Good Faith is now a part of all Canadian commercial contracts

November 17, 2014

By Rob Aske

Entertainment and IT contracts are often full of uncertain promises about future possibilities – such as exercise of options, working together on various manifestations of an entertainment or IT property, serving in various capacities if a project moves ahead, co-producing/developing if certain financing and other factors are satisfied, etc.  Canada’s top court has now imposed a duty of good faith over all contractual relations, which will need to be kept in mind when dealing with such clauses which require the parties to cooperate together. You could face liability for bad faith conduct even if you are compliant with the strict wording of the contract.

In its November 13, 2014 decision, Bhasin v. Hrynew, the Supreme Court of Canada (SCC) unanimously ruled that “good faith contractual performance is a general organizing principle of the common law of contract.” This also includes a specific duty to act honestly in the performance of contractual relations.

Here are the facts:

Harish Bhasin built up a sales force over ten years selling education savings plans for Canadian American Financial Corp (Can-Am) in Alberta. His business thrived and Can-Am gave Bhasin numerous awards for his work.

The contract at issue was signed in 1998 by Can-Am and Bhasin. It obliged Bhasin to sell only Can-Am products, and Can-Am owned the customer lists. Bhasin could not sell his business without Can-Am’s consent.

The contract had an initial three year term, and automatic renewal, but either party could terminate by giving at least 6 months notice prior to the end of that term.

Can-Am chose not to renew and provided such notice to Bhasin in May of 2001.

But incidents leading to that termination were found to be contrary to the duty to act in good faith.

The defendant Hrynew was a competitor of Bhasin, and he wanted Bhasin’s market share. Hrynew pressured Bhasin to merge, and he threatened Can-Am that he would leave if Can-Am did not force a merger. But Bhasin refused.

In 1999 the Alberta Securities Commission became concerned with compliance of Can-Am’s sales force. The Commission required Can-Am to appoint a compliance officer, and Can-Am appointed Hrynew. This meant that Hrynew would be required to audit Bhasin’s business, to which Bhasin vigourously objected. Can-Am told Bhasin that Hrynew was bound to treat any information confidentially, which was found by the trial court to be false. Can-Am threatened to terminate if Bhasin did not permit Hrynew to audit.

In June of 2000 (a year prior to termination), Can-Am made submissions to the Alberta Securities Commission which showed restructuring plans for Can-Am which included Bhasin working for Hrynew. A couple of months later Bhasin asked Can-Am if such a merger was a “done deal” but Can-Am did not offer a clear answer – notwithstanding that Can-Am “wanted to force a merger”.

After Can-Am gave notice to terminate in May 2001 Bhasin sued.

The Court noted that in earlier court cases a good faith obligation had been found in specific situations, including where the parties must cooperate to achieve certain objects (e.g. seeking planning permission), where one party has a discretionary power (e.g. to determine fair market value), or where a party seeks to avoid contractual duties (e.g. repudiating for a cause which the same party brings about). The Court also noted that good faith had been imported into classes of relationships, such as employment, insurance and tendering.

The Court chose to expand good faith to all commercial contracts, and described the basic obligation as follows:

The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary.  Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.  [para 65]

This principle is not to be used “as a pretext for scrutinizing the motives of the parties” [para 70].

Under this new “organizing principle” the Court then chose to establish a new specific duty:

….there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. [para 73, underlining added]

The Court said this is not an implied term but a “general doctrine of contract law”, and the parties are not free to exclude it. However the parties may “relax the requirements” by agreement as long as the core requirement is respected.

The Court was explicit that a failure to disclose may be acceptable where “active dishonesty” would not. (How well this distinction works in reality remains to be seen – withholding information can have impact).

The duty of honest performance does not require that the defendant intend that their representations be relied on.

The Court found that Can-Am acted dishonestly (and repeatedly) about the desired merger of Bhasin’s business with Hrynew, and about Hrynew’s role in the required audit of Bhasin, and that “this dishonesty on the part of Can-Am was directly and intimately connected to Can-Am’s performance of the Agreement with Mr. Bhasin and its exercise of the non-renewal provision.” [para 103].

The Supreme Court awarded damages for Bhasin’s value of the business ($87,000), “on the basis that if Can-Am had performed the contract honestly, Mr. Bhasin would have been able to retain the value of his business rather than see it, in effect, expropriated and turned over to Mr. Hrynew” [para 109].  Presumably Bhasin would have been in a position to prepare his sales force to sell alternative products, though the Court is vague on that point.

It is noteworthy that the Court did not accept the trial judge’s much larger award based on lost income over a period of nine years, which failed to recognize the clear right of either party to terminate.

This case is likely just the start of the expansion of the organizing principle of good faith in contractual matters, and new duties may be established by the courts going forward. But for the moment one should consider the following:

-       It may be helpful to add detail in contracts about the agreed requirements to permit future changes in the relationship such as  termination, exercise of options or otherwise, to remove room for argument that the chosen route is not one of good faith;

-       Despite the Court’s statements to distinguish between active dishonesty and a duty of disclosure, one will need to be cautious where silence in the face of questions is a lie (the Court indeed found Can-Am liable for failing to provide straight answers when Bhasin asked about a possible merger with Hrynew);

-       Conduct and communications with another party may need to be given greater attention despite contractual provisions which appear to put you in a position of strength.

 

By Rob Aske

Entertainment and IT contracts are often full of uncertain promises about future possibilities – such as exercise of options, working together on various manifestations of an entertainment or IT property, serving in various capacities if a project moves ahead, co-producing/developing if certain financing and other factors are satisfied, etc.  Canada’s top court has now imposed a duty of good faith over all contractual relations, which will need to be kept in mind when dealing with such clauses which require the parties to cooperate together. You could face liability for bad faith conduct even if you are compliant with the strict wording of the contract.

In its November 13, 2014 decision, Bhasin v. Hrynew, the Supreme Court of Canada (SCC) unanimously ruled that “good faith contractual performance is a general organizing principle of the common law of contract.” This also includes a specific duty to act honestly in the performance of contractual relations.

Stewart McKelvey Tweets

Parody Recognized Throughout the European Union

October 28, 2014

By Rob Aske

The Court of Justice of the European Union has recently ruled that the concept of parody must be regarded as an autonomous concept of EU law, in the case known as Dechmyn v. Vandersteen (case Case C‑201/13).

Johan Dechmyn was a member of a far right political party in Belgium, and at a 2011 event he distributed calendars which included an image adapted from the cover of a comic book from Vandersteen’s comic series, which is known in English by the title Spike and Suzie.

In the adaption of the comic book cover, the mayor of Ghent was depicted as one of the comic book characters, throwing gold coins to immigrants.  The heirs of the owner of the original work sued in Belgium for infringement of copyright.

The Brussels Court of Appeal referred certain matters to the Court of Justice of the European Union in respect of parody law.

The original and modified images at issue in the case were as follows (click on image to expand):

parody

The defendant Dechmyn argued that the modified image was a political cartoon which fell within the scope of parody, and therefore permission from the copyright owner was not required.

The CJEU stated that parody must be regarded as an autonomous concept of EU law and interpreted uniformly throughout the European Union.

The Court found that there were two basic criteria for parody: Firstly that the work of parody evokes an existing work while being noticeably different from it, and, secondly, the work must constitute an expression of humour or mockery.

The reference to humour or mockery is wider than some jurisdictions interpret parody, such as the United States, where some courts require that the parody specifically comment on the original work or its creator.

The European Court found that parody does not require (i) that the parody must display an original character of its own, other than displaying noticeable differences with respect to the original work; (ii) that it could be reasonably attributed to a person other than the author of the original work, nor (iii) that it must relate to the original work or mention the source of the original work.

The Court found that the exception for parody must strike a fair balance between the interests of the owner, and freedom of expression of the user.

However, the Court also noted that the use in this case may convey a discriminatory message, and the Court ruled that it was to be determined by the National Court whether the parody was discriminatory, which might negate the parody protection. The Court stated that the owners of the work have a legitimate interest in ensuring that it is not associated with such a discriminatory message.

This decision will be of interest to creators distributing works of parody in the European market.

By Rob Aske

The Court of Justice of the European Union has recently ruled that the concept of parody must be regarded as an autonomous concept of EU law, in the case known as Dechmyn v. Vandersteen (case Case C‑201/13).

Johan Dechmyn was a member of a far right political party in Belgium, and at a 2011 event he distributed calendars which included an image adapted from the cover of a comic book from Vandersteen’s comic series, which is known in English by the title Spike and Suzie.

Website Terms and Conditions: What Constitutes Acceptance? – A Recent U.S. Case Casts Doubt.

September 25, 2014

By Rob Aske

A recent U.S. Court of Appeals decision (Ninth Circuit, August 18, 2014) is a reminder to any of us seeking to impose contractual terms on our website users and online customers.  Nguyen sued Barnes & Noble in federal court, but Barnes & Noble was seeking to enforce the arbitration clause in their website terms and conditions, to move the proceedings out of the court.

The case arose from the liquidation by Barnes & Noble of its inventory of discontinued HP “Touchpad” tablets, which were an unsuccessful competitor to the iPad.

Barnes & Noble advertised the fire sale of Touchpads at a heavily discounted price.  Nguyen acted quickly and purchased two units on their website and received an email confirming the transaction.  But the following day he received another email from Barnes & Noble informing him that his order had been cancelled due to unexpectedly high demand.

Nguyen’s lawsuit alleged that Barnes & Noble had engaged in deceptive business practices and false advertising.

Barnes & Noble asked the court to move the action from federal court to the arbitration under their terms and conditions.

There was no explicit acceptance by Nguyen of the website terms, and therefore the contract, if there was one, was considered a “browsewrap” agreement.

The court summarized the differences between clickwrap agreements, where users explicitly click “I agree” or otherwise clearly accept the terms, and browsewrap agreements where a website’s terms and conditions are posted on the website and a user is found to give their consent simply by using the site.

However, since no affirmative action is required by a website user to agree to the terms under a browsewrap agreement, a determination of whether it binds the user depends on whether the user has actual or constructive knowledge of its terms and conditions.

In this case there was no evidence that Nguyen had actual knowledge of the website terms, and so the question was whether the website put a reasonably prudent user on notice of the terms.

The court looked at prior decisions which provided some guidance. For example, where the link to the website terms is buried at the bottom of the page or tucked in obscure corners of the site, courts are unlikely to enforce the browsewrap agreement.  However, if a website contains an explicit textual notice that continued use will act to indicate the user’s intent to be bound by the terms, then the courts are more amenable to enforcing the browsewrap agreement.

Barnes & Noble argued that their terms and conditions were sufficiently brought to the attention of users by a hyperlink at the bottom left corner of every page on their site, and in close proximity to the buttons that a user must click on to complete a purchase.

But the court found that the proximity or conspicuousness of the hyperlink alone is not enough to give rise to the required constructive notice.

The court held that where a website makes its terms of use available via conspicuous link on every page but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate acceptance, then even close proximity of the hyperlink to the relevant buttons, without more, is insufficient to give rise to constructive notice.

The striking result in this case is that it is unclear how any website operator or online merchant can be certain that a user is bound by the website terms, absent clear acceptance through some affirmative action.  Aside from terms and conditions found at a website, we must also wonder whether other provisions such as a privacy policy can bind a user without clear acceptance.

Despite this case being a fairly high level American decision, Canadian companies, especially those doing business in USA, should pay close attention to the ruling, and indeed a Canadian court could come to a similar result.

By Rob Aske

A recent U.S. Court of Appeals decision (Ninth Circuit, August 18, 2014) is a reminder to any of us seeking to impose contractual terms on our website users and online customers.  Nguyen sued Barnes & Noble in federal court, but Barnes & Noble was seeking to enforce the arbitration clause in their website terms and conditions, to move the proceedings out of the court.

Countdown to Anti-Spam: CRTC Issues New Guidance on Compliance

June 27, 2014

By David Wedlake, Summer Student

In preparation for the July 1st coming into force of Canada’s Anti-Spam Legislation, the Canadian Radio-television and Telecommunications Commission (CRTC) has issued Compliance and Enforcement Information Bulletin CRTC 2014-326: Guidelines to help businesses develop corporate compliance programs.

The bulletin provides general guidance for best practices for businesses on the development of compliance programs to facilitate compliance with the new anti-spam law. It also offers insight as to what will be required for an organization to demonstrate that it exercised due diligence in the case of a violation of the law. The bulletin states that, in the event of the breach, the CRTC may take the existence of a compliance program into account when determining whether sanctions should include monetary penalties.

The CRTC recognizes that compliance programs will necessarily have to be tailored to the size of and resources available to a business or organization. They recommend appointing a chief compliance officer or a point person who is responsible and accountable for compliance with the law. The CRTC expects senior management to play an active role in “fostering a culture of compliance”, suggesting that a member of senior management be named the chief compliance officer.

The CRTC has identified several components of an effective compliance program. These include:

  • Conducting a risk assessment;
  • Developing a written compliance policy;
  • Maintaining records and tracking consent, exceptions to consent, unsubscribe requests and actions;
  • Implementing on-going training programs;
  • Auditing and monitoring compliance;
  • Handling of complaints; and
  • Disciplinary and corrective action for employee violations.

The bulletin expands upon each of these components and provides examples as to how they may be implemented. In a business of any size, the compliance policy should be made easily accessible to all employees and be updated to keep pace with changes in legislation, non-compliance issues, or new services or products.

The CRTC’s Compliance and Enforcement Information Bulletin CRTC 2014-326 can be found here [http://www.crtc.gc.ca/eng/archive/2014/2014-326.htm].

By David Wedlake, Summer Student

In preparation for the July 1st coming into force of Canada’s Anti-Spam Legislation, the Canadian Radio-television and Telecommunications Commission (CRTC) has issued Compliance and Enforcement Information Bulletin CRTC 2014-326: Guidelines to help businesses develop corporate compliance programs.

Provision of Subscriber Information by ISPs – A Monster Decision from the Supreme Court of Canada

June 13, 2014

By Rob Aske

On June 13, 2014, the Supreme Court of Canada delivered a major decision affecting privacy.  The matter involved a criminal trial where the accused, Spencer, was facing certain child pornography offences.

The police had used a software program to identify anyone sharing child pornography, and they located one such IP (internet protocol) address in Saskatoon, with Shaw as the internet service provider (ISP).  The police then requested subscriber information including name, address and telephone number from Shaw.

The request was a routine request under Canada’s federal Personal Information Protection and Electronic Documents Act (PIPEDA) which permits disclosure to a government institution which has “identified its lawful authority” to obtain the information and indicates that the disclosure is required to enforce a law or carry out an investigation relating to enforcement of a law.

Shaw complied with the request and provided the name, address and telephone number, which happened to be for the accused’s sister.  Spencer sought to exclude the evidence at trial based on an unlawful search.

The Crown argued that the subject of the search was simply name, address and telephone number, and therefore material privacy or search issues did not arise.  But the Supreme Court answered that constitutional protection against search and seizure applies not only to the information requested, but information which tends to be revealed by the search – in this case, the identity of the subscriber corresponds to particular Internet usage which can of course say much.

The Court also recognized that anonymity in the context of internet use deserves privacy protection under the law.  The Court did not believe this would threaten effectiveness of law enforcement, as in cases such as this, it seemed clear that the police had ample information to obtain a necessary production order.

The Court also examined whether Spencer had a reasonable expectation of privacy, including with an examination of Shaw’s terms of use.  While such terms of use permitted disclosure to government authorities, they also, as is quite typical, linked to a privacy policy which emphasized commitments to protection of personal information and strict confidentiality.  On the whole, such terms therefore did not remove any expectation of privacy.

The Court specifically addressed section 7(3)(c.1)(ii) of PIPEDA which has been used for such requests, and emphasized that this section only permits disclosure if the government institution or the police have lawful authority to request the disclosure. The Court stated:

“It would be reasonable for an Internet user to expect that a simple request by police would not trigger an obligation to disclose personal information or defeat PIPEDA’s general prohibition on the disclosure of personal information without consent.”

The Court concluded that the information was unconstitutionally obtained.

Note that ultimately the evidence was not excluded by the Supreme Court, since the police had not acted unreasonably based on the state of the law prior to this new decision from the Supreme Court.

This decision will have a major impact on disclosure of subscriber information from ISPs and also on the federal government’s proposed expansion of these disclosure rights under their Bill C-13.

(Case name: R. v. Spencer, 2014 SCC 43)

By Rob Aske

On June 13, 2014, the Supreme Court of Canada delivered a major decision affecting privacy.  The matter involved a criminal trial where the accused, Spencer, was facing certain child pornography offences.

The police had used a software program to identify anyone sharing child pornography, and they located one such IP (internet protocol) address in Saskatoon, with Shaw as the internet service provider (ISP).  The police then requested subscriber information including name, address and telephone number from Shaw.

The request was a routine request under Canada’s federal Personal Information Protection and Electronic Documents Act (PIPEDA) which permits disclosure to a government institution which has “identified its lawful authority” to obtain the information and indicates that the disclosure is required to enforce a law or carry out an investigation relating to enforcement of a law.

Shaw complied with the request and provided the name, address and telephone number, which happened to be for the accused’s sister.  Spencer sought to exclude the evidence at trial based on an unlawful search.

Digital Literacy and Consent in the Age of Social Media: The Privacy Commissioner’s Response

June 13, 2014

By Aaron Lemkow, Summer Student

The federal Personal Information Protection and Electronic Documents Act (PIPEDA) began coming into force in May 2000 and established the legislative regime for protecting personal information in the private sector. Fourteen years is a long time in information technology and despite several amendments over PIPEDA’s lifespan, there are concerns that its framework is struggling to keep up with a constantly shifting digital landscape.

A particular area of concern is informed consent and social media, which was subject to an extensive report by the House of Commons Standing Committee on Access to Information, Privacy and Ethics. The Committee heard testimony from the Privacy Commissioner, as well as submissions from other legal experts and key industry players. The Committee released its findings in April 2013. Among the key concerns were:

  • The challenge of obtaining informed consent. Users often willingly give the personal information on social media sites without understanding how the information will be used and the associated privacy risks. This is due in part to a lack of ‘digital literacy’, described as ‘the range of skills needed by individuals to make wise, informed and ethical online decisions.’ Informed consent is also jeopardized by the prevalence of ‘opt-out’ consent by social media sites, where consent is inferred from inaction.
  • PIPEDA’s soft approach. This has been the preferred approach in the private sector, but the Privacy Commissioner testified that non-binding guidelines and the threat of reputation loss are largely ineffective against a quasi-monopoly of multinationals.
  • The incompatibility between informed consent and unilateral contract modification.

The Office of the Privacy Commissioner (OPC) implemented some of the Committee’s recommendations with its Guidelines for Online Consent, released in May 2014. This document is an attempt to address the challenge of obtaining informed consent when users do not bother to read the agreements that they consent to or consider the consequences, instead opting to blindly click ‘yes’ until they gain access to the desired content or application.

The Guidelines are not legally enforceable, but they do give an indication about how the OPC might interpret PIPEDA. Organizations can also be confident that they will be compliant with PIPEDA’s consent principle if they design their policies and practices in accordance with the Guidelines. Unfortunately, the Guidelines do not offer much in terms of substantive guidance and much of the document reiterates the OPC’s PIPEDA Self-Assessment Tool, released in 2008.

The OPC continues to recognize that some degree of flexibility is required in order to obtain informed consent, but this flexibility is a double-edged sword: opt-out consent provisions will be appropriate in some circumstances, but social media providers are also expected to ensure that their privacy policies are easily accessible according to the device used, be it a smartphone, tablet, gaming device, or personal computer. A one-size-fits-all approach may not always suffice. For instance, an opt-out consent option may not be as visible to a smartphone user as a desktop or tablet user and may therefore require a different consent process on smartphone platforms in order to comply. As for when opt-out consent will be consistent with informed consent, the OPC provides the following guidance:

  1. The personal information must be demonstrably non-sensitive in nature and context.
  2. The information-sharing situation must be limited and well defined as to the nature of the personal information to be used or disclosed and the extent of the intended use or disclosure.
  3. The organization’s purposes must be limited and well-defined, stated in a reasonably clear and understandable manner, and brought to the individual’s attention at the time the personal information is collected.
  4. The organization must establish a convenient procedure for easily, inexpensively, and immediately opting out of, or withdrawing consent to, secondary purposes and must notify the individual of the procedure at the time the personal information is collected.

As communication technology continues to evolve and the OPC attempts to address the emerging challenges to privacy interests, more guidelines, and possibly legislative amendments, are sure to follow. Organizations that follow the current guidance documents will be well-positioned to adapt to future legal requirements and could even get a seat at the time when law-makers seek private-sector input.

One such amendment is clause 5 of Bill S-4, the Digital Privacy Act, which would add a definition of ‘valid’ consent:

6.1       For the purposes of clause 4.3 of Schedule 1 [Consent], the consent of an individual is only valid if it is reasonable to expect that an individual to whom the organization’s activities are directed would understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting.

The inclusion of the word ‘would’ suggests that an individual does not actually have to read the consent form in order for consent to be valid. But individuals must still be able to understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting. Organizations that incorporate the OPC’s Guidelines into their privacy policies and practices should have few, if any, problems complying with this amendment if it becomes law.

By Aaron Lemkow, Summer Student

The federal Personal Information Protection and Electronic Documents Act (PIPEDA) began coming into force in May 2000 and established the legislative regime for protecting personal information in the private sector. Fourteen years is a long time in information technology and despite several amendments over PIPEDA’s lifespan, there are concerns that its framework is struggling to keep up with a constantly shifting digital landscape.

Big Changes May Be Coming to the Trade-marks Act Under Bill C-31

May 30, 2014

Written by Rob Aske

I recently had the pleasure of presenting a summary of pending changes to Canada’s Trade-marks Act under the enormous omnibus bill C-31, part of the federal government’s “economic action plan”.

The government’s own summary to the Bill describes it as implementing the Singapore Treaty, the Madrid Protocol, simplifying filing requirements, eliminating the need for a declaration of use, reducing the term of registration to 10 years, and adopting Nice Classification.

Here are the key points I covered:

   1.  Hyphen slashed!   Trade-mark becomes “trademark”.

   2.  Wares replaced with goods.

   3.  Signs:  Trademark definition expanded with reference to “signs”, to permit registration of broader array of marks including [open ended]: word, a personal name, a design, a letter, a numeral, a colour, a figurative element, a three-dimensional shape, a hologram, a moving image, a mode of packaging goods, a sound, a scent, a taste, a texture and the positioning of a sign.

Definition of distinguishing guise deleted.

Registrar would have explicit power to request evidence of distinctiveness at filing date for: certain colour marks, three-dimensional shape of any of the goods, mode of packaging goods, sound, scent, taste, texture, or any other prescribed sign (s. 32).

    4.  Term reduced to 10 years under 46(1).  15 year term would still apply for existing registrations when the law comes into force under 73(4). So registrants may wish to renew promptly when they can for 15 years rather than 10 after the law changes.

    5.  Nice Classification would be adopted, which WIPO describes as follows:  The Classification consists of a list of classes – 34 for goods and 11 for services – and an alphabetical list of the goods and services. The latter comprises some 11,000 items. Both lists are amended and supplemented periodically by a Committee of Experts in which all Contracting States are represented. The current edition of the Classification is the tenth, which entered into force on January 1, 2012.

Section 6 descriptions of confusion amended to note that confusion may occur whether or not the goods and services are in the same class of the Nice Classification. 

Applications would require grouping of goods or services according to Nice Classification (section 30).  Registrar could require Nice Classification for existing registrations (44(1)).  Any questions regarding classes for goods and services shall be determined by the registrar whose determination is not subject to appeal.

The application must still also include a statement in ordinary commercial terms of goods and services (like before). 

Some fear costs of filing may increase if a fee per call system is adopted.

    6.  Changed application process:  Under section 30 a person can file if they are using or propose to use a trademark in Canada.  The application must include a statement in ordinary commercial terms of goods and services (like before).  The concepts of proposed use, making known in Canada, or use and registration abroad are removed from the application.  The Nice Classification must be included.  Regulations may specify further requirements. 

30(1) A person may file with the Registrar an application for the registration of a trademark in respect of goods or services if they are using or propose to use, and are entitled to use, the trademark in Canada in association with those goods or services.

    7.  Utilitarian Function: A trademark is not registrable if in relation to goods and services its features are dictated by a utilitarian function (12(2)).  The registration of a trademark does not prevent a person from using any utilitarian feature embodied in a trademark (20(1.1)).

    8.  Divisional applications (s. 39).  An applicant may limit the original application to one or more of the goods or services and file a divisional application for the same mark in association with any other goods or services that were within the scope of the original application on its filing date, and within the scope of the original application as advertised, if the divisional application is filed post-advertisement.

    9.  Associated Marks:  The concept of associated marks is removed from section 15, which required associated marks to be identified as such on the register, and no change of ownership in respect of a group of associated marks could be made unless the Registrar was satisfied the same change had occurred with respect to all of the marks in the group.  Now instead section 15 would simply state that confusing marks are registrable if the applicant is the owner of all of the confusing marks.

Some think that this change takes away protection of the public interest by preventing confusing marks from being owned by different entities.

    10.  Use:  This is the most controversial part of the new legislation.  Applications would not be based on existing use and proposed use.  No date of first use would be required.  An application can simply be made if the applicant is using or proposes to use the mark (s. 30). 

If there is no opposition to the application, the applicant can register without any declaration of use or without in fact putting the mark into use.

Under section 38, there is a new ground of opposition whereby the opponent can argue that on the filing date of the application the applicant was not using and did not propose to use the mark in Canada in association with the goods or services (38(2)(e)) but it could be difficult to prove no intention to use.  Under section 45, much like before, after 3 years, a third party could require the owner to furnish evidence of use with the goods and services.

Some practitioners have expressed significant concerns about changes to use including the following:

(a)          It will be more difficult to conduct searches in advance of filing for a mark as the register will have less information about the state of use of other marks;

(b)          It will be more difficult to make assessment between competing applications, as date of first use would not be shown;

(c)          Similarly, it would be difficult to make assessment of rights between an applicant and a registrant; e.g. is the registered mark subject to expungement for being a subsequent user?

(d)          It would be more difficult to decide whether to oppose an application without the use information;

(e)          The “allowance” stage will not be included and this will not sort out real uses from “possible” uses, and applicants who file for long lists of goods and services will not have to weed these out at the declaration of use stage;

(f)           The valuation of marks may be more challenging if they are not based on actual use;

(g)          Registrations may be enforceable even if they are not based on actual use;

(h)          There is no requirement to prove use upon the ten year renewal;

(i)            The onus of policing the register moves more to third parties instead of the registrar.

(j)            Some claim that similar European countries using this system have a much higher percentage of oppositions and are more open to “trademark trolls”.

    11.  The government’s bill C-8, Combating Counterfeit Products Act, still remains pending and covers many of the same issues as above. If both acts come into force, then there are detailed transitional provisions included in C31 to ensure consistency between the two laws.

Written by Rob Aske

I recently had the pleasure of presenting a summary of pending changes to Canada’s Trade-marks Act under the enormous omnibus bill C-31, part of the federal government’s “economic action plan”.

The government’s own summary to the Bill describes it as implementing the Singapore Treaty, the Madrid Protocol, simplifying filing requirements, eliminating the need for a declaration of use, reducing the term of registration to 10 years, and adopting Nice Classification.

Re:Sound Flexes its Musical Muscles

May 26, 2014

Written by Michelle Chai

As noted in a previous blog post on Re:Sound tariffs, Re:Sound[1] Tariff No. 6.B (Use of Recorded Music to Accompany Physical Activities), sets the royalties to be paid for the performance in public or communication to the public of published sound recordings in any indoor or outdoor venue for the purposes of fitness, training, skating, dance instruction or any other physical activity.  When this Tariff was certified in July 2012 by the Copyright Board of Canada, it was retroactive for the years 2008 to 2012.

However, in February 2014 the Federal Court of Appeal (“FCA”) set aside the Tariff as it concerned fitness classes, dance instruction, and other physical activities, and left untouched the tariffs related to skating (see below for discussion of the FCA decision). 

This does not mean the Tariff is now dead.  In March 2014, Re:Sound informed the Copyright Board it was working on the terms of a new Tariff 6.B that would replace the one certified by the Copyright Board in 2012.  Re:Sound also asked the Copyright Board to issue an interim decision allowing the tariff to continue until the new wording could be certified.

The Copyright Board granted Re:Sound’s application and reinstated Tariff No. 6.B (backdated to January 1, 2008) until the Copyright Board issues a further interim or final decision on this Tariff.

What does this mean for you?

Tariff No. 6.B will continue to “B” for the time being.  If you operate an indoor/outdoor skating venue where sound recordings are played then Re:Sound will continue to be owed royalties under this Tariff, regardless of whether or not an admission fee is charged.  If you operate a venue which holds fitness or dance classes or other kinds of physical activities, and sound recordings are played, Re:Sound can collect royalties as the Tariff has been reinstated on an interim basis.  In the event the Copyright Board renders a final decision nullifying Tariff No. 6.B, Re:Sound may be required to refund royalties collected to date. 

It is likely that once the new wording of the tariff is agreed upon, the Copyright Board will certify new Re:Sound Tariff No. 6.B and tariffs will continue to be due to Re:Sound for the use of recorded music accompanying physical activities.

Federal Court of Appeal February 2014 Decision

On the basis that the tariffs approved in July 2012 for Tariff No. 6.B were too low, Re:Sound sought to set aside Tariff 6.B and get the rates re-determined by the Copyright Board.[2]  The application was opposed by the Fitness Industry Council of Canada, the industry’s trade association, and GoodLife Fitness Centers Inc., described by the FCA as a “major player in the fitness industry”.

If approved as proposed in 2012, Tariff 6.B would have imposed royalty payments of approximately $86 million annually on the Canadian fitness industry which, according to Re:Sound, has an annual revenue of $2 billion.  The Fitness Industry Council and GoodLife submitted royalties should only be in the range of $3 million.

Re:Sound alleged the Copyright Board had committed three errors in setting the royalty rates:

    (i)        It breached the duty of fairness by basing Tariff 6.B on a ground that was not considered during the hearing;

   (ii)        It erred in law when it interpreted the Copyright Act as providing that royalties should be based, not on the number of all recordings used in fitness classes, but on the percentage of those recordings for which the performers or makers had authorized Re:Sound to collect royalties on their behalf; and

  (iii)        It set the royalty at an unreasonably low level.

The Copyright Board had agreed with Re:Sound that SOCAN Tariff 19 (royalties to be paid to composers and lyrics of recorded music used to accompany dance, aerobics, bodybuilding and other similar activities) was not an appropriate benchmark for Re:Sound Tariff 6.B.  The Copyright Board noted SOCAN Tariff 19 was so problematic, that rather than attempting to enforce the certified rates, SOCAN collects nearly 1/3 of its Tariff 19 royalties under confidential licensing agreements with individual users.

In coming to its decision, the Copyright Board had acknowledged that flat fee royalties are generally an “unsatisfactory” reflection of the value of music to users “because they do not take account of the number of participants in a targeted activity or the amount of music used”.  In calculating the fee, the Copyright Board determined that 53% of the musical recordings played at fitness centers were eligible recordings, and then adjusted this percentage down to 36.6% to reflect the fact that Re:Sound’s repertoire consisted of only a portion of the eligible recordings, and imposed an annual flat fee of $105.74 to be paid by each venue.

The FCA applied a standard of reasonableness in considering the question of whether the Copyright Board had erred in considering information from SOCAN about its licensing agreements under Tariff 19.  That information was not provided to Re:Sound (although it had known the Copyright Board has asked for the information from SOCAN), and Re:Sound argued it had not had the opportunity to respond.  At the intial hearing, there had been no discussion about using the amounts paid under the SOCAN agreements for setting the Re:Sound royalties.  The FCA held Re:Sound had been deprived of a fair hearing because it had not had the opportunity to make submissions on the appropriateness of the Copyright Board’s methodology in calculating the Re:Sound tariff. 

The FCA noted it would be odd if a collective society were able to collect royalties for all eligible recordings but distribute them only to the performers and makers of recordings in its repertoire: “What happens to the funds owing to those that Re:Sound never identifies is unclear”.  The FCA agreed with the Copyright Board’s interpretation of the Copyright Act – performers and makers will not receive equitable remuneration until they “opt in” and sign up with a collective society, which is a “relatively easy step to take”.

Ultimately the Federal Court of Appeal set aside the Tariff as it concerned fitness classes, dance instruction, and other physical activities, and the only part of the Tariff left untouched were the rates related to skating.  Re:Sound’s application for judicial review was granted and the matter was remitted to the Copyright Board for redetermination.


[1] Re:Sound obtains fair compensation for performers and makers (i.e. artists and record companies) for their performance rights through Re:Sound licenses and the collection of royalties, while SOCAN represents the performance rights of composers, authors, and music publishers – SOCAN covers the compositions while Re:Sound covers the recordings.

[2] 2014 FCA 48.

Written by Michelle Chai

As noted in a previous blog post on Re:Sound tariffs, Re:Sound[1] Tariff No. 6.B (Use of Recorded Music to Accompany Physical Activities), sets the royalties to be paid for the performance in public or communication to the public of published sound recordings in any indoor or outdoor venue for the purposes of fitness, training, skating, dance instruction or any other physical activity.  When this Tariff was certified in July 2012 by the Copyright Board of Canada, it was retroactive for the years 2008 to 2012.

However, in February 2014 the Federal Court of Appeal (“FCA”) set aside the Tariff as it concerned fitness classes, dance instruction, and other physical activities, and left untouched the tariffs related to skating (see below for discussion of the FCA decision). 

Will Europe’s “Right to be Forgotten” cross the pond to Canada?

May 19, 2014

By Aaron Lemkow, Summer Student 

The European Court of Justice’s recent affirmation of the EU’s ‘right to be forgotten’ has stirred intense debate and stoked fears about the future regulation of the internet; one journalist went so far as to identify the decision as a shift towards Orwellian control over information.  The case centered around Costeja Gonzalez of Spain and his request that Google remove a link to 36-word article from 1998, which detailed the repossession of his home to satisfy his debts.

In the aftermath of the ruling, Google has been bombarded with similar requests from thousands of individuals, ranging from ex-politicians to convicted pedophiles. This has predictably caused an administrative nightmare for Google, which is scrambling to figure out how to process these requests. Whether European courts will be similarly overwhelmed has yet to be seen, but this prospect is tempered by the irony that a requester must first air his or her dirty laundry in the most public manner imaginable before having it removed from the digital clothesline.

But what is the impact on Canada? Could a similar law pass muster in our own legal system? The decision could have far-reaching effects that could affect Canadian companies doing business in the EU. Such was the threshold used by the ECJ: data processors, whether operating inside the EU or not, fall under this law if they or their subsidiaries economically benefit in the EU from their data-processing services. But the decision leaves several unanswered questions: How directly must the data processing be tied to economic benefits before falling under this law? Must data processors remove links from searches in the EU, or searches conducted around the globe? What about open-source software with contributors from inside and outside the EU? It may be years before the implications of this case are fully understood and appreciated.

Fears over whether a home-grown law could take shape may be unwarranted. The right to privacy is selectively protected in our Charter of Rights and Freedoms, such as the right to be free from unreasonable search and seizure. Freedom of expression, on the other hand, has been generously interpreted and applied by Canadian courts: it is informed by listener’s interests and courts are moving away from limiting the protection of economic expression.

And yet, a Canadian equivalent is not out of the realm of possibility; privacy concerns have been enough to sink federal bills aimed at strengthening state surveillance. Should Parliament or a provincial legislature decide to pass such a law, it would have to be saved under section 1 of the Charter as a reasonable limit that can be demonstrably justified in a free and democratic society. The Charter jurisprudence indicates that courts will generally be deferential to a government faced with competing social and economic interests, and nowhere is this balancing act better illustrated than the under the right to be forgotten.

Freedom of speech and privacy interests are continuing to collide.

By Aaron Lemkow, Summer Student 

The European Court of Justice’s recent affirmation of the EU’s ‘right to be forgotten’ has stirred intense debate and stoked fears about the future regulation of the internet; one journalist went so far as to identify the decision as a shift towards Orwellian control over information.  The case centered around Costeja Gonzalez of Spain and his request that Google remove a link to 36-word article from 1998, which detailed the repossession of his home to satisfy his debts.