage content without a paid subscription.  For example, some general readership newspapers have implemented paywalls on their websites to increase their revenue, which has been diminishing due to a decline in print subscriptions and advertising revenue.

The recent court decision, Blacklock’s Reporter v Canadian Vintners Association, dealt with a dispute between a subscription-based paywall-protected electronic daily news service providing detailed information about the Government and courts in Ottawa (Blacklock’s), and an industry association (Canadian Vintners) that did not have a subscription but had requested and obtained a copy of an article relating to the association, from a person with a subscription.  Blacklock’s usually charged $157 for a single-use subscription and $11,470 for an institutional membership.  When Blacklock’s became aware that two individuals at Canadian Vintners had accessed the article, Blacklock’s billed Canadian Vintners for two single-use subscriptions ($314) and requested the name of the person who had provided the copy (who was in breach of the terms and conditions of their subscription).

Canadian Vintners refused to pay or to provide the person’s name, and the dispute led to a lawsuit.  The Ontario Superior Court Small Claims Judge held that the paywall constituted a technical protection measure, and held that requesting and obtaining a copy of a paywall-protected  article from someone with a subscription, constituted the illegal act of circumventing the technical protection measure.  As the copy of the article was obtained illegally, the exceptions to copyright infringement (e.g., “fair dealing for the purpose of research, private study, education,… ”) that may apply in some situations, were not available to Canadian Vintners.

Thus, although Canadian Vintners had not itself made the infringing copy, it was found liable for copyright infringement based on the circumvention of the technical protection measure.  Further, the Judge awarded Blacklock’s damages based on the institutional membership ($11,470) plus $2,000 in punitive damages for Canadian Vintners highhanded behaviour (which included refusing to give the name of the person who provided the copy of the article, until ordered to do so by the Court).

Changes in European Trademark Law

There is one aspect of European Trademark law related to how the European Union Implemented the so-called International Classification system for goods and services, which I have always found objectionable.  There are 34 broadly defined classes of goods and 11 broadly defined classes of services in the International Classification system.   In Canada and the United States, when you apply for Trademark protection you must identify the goods and/or services with which the Trademark is associated.  A very specific list must be presented, using ordinary commercial terminology, for example, “adhesives”.  To be clear, the US has adopted the International Classification system, but still requires a description of the specific goods and/or services.  By contrast, under European Trademark Law, the applicant is able to specify all of the goods and/or services in each of the classes in which any of the applicant’s goods and/or services fall. . For example, an applicant for a European trademark registration having a trademark associated with “adhesives”, would be able to list the general goods description for the class containing “adhesives” (Class 1), as follows:
“Chemicals used in industry, science and photography, as well as in agriculture, horticulture and forestry; unprocessed artificial resins, unprocessed plastics; manures; fire extinguishing compositions; tempering and soldering preparations; chemical substances for preserving foodstuffs; tanning substances; adhesives used in industry”.
When the Europeans tie up the entire class, this creates enormous problems for a Trademark Lawyer, such as myself.  My client can have his Trademark refused because someone else has a similar Trademark in the same class.   However, if the actual products were compared, it might be clear that confusion between the marks is unlikely, for example because the products are different, they are sold through different wholesale and retail channels, and they are sold to different customers.  For example, adhesives may be sold by chemical companies to distributors who supply adhesives to the lumber industry where they are used to glue wood chips together to form sheets of fibreboard.  In comparison, manure is sold by agricultural feedlots to suppliers who either sell the manure in bulk to agricultural businesses or in bags to consumer for use as fertilizer.  Just because “adhesive” and “manure” are both in Class 1 does not necessarily mean that the Trademarks will be confusing. Thankfully, we have received notification that changes to this objectionable aspect of European Trademark law came into effect on March 23, 2016.  All European Trademark Owners have been given a deadline to specify  the goods and/or services with which they are using their Trademark and, in future, persons applying for European Trademarks will have to similarly specify the goods and/services.   This is extremely important, due to the treaties we have entered into with the Europeans that permit them to Register their Trademarks in Canada.   It is also important to avoid Canadians being “blocked” when they are trying to protect their Trademarks in Europe.

Authority of the Court to order Transfer of Domain Names

Getting a Court to order the transfer of a domain name has been a problem. Many Judges of the Federal Court have claimed that they are without jurisdiction to order the transfer of a domain name.  Their rationale has been that domain names are “personal property”, which, under the division of powers in the Canadian Constitution, is within the “Property and Civil Rights” jurisdiction of the Provinces.   Unfortunately, many Supreme Court Justices in the Courts of the various Provinces have also claimed that they are without jurisdiction.  The result has been unsatisfactory to Trademark Owners.  I was personally involved in a case in the Supreme Court of British Columbia, in which the presiding Justice hearing the case gave us Judgement but refused to order the transfer of a domain name when the defendant undertook “not to renew” the domain name.  My client was forced to monitor the expiry of the domain name, wait for the reinstatement period to expire and then, potentially, compete with others to acquire the domain name after it expired.  This ridiculous result is not an isolated example.  Until the recent Federal Court of Appeal decision in Michaels v. Michaels Stores Procurement Company, there was a vacuum.  The Federal Court of Appeal found that when a domain name is a “mechanism” used to infringe a Trademark, the domain name became an “instrument of confusion in the marketplace”.  Further, the Court of Appeal held that the jurisdiction to order delivery up of the domain names in question (e.g. michaels.ca) is firmly rooted in section 53.2 of the Trade-marks Act, which gives the Court a wide discretion to grant the remedies it considers necessary to give effect to rights that have been infringed; and in subsection 20(2) of the Federal Courts Act which gives the Court jurisdiction to order any appropriate remedy known to common law or equity.  This decision is good news for Trademark owners and will allow better policing of the internet, at least for .ca domain names under Canadian court jurisdiction.

Trademarks and the Evolution of Software

Picture of computer discHistorically there has always been a difference between “goods” and “services” under Trademark law. Section 4(1) of the Trademarks Act states that a Trademark must be marked on the goods themselves or on the packaging. Software was always a type of “goods”. For those of us old enough to remember, software used to be sold on floppy disks. As technology evolved, the floppy disks were replaced with a CD-ROM format. The Trademark for the software could be found on the CD-ROM, on the written instruction manual and on the box that held them. With the rise of the internet, software came to be sold “on line” with the software and the instruction manuals only available through electronic download. The “goods” remained essentially the same, just their mode of delivery changed. The Trademark still appeared on the “goods” at the time of download and on the boot-up screen every time the software was initialized. This was captured in the catch all portion of Section 4 (1) of the Trademarks Act that indicates that marking can be “in any other manner so associated with the goods that notice of the association is given”. In recent years, the software business has increasingly evolved into a “service” arrangement (referred to as Software as a Service or SaaS). Customers pay a fee to access software that is resident in the “cloud” accessible over the internet. There are no longer “goods” changing hands in the traditional sense. No software is downloaded. This “cloud” environment sets the backdrop of the recent case of Specialty Software v. Bewatec. Bewatec was successful before the Registrar of Trademarks in invalidating Speciality Software’s Trademark MEDINET on the basis that the Trademark was not being used for “goods” as claimed. Specialty Software asked the Federal Court to overrule the Register of Trademarks and declare the MEDINET Trademark valid based upon the sale of licenses for use of software in the cloud. February 18, 2016 Justice O’Reilly rendered his decision indicating that software licenses are “goods”, albeit “intangible goods”. Wikipedia defines an “intangible good” as a good that is intangible, i.e. incapable of being touched. I have now read a number of articles on the recent decision of the Federal Court of Canada in the Specialty Software v. Bewatec case. The case is being heralded as a ground breaking decision that “demonstrates that courts will adapt legal concepts to modern technology”. I think the fanfare is premature. Firstly, the case may be overturned on appeal. Secondly, if the case stands it could give rise to some unintended consequences. I can certainly understand Justice O’Reilly wishing to uphold the MEDINET Trademark. However, his decision blurs the traditional distinction between “goods” and “services”, by including “intangible” goods in the definition of goods. The “intangible” good was a license. We use licenses every day in various forms. A license is simply a form of permission to use. For example, a ticket to ride on the ferry is a form of license. B.C. Ferries provides a transportation “service”. I am of the view that the Specialty Software v .Bewatec decision is just the start of the discussion and not the end. I am currently contacting my software clients to review their Trademarks. If they are now delivering their software through the “cloud”, I am recommending that they update their Trademark Applications to specify “services” in addition to “goods” and avoid the controversy altogether.

Trans Pacific Partnership (TPP)

The-TPPI was listening to the radio the other day and caught the tail end of an interview concerning the Trans Pacific Partnership (TPP).  The comment that attracted my attention was a statement that the Intellectual Property provisions of the TPP agreement would cost Canada 57,000 jobs.  The same evening the TPP agreement was on the evening television news and the person interviewed indicated that the ability of Canada to change its laws would be hampered.  I have now read the Intellectual Property provisions of the TPP agreement, which are found in the 75 pages which comprise Chapter 18 and accompanying schedules.   The agreement indicates that countries may change their laws “provided that such measures are consistent with the provisions of this Chapter”.   As indicated by the television commentator, Canada would be in breach of the agreement if, after signing, the government chose to pass laws that contradict the provisions of the TPP agreement.   Looking for the lost 57,000 jobs, I found that most of the 75 pages are consistent with the laws of Canada as they presently exist.  The copyright term has been lengthened, but that change is unlikely to cost any jobs.  Canada’s previous copyright term was the life of the author plus 50 years after his or her death.  The TPP agreement provides for a copyright term of the life of the author plus 70 years after his or her death.   In Canada, there is a government approval process before a company can sell agricultural chemical products, pharmaceuticals, or biologics (complex molecules such as proteins that are isolated from plants, animals or micro-organisms, or made using biotechnology).  The TPP agreement provides for a “patent term adjustment”, lengthening the term of a patent when there are delays in the government approval process.  This change will give drug companies a few more years of protection and will slow the introduction of generic drugs into the Canadian market.   As part of the government approval process, companies must submit test data and, where applicable, data from clinical trials.  There is presently no law, prohibiting subsequent applicants for government approval from using test data submitted by an original applicant. The TPP agreement provides that subsequent applicants are prohibited from using the test data submitted by the original applicant for a period of 10 years when seeking government approval for agricultural chemicals, 5 years for pharmaceuticals, and 8 years for biologics.  This will also slow the introduction of generic products into the Canadian market, as generic manufacturers are forced to either wait or develop their own test data and conduct their own clinical trials.  I have no way of assessing whether 57,000 jobs will be lost.  However, it is reasonable to assume that there will be a loss of jobs in the generic drug industry as these provisions begin to affect generic drug manufacturers based in Canada.  However there are some answers missing from the dialog, that would help me decide whether or not I am in favour of TPP.  How many jobs may be gained in other sectors with the signing of TPP?   How many jobs may be lost if we do not sign TPP?  We rely upon our exports, being frozen out of TPP may not be good for Canada in the long run.

Angel Investor Event

Picture of Mayor HelpsIn Victoria, we love to criticize our local politicians from our safe seats on the sidelines with respect to everything from bridge replacement to sewage treatment.  A common complaint is that they don’t “do” anything.  I thought I would take some time to comment on an Angel Investor event entitled “A Capital Mission” that took place February 17 – 19.  This is an example of local politicians trying to make things happen for the local economy by showcasing our tech community to both local investors and investors from elsewhere in Canada and the United States. The event began the evening of Wednesday February 17 with a welcome reception at which Mayor Lisa Helps assumed the role of gracious host, first by giving a welcoming address and then by inviting Amrik Virk, BC Minister of Technology, Innovation and Citizens’ Services, and United States Consul General Lynne Platt to add their comments.  Tim Catlin of Change.org, one of the U.S. based organizations that has invested locally, indicated that with our existing infrastructure and the comparatively low Canadian dollar, Victoria is a very attractive place for a U.S. citizen to invest.  There followed a “pitch night” with the following entrepreneurs making pitches to secure capital for their ventures. LlamaZoo produces software that provides anatomy training for veterinarian students.   Cooler Heads produces auto-deploying head and face flash fire protection.  OrangeDox produces a software that adds greater functionality to Dropbox.  Craftt Technology produces a beer keg tracking system for craft brewers.  Social Nature promotes peer to peer marketing.  Chatter High is a web platform to allow junior high and high school students to explore post-secondary career options in an entertaining way.  Industrial Plankton produces low cost algae bioreactors for aquaculture. Vertical Organic Garden produces space-efficient vertical hydroponic systems for  in-home use. Plurilock produces biometric security systems that monitor keyboard dynamics. Island Circus Place is seeking to start a circus school.  On Thursday, February 18, the Angel Investors were organized in groups and taken on tours that included a number of technology incubators and co-working spaces.    In the morning on Friday, February 19, an Investor Education Workshop was held with a presentation by Josh Maher, the author of Startup Wealth: How the Best Angel Investors Make Money in Startups.  The assembled Angel Investor were then invited to spend Friday afternoon, at the Discover Tectoria trade show with over 70 exhibits located at the Crystal Gardens.  This three day event will have some modest benefits short term, but may lead to some tremendous advances long term.  Congratulations to all who had a role in making this event happen including: Mayor Lisa Helps, Victoria City Council, University of Victoria, ViaTec, Tourism Victoria, the Downtown Victoria Business Association, the Capital investment Network and the Urban Development Institute.

News From Canadian Internet Registration Authority (CIRA)

On Monday February 22, 2016 local members of CIRA were invited to a meeting for an update on the activities of CIRA.  We were advised that CIRA is dealing with a number of problems.  A first problem is a shortage of IP addresses.  Internet Protocol Version 4 (IPV4), one of the core protocols of the Internet, uses 32-bit addresses which limits the address space to about 4.3 billion addresses.  There is currently a move to Internet Protocol Version 6 (IPV6).   With IPV6 the platform has been increased to128-bit addresses. This will provide enough IP addresses for the foreseeable future.  However, one cannot move seamlessly from IPV4 to IPV6, as the technologies do not talk to each other.  IPV4 will be supported for a number of years to allow users to switch over to IPV6 and then IPV4 will be discontinued.  Of 2.4 million .ca websites, only 40,000 have been built on the IPV6 platform to date.  There are websites still being set up using IPV4.  If you are working with websites, it is important that IPV6 be used, as IPV4 will be obsolete in a number of years.  The transition to IPV6 will be slow, as IPV6 is not compatible with some hardware.  There is, of course, a reluctance to spend the money to upgrade hardware, until the date for discontinuing IPV4 is drawing near. The incentive for switching to IPV6 is that it reduces network access bottlenecks that currently are experienced.  A second problem relates to routing. The Canadian internet uses many United States based internet exchange points.  This results in most Canadian internet traffic being routed through the United States.  There was a discussion regarding further developing more Canadian peer to peer shortcuts so that Canadian internet traffic can be more autonomous.   A third problem relates to domain name system security.  There are individuals who make their living by “highjacking” domain names.  They change domain name system authorization information and then redirect internet traffic.  To avoid having your domain name “highjacked” CIRA has provision for “locks” to secure your information.  There is a configuration test you can perform at the CIRA website to determine whether your information has been “locked” [dntests.CIRA.ca].   Security can also be upgraded by using “anycast” as opposed to “unicast” systems.  There are digital signatures that can be used for authentication.  There is a configuration test you can perform at the CIRA website to check to see whether  digital signature authentication (DNSSEC) is enabled [performance.CIRA.ca].https://cira.ca/soi

Kickstarter Campaign for Cable Organizer

A client of our office is launching a Kickstarter campaign at 6pm on March 3 with respect to  a family of cable organizers.  There is one cable organizer that handles the power cord for a smart phone.  There is another cable organizer that handles the earphones that are used with a smart phone.  We are happy to help “get the word out” .  The Kickstarter campaign will run just over 30 days.  We ask that you give this new product a look.   https://www.youtube.com/watch?v=XcLyLsXLc1s

Transitioning from Angel Investment to Venture Capital

Picture of Tipping Point BookVenture capitalists are generally not interested in business “start-ups”.  With business start-ups there are too many unanswered questions regarding the product or service, and the market.   That is why “angel” investors are needed to bridge the gap and assist the entrepreneur, both financially and with business advice, until a track record is developed.  If things go well, there will likely come a stage when the business needs a major injection of funds to take the business to the next level.  Rapid growth can be a curse.  Without adequate financial backing, rapid expansion of a successful business can involve an immediate increase in costs with a delayed increase in revenue, and may result in bankruptcy.  The venture capitalist is looking for a business with rapid growth potential and is prepared to provide the funds to fuel that growth.  I compare angel investment to a small stakes poker game played among friends and compare venture capital investment to a high stakes poker game played with people whose only interest is the game.  In the small stakes game, it is real money; but the small stakes moderate the tone. Within limits, the angel investor will try to accommodate the entrepreneur when problems are encountered.   In the high stakes game, the amount of money at stake increases the intensity of the players.  To make matters even more intense, expectations are sky high.  There are also time limits, as the venture has a monthly “burn rate” and must reach set milestones before the allocated funds are exhausted.  The venture capitalist is gambling.  He or she knows that out of ten businesses that receive investment capital, only one or two will realize their potential.  The potential return must, therefore, be multiples on the investment to cover the losses on businesses that do not succeed.   Those multiples can be between ten and thirty times investment funds.  It is not acceptable for the business to merely create a living for the entrepreneur and jobs for a handful of employees.  The investment must result in the business “scaling up” to provide significant returns.  If the entrepreneur does not have the skill set to guide the business to the next level, he or she may be demoted and replaced by someone who does.  If the business is unable to meet expected milestones, the business will be cut off from further funding.   Those are the rules of the game.  Sorry, it is just business.