International Mergers & Acquisitions: the Canadian Perspective



INTERNATIONALMERGERS&ACQUISITIONS:THECANADIANPERSPECTIVE

FrancoisPainchaud,Louis-PierreGravelle,
PanagiotaKoutsogiannis,ChristianDanisandMarie-ÈveCôté*
LEGERROBICRICHARD,Lawyers,
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8
thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.:(514)9876242-Fax:(514)8457874
info@robic.com–www.robic.ca

1.Introduction:NatureoftheBusinessandValueoftheIntellectualProperty
2.OverviewoftheTransaction:Objective,ScopeandCosts
2.1Mergers,CompetitionLawandIntellectualProperty
2.2TheCompetitionBureauandtheIntellectualPropertyEnforcementGuidelines
3.IntellectualPropertyinDueDiligenceAudits
3.1Patents
3.1.1Co-ownershipofPatents
3.1.2AssignmentofPatents
3.1.3ResearchatthePatentOffice
3.2Trade-marks
3.2.1Introduction
3.2.2RightsthroughUse
3.2.3Registration
3.2.4ApplicationforRegistration
3.2.5Termofprotection
3.2.6LimitsonTrade-markEnforcement
3.2.7ReviewofMarkinginAssociationwithTrade-marks
3.2.8AssignmentofTrade-marks
3.2.9ResearchattheTrade-marksOffice
3.3Copyright
3.3.1Rights
3.3.2Termofprotection
3.3.3Registration
3.3.4Ownership
3.3.5Limits
3.3.6DueDiligence
3.3.7AssignmentofCopyright
3.3.8Insolvency
3.3.9MoralRights
3.3.10ResearchattheCopyrightOffice
3.3.11MarkinginassociationwithCopyright
3.4TradeSecrets
3.4.1DefinitionofTradeSecrets


















































©LEGERROBICRICHARD,2001.*LawyerswiththelawfirmLEGERROBICRICHARD,g.p.andwiththepatentandtrademark
agencyfirmROBIC,g.p.



3.4.2EnforcementofTradeSecretRights
3.4.1AssignmentofTradeSecrets
3.4.3NatureoftheRight
3.5IndustrialDesigns,IntegratedCircuitTopographiesandPlantBreedersRights
3.5.1AssignmentofIndustrialDesigns,IntegratedCircuitTopographiesand
PlantBreedersRights
3.6OtherStateGrantedLicences
3.7AssetsinPersonnel
3.7.1ImpactofEmployee/EmployerRelationships
4Licences,AssignmentsandOtherAgreementsrelatingtoIntellectualProperty
4.1Licences
4.2AssignmentsinanInternationalContext
5SecurityInterestsinIntellectualProperty
5.1Legislativecontext
5.2Validityandperfectionofsecurityinterests
5.3SecurityinterestsearchesandtheIPregisters
5.4Enforcement
6TaxConsiderations
6.1EligibleCapitalExpenditures
6.2DepreciationofIntellectualPropertyCostsandUndepreciatedCapitalCost
(UCC)
6.3ScientificResearchandDevelopment
6.4WithholdingTaxWhenPurchasingIntellectualPropertyAssets
6.5TaxFreeTransfersofPropertytoaCorporation
6.6DivisiveReorganizations
6.7DoingtheBumpduringCorporateReorganizations
6.8LiabilityforUnpaidTax
1.Introduction:NatureoftheBusinessandValueoftheIntellectual
Property
EconomicprosperityinCanada,justasinotherindustrializednations,has
cometorelymoreandmoreonnon-traditionalmanufacturingsectorsbased
primarilyoninformationandbio-technology.Inthisenvironment,intellectual
propertycontinuestotakeonanever-increasingroleinthevaluationofa
corporateenterprise.
InCanada,theexistenceofarightinintellectualpropertyisgenerallya
creatureofstatute.SuchstatutesincludethePatentAct
1,theCopyrightAct2,
theTrade-marksAct
3andtheIndustrialDesignAct4andalsomoreesoteric



















































1PatentAct,R.S.1985,c.P-4,http://laws.justice.gc.ca/en/P-4/index.html2CopyrightAct,R.S.C.1985,c.c-42,http://laws.justice.gc.ca/en/C-42/index.html3Trade-marksAct,R.S.C.1985,c.T-13.http://laws.justice.gc.ca/en/T-13/index.html4IndustrialDesignAct,R.S.,1985,c.I-9.http://laws.justice.gc.ca/en/I-9/index.html



formssuchastheIntegratedCircuitTopographyAct5andthePlantBreeders’
RightsAct
6.
Therearealsoanumberofnon-statutoryintellectualpropertyrights,including
rightswithrespecttotradesecrets,know-howandconfidentialinformation.
Thesearesubjecttoprovinciallaws,whichvaryfromoneprovincetothe
other,andthismayhaveanimpactonthemannerinwhichtheintellectual
propertyinquestionmaybedealtwith.
Asmanyhigh-techstart-upcompaniesconsistofvirtuallynofixedassets,but
primarilyofasmallnumberoftechnologicalassetsandahandfulofkey
people
7,adiligentandaccurateevaluationofanenterprise’sintellectual
propertyisaninvaluabletoolwhenseekingtoreduceriskinthecourseofa
corporatemergeroracquisition.Furthermore,whentherealworthofa
companyisthoughttoresideinanimportantintellectualpropertyasset,the
prospectiveinvestormayoftenbesooverwhelmedbythisassetandits
potentialmarketthatgeneralbusinesscautionissuppressed.
8
DualityoftheCanadianLegalRegime
Withintheprivatelawsphere,Canadahasinheritedfromtwodistinctlegal
systems:theEnglishCommonLawfromtheUnitedKingdomandtheFrench
CivilLawfromFrance.TheCivilLawisgoverningprivaterelationsinQuebec
andtheCommonLawappliesforthesametotheothernineprovinces.Those
twosystemshavebeenfirmlyentrenchedintheprovincestheyrespectively
coverandtheyhavemanagedtocoexistwhileevolvinginparalleloneto
another.Asaresult,therearesomevariationsbetweenthetwosystems,
notablyintheclassificationandtreatmentofpropertyrights,thatmayhave
animpactinthecourseoftransactionsinvolvingintellectualproperty.
Fortunately,sinceCanadaisaconfederation,mostofthestatutesrelatedto
intellectualpropertyaretobefoundatthefederallevel,whichappliestoall
provinces,irrespectiveoftheirlegalsystem.Throughoutthischapter,where
relevant,adistinctionwillbemadebetweenthecommonlawandcivillaw
approachforagivensituation,inordertotakeintoaccountthisdualityofthe
Canadianlegalregime.



















































5IntegratedCircuitTopographyAct,1990,c.37.http://laws.justice.gc.ca//en/I-
14.6/index.html
6PlantBreeders’RightsAct,1990,c.20.http://laws.justice.gc.ca/en/P-14.6/index.html7GeorgeS.Takach,HighTechM&A:ThePreparationStage,Lexpert,April2000atp.109.8DanielBereskin,DueDiligence:GettingtheFactsandDefiningtheIssues.



2OverviewoftheTransaction:Objective,ScopeandCosts
Thepotentialpartiestoamergeroranacquisitionareinterestedinensuring
themselvesofsomeverybasicfacts:
1.definingtherelationshipbetweenthetargetcompanyandthe
subjecttechnology,tomakesurethatitisthesoleowneror
licenseeofsuchtechnology;
2.protectionhasbeenproperlysecured;
3.allofthedelaysinherentinthevariousnationalandregional
juridictionshavebeenrespected;
4.inventionshavenotbeendisclosedpubliclytotheextentthat
patentprotectionislost;
5.theextenttowhichotherpartiesmayalreadyhavehadaccess
tothetargetstechnology;
6.theextenttowhichsecrecyhasbeenmaintainedonnon-
patentableornon-patentedtechnologyandthepotentialrisksof
maintainingthesecrecyofsuchinformation;
7.thepossibilitythatfutureuseofthetechnologyofthetarget
companymayviolatethepriorexistingrightsofthirdparties.
Oneofthegoalsofaduediligenceinvestigationistoensurethatabusiness
hasbeenmanagedinanorderlyfashion.Therearethreeissuesatthecenter
ofanyduediligenceconcerningintellectualproperty:
9
1.Establishingachainoftitleorrightswithregardtotheproperty;
2.Identifyinganypotentialinfringement;and
3.Ensuringthattherearenooutstandingclaimsagainstthe
intellectualproperty,includingdemands,judgements,security
interests,contractualrestrictionsorcurrentorpendinglitigation.
Whenintellectualpropertyisnotthemainassetbutonlyonetypeofasset
amongothersinatransaction,thereisariskofunderestimatingbothitsvalue
andconsequentlythetimeandmoneythatshouldbedevotedtoproper
duediligenceinthatarea.Sincethelegalfeesareoftendependentonthe
valueofthetransaction,thereisnopracticalmeantoestimatehowmany
resourcesshouldbeallocatedtotheintellectualpropertypartofthedue
diligence.Inmanycases,if10%ofthelegalfeesaredevotedtoit,itwouldbe
consideredappropriate,butthisgreatlydependsontheparticular
circumstancesofthetransaction.Obviously,disbursementsrelatedto
searchesatthenationalandinternationallevelsmayrepresentarelatively



















































9RobertMichelin,Establishingownershipinintellectualproperty:DueDiligenceRequirements,
JournalduBarreau,October1st1997atp.21.



largeportionofthosecosts,sinceintellectualpropertyrightsoftenrelyheavily
onregistration.
Itisimportanttorememberthatownershipofthetechnologyisoneofthe
mostimportantissuesinaduediligenceauditconcerningintellectual
property.
10Whenthereisonlyoneownerofapatentforexamplewecan
moreeasilydeterminetherightsofsuchownerandtracetherightsgranted
bysuchownertothirdparties.However,whenintellectualpropertiesare
jointlyheldbyseveralpersons,theseissuesbecomemoredifficult.
Mergers,CompetitionLawandIntellectualProperty
IPandcompetitionlawscomplementeachotherinpromotinganefficient
economy.IPlawsprovideincentivesforinnovationandtechnological
diffusionbyestablishingenforceablepropertyrightswhilecompetitionlaws
maybeinvokedwhentheserightsareusedinanti-competitivepracticesthat
create,enhanceormaintainmarketpowerorotherwiseharmcompetition.
InCanada,thecompetitionaspectsofanymergeraregovernedbythe
CompetitionAct
11,whichisadministeredbytheCompetitionBureauof
Canada
12(hereinafter:the”Bureau”).Privatecasesarelimitedtosection36of
theCompetitionAct,whichprovidesforcivildamagesifapersonsuffered
damagesasaresultofabreachofPartVI(offencesinrelationto
competition)orforviolationofanorderoftheCompetitionTribunal.This
provisionhashoweverrarelybeenuseduptonow.
RemediesorinjunctivereliefmaybeorderedbytheCompetitionTribunalfor
breachesoftheCompetitionAct’sPartVIIIreviewablepracticesprovisions,
butnocivilactionmaybebasedonabreachofthoseprovisions.PartsVIII
andIXoftheCompetitionActandassociatedregulationsgovernthe
competitiveeffectsofamerger.Amergerisdefinedatsection91as:
“theacquisitionorestablishment,directorindirect,byoneor
morepersons,whetherbypurchaseorleaseofsharesorassets,
byamalgamationorbycombinationorotherwise,ofcontrol
overorsignificantinterestinthewholeorapartofabusinessof
acompetitor,supplier,customerorotherperson.”



















































10CynthiaLedgley,ExaminingProsandConsofIntellectualPropertyAuditsatp.103
11CompetitionAct(R.S.1985,c.C-34),http://laws.justice.gc.ca/en/C-34/index.html12http://strategis.ic.gc.ca/ssg/ct01250e.html



AccordingtotheMergerEnforcementGuidelines13theprincipalissuetobe
consideredinamergerproposalistheinterpretationofthewords“significant
interest”.TheMergerGuidelinesstatethattheacquisitionorestablishmentof
asignificantinterestinthewholeorapartofabusinessofanotherpersonis
consideredtooccurwhenapersonacquiresorestablishestheabilityto
materiallyinfluencetheeconomicbehaviorofthebusinessofasecond
person.
Pursuanttosubsection92(1)oftheCompetitionAct,ifitisfoundthata
mergerpreventsorlessens,orislikelytopreventorlessen,competition
substantiallyinatrade,industryorprofessionoramongthesourcesfrom
whichatrade,industryorprofessionobtainsaproduct,amongstothers,the
CompetitionTribunalmayorderthemergernottoproceedortobe
dissolved,orderassetsdisposedofasitdirects,prohibitthedoingofanyact
orthingtheprohibitionofwhichthecompetitionTribunaldeterminestobe
necessarytoensurethatthemergerdoesnotpreventorlessencompetition
substantially,ortakeanyotheraction.
Section93oftheCompetitionActgoesontoprovideanumberoffactors
whichmaybeusedindeterminingwhetherornotamergerpreventsor
lessenscompetitionsubstantially.Forexample,theTribunalmayhaveregard
to,amongstothers,theextenttowhichacceptablesubstitutesforproducts
suppliedbythepartiestothemergerorproposedmergerareorarelikelyto
beavailable,theextenttowhicheffectivecompetitionwouldremainina
marketthatisaffectedbythemerger,orthenatureandextentofchange
andinnovationinarelevantmarket.
InthisregardtheMergerGuidelinesholdthatmergersgenerallywillnotbe
challengedonthebasisofconcernsrelatingtotheunilateralexerciseof
marketpowerwherethepost-mergermarketshareofthemergedentity
wouldbelessthan35percent.TheMergerGuidelinesfurtherstatesthatina
similarfashion,mergersgenerallywillnotbechallengedonthebasisof
concernsrelatingtotheinterdependentexerciseofmarketpower,wherethe
shareofthemarketaccountedforbythelargestfourfirmsinthemarketpost-
mergerwouldbelessthan65percent.
Insomecases,pre-notificationofamergertotheDirectoroftheBureauis
required.Whetherornotthepre-notificationisnecessaryisafunctionofthe
aggregatesizeofthemergingcompanies’assetsorannualgrossrevenues,
includingaffiliates(section109oftheCompetitionAct,$400,000,000in
Canadianfunds)and,
ingeneralterms,thesizeoftheproposedtransaction



















































13CompetitionBureau,MergerEnforcementGuidelines,January24th,1997(hereinafterthe
“MergerGuidelines”).



(section110oftheCompetitionAct,$35,000,000inCanadianfunds,or
$70,000,000inthecaseofanamalgamationperse),unlessexempted
14.In
suchcasesthereisamandatorywaitingperiodwithinwhichtheDirectorhas
theopportunitytochallengethemergeraftertherequiredinformationhas
beenreceivedbytheDirector
15.However,evenifpre-notificationisnot
required,amergermaystillbechallengedonthebasisofsection92ofthe
CompetitionAct.Section102oftheCompetitionActalsoprovidesforthe
possibilityofbindingadvancerulingcertificatesuponapplication.
2.3TheCompetitionBureauandtheIntellectualPropertyEnforcement
Guidelines
Traditionally,theBureauwasnotverysevereinreviewingIPtransactionsunless
theyfellintothemergercategory.TheCompetitionTribunalmayapplythe
generalprovisionsoftheCompetitionActtoanti-competitivepractices
incidentallyinvolvingIPsuchasconspiracy,bid-rigging,marketallocationor
mergers.HoweverthemereexerciseofanIPrightwillnotgiverisetoananti-
competitivepracticecapturedbythegeneralanti-competitiveprovisions.To
counteranyabusethatmayarisegiventhestatutorygrantofexclusionfora
largeportionofIP,subsection32(1)wasenacted,whichreadsasfollows:
“32.(1)Inanycasewhereusehasbeenmadeoftheexclusive
rightsandprivilegesconferredbyoneormorepatentsfor
invention,byoneormoretrade-marks,byacopyrightorbya
registeredintegratedcircuittopography,soasto
(a)limitundulythefacilitiesfortransporting,producing,
manufacturing,supplying,storingordealinginanyarticleor
commoditythatmaybeasubjectoftradeorcommerce,
(b)restrainorinjure,unduly,tradeorcommerceinrelationto
anysucharticleorcommodity,
(c)prevent,limitorlessen,unduly,themanufactureor
productionofanysucharticleorcommodityorunreasonably
enhancethepricethereof,or
(d)preventorlessen,unduly,competitionintheproduction,
manufacture,purchase,barter,sale,transportationorsupplyof
anysucharticleorcommodity,
theFederalCourtmaymakeoneormoreoftheorders
referredtoinsubsection(2)inthecircumstancesdescribedin
thatsubsection.



















































14Section111and113oftheCompetitionAct.15Section123oftheCompetitionAct

(2)TheFederalCourt,onaninformationexhibitedbythe
AttorneyGeneralofCanada,may,forthepurposeof
preventinganyuseinthemannerdefinedinsubsection(1)of
theexclusiverightsandprivilegesconferredbyanypatentsfor
invention,trade-marks,copyrightsorregisteredintegrated
circuittopographiesrelatingtooraffectingthemanufacture,
useorsaleofanyarticleorcommoditythatmaybeasubject
oftradeorcommerce,makeoneormoreofthefollowing
orders:
(a)declaringvoid,inwholeorinpart,anyagreement,
arrangementorlicencerelatingtothatuse;
(b)restraininganypersonfromcarryingoutorexercisinganyor
allofthetermsorprovisionsoftheagreement,arrangementor
licence;
(c)directingthegrantoflicencesunderanysuchpatent,
copyrightorregisteredintegratedcircuittopographytosuch
personsandonsuchtermsandconditionsasthecourtmay
deemproperor,ifthegrantandotherremediesunderthis
sectionwouldappearinsufficienttopreventthatuse,revoking
thepatent;
(d)directingthattheregistrationofatrade-markintheregister
oftrade-marksortheregistrationofanintegratedcircuit
topographyintheregisteroftopographiesbeexpungedor
amended;and
(e)directingthatsuchotheractsbedoneoromittedasthe
Courtmaydeemnecessarytopreventanysuchuse.”
Thereareanumberofdifferentacquisitionsofpropertythatmayraise
concernsundersubsection32(1)oftheCompetitionAct.Theseinclude
16:
1.Whenafirmwithadominantmarketpositionacquiresthe
intellectualpropertyrightsoftheonlycommerciallyviable
alternativeproduct;
2.whenafirmacquiresexclusiverightstouseacomplementary
technologyorproductthatallowsthefirmtoleverageitsmarket
powerintoarelatedmarket;
3.whenafirmobtainsrightsinfutureintellectualpropertydeveloped
independentlybyothers(e.g.a“grantback”clause);and
4.adominantfirmacquiresexclusiverightstoimprovementsonits
owntechnologiesorproductsthathavebeendevelopedbyothers.



















































16DonaldCameronandIainScott,CompetitionLawforthe21stCentury,(JurisPublishing,
1998)atp.343-344.

SimilartotheU.S.thetimeofassessingapotentiallyanti-competitiveactisthe
timeofacquisitionoftheintellectualproperty.
OnSeptember21
st,2000theBureauannouncedthecomingintoforceofthe
IntellectualPropertyEnforcementGuidelines(hereinafterthe“IPGuidelines”).
TheBureauannouncedthatitsobjectiveinpublishingtheIPGuidelineswasto
explainhowtheBureauwoulddealwithcompetitionissuesinvolving
intellectualpropertyandwhatbehaviourwouldbesusceptibletoattracting
theBureau’sattentionasbeingactionableinlightoftheCompetitionAct.
NotwithstandingthattheIPGuidelinesarenotlaw,theyareaninstrument
whichprovidesthepublicwithanindicationofhowtheBureauwillapplythe
lawinconnectionwithcommercialpracticesinvolvingintellectualproperty.
ThemainobjectiveinthepublicationoftheIPGuidelinesistoachievea
certainuniformityintheproceduresadoptedbytheBureauandthis
objective,somebelieve,ifattained,wouldcontributetothedevelopment
andfurtheranceofcompetitionlawinCanada.Initsevaluation,theBureau
beginswiththeprinciplethattheexercisebytheownerofhisintellectual
propertyrightsisnotinandofitselfanti-competitiveandthenfollowsthe
procedureprescribedintheIPGuidelinestoverifythattheCompetitionAct
hasnotbeenbreached.
TheIPGuidelinesaredividedintosevenparts,andpart4describesthe
proceduretobeusedbytheBureau.Insummary,theBureauproceedsusing
a5stepanalysis:(i)determiningthenatureofthetransaction;(ii)determining
therelevantmarket;(iii)determiningwhethertheenterprisesinvolvedpossess
marketpower;(iv)verifyingwhetherthetransactionundulyimpedesor
reducescompetition;and(v)verifyingtheexistenceofanymotiveswhich
maybebasedonefficiency.Followingthisanalysis,theBureauthendecides
iftherearesufficientgroundstointerveneandtoapplytheremedialpowers
availabletoitbyvirtueoftheCompetitionAct’scriminalandcivilprovisions,
forexample,penalsanctionsortheuseofspecialremedieswhichpermit,
amongstothers,thecancellationofacontract,therevocationofapatentor
theexpungementofatrade-mark,oreventhecompulsorygrantoflicences.
However,theIPGuidelinesstatethattheBureauwillonlyusethosespecial
powersonrareoccasionsandonlywhenotherrecoursesarenotavailable
pursuanttotheintellectualpropertylawinquestion.
AproblemtobenotedwiththeIPGuidelinesisthatananalysisbytheBureau
ofacommercialtransaction,usingthecriteriadefinedabove,involving
intellectualpropertycanbelong,expensiveandcomplex.Becauseofthis,it
willoftenbedifficulttoevaluatewhetherornotitwouldbeprudenttowait
fortheBureautofinishitsanalysisbeforeclosingatransaction.


EventhoughthepublicationoftheIPGuidelinescanbeofassistancein
foreseeingthetypeofbehaviorwhichtheBureaucouldfindoffensiveand
triggerapplicationoftheCompetitionAct,italsogivesrisetoanumberof
questions,somenovel,andtherewillalwaysbeanelementofsubjectivityin
theexerciseofthediscretionoftheBureautoinitiateanykindofprocedure
againstapartyundertheprovisionsoftheCompetitionAct.Onethingis
certain:itisimportanttotakeintoaccountanti-competitiveimplicationsinall
commercialtransactionsinvolvingintellectualproperty,includingfor
example,licencesandpartnershipagreements.
4.IntellectualPropertyinDueDiligenceAudits
Regardlessofthetransaction,whetheritisamerger,saleoracquisition,the
partiestothetransactionareboundbythecontractspreparedbytheir
respectivelegalrepresentatives.Therefore,itisessentialthatapartytoa
transactionmasterthecontentsofitscontracts,therisksinvolvedwiththe
transactioncontemplated,soitcanreadilyassesstheextentofitsrightsand
obligations.Itisequallyimportantthattheotherpartytothetransaction
carefullyreviewsthesecontractstoassestherisksinvolvedwiththe
transactioncontemplated.Oneofthemainobjectivesofcarryingoutadue
diligenceauditofintellectualpropertyistounderstandexactlywhatisbeing
transferred.
Bytheirnature,manytypesofintellectualpropertyowetheirexistencetothe
lawandalegalthreatcouldmeancompletelossofownershiporavailability
touseaparticularasset,whichmaybefundamentaltothebusiness
concerned
17.
Propersearchingandevaluationoftheresultscanensurethatthecosts
associatedwithobtainingtherightsareaseconomicalaspossibleandthe
rightsareobtainedasrapidlyaspossible.
18
4.1Patents
Canadianpatentsareawardedtoapplicantswhofilepatentapplicationsfor
aninventionasdefinedinsection2ofthePatentAct
19.Aninventionis”any
newandusefulart,process,machine,manufactureorcompositionofmatter,



















































17AdrianSmith,IntellectualPropertyandManagingLegalRisk,PatentWorldNovember1997
atp.2528.
18JoanVanZant,DueDiligenceSearching…Searching…Searching…PriorArtandPriorRights
(Toronto:Scott&Aylen).
19Supra,note1.


oranynewandusefulimprovementinanyart,process,machine,
manufactureorcompositionofmatter”.Non-statutorysubject-matterfor
patentsincludemethodsofsurgicaltreatment,mathematicalalgorithms,
lawsofnatureandsoftwareperse.However,iftheinventionincludes
software,butisframedintermsofasystemthatformstraditionalsubject-
matter,apatentcanbegranted.
Anyinventororhislegalrepresentativemayapplyforapatentwithrespectto
anyinvention.Apatentisawardedtothefirstpersonwhofilesthepatent
application.Furthermore,tomaintaintherequirementofnovelty,the
applicationmustbefiledpriortoanythirdpartydisclosingtheinventiontothe
publicinCanadaorelsewhere.
Methodsofdoingbusinesshavetraditionallybeenheldtobeunpatentable,
ashaverulesofplayingagameoranyotherinventionthatreliesonmental
abilities.Higherlifeforms,suchasmice,arepatentable,untiltheSupreme
Courtrulesotherwise
20.
InorderforavalidpatenttobegrantedinCanada,requirementsofnovelty,
utilityandnon-obviousnessmusthavebeenmet.Therequirementofnoveltyis
absolutenoveltyexceptthatCanadaprovidesagraceperiodtoinventorsto
disclosetheirinventionandfileavalidapplicationuptooneyearafter
havingpubliclydisclosedtheinvention.Thisgraceperiodalsoextendsto
peoplewhodirectlyorindirectlyobtainedsuchknowledgefromtheinventor.
Thetermofapatentis20yearsfromthefilingdate,whichcannotbe
extended,providedannualmaintenancefeesarepaidtomaintainthe
patentapplicationorpatentinforce.However,forpatentsissuedbefore
October1,1989,orstemmingfromapplicationsfiledbeforeOctober1,1989,
thetermofthesepatentsis17yearsfromthedateofissue.
CertainpatentsbasedonapplicationsfiledbeforeOctober1,1989thathave
notyetexpiredmaybenefitfromuptoanadditionalthreeyearsofpatent
protection,becauseofanamendmenttothePatentAct(introducedas
SenateBillS-17)intendedtobringthetermofpatentprotectioninlinewith
CanadasobligationsundertheWorldTradeOrganizationTRIPSagreement
21.
UndertheproposednewSection45,apatentwouldexpireonwhicheveris
thelaterbetween17yearsafterthedateofissueor20yearsafterthedateof



















































20SeeHarvardCollegev.Canada(CommissionnerofPatents),7C.P.R.4th1.
21Seearticle33oftheAgreementonTrade-RelatedAspectsofIntellectualPropertyRights,
Annex1CoftheMarrakeshAgreementEstablishingtheWorldTradeOrganization,signedin
Marrakesh,Moroccoon15April1994.
http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm


filing.Asaresult,licenseesshouldbereviewingtheirlicenceagreementsto
determinewhethertheywillberequiredtopayroyaltiesforanextended
periodoftime.Companiesorindividualswhoareplanningtomanufacture,
useorsellproductsthataresubjecttothird-partypatentsonthebasisthat
thosepatentsareabouttoexpirewillneedtobeespeciallyvigilantin
determiningthecorrectexpirydatesoftherelevantpatents
22.
Thegrantofapatentconfersontheholdertheexclusiveright,privilegeand
libertyofmaking,constructingandusingtheinventionandsellingittoothers
tobeused.Althoughstatedpositively,thisisinfactanegativerightinthatthe
rightgrantedbythepatentistherighttopreventathirdpartyfrompractising
theinvention.
Patentscanbegrantedonimprovements,buttheownerofthepatenton
theimprovementdoesnottherebyobtaintherightofmaking,sellingorusing
theoriginalinvention,nordoesthepatentfortheoriginalinventionconferto
itsownertherightofmaking,sellingorusingthepatentedimprovement.
Canadianpatentapplicationscanclaimpriorityofforeignapplicationsof
countriesmembersoftheParisConvention
23providedsuchclaimtopriorities
aremadewithin16monthsfromtheprioritydate.
Canadianapplicationsarepublished18monthsafterthefilingdateorthe
prioritydateifthereisone.Canadianpatentapplicationsarenot
automaticallyexamined.Arequestforexaminationmustbefiledwithin5
yearsofthefilingdate,otherwise,theapplicationbecomesabandoned.
4.1.1Co-ownershipofPatents
LegislativeJurisdiction
Therightsofco-ownershipinrelationtoapatentarenotaddressedinthe
CanadianPatentAct.Wearethereforerequiredtoreverttoalternative
applicablelegislation.Giventhat”Propertyandcivilrights”fallunderthe
jurisdictionoftheprovincespursuanttosection92(13)oftheCanadian



















































22Michener,Lang.BillIntroducesAdditionalRetroactivePatentProtection.InternationalLaw
OfficeNewsletter,April22001.
http://www.internationallawoffice.com/Ld.cfm?Newsletters__Ref=3258.
23ParisConventionForTheProtectionOfIndustrialProperty,(March20,1883),asrevisedat
BrusselsonDecember14,1900,atWashingtononJune2,1911,attheHagueonNovember6,
1925,atLondononJune2,1934,atLisbononOctober31,1958,andatStockholmonJuly14,
1967.


Constitutionof186724,therightsandobligationsofco-ownershiparedictated
byprovinciallaws.Thatistosaythatonceapatentisawarded,particular
questionsastopropertyrightsvestedinthepatentedmatterareregulatedby
civillaw,andthereforeareunderprovincialjurisdiction.
Theissueofco-ownershipofpatentsismorecomplexinCanadathan
elsewhereduetothedualityinlegislationthatexistsbetweenCommonLaw
provincesandtheprovinceofQuebec,wherethecivillawmaygiveriseto
resultsthatdifferfromotherprovinces.
Unfortunately,inCanada,thereareveryfewdecisionsthataddresstheco-
ownershipofapatent.EventheCommonLawprovinces,whichtraditionally
havereacheddecisionsbasedonjurisprudencefromtheUnitedKingdom,
arefindingthemselvesbeinginfluencedmoreandmorebydecisions
emanatingfromtheUnitedStates.Asaresult,wefindinCanadaanumberof
divergingsolutionstotheissuesofco-ownershipofpatentsemanatingfrom
differentjurisdictions.
ThePatentAct
TheonlysectionofthePatentActthatreferstojointorcollectivepatent
applicationsisfoundatsection31.Generally,subsection31(1)contemplates
situationswhereaninventionismadebytwoormoreinventorsandoneof
themrefusestomakeapplicationforapatentorhiswhereaboutscannotbe
ascertainedafterdiligentinquiry.Theotherinventorsortheirlegal
representativesmaymakeapplication,andapatentmaybegrantedinthe
nameoftheinventorswhomaketheapplication,onsatisfyingthe
Commissionerthatthejointinventorhasrefusedtomakeapplicationorthat
hiswhereaboutscannotbeascertainedafterdiligentinquiry.
AlthoughintheUnitedStatesthecourtshavetendedtoinvalidateapatent
whereitwasclearlyrevealedthatallofthetrueinventorshadnotbeen
identified
25,inCanada,thejurisprudenceinthisareahasnotbeenwell
established.Thecourtsappearmoreconcernedwiththeeffectsthatmay
arisefromanerroneousidentificationofaninventorontheownershipofthe
patentandavoidtheannulmentofthepatentwhenanothersolutionis
available
26.



















































24ConstitutionActof1867,30and31Vict.,U.K.,c.3,Section92(13).25Pointerv.SixWheelCorp.(1949)177F.(2d)153.26Piperv.Piper(1904)3O.W.R.451(O.C.A.);HaroldG.Fox,“CanadianPatentLawand
Practice”,4thed.,(Toronto:Carswell,1969),atp.229.


JointHoldingofaPatent
Pursuanttoparagraph31(5)ofthePatentAct,apatentisawardedinthe
nameofalltheapplicants.Therefore,co-applicantsareco-ownersofthe
awardedpatent.Ifapersonwhoisnotaninventorisincludedbyerrorinthe
application,hewillretainco-ownershipinthepatent,holdingthesametitle
astheotherinventorswithalltherightsofuseattached.Similarly,aninventor
whoisomittedfromtheapplicationwillhavenorightsinthepatent.
Whenthepartiesproceedwithajointapplicationandthereisnocontract
thatdeterminestherightsofeachinanawardedpatent,thepatentis
grantedconjointlytoalltheparties
27.Ownershiprightsinapatent,therefore,
maybetheresultofsilence.
Co-ownershipofapatentmayalsobetheresultofanexpressclauseina
contractwhichprovidesthatanytechnologydevelopedremainsjointly
ownedbyallparties.However,suchcontractualclausesforeseeingjointtitle
totherightsinatechnologyareoftenthesourceofproblemsthatmustbe
resolvedatsomepointinthefuture,eitherthroughfurtheragreements,
arbitrationorthecourts.Mostcontractsforeseeingjointownershipofapatent
donotstipulatethelegalconsequencesofsuchajointownership.Contracts
thatcreateajointownershipshouldspecifytherightsandobligations
regardingthegrantofapatent,itsmaintenance,use,andtherights
conferredtoco-patentees
28.
TheCo-inventorsPortion
Atcommonlaw,sinceapatentisawardedtoallco-applicantsandno
provisionofthePatentActspecifiesinwhatproportionthepatentisawarded
toeach,itappearsthattheco-patenteescanclaimequalrightsinthe
patent.
InQuebec,intheabsenceofanagreementbetweentheparties,theCivil
CodeofQuebecprovidesthatthesharesofundividedco-ownersare
presumedequal.
29Co-ownershipissaidtobeundividedwhentheproperty
rightsarenotaccompaniedbyaliteraldivisionoftheproperty.Byanalogy,
co-ownershipofapatentisalsoundividedgiventhatitisimpossibletoliterally
divideapatent.Itfollowsthateachundividedco-ownerhastherightsand



















































27Paragraph31(5)thePatentAct.28D.PatrickO’Reilly“JointOwnershipofPatentsintheUnitedStates”,articleadaptedfrom
chapter1of“DraftingPatentLicenceAgreements”,4thedition,(Washington,Bureauof
NationalAffairs,1998).
29Article1015C.C.Q.


obligationsofanexclusiveownerasregardstohisshare.Thus,eachmay
alienateorhypothecatehisshareandhiscreditorsmayseizeit.
TheRighttoUsetheInvention
Isaco-patenteeobligedtoobtaintheconsentoftheotherco-patentees
priortoexploitingthepatentedtechnology?Intheaffirmative,aparticular
co-patenteewouldhavethepowertohindertheotherco-patenteesfrom
exploitingthepatentandcouldcompletelyprohibittheuseofthepatented
invention.
Until1978,mostCanadiandecisionsregardingco-ownershipofapatent
followedBritishjurisprudence
30whichindicatedthataco-patenteemayuse
aninventionwithouttheconsentofhisco-patenteesandforhisownbenefit.
In1978,JusticeMayrandoftheQuebecCourtofAppealinMarchandv.
Péloquin,
31,renderedanopinionwhichprovedincompatiblewiththeBritish
decisionsandindoingsostatedthefollowing:
Canadianlawdoesnotrefertotherightofeachoftheco-
patenteestograntalicencewithouttheconsentoftheother
co-patentees,noronhisrighttoexploitthepatentforhisown
profit.Todeterminetherightsofaco-patentee,ourcourtsare
atlibertytoreturntotheirowninterpretativenormsandforeign
decisionsrelativetothesameorsimilarlawscanonlyserveas
anauthorityforalogicalargument.
Thiscaseappliesequallytotherightsofco-patenteestoexploitthepatent
andtheobligationtorenderanaccountofthisexploitationtotheirco-
patentees.IntheopinionofJusticeMayrand,co-patenteesholdindivisible
rightsthatarepreferablyexercisedtogether,forthebenefitofallco-
patentees,inamannersimilartothatofco-authorsofaliteraryworkorco-
ownersofcorporealproperty.TheCourtarrivesattheconclusionthata
patenteecannotexploittheinventionforhisowngainwithouttheconsentof
hisco-patenteestowhomheowesadutytorenderaccount.
JusticeMayrandsdecisionwascertainlyinspiredbyprinciplesofindivision
drawnfromQuebeccivillaw.Thiscouldbethereasonwhycommonlaw
courtsdidnotfollowthereasoningofthissingleCanadiandecision,butrather
returnedtothereasoningofEnglishjurisprudence.Infact,in1995,inForgetv.



















































30SeeMathersv.Green,(1865),35L.J.Ch.1(Chan.Div.)andSteersv.Roger,[1893]A.C.232
(H.L.).
31Marchandv.Péloquin,(1978),45C.P.R.(2d)48(Q.C.A..),atp.60.


SpecialtyToolsofCanada,Inc.32JusticeWoodoftheCourtofAppealof
BritishColumbiastatedthattheobligationtoobtaintheconsentoftheco-
patenteeandtosharetheprofitsresultingfromtheuseofthepatentwas
incompatiblewiththerightofeachco-patenteetoexploittheinventionas
foreseenbysection42ofthePatentAct.JusticeWoodtherebyconcluded
thatapatentisnotinfringedwhenaco-patenteemanufacturesorsellsthe
inventionwithinCanadawithouttheconsentofhisco-patentees.The
questionofprofitswasnotaddressedbytheCourtofAppealinthisdecision.
Nevertheless,giventhatitwasbasedonanEnglishdecisionwhereitwas
foundthatsharingofprofitswasnotrequiredintheabsenceofan
agreementbetweentheparties,
33onemaypredictthattheCourtwould
havechosentofollowthisreasoning.
4.1.2AssignmentofPatents
Oncethepatenthasbeenawardeditisconsideredpropertyandis
susceptibleofbeingsold,assignedorotherwisealienatedinamannersimilar
toothertypesofintangibleproperty.However,section50ofthePatentAct
providescertainrequirementsconcerningtheassignmentorlicensingofan
exclusiverighttouseapatentwhicharepertinenttoanyrelateddue
diligence.
Firstly,anysuchassignmentmustbemadeinwriting.Additionally,foranysuch
assignmenttobeopposabletothirdpartiesitmustberegisteredwiththe
CanadianPatentOffice
34.Thisalsoappliestothegrantofanexclusive
licencetousethepatent
35.
Therefore,duringanyduediligenceitisimperativetolocateandidentifythe
inventororinventorstoensurethevalidityofthechainoftitlebetweenthe
inventorandtheassignee.Itmaybenecessarytoverifythecontentsofany
employmentcontractstoensurethattheinventorshaveassignedallthe
rightsinanyinventionstotheiremployer.Whendealingwithuniversitiesor
otherresearchcentres,aninvestigationofanyco-developmentcontractis
importantinordertoidentifyanyremainingrightsinthetechnology.



















































32Forgetv.SpecialtyToolsofCanadaInc.(1996),62C.P.R.(3d)537(B.C.C.A.)[hereinafter
Forget].
33Mathersv.Green,supranote30.34S.50(3)&51PatentAct.(Section51ofthePatentActstatesthatanyassignmentisvoid
againstanysubsequentassigneeunlesstheassignmentorlicenceisregisteredasprescribed
beforeregistrationoftheinstrumentonwhichthesubsequentassigneeclaims.)Canadian
PatentOffice,http://strategis.ic.gc.ca/sc_mrksv/cipo/contact/t_list-e.html#patent.
35S.50(2)PatentAct.


Whenfacedwiththerightsofoneormoreco-patentees,canapatentee
assignaportionofhisinterestwithouttheconsentoftheco-patentees?The
answertothisquestionvariesaccordingtotwohypotheseswhichwereraised
inForget:
36(1)theassignmentbyaco-patenteeofallhisinterestinthepatent
and(2)theassignmentbyaco-patenteeofaportionofhisinterestinthe
patent.
Atcommonlaw,inthefirstcase,theB.C.CourtofAppealconsideredthata
co-patenteewhotransferredallhisrightsinapatenttoanassigneedidnot
dilutetherightsoftheco-patentees.Theassigneeissimplysubstitutedforthe
assignorandthereisnoimpactontherightsoftheco-patenteeswho
continuetosharethepatentwithanotherperson.TheCourtwentonto
concludethattheconsentoftheco-patenteewasunnecessaryinsucha
case.Inthesecondcase,iftheassignordecidestoassignaportionofhis
rightstooneormorepersons,theco-patenteeoftheassignorfindshimselfin
undividedco-ownershipwithanincreasingnumberofco-patenteesanda
correspondingdilutionofhisrights.Theconsentoftheco-patenteeis
thereforerequiredinsuchcasestoguaranteethattheessential
characteristicsofthepatent,i.e.exclusivity,aremaintained.
Atcivillawhowever,article1022oftheCivilCodeofQuebecrevealsan
importantrestrictionontherightofaco-ownertoassignhisrightsby
conferringarightofredemptiontotheotherundividedco-owners.By
analogy,allco-patenteeswholearnthatathirdpartyhasacquired,by
oneroustitle,theshareofaco-patentee,may,within60daysoflearningof
theacquisition,excludethisthirdpartyfromtheindivisionbyreimbursinghim
thetransferpriceandtheexpensesincurred.However,itshouldbenoted
thattherightofredemptionmustbeexercisedwithinoneyearfromthedate
oftheassignment.
37
Itshouldalsobenotedthat,althoughtheundividedportioninapatentmay
behypothecated
38,thisrighttohypothecateissubjecttothesamerightsof
redemptioninthecasewhereasecuredcreditorconsiderssellingtheshare
ortotakeitinpayment.
39
3.1.3ResearchatthePatentOffice



















































36Forget,supranote32.37Article1022C.C.Q.38Article1015(2)C.C.Q.39Article1023C.C.Q.


TheCanadianPatentOffice40allowsforseveraltypesofsearches41,themost
commonbeinganindexsearchusingthenameoftheenterprisebeing
acquired.Searchingthisindexallowspatentsgrantedtotheenterprisetobe
identified,aswellasapplicationsforpatentsthathavebeenfiledandare
pending.Thepurchasermayalsocarryoutasearchonanyassignmentsor
licencesgrantedbytheenterprise.ThePatentActrequiresthatall
assignmentsorgrantsofexclusivelicencesberegisteredwiththePatent
Officeinordertobemadeopposabletosubsequentassignees.Further
searchesmaybecarriedouttoidentifysecurityintereststhatburdenapatent
orpatentapplication.
Section11ofthePatentActalsoenablesonetodeterminethroughthe
PatentOfficeifanapplicationforapatentispendinginCanadaupon
providingthenameoftheinventorifavailable,thetitleoftheinventionand
thenumberanddateofapatentsaidtohavebeengrantedinanamed
countryotherthanCanada.
Avaliditysearchattemptstofindpatentsorpublicationsthatmayaffectthe
validityofclaimsofapatentbecausetheywouldtendtomaketheinvention
obviousoranticipated.Sincethescopeofsuchsearchisverybroad,itsresults
willlikelyincludepatentsthatwerenotfoundbythePatentOfficeexaminer
inthecourseoftheapplicationprocess.
Theinfringementsearchismeanttolocateclaims(includingproductclaims
methodandapparatusclaims)inpatentsorpatentapplicationsthatmaybe
infringedbythecommercialactivitiesofthetargetcompany.Thefactthat
anysuchprocessormethodispatentedbythetargetdoesnotmeanthatit
doesnotinfringeonotherpatents,sinceapatentdoesnotgranttherightto
dosomethingspecific,butrathertherighttopreventothersfromdoingthe
same.
Thesetypesofsearchesareofparticularimportanceinthecasewherethe
targetcompanyssuccessorviabilitydependonthefactthatitsproductsdo
notinfringeonotherspatentrights.
3.2Trade-marks
3.2.1Introduction



















































40Surpa,note34.41CanadianPatentDatabase,http://patents1.ic.gc.ca/intro-e.html



Atrade-markisaword,symbolorshape(oracombinationofthem)usedto
distinguishthegoodsorservicesofapersonfromthoseofothers.Trade-marks
maynotbeusedinawaythatwouldconfusethepublic.Confusionmayarise
ifatrade-markisusedinamannerthatmayleadtotheinferencethatthe
goodsorservicesassociatedwithsuchtrade-markareinthesamegeneral
classasthegoodsorservicesassociatedwithaconfusingtrade-mark.
3.2.2RightsthroughUse
Thereisnorequirementtoregisteratrade-markinCanada.Theusemadeof
atrade-markinaspecificregionwillenableitsownertoprotectitsmarket
andpreventotherbusinessesfromusingatrade-markthatisidenticalorthat
islikelytobeconfusinglysimilartothistrade-mark.Theownerofatrade-mark
thereforeacquirescertainrightsmerelythroughtheuseofthemark.However,
anunregisteredmarkislikelytobegeographicallylimitedinscope.A
registeredmark,ontheotherhand,providestheholderwithanexclusiveright
tousethemarkthroughoutCanada,aslongastheregistrationismaintained,
alongwithanumberofotheradvantagesdescribedhereafter.
InCanada,commonlawandcivillaw(inQuebec)rightsinatrade-markexist
inadditiontotherightsprovidedbytheTrade-marksAct
42.Thestatutory
jurisdictionovertrade-marksisfederal,whilethejurisdictionofpassingoffis
provincial,onthebasisofauthorityoftheprovincesover”Propertyandcivil
rights”
43.Trade-markownersoftenusethecommonlawactionofpassingoff
torestraintheactivitiesofothers.Suchactionmaybecoupledwithanaction
fortrade-markinfringementundertheTrade-MarksAct,orbroughtseparately
whereastatutorycauseofactiondoesnotexist.
3.2.3Registration
Asmentionedearlier,itisnotnecessarytoregisteratrade-markunderthe
Trade-marksActinordertoobtainenforceabletrade-markrights.However
therearemanyadvantagesinregisteringamark.Itconfersanexclusiveright
tousethetrade-markthroughoutCanada.Itcreatestwostatutorycausesof
action:(1)Actionforpassingoff;(2)Actionfortrade-markinfringementand
fordepreciationofthegoodwillattachingtotheregisteredtrade-mark
pursuanttotheParisConvention
44.Also,theapplicantmayrelyonapriority



















































42Trade-marksAct,R.S.C.1985,c.T-13.http://laws.justice.gc.ca/en/T-13/index.html43Seesection92(11)ConstitutionAct,1867.http://laws.justice.gc.ca/en/const/index.html44Supra,note23.


filingdateinCanadaasitsfilingdateinaforeigncountry(ifapplicationis
filedwithin6monthsoftheapplicationinCanada).TheTrade-marksActalso
providesthattheexclusiverightsofatrade-markowneraredeemed
infringedbyapersonwhosells,distributes,oradvertiseswaresorservicesin
associationwithaconfusingtrade-markortradename.
Untilrecently,itwasonlypossibletoregisteralicenseeasauserofatrade-
markifthetrade-markwasregistered.Thatrequirementhassincebeen
eliminatedbytheamendmenttotheTrade-MarksActabolishingthe
registeredusersystem
45.
3.2.4ApplicationforRegistration
Ingeneral,anapplicationfortheregistrationofatrade-markinCanadacan
bebased,namely,onanyofthefollowing:(i)useofthetrade-markin
Canadabytheapplicant(oritspredecessorintitleoritslicensee),(ii)making-
knownthetrade-markinCanadabytheapplicant(oritspredecessorintitle)
sothetrade-markbecomeswell-knowninCanada,(iii)corresponding
registration(orapplication)inaParisConventioncountryand(iv)use
anywhereintheworldor(v)intenttousethetrade-markinCanadabythe
applicant(oralicensee).
Thereisaperiodofapproximatelytwenty(20)totwenty-four(24)months
betweenthefilingofanapplicationandtheissuanceoftheregistration.
Oncetheapplicationforregistrationisfiled,afirststepconsistsinthereview
byanexamineroftheTrade-marksOfficeoftheapplicationforregistrationof
atrade-mark.Theroleoftheexamineristomakesureoftheregistrabilityand
compliancewithtrade-marklawandpractice.Atrade-markcanbe
registeredifitisnotprimarilymerelyafamilyname,clearlydescriptiveor
deceptivelymisdescriptive,inFrenchorEnglish,ofthewaresorservicesand
thenameinanylanguageofthewaresorservices.Also,thetrade-markhas
tobedistinctiveandmustnotcreateconfusionwithatrade-markortrade
namepreviouslyregistered,madeknownorusedinCanada.
Ifthetrade-markseemstoberegistrabletotheexaminer,itispublishedinthe
weeklyTrade-marksJournal.Anyinterestedpartymayseektoopposethe
applicationwithintwo(2)monthsofthedateofpublicationoftheapplicable
Trade-marksJournal.SuchoppositioniscarriedoutbeforetheTrade-marks
OppositionBoardwheretheopponentfilesastatementofoppositionsetting
outitsobjections.



















































45S.C.1993c.15,section69andsection50.


3.2.5Termofprotection
Registrationofatrade-markinCanadaisvalidforconsecutivefifteen(15)
yearterms.Asthetermsmayberenewedanynumberoftimes,the
protectionaffordedbyregistrationmaybeofaninfinitelength.Incertain
situationsitmayproveofinteresttotrade-markownerstotakeadvantageof
theprovisionsoftheCriminalCodewithrespecttotheprotectionoftrade-
markrights
46.
3.2.6LimitsonTrade-markEnforcement
Somelimitstothevalidityofaregisteredtrade-markaredefectsin
registration,adversechangesinthedistinctivenessofthetrade-mark,lossof
distinctivenessorfailuretousethetrade-mark.
3.2.7ReviewofMarkinginAssociationwithTrade-marks
TheTrade-marksActdoesnotcontainanysectionrequiringthatmarkingbe
usedinassociationwithtrade-marks.However,ithasbeenrecommended
thattrade-marksbeproperlymarkedwhethertheyberegisteredorsimply
adopted.Markingisespeciallyimportantwhenatrade-markisusedunder
licence.
Fivesymbolsmaybeusedformarkingpurposes:
-®:Shouldbeusedwhenthetrade-markisdulyregistered;
-™:Shouldbeusedwhenthetrade-markisadopted(used
withoutregistration)orhasbeenfiledforregistrationwith
theTrade-MarksOffice;
-*:Usedwhenatrade-markisadopted(usedwithout
registration);
-md:UsedintheFrenchlanguageonly.Meansthatthetrade-
markisregistered(marquedéposée);
-mc:UsedintheFrenchlanguageonly.Meansthatthetrade-
markisadopted(usedwithoutregistration)orhasbeen
filedforregistrationwiththeTrade-MarksOffice(marquede
commerce).
Thesesymbolsshouldappeartotherightofthetrade-markandmustreferto
alegenddescribingwhichentityistheownerofthetrade-mark:



















































46Seesection406andfollowingoftheCanadianCriminalCode,L.R.C.1985,ch.C-46.


-“Registeredtrade-markof[nameofowner]”;or
-“Registeredbyor[nameofowner]”;or
-“Atrade-markof[nameofowner]”.
Thetrade-markassociatedwiththeproductsorservicessoldorofferedin
Canadamust,byapplicationoftheConsumerPackagingandLabelling
Act
47,beidentifiedinthetwoofficiallanguages,EnglishandFrench.Inthe
Frenchlanguage,thelegendshouldthereforereadasfollows:
-“Marquedecommerceenregistréede[nameofowner]”;or
-“Enregistréepar[nameofowner]”;or
-“Marquedecommercede[nameofowner]”.
The®symbolcanbeusedonlyifatrade-markisregistered
.Iftheproducts
and/orservicesareexportedorofferedintheUnited-States,the®symbol
canbeusedonlyiftheownerofthetrade-markhasadulyregisteredtrade-
markintheUnited-States.Ifitisnotthecase,thefollowingsymbolsmustbe
used:™or*.
Ifthetrade-markisusedunderlicence,thefollowinglegendshouldbe
associatedwiththetrade-markbyapplicationofsection50oftheTrade-Mark
Act:
-“Trade-markof[nameofowner]usedunderlicenceby[nameof
licensee]”;or
-“Registeredtrade-markusedunderlicenceby[nameof
licensee]”;or
-“Atrade-markusedunderlicenceby[nameoflicensee]”.
3.2.8AssignmentofTrade-marks
Trade-marksmayalsobesoldlikeanyotherproperty.However,ifthetrade-
markisregistered,thesalemustalsoberegisteredwiththeTrade-marks
Office.Atrade-markmaybelicensedorfranchisedthroughanagreement
byandbetweentheinterestedparties.However,toensurethatatrade-mark
doesnotloseitsdistinctiveness,theownerofthemarkmust,bycontract,
maintaincontrolover(i)thecharacteristicsandthequalityofthe
merchandiseorservicesofferedinconnectionwiththetrade-mark,(ii)theuse
ofthetrade-mark,and(iii)theadvertisementorthedisplayofthetrade-mark.
Theownermustalsoinfactascertaintheserightstomaintainthe
distinctivenessofthetrade-mark.



















































47ConsumerPackagingandLabellingAct,(R.S.1985,c.C-38).http://lois.justice.gc.ca/en/C-
38/32545.html


Inthecaseofasaleofatrade-mark,thepartiesmustprepareanassignment
documentindicatingthechangeofownershipofthetrade-mark.The
Registrar,onbeingfurnishedwithevidencesatisfactorytohimofthetransfer
willthen,byvirtueofsubsection48(3)oftheTrade-marksAct,registersuch
transfer.
3.2.9ResearchattheTrade-marksOffice
Trade-marksinCanadamayberegisteredwiththeTrade-marksOffice
48.As
statedabove,registrationofamarkwiththeTrade-marksOfficeprovidesthe
holderwithanexclusiverighttousethemarkthroughoutCanadaaslongas
theregistrationismaintained,alongwithanumberofotheradvantages.
Similartopatents,anumberofsearches
49maybecarriedoutattheTrade-
marksOffice:(i)Anindexsearchmaybeconductedasafirststepina
commercialtransaction;thistypeofsearchismadetodeterminetrade-mark
registrationsandpendingapplicationsforregistrationsrecordedinthename
ofaperson;(ii)aregisteredusersearchoftherecordspermitstopointout
instancesinwhichthirdpartieshadbeenauthorizedtouseaparticulartrade-
markorifthecompanyhadbeenlicensedtousetrade-marksofthirdparties
priortotheamendmentstotheTrade-marksActabolishingtheauthorized
userregistrationobligation;(iii)anoppositionsearchmayalsobedonein
ordertoseeifoppositionapplicationsarepending.Itisalsopossibletoverify
documentationrelatingtosecurityinterestsrecordedagainstatrade-mark
registrationorapplication.Thistypeofsearchisnotalwaysreliablesincethe
informationisnotrecordedagainsttitle;therefore,itisimportanttoreviewthe
filehistory.
However,itshouldbenotedthat,asthereisnorequirementtoregistera
trade-mark,itislikelythatanysearchattheTrade-marksOfficewillbe
incomplete.AdditionalsearchesoutsideoftheTrade-marksOfficemaybe
necessarytoprovideamorecompletepicture.
3.3Copyright
Copyrightistheprotectionoftheexpressionofcreativitythatcanbea
literary,artistic,musicalordramaticwork.Uponthecreationofanoriginal
workthatisfixedintangibleform,copyrightoccursautomaticallyandthe



















































48Trade-markOffice;http://strategis.ic.gc.ca/sc_mrksv/cipo/tm/tm_main-e.html49CanadianTrade-markDatabase,http://strategis.ic.gc.ca/cgi-bin/sc_consu/trade-
marks/search_e.pl


benefitsofacertainprotectionarises,givingitscreatordifferentrights.Neither
noticenorregistrationisneededtoautomaticallyextendcopyright
protectioninCanadaasitisthecaseinmanyothercountriesoftheworld.
Therefore,veryfewbusinessesregistercopyright,unlesstheworkisvaluable.
Theessentialconceptofcopyrightisthatthereisnoprotectionfortheideas
orconceptsthemselves,onlyfortheirexpression.
InCanada,copyrightisastatutoryrightthatexistssolelyundertheCopyright
Act
50.Thefederalparliamenthasexclusivejurisdictionovercopyright.
However,provinciallawwillapplyassuppletivelawwithrespecttothesale,
transfer,leaseorlicenceofcopyrightsassuchtransactionsfallunderthe
provincialjurisdictionof”Propertyandcivilrights”
51.
3.3.1Rights
Simplyput,copyrightmeansthesolerighttoproduceaworkorany
substantialpartthereofinanymaterialformwhatsoever.Italsoincludesthe
solerighttoperformtheworkoranysubstantialpartthereofinpublic,to
produce,reproduce,performorpublishanytranslationofthework.Inthe
caseofaliterary,dramaticormusicalwork,itincludestherighttomakeany
soundrecording,cinematographicfilmorothercontrivancebymeansof
whichtheworkmaybemechanicallyreproducedorperformedorinthe
caseofcomputerprograms,thesolerighttolicensethecomputerprogram.
Inaddition,thecopyrightholderhasthesolerighttoauthorizethe
commissionoftheaboveacts.Thesolerighttoauthorizetheseactsisa
separateandsubstantiverightwhichmeansthatthecopyrightownerisnot
theonlypersonentitledtoreproducetheentireworkoranysubstantialpart
thereof,butalsotheonlypersonthatcanproperlyauthorizeathirdpartyto
produceorreproducetheentireworkoranysubstantialpartthereof.
3.3.2Termofprotection
Ingeneral,copyrightsubsistsuponcreationoftheworkforthelifeofthe
includinguptotheendoftheyearinwhichtheauthordies(because
copyrightprotectionalwaysendsonthelastyearofprotection)plusfifty(50)
years.



















































50Supra,note2.51Supra,note43


Inthecaseofmorethanoneauthor(jointauthors),thetermofprotectionof
copyrightintheworkisthelifeoftheauthorwhodieslastincludinguptothe
endoftheyearinwhichhediesplusfifty(50)years.
Inthecaseofanunknownauthorthetermofprotectionofthecopyrightwill
betheearlierofeither(i)theendoftheyearoffirstpublicationplusfiftyyears
or(ii)theendoftheyearofthemakingoftheworkplusseventyfive(75)
years.
Whentheauthordies,inthecaseofanunpublishedwork,itdependsonthe
dateofdeathoftheauthor.IftheauthordiedafterJanuary1
st,1999,the
termofprotectionofthecopyrightwillbetheendoftheyearoffirst
publication,publicperformance,orcommunicationplusfifty(50)years.Ifthe
authordiedbeforeJanuary1
st,1999,thetermofprotectionofthecopyright
willbetheendoftheyearinwhichtheauthordiedplusfifty(50)years.
IftheauthorofaworkdiedbeforeSeptember1
st,1949,thetermofcopyright
protectionwillbefive(5)yearsfollowingDecember31
st,1999,independently
ofanypublication,publicperformanceorcommunication.Inotherwords,
everyworkforwhichtheauthordiedbeforeSeptember1
st,1949willbecome
publicandwillnolongerbenefitfromcopyrightafterDecember31
st,2004.
Inthecaseofphotographsthetermofcopyrightprotectionwillbethe
remainderoftheyearofthemakingoftheinitialnegativeorplateofthe
initialphotographplusfifty(50)years.
Wherethecopyrightbelongstohermajesty,thetermofprotectionwillbethe
endoftheyearofthefirstpublicationoftheworkplusfifty(50)years.
Inthecaseofjointauthorshipwhereauthorsarenationalsofanycountry,
otherthanacountrythatispartyoftheNorthAmericanFreeTrade
Agreement,thetermofprotectionwillbetheshortertermofprotection
grantedamongthedifferentsystems.


Forcinematographicworksinwhichthearrangementoractingformorthe
combinationofincidentsrepresentedgivetheworkadramaticcharacter,
thetermwillsubsistforthesameperiodasforadramaticwork.Intheother
cases,thecopyrightprotectionwillsubsist:
·ifpublished,theendoftheyearinwhichtheworkwasfirst
publishedplusfifty(50)years;
·ifnotpublished,theendoftheyearofitscreationplusfifty
years(ifstillnotpublished).
3.3.3Registration
Thereisnoformalrequirementtoconfirmtheexistenceofacopyrightby
registration.However,Canadahasaregistrationsystemwhichhasthe
advantageofprovidingtheholderofaregistrationcertificatewithanumber
ofpresumptionsinhisfavor,includingpresumptionsasto(i)thevalidityofthe
copyrightsubsistinginthework,(ii)theownershipofthecopyrightbythe
registeredowner,and(iii)theknowledgeonbehalfofthirdpartiesofthe
subsistenceofcopyrightinagivenwork.Absenceofregistrationdoesnot
precludethecopyrightownerfromfilinganactionintocourt.
Theownercanobtainregistrationbysubmittingatthecopyrightoffice,an
applicationfiledinaspecificformwithpaymentoftheprescribedfees.There
isnoexaminationandnorequirementtofileacopyofthework.
3.3.4Ownership
Exceptinspecificcircumstances,theauthorofaworkispresumedthefirst
ownerofthecopyrightsubsistinginawork.Themostimportantexceptionto
thisruleisthecaseofawork”madeinthecourseofemployment”.Wherea
workismadeinthecourseofemploymentorapprenticeshipthepersonby
whomtheauthorwasemployedretainstitleasfirstownerunlessawritten
agreementtothecontraryexistsbetweentheparties.Itshouldbenotedthat
thisconceptof”madeinthecourseofemployment”doesnotextendto
consultantsorindependentcontractors.Apartfromthisparticularcase,
however,theownershipofcopyrightremainswiththefirstauthorofawork
untilsuchtimeasitisassignedinwriting.
3.3.5Limits
Copyrightprohibitsthereproductionofanoriginalwork.Itdoesnothowever
prohibittheindependentcreationofasimilarwork.Thiscomplicates


enormouslyanyverificationcarriedoutinduediligence.Itissuggested,
therefore,toinsistthattheassignorremainresponsibleifitlatercomestolight
thattheworksinquestionareinfactinfringingcopyrightofathirdparty.
3.3.6DueDiligence
Thefirststepinanyduediligencerelatedtocopyrightistoexaminethechain
oftitleoftheworksinquestiontoensurethatthevendorpossessestherightof
ownership.TheCopyrightActconferstherightofownershipintheworktothe
titularyoftheworkfromthemomentofitscreation.Infact,anyregistrationof
copyrightconfersonlyarebuttablepresumptionofownership.Ofnoteis
subsection13(3)oftheCopyrightAct,whichcreates,asseenabove,a
presumption,inabsenceofanagreementtothecontrary,thatownershipin
workscreatedbyanemployeeduringhisemploymentarethepropertyof
theemployer.However,animportantdeviationfromthisprincipleappliesin
thecaseofconsultantswhoarehiredfromtimetotimebyanenterprise.In
theabsenceofanagreementtothecontrarythereisapresumptionthatthe
rightsinanyworkscreatedduringthecourseoftheagreementarevestedin
theconsultantandnottheemployer.
3.3.7AssignmentofCopyright
Assignmentofcopyrightprovidesanotherexceptiontocommonlaworcivil
law(inQuebec)byrequiringawrittendocumentsignedbytheassignor
attestingtotheassignmentofcopyright.Ascopyrightisnotsubjecttoany
formalrequirementsofregistration,neitheristheassignmentofcopyright.
However,itisrecommendedtoregisteranyandallrightsinaworkandto
registeranyassignmentduringtheacquisitionofanenterprise.Anassignee
mayfindhisassignmentdeclarednullinthefaceofathirdpartyingoodfaith
whoacquiredtherightsintheworkforvalueandwhoregisteredthe
assignmentpriortotheregistrationofthatoftheassignee
52.
Intheeventofasilentagreementastothetransferofcopyrightinawork,the
transferofcopyrightwillgenerallynotbeimplied.However,ageneralclause
regardingtheassignmentofalltheintellectualpropertyrightsnecessaryto
operateacorporationwouldnormallyincludecopyright.Furthermore,the
transferofaphysicalobjectdoesnotimplythetransferofitscopyright.
3.3.8Insolvency



















































52Subsection57(3)oftheCopyrightAct.


TheBankruptcyandInsolvencyAct
53specifiesatsection83thatinthecaseof
insolvencyoftheassignee,allassignedcopyrightsorinterestsinacopyright
automaticallyreturntotheauthor.However,theworkmustnothavecaused
expensesorbeenpublished,ifso,theCopyrightActspecifiesrepurchase
termsinfavoroftheauthor.Itisimportanttonotethatanyagreementtothe
contraryenteredintowithabankruptisnullandvoid.
3.3.9MoralRights
TheCopyrightActalsocreatesmoralrightsinaworkwhichbenefitonlythe
author.Moralrightsrelatetotherighttotheintegrityoftheworkandtheright
topaternityinrespectofthework.Inessence,moralrightsinaworkmay
restrictthemodificationorexploitationofaworkafterithasbeensoldor
licensedbyenablingtheauthortoprohibitanassigneefromdefacingthe
workandtoreclaimtheworkundercertaincircumstances.Anauthor’sright
intheintegrityofaworkisonlyinfringedwheretheworkis,tothedetrimentof
thehonororthereputationoftheauthor,eitherdistorted,mutilatedor
otherwisemodified,orusedinassociationwithaproduct,service,causeor
institution.
54Thismayproveimportantwhenmodifyingagivensoftwarefor
instance.Notethatmoralrightsextendalsototheuseofapseudonymand
eventherighttoremainanonymous.
MoralrightscannotbeassignedbuttheCopyrightActforeseesthatan
authorcanrenouncetohismoralrightsinawork.Thisrenunciationmayhave
thesameordifferenttermsthantheassignment.Inanycase,itis
recommendedtoensurethattheowneroftherightsintheworkalsoobtaina
clearrenunciationbytheauthorofhismoralrightsinthework.Intheabsence
ofsuchwaiverintheassignmentagreement,itisrecommendedtohavethe
vendorsignanagreementtoobtainsucharenunciation.
3.3.10ResearchattheCopyrightOffice
AnumberofdifferenttypesofsearchescanbecarriedoutattheCopyright
Office.Theindexsearchmaybeusedtolocatethecopyrightregisteredby
nameandmaydeterminewhatcopyrighthasbeengrantedortransferred.A
titlesearchmaybeusedtorevealanylicencesandsecurityintereststhat
affectthecopyrightinawork.



















































53R.S.C.1985,c.B-3.http://laws.justice.gc.ca/en/B-3/index.html54SheldonBurshtein,IntellectualPropertyDueDiligenceinCommercialTransactions(1994),11
CIPR91atp.120.



Asforthelimitsofsuchsearches,inpractice,searchescarriedoutinthe
CopyrightOfficeprovideonlylittleinformation,sincethemajorityof
copyrightsarenotregistered,withtheexceptionofenterpriseswhose
activitiesrelygreatlyontheprotectionaffordedbycopyright.
Applicationsforregistrationarenotavailableforsearching.Also,recordsat
theCopyrightOfficemaycontainerrorsthatmayaffectreliabilityofthe
search.
3.3.11MarkinginassociationwithCopyright
Itisrecommendedthatworkdistributedtothepublicbeproperlymarkedby
indicatingthefamiliarcopyrightnotice:”©,[yearoffirstpublication],[nameof
theowner].
3.4TradeSecrets
3.4.1DefinitionofTradeSecrets
NospecificlegislationinCanadadefineswhatconstitutesatradesecret.A
numberofauthorshaveheldthatatradesecretconsistsofinformation,
includingformulas,procedures,methods,techniques,orcompoundsusedin
thebusinessofanenterprisewhichisnotinthepublicdomainandhasan
economicvalue.
55
Atcommonlaw,tradesecretmeansinformationincludingbutnotlimitedtoa
formula,pattern,compilation,program,method,technique,orprocess,or
informationcontainedorembodiedinaproductdeviceormechanism
which:
1.is,ormaybeusedinatradeorbusiness,
2.isnotgenerallyknowninthattradeorbusiness,
3.haseconomicvaluefromnotbeinggenerallyknown,and
4.isthesubjectofeffortsthatarereasonableunderthe
circumstancestomaintainitssecrecy.
56
Atcivillaw(inQuebec),thecaseofPositronInc.v.Desrochesetal.,
57
confirmedthatthecommonlawcaseswereapplicableintheprovinceof
Quebec.Mr.JusticeBironwentontoproposethefollowingdefinition:



















































55PierreCoté&AlexisBergeron,LaproprietéintellectuelleauQuebec:financementet
réalisation,(1998)McMaster-Meighan.
56InstituteofLawResearchandReform,TradeSecrets,ReportNo.46(Edmonton:Instituteof
LawResearchandReform,1986)at256.


“Tradesecretsareusuallyformulas,manufacturingprocesses
uniquetoitsownerandwhichhavebeenrevealed
confidentiallytoanemployee.Thisisnotexperienceacquired
byanemployeebut,moreexactly,knowledgeorknow-how
belongingtotheemployerandrevealedbyhimforthesole
purposeofpermittingtheemployeetoproducewhatthe
tradesecretenableshimtodo.Includedinthiscategoryare
chemicalformulas,recipes,manufacturingtechnologies(…)”.
[translated]
Thenotionoftradesecretmaybedefinedbroadlytoincludeknow-howand
confidentialinformation,i.e.allconfidentialinformationbelongingtoa
businessthatprovidestheholderwithaneconomicadvantageovera
competitor.Thisinformationmayconsistofknowledge(orknow-how)ofa
technicalnatureaswellasclientmailinglists,reportsonstrategic
development,etc…
Giventhatatradesecretis,inessence,information,itimpliesthatoncea
tradesecretisknownordiscoveredbysomeoneelse,thereisnoconcrete
meanbywhichthispersonmaybedivestedofit.Italsomeansthatthefact
thatatradesecretistransferredtoabuyeralongwithotherintellectual
propertyassetsdoesnotdeprivethesellerfromitsabilitytousethis
informationinthecourseofitsbusiness,unlesscontractualobligationsprevent
itfromdoingso.
Thepersonswhobenefitfromtradesecretsbeartheriskoflosingthatbenefit
andbeingpreventedfromusingthetradesecretifathirdpartyobtainsa
patentforthesamesubject-matter.Whentechnicalinformationiskept
secret,athirdpartymaydevelopthesameinnovationonitsownandseek
patentprotectionforit.Inthisscenario,thepersonbenefitingfromthetrade
secretcouldnotinvokepriorartornon-obviousnessinordertoinvalidatethe
patentclaimiftheusethatwasmadeofthetradesecretwasnotdisclosed
ordeemeddisclosedtothepublic.Thepersonwhowasusingtheinformation
withoutpatentprotectioncouldthenbeprecludedfromusingthe
informationitdeveloped,discoveredoracquired,evenifitwasusingit
beforethepatentowner.
Obviously,notallinformationtowhichanemployeewillbeexposedinthe
courseofhisworkisconfidential.Evenwhenitisconfidential,inmanycasesit
willnotbenefitfromanyprotectionsubsequenttotheruptureofthe
employmentcontractintheabsenceofanimplieddutyofconfidentiality
(e.g.withrespecttosenioremployees)orofarestrictiveclauseinthe
































































































































































57[1988]R.J.Q.1636at1653.


employmentcontractordismissalagreement.Onlyiftheinformationisofa
naturesoconfidentialthatitcanbeassimilatedtoatradesecretwillitbenefit
fromprotectionatlaw.
Althoughtherequirementsmayvaryslightlyfromonecountrytotheother,
thefollowingprotectivemeasurescanbeconsideredasthemainguiding
principlestocomplywithinordertomaintainasufficientlevelofprotectionof
thetradesecretsofanenterprise:
1.Makingsurethattheinformationthattheenterprisewantsto
protectastradesecretisnotgenerallyknownoutsidethe
enterprise;
2.Assessingtheextenttowhichemployeesandotherpeopleinvolved
intheproductionofthewaresortheprovisionoftheserviceshave
knowledgeoftheinformationthattheenterprisewantstoprotect
astradesecret;
3.Maintainingandreviewingthemeasuresthatweretakentokeep
theinformationconfidentialonaregularbasis;
4.Measuringthevalueoftheinformationthattheenterprisewantsto
protectastradesecret,bothforitselfandforitscompetitors.
5.Keepingtrackoftheinvestmentsandeffortsthatweremadebythe
enterpriseduringtheprocessofdevelopingthetradesecret.
6.Evaluatingtheinvestmentsandeffortsthatwouldberequiredbya
thirdpartytoobtaintheinformationortoduplicateonitsownthe
benefitsderivedfromtheinformationthattheenterprisewantsto
protectastradesecret.
Evenifthesearethemeasuresthataregenerallyrecognizedby
jurisprudence,theyshouldnotbeenconsideredasanexhaustivelistofallthe
possiblemeanstoprotecttradesecrets
3.4.2EnforcementofTradeSecretRights
Tradesecrets,know-howandconfidentialinformationarealsoconsidered
partoftheintellectualpropertyofanenterprise.Theydifferhoweverfrom
othertypesofintellectualpropertyinthattheydonoreceiveanyspecific
legislativeprotection.Nevertheless,intheeventthattradesecrets,know-how
orconfidentialinformationareillegallydivulgedorcommunicatedtoathird
party,civilremediesmaypotentiallybeavailableintheformofdamagesand
injunctions.
Morespecifically,inabreachofconfidencecase,thefocusisonthelossto
theplaintiffand,asintortactions,theparticularpositionoftheplaintiffmust
beexamined.Theobjectiveistorestoretheplaintiffmonetarilytotheposition


hewouldhavebeeninifnowronghadbeencommittedandisgenerally
achievedbyanawardofdamages.
OfparticularimportanceintheprovinceofQuebecisthe“Springboard
Theory”.ThistheorywasexpressedinTerrapinLtd.v.BuildersSupplyCo.
(Hayes)Ltd.
58:
“…apersonwhohasobtainedinformationinconfidenceisnot
allowedtouseitasaspringboardforactivitiesdetrimentalto
thepersonwhomadetheconfidentialcommunication,and
springboarditremainsevenwhenallthefeatureshavebeen
publishedascanbeascertainedbyactualinspectionbyany
memberofthepublic…Thepossessoroftheconfidential
informationstillhasalongstartoveranymemberofthe
public…Itis,inmyview,inherentintheprincipleuponwhich
theSaltzmancasereststhatthepossessorofsuchinformation
mustbeplacedunderaspecialdisabilityinthefieldof
competitiontoensurethathedoesnotgetanunfairstart.”
Whenconfidentialinformationortradesecretshaveleakedtoacompetitor,
theapplicationoftheSpringboardTheorywillprotectthe“headstart”held
bytheownerofthisinformationandtradesecretsandwill“setback”those
whoillegallygainedaccesstoandusedtheinformation.
3.4.1AssignmentofTradeSecrets
Strictlyput,atradesecretmaynotbesoldsinceitisnota”property”but
merelyproprietaryrightsacquiredbycontract,bothfromacommonlawand
civillawperspective.Fromapracticalstandpointhowever,itisalways
possibletotransferconfidentialinformation.Thetransfercanbemadewithor
withoutrestrictionuponthetransferor,andinthelattercase,thetransferor
maycontinuetousethetradesecret.Thetransfereewishingtohave
exclusiverightsmustensurebywayofanagreementthatthetransferorwill(i)
maintaintheconfidentialityoftheinformationand(ii)undertakenottouse
thetradesecretsotransferred.
3.4.3NatureoftheRight
Thecommercialadvantagesthatanenterprisemayderivefromconfidential
information(includingtradesecrets)resideinitscapacitytokeepsuch
informationsecretandpreventotherstogainaccesstoit.Therefore,such



















































58[1967]R.P.C.375at377.


informationmaynotbeconsideredaspropertythatmaybesoldorbought59.
However,theholderofconfidentialinformationmayacquirecertainrights
arisingfromnon-disclosureagreementsorfromthefiduciarydutiesimposed,
forinstance,ontheemployeesofaholder.
3.5IndustrialDesigns,IntegratedCircuitTopographiesandPlantBreeders
Rights
TheIndustrialDesignAct
60permitstheregistrationofandresultsinthegrantof
anexclusiverightinthevisualandornamentalcharacteristicsofautilitarian
product.Industrialdesignhasacloserelationshipwithcopyrightinthatuseful
worksthatareconsideredindustrialdesignsmayalsobeconsideredartistic
worksandcapableofcopyrightprotection.Featuresofanobjectthatare
solelyfunctionalmaynotbethesubjectofanindustrialregistration.
Registrationisrequiredtoprotectanindustrialdesign;applicationmustbe
filedwithinoneyearofthefirstsaleofthedesign.Anexclusivelicencemust
alsoberegistered.
Subsection64(2)oftheIndustrialDesignActprovidesthatwherecopyright
subsistsinadesignappliedtoausefularticleand(i)thearticleisreproduced
inaquantityof50ormoreor(ii)thearticleisaplate,engraving,cast,etc.
usedforproducingmorethan50articles,thenitisnolongercopyright
infringementtoreproducethearticle.TheIndustrialDesignActcountersthis
lossofcopyrightprotectionbyawardinga10-yearperiodwithinwhichthe
registrantmaymaintainamonopolyrightonthedesigninquestion.
TheIntegratedCircuitTopographyAct
61providesaregimeofprotectionfor
thecomplexthree-dimensionalsetsofelectronicinterconnectionswithina
semi-conductor.Protectionisonlyavailablebyregisteringthetopography
andfailuretofileanapplicationwithintwoyearsofanycommercialsalemay
resultinthelossofrights.
Pursuanttosection3,theIntegratedCircuitTopographyActprovidesfor
exclusiverights,uponregistration,toreproduce,manufactureandimportor
commerciallyexploitthetopographyoraproductbasedonthetopography.



















































59SeeGideonetGideochemInc.v.Tri-TexCo.Inc.[1999]RJQ2324(C.A.);[1999]REJB1426
9C.A.).Inthiscase,thecourtcancelledawritofseizurebeforejudgmentbywhichthe
plaintiffwasclaiming,asowner,tradesecretsthatitassimilatedtomoveableproperty.
TheCourtofAppealconfirmedthatatradesecretisnotmoveablepropertyasdefined
atarticle734(1)oftheQuebecCodeofCivilProcedure.
60Supra,note4.61Supra.note5.


Thetermofprotectionistenyearsfromthedateofapplicationforregistration
ofthetopography.
ThePlantBreeders’RightsAct
62providesasystemofprotectionfornew
varietiesofplants.UndertheAct,theregisteredholderofplantsbreeders
rightsonaparticularvarietyofplanthastheexclusiverighttosellseedsof
suchplantvarietyaswellasanexclusiverighttoproduceseedsofthevariety
forthepurposeofselling.TheActalsotypicallyprotectsaclone,hybridor
geneticvariationofaplant.Thetermofthemonopolyrightis18yearswitha
requirementfortheholdertopayyearlymaintenancefeesifhedesiresto
maintaintheprotection.
3.5.1AssignmentofIndustrialDesigns,IntegratedCircuitTopographiesand
PlantBreedersRights
Section13oftheIndustrialDesignActexpresslyprovidesforthelicensingor
assignmentofaregisteredorunregistereddesign(e.g.attheapplication
stage),eitherastothewholeinterestoranyundividedpart.Thelicensingor
assignmentmustbemadeinwritingandmustberecordedintheofficeofthe
CommissionerofPatents.
Pursuanttosection7oftheIntegratedCircuitTopographyActanyinterestin
theexclusiverightstoatopography,whetherregisteredornot,maybe
transferredorbethesubjectofalicenceagreement.
Subsection5(1)ofthePlantBreeders’RightsActdescribesthenatureofthe
plantbreeder’srights.Paragraph5(1)(d)ofsuchActprovidesthatoneof
theserightsincludestheexclusiverighttoauthorize,conditionallyor
unconditionally,thedoingofanyactdescribedintheotherparagraphs.
Section31ofthePlantBreeders’RightsActprescribesthemannerinwhich
therightsmaybeassigned.Anassigneesrightsmaynotbeopposabletoa
subsequentassigneeiftheassignmentwasnotdoneinaccordancewith
subsection31(1)ofthePlantBreedersRightsAct
63.



















































62Supra,note6.

63Article31(1)ofthePlantBreeders’RightsActprovidesthattheCommissionershallbe,inthe
prescribedmannerandwithintheprescribedperiodaftertheholderofplantbreedersrights
hasassignedthem,(a)informedofthenameandaddressoftheassignee;and(b)furnished
withsuchproofofserviceofanoticeoftheassignmentonanypersongrantedanyofthose
rightsbylicenceundersection32asisprescribedorastheCommissioner,intheabsenceor
inlieuofanythingsoprescribedorinadditionthereto,requires.


3.6OtherStateGrantedLicences
Insomecases,particularlawsmaycomeintoplaydependingontheareaof
activityofanenterprise.Thiswouldbethecase,forexampleintheareaof(i)
broadcastingwheretheCanadianRadioandTelecommunications
Commission(CRTC),byvirtueoftheBroadcastingAct
64hasthepowerto
reviewallchangesofcontrolofanenterpriseengagedinbroadcasting,or(ii)
pharmaceuticalpreparation,wheretheTherapeuticProductProgram
65(TPP),
adivisionofHealthCanada,hastheduty,undertheFoodandDrugAct
66to
approvethesaleofpharmaceuticalproducts.Insuchcases,further
proceduresmayberequiredtoensureadequatetransfersoftherightto
commercializethevariousrightsacquired.
3.7AssetsinPersonnel
Assetsintheformofpersonnelarenotstrictlyspeakingatypeofintellectual
propertyformingpartofthepropertyofanenterprisebutratherthe
advantagethatanenterprisehasthroughemployingaparticularindividual.
Inmanycasestheimpactofthehumanfactorcannotbeunderestimated,
andasuccessfulacquisitionofintellectualpropertymayoftendepend
greatlyonanappropriatemanagementofhumanfactors.
3.7.1ImpactofEmployee/EmployerRelationships
Inthecontextofamergeroracquisitionanumberofemployeesareoften
dismissed.Whenaruptureoccursintheemployee/employerrelationshipan
upsetex-employeemaytakewithhimclient-lists,businessplansandother
intellectualproperty.Anassessmentmustbemadeoftherightsofboththe
employeeandtheemployer.
ThejurisprudenceinCanadamakesadistinctionbetweenthreecategoriesof
knowledgethatanemployeemayacquireduringthecourseofhiswork:

1.Knowledgeofsuchanaturethatareasonablepersonwouldnot
considerasconfidential.



















































64BroadcastingAct,(1991,c.11)http://laws.justice.gc.ca/en/B-9.01/index.html65Seehttp://www.hc-sc.gc.ca/hpb-dgps/therapeut/
66FoodandDrugAct,(R.S.1985,c.F-27),http://laws.justice.gc.ca/en/F-27/54218.html


Anemployeemaymakeanyusehewishesofthisknowledge.
2.Knowledgethatanemployeemusttreatasconfidential,either
becausetheemployerhasindicatedthatitisconfidentialorthatis
confidentialbyitsnature.
Thisknowledge,whenacquiredbyanemployee,formspartofthe
intellectualbaggagethathewillcarrywithhimfromjobtojob.Thisis
referredtoassubjectiveknowledge,i.e.thepersonalandsubjective
experienceoftheemployeethatwillremainwithhimwhenheleaves
hisemploy.
Aslongasacontractofemploymentbindstheemployeeand
employer,theemployeemustretainthisknowledgeinaconfidential
manner.Thisisbyvirtueofanimplicitclauseofloyaltythatprohibitsan
employeefromrevealingtoacompetitorsomethingthatmight
procurehimamaterialgain.
Upontheruptureoftheemploymentlienbetweenemployeeand
employer,theemployeeisfree,intheabsenceofanagreementto
thecontrary,toplaceattheserviceofanewemployer,evenamain
competitor,thegeneralknowledgethattheemployeehasacquired
withregardtotheorganizationandthebusinessmethodsofhisex-
employer.
Quebechasaparticularregimeinthisregard,whichisstatedinarticle
2088oftheCivilCodeofQuebec:
Theemployeeisboundnotonlytocarryonhisworkwith
prudenceanddiligence,butalsotoactfaithfullyandhonestly
andnottouseanyconfidentialinformationhemayobtainin
carryingonorinthecourseofhiswork.
Theseobligationscontinueforareasonabletimeafter
cessationofthecontract,andpermanentlywherethe
informationconcernsthereputationandprivatelifeofanother
person.[Ourunderlining.]
Itmustberememberedthatsubjectiveinformationacquiredduring
thecourseofhisworkisnotconsideredconfidentialinformation.
Furthermorewhatisconsidereda”reasonabletimeaftercessation”is
lefttotheappreciationofthecourts,whichhavebeenreluctantto
findthatsuchatimeperiodexceeds24months.


3.Knowledgerelatedtomanufacturingsecrets,suchasformulasora
secretmanufacturingprocessonlyknownbytheemployerand
revealedtotheemployee.

Thisknowledgeisnotacquiredbytheemployeeduringthecourseof
hisemployment,butratherisknowledgebelongingtotheemployer
whichisrevealedtotheemployeesolelyforthepurposeofallowing
himtomanufacturewhatthesecretreveals.Thisisobjective
knowledge,whichremainsthepropertyoftheemployerevenafter
theemployee’sdismissal.
ItshouldalsobenotedthatinQuebec,pursuanttoarticle2095ofthe
CivilCodeofQuebec,whenanemployerdismissesanemployee
withoutseriousreason,anynon-competitionclausewhichmayhave
beenenteredinto,isofnoeffect.Anemployerisalwayswelladvised
tohavetheemployeeenterintoadismissalagreementwherebyhe
againagreestoabidebythetermsofanon-competitionclause.
Incommonlawprovinces,thedecisionoftheSupremeCourtof
CanadainLACMineralsv.InternationalCorona
67heldthatthree
elementswererequiredtoestablishabreachofconfidence(apart
fromcontract):
1.theknowledgemust“havethenecessaryqualityof
confidenceaboutit”;
2.theknowledgemusthavebeendivulgedincircumstances
importinganobligationofconfidence;and
3.theremusthavebeenanunauthoriseduseofthe
knowledgetothedetrimentofthepartycommunicatingit.
The“necessaryqualityofconfidence”wasdetailedbytheU.K.Court
ofAppealinthedecisionofSaltmanEngineeringv.Campbell
Engineering
68:
“Theinformation,tobeconfidential,must…havethe
necessaryqualityofconfidenceaboutit,namely,itmustnot
besomethingwhichispublicpropertyandpublicknowledge.
Ontheotherhand,itisperfectlypossibletohavea
confidentialdocument,beitaformula,aplan,asketch,or
somethingofthatkind,whichistheresultofworkdonebythe
makeruponmaterialswhichmaybeavailablefortheuseof
anybody;butwhatmakesitconfidentialisthefactthatthe
makerofthedocumenthasusedhisbrainandthusproduced



















































67(1989),26CPR97(SCC).68(1948),65RPC203(CA).


aresultwhichcanonlybeproducedbysomebodywhogoes
throughthesameprocess.”

4Licences,AssignmentsandOtherAgreementsrelatingtoIntellectual
Property
Thefollowingtableprovidesanoverviewoftheactionsrequiredonbehalfof
thepartieswhenassigningorlicensingarightinstatutoryintellectualproperty.
Table1:
OverviewofStatutoryRequirementsforAssignmentorLicence

StatuteAssignmentLicence
PatentActInwriting69
Registrationrequired
70R
egistrationrequired
forexclusivelicence71
PlantBreeders’ActInformthe
commissioner
72N
ostatutory
requirements
Trade-marksActNostatutory
requirements
RegistrationoptionalP
ublicnoticeusefulto
provequalitycontrol
bytheowner
73
CopyrightActInwriting74
RegistrationoptionalI
nwriting75
Registrationoptional
IndustrialDesignActInwriting
Registrationrequired
76I
nwriting
Registrationrequired77
IntegratedCircuit
TopologiesActN
ostatutory
requirementsN
ostatutory
requirements

4.1Licences
Beforealicenceisacquiredduringamergeroracquisition,thebuyermust
satisfyhimselfthatthelicensorhadalegalrighttograntalicenceonthe
propertyinquestion.Todothis,thepartycarryingouttheduediligencemust
beinapositiontoappreciatetheessentialsubject-matterofthelicence.It



















































69Seesection49ofthePatentAct.70Seesection50ofthePatentAct.71Seesection50ofthePatentAct.72Seesection31ofthePlantBreeder’sAct.73Seesection50oftheTrade-MarksAct.74Seesection13(4)oftheCopyrightAct.75Seesection13(4)oftheCopyrightAct.76Seesection13oftheIndustrialDesignAct.77Seesection13oftheIndustrialDesignAct.



hasbeensuggestedthatthebestwaytodothisisbygoingtothesourceof
thetechnology,forexampletheprogrammerswhodevelopedaparticular
licensedsoftwareorthepatentagentorinventorinthecaseofalicensed
patent.
78Avisitofthepremisesmaybeneededtoperformaverificationof
thisnature.Insomecases,itmayrevealthattheviabilityofthesellersbusiness
largelydependsontheexistenceoflicenceswiththirdparties,whetheras
licensororlicensee.
Acarefulreviewofallcontractsrelatedtotheintellectualpropertyofthe
seller,includingallthelicencesandroyaltiesthatarepaidbyandtotheseller
isalsounavoidable.Thiswillhelptoprovidethebuyerwithaclearportraitof
thepotentialcontractualobligationsandrestrictionsitwouldbeconfronted
withoncethetransactioniscompletedortodeterminewhetherthe
intellectualproperty”balancesheet”ofthesellerrevealsamarketposition
thatisasstrongasitwasinitiallythoughttobe.
Particularattentionmustbepaidtoquestionsrelatedtothesubject-matterof
thelicences,theirduration,theirexclusiveornon-exclusivecharacter,
assignability,conditionsforrenewalorresiliation,theeventsthattriggertheir
applicationandthedamagesspecifiedifaninfringementoccurs.
Licenceagreementsgenerallyincludeprovisionsthatrestrictassignment
rightsorthatcausetheagreementtoterminatewhenachangeofcontrol
occurswithrespecttotheidentityofthelicensee(orthelicensor).Evenifthe
companythatisthetargetofthetransactionisentitledtouseatechnology
oratrade-markasalicensee,itdoesnotnecessarilyimplythatthisrightwill
betransferredtothebuyer.Inprinciple,licencesarepersonaltothelicensee,
whichindicateanintuitupersonnaerelationship.
Itfollowsthat,unless
otherwiseprovidedinthecontract,alicenseemaybeinapositionwherehe
cannotassignalicenceagreementwithouttheconsentofthelicensor.
Additionalrestrictionsmayalsobefoundinsecrecyagreementsthatexist
betweenlicenseeandlicensor.
Finally,theremaybesituationswherethesellerneedstoretainownershipof
oneorseveralelementsofitsintellectualpropertyportfolio,either
permanentlyoronatemporarybasis,fortransitionalpurposes.Insuchcases,
itwillbenecessarytoaddalicenceagreementaspartorthetransactionto
allowthebuyertoacquiretherightsitneedsinordertoperformwhatit
intendedtodowithoutpreventingthesellerfromcarryingonitsbusiness.



















































78RobertMichelin,Establishingownershipinintellectualproperty:DueDiligence
Requirements,JournalduBarreau,October1st1997atp.21


TheRighttoGrantLicences
Atcommonlaw,theconceptofalicencehasbeendefinedasanegative
rightwherebythelicensoragrees,subjecttocompensation,nottosuethe
licenseeforinfringementortheviolationofthelicensorsrights.Theconcept
oflicensinghasnotyetfounditsproperplaceinQuebeccivillaw.Manyhave
assimilatedalicencetoatypeofrental.
79However,manyfeaturesdistinguish
alicencefromalease.Forinstance,itisverydifficulttoreconcilethe
definitionofaleaseintheCivilCodeofQuebecasacontractbywhicha
personundertakestoprovideanotherpersonwiththeenjoymentofa
movableorimmovablepropertyforacertaintime,inexchangeforarent
80,
withtheideathatnon-exclusivelicencescanbegrantedtoseveralpersonat
thesametime,inexchangeforroyalties.
81
Article1016oftheCivilCodeofQuebecpermitsanundividedco-ownerto
usetheproperty.Thisprovisionappearstohinderthegrantingofalicence
withouttheapprovaloftheco-patenteesassuchalicenceonanundivided
co-ownedpropertycouldbeseenasinfringingontherightsoftheother
undividedco-owners;thereisalsoariskofdilutingtherightsoftheotherco-
patentees.Itappears,therefore,thattheconsentofalltheco-ownersis
essentialforthegrantofalllicencesonpropertyheldinundividedco-
ownership.Infact,inCanada,includinginQuebec,theCourtshave
establishedthatapatenteecannotgrantalicencewithouttheconsentofhis
co-patentees
82.Whatdoesnotappeartobeascleariswhethertheco-
patenteeshavetorenderanaccountoftheprofitsrealizedfromthelicence.
TheQuebecCourtofAppealseemstoimposeanobligationtosharethe
profits
83asitalsoappearsfromsection1018oftheCivilCodeofQuebec,
while,forcommonlawjurisdictions,theAppealCourtofBritishColumbiadoes
notofferascleararesponseonthismatter
84.
Whenalicenceisgranted,itwouldnormallybegrantedontheundivided
co-ownedpropertyasawhole,andnotonaportionofthepatentheldby
theundividedco-owner.Article1025oftheCivilCodeofQuebecclearly
stipulatesthattheundividedco-ownersadministerthepropertyincommonin
itsentirety.Consequently,certaindecisionsastotheundividedpropertyare



















































79SeeI.G.U.(Ingraph)Inc.v.L.B.G.P.ConsultantsInc.(1990),J.E.90-1224(Q.C.S.);Stéphane
Gilker,”Lelocusstandidutitulaired’unelicencededroitd’auteur:Unequestiond’intérêt”,
(1989),1C.P.I.1.
80Seearticle1851oftheCivilCodeofQuebec.81Thistopic,notbeingtheobjectiveofthepresenttext,itwillnotbediscussedinmoredetail.82Supra,note31et32.83Supra,note31.84Supra,note32.


madebyamajorityofco-owners,innumberandinshares,whileother
decisionsmustbemadeunanimouslybyallundividedco-owners.
85
Thegrantofalicencewouldappeartorequiretheapprovalofamajorityof
undividedco-ownersinnumberandinsharesinceitdoesnotseemtofall
underthecategoryofactionsrequiringunanimousapproval.
4.2AssignmentsinanInternationalContext
Whenamergeroracquisitioninvolvestheacquisitionoftechnologyacross
nationalborders,additionaleffortsmustbemadetoensurealevelplaying
field,i.e.thatallpartiestotheagreementabidebythesamesetofrules.In
suchsituations,itisimportantthatcontroloverthetechnologybedetermined
toensurethatthepartiesarenotentitled,forexample,toproceedagainst
eachotherwithrespecttoanydisputeindifferentjurisdictions.
5SecurityInterestsinIntellectualProperty
5.2Legislativecontext
Asmentionedintheintroduction,foragrowingnumberofbusinesses,IP
representsasubstantialportionoftheirvalue.Accordingly,lendershave
increasinglyturnedtointellectualpropertyassecurityfortheirloans.In
Canada,contractsandthetransferofpersonalpropertyaregenerally
mattersfallingunderindividualprovincialjurisdictions.However,withsomeIP
assets,itisalsopossibletoregisterasecurityinterestunderafederalregime.
Itappearsthatpatentsandpatentapplications,copyrightedworks,
registeredandunregisteredtrade-marks,registeredandunregistered
industrialdesigns,registeredintegratedcircuitstopographies,registeredplant
varietiesand,incertainjurisdictionsmaybeeventradesecretscanbegiven
ascollateral.
EveryCanadianprovince,exceptQuebec,hasadopted,withsome
variations,PersonalPropertySecuritylegislation(“PPSlegislation”)thatis
modelleduponArticle9oftheAmericanUniformCommercialCode.Security
interestsinQuebec,ontheotherhand,aregovernedbytheQuebeccivil
code,whichhasmergedallpreviouslyexistingsecurityinterestsintothe
“hypothec”,alegalconceptofsecuritythatissimilartoPPSlegislationasit
concernsmoveablepropertywhethertangibleorintangible.“Security



















































85Article1026C.C.Q.


interest”isdefinedunderthePPSlegislationasmeaning“aninterestin
personalpropertythatsecurespaymentorperformanceofanobligation…”.
InQuebec,onecanhypothecateimmovableaswellasmoveableproperty,
andmoveablepropertyincludes,amongstothers,incorporealassets.Itisthus
nowclearlyestablishedinCanadathatmostintellectualpropertyrightsdo
fallwithinthemeaningofpersonalpropertyand,inconsequence,
transactionsinvolvingintellectualpropertyrightsgivenascollateralwillbe
subjecttoPPSlegislationortheQuebeccivilcodeprovisionsdealingwith
securityinterests.
5.2Validityandperfectionofsecurityinterests
Therearedifferentlegislativeprovisionsgoverningtheattachmentand
perfectionofsuchsecurityinterestsinthevariousprovincialjurisdictions,but
usuallyasecurityinterestwillbecreatedwhenthedebtorsignsasecurity
agreementwhichgivesavaluetothesecurityandwhichsufficiently
describesthecollateralsothatitmaybeidentified.Oncecreated(oronceit
“attaches”totheproperty),includingonfloatingcharges,toenjoypriority
overothersubsequentclaims,asecurityinterestneedstobe“perfected”
throughtheproperformofregistration(usuallya“financingstatement”)filed
withtherelevantprovincialregister.
Themainquestiontheniswheretoperfectasecurityinterestinintellectual
property?Inthisregard,theQuebeccivilcodeandotherprovincialPPS
legislationallcontainprovisionsrelatingtotheforumforperfectionofsecurity
interests.Asanexample,section3105oftheQuebeccivilcodestatesthat
thevalidityofasecuritychargedonanincorporealmovableisgovernedby
thelawofthejurisdictionwherethegrantorwasdomiciledatthetimeof
creationofthesecurity,anditspublicationandeffectaregovernedbythe
lawofthejurisdictioninwhichthegrantoriscurrentlydomiciled.Withrespect
totheOntarioPPSA,itstatesthatthevalidity,perfectionandeffectof
perfectionornon-perfectionofasecurityinterestinanintangibleshallbe
governedbythelawofthejurisdictionwherethedebtorislocatedatthe
timethesecurityinterestaffectstheintangiblepropertyinquestion
86,andthat
adebtorshallbedeemedtobelocatedatthedebtor’splaceofbusiness,if
oneexists,atthedebtor’schiefexecutiveofficeifthereismorethanone
placeofbusiness,andotherwiseatthedebtor’sprincipalplaceof
residence
87.



















































86OntarioPersonalPropertySecurityAct,R.S.O.1990,P-10,section7(1).87OntarioPersonalPropertySecurityAct,R.S.O.1990,P-10,section7(4).


Accordingly,registrationunderatleastthepersonalpropertysecurity
legislationinforceintheprovinceinwhichthedebtorislocatedatthetime
ofsigningofthesecurityagreementisstronglyrecommended
88.Although
therearemanycomplexanddifferentrulesunderprovinciallegislationforthe
determinationofprioritiesintheeventofadefaultofthedebtor,havinga
perfectedsecurityinterestgenerallymeansthatacreditorwillhavepriority
oversubsequentcreditorswhoperfecttheirsecurityinterestafterhim;italso
meanshoweverthatothercreditorswhoperfectedtheirsecurityinterest
beforewillenjoyapriorityoverhim.Itisthereforenecessarytocarryout
appropriatesecurityinterestsearchesofpublicregisterstodeterminetherank
ofthesecurityinterestsalenderiswillingtoaccept.
5.4SecurityinterestsearchesandtheIPregisters
Althoughanacademicdiscussionison-goingastowhichofthefederalor
provinciallegislationhasjurisdictionoversecurityinterestsaffectingIPassets
andwhetheroneregistrationsystemoverridestheother,inaduediligence
exercise,alloftheappropriateprovincialandfederalregistersshouldbe
verified.Thefederalintellectualpropertystatutes,whichcreateIPrights,
providefortheirregistrationandtransferabilityorassignment.Theydonot
howeverdefinewhatismeantbyan“assignment”nordotheyexpressly
mentionsecurityinterests.Itappearsthatthegrantingofasecurityinterest
mayinsomecasesbeconsideredan”assignment”inguarantee.The
CopyrightOfficeandthePatentOffice(whichisalsotheentityinchargeof
administeringtheIndustrialDesignAct)willregistersecurityinterestsorliens
againstthetitleofaspecificIPasset.AsforTheTrade-MarksOffice,itwill
placeonfileacopyofsuchsecurityinterestorlien.
Despitetheabsenceofexpressregistrationprovisionsforsecurityinterests,it
hasbecomeapracticetofilesuchsecurityinterestsinboththefederaland
provincialappropriateregisters,whensuchcostsarenotexorbitant,
dependingonthenumberofassetsinvolved(afeemustbepaidforeach
applicationorregistrationforwhichregistrationofasecurityinterestissought
attheFederallevel).Itisimportanttonotethattheeffectsofafederal
registrationwithoutthefilingofacorrespondingprovincialregistrationare
unclear,butthefollowingissuesmighthelponeunderstandthepossible
effectsofnotfilingaregistrationatthefederallevel:
·Apriorassignmentofcopyrightisvoidagainstasubsequent
assigneewhohasgivenvaluableconsiderationorlicenseeunless



















































88Forexample,inQuebec,theRegisterofPersonalandMoveableProperty(R.P.M.P.)andin
Ontario,thePersonalPropertySecurityRegisterationSystem(P.P.S.R.)


noticeisgivenorregistrationismadeinaccordancewiththeact
(subsection57(3)CopyrightAct).
·Apriorassignmentofapatentisvoidagainstasubsequent
assigneewhohasgivenvaluableconsiderationunlessregisteredin
accordancewiththeact(section51PatentAct)
89.
·Apriorassignmentofaplantvarietyisvoidagainstasubsequent
assigneewhohasgivenvaluableconsideration,whohasno
knowledgeofthepriorassignmentandwhobecomesthe
registeredholder,unlessthepriorassigneeisregisteredpriortothe
subsequentassignee(subsection31(3)PlantBreeder’sRightsAct).
·TheTrade-MarksAct,IndustrialDesignActandIntegratedCircuits
TopographyActdonotmakereferencetopriorities,althoughitis
notunusualtoseesecurityinterestsorliensrecordedonsuch
registers.
ItshouldbenotedthatalthoughsearchesontheIPfederalregistersare
useful,thesecurityinterestsandliensorhypothecsgrantedonIPwillnot
alwaysappearonthoseregisterseither(i)simplybecausesomeofthose
rightsmightnotberegistered,(ii)becauseasecuritygranted,forexample,on
“after-acquiredproperty”cannotberegisteredagainsttitleofthoseassetson
theFederalregisters,or(iii)duetobackloginthefederalintellectualproperty
offices.
ItisalsoveryimportanttonotethatthefederalIPregisterswillnotdeny
registrationofasubsequentassignmenttoathirdparty,eventhougha
previoussecurityinterestmighthavebeenrecordedagainstthatasset.
Moreover,theywillnotevengivenoticetothesecuredpartyofasubsequent
registrationofassignmentorgrantofsecurityinterest.Inlightoftheforegoing,
outofanabundanceofcaution,wherethevalueofthesecuredassetsis
substantial,itisstillrecommendedtofilethesecurityinterestatboththe
provincialandfederalregistersuntilaclearjudicialinterpretationofthose
provisionscanbeobtained.
Toavoidthesetypesofproblems,acertainpracticehasdevelopedwhereby
ratherthantakingsecurityagainstIPrightsofthedebtor,theIPrightsin
questionareassignedtothecreditoruntilfullpaymentoftheloan,witha
licencebacktothedebtorsohecancontinuetousethoseassets.Whilethis
maysolvetheproblemsofhavingtoregisterthesecurityinterestatboththe
federalandprovincialregistersaswellastheneedtoenforcethesecurityin
caseofdefault,theassignmentsdoimposeregistrationbythecreditoras
newowneroftheIPontheappropriatefederalregister.Moreover,inthe



















































89SeeLesPoinçonsdeWaterloov.3288731Canadainc.,QuebecCourtofAppeal,Courtfile
500-09-006534-986.


eventoflitigationinvolvingtheIPassets,thenewownerwouldhaveto
becomeapartytothelitigation.Inparticular,thispracticeisnot
recommendedfortrade-marksbecauseofqualitycontrolobligations
imposedontheownerofthetrade-marksbyvirtueoftheTrade-marksAct
(section50)andinmostcasesthecreditorisnotinapositiontodomeetsuch
requirement,norforpatentswherethepatentownermustbemadeaparty
toanyaction(section55(1)and(3))andwhereuponhisrefusaltojoinasco-
plaintiff,thelicensee,suingforinfringement,mustmakehimadefendant
1..
5.4Enforcement
Finally,uponthedefaultofthedebtor,thesecuredpartywillhavetherights
andremediesavailableintheapplicablePPSlegislationortheQuebeccivil
codeinadditiontotheremediesprovidedforinthesecurityagreement.
Generally,thoserightswillincludetakingpossessionofthecollateralorthe
saleofsuchcollateralwiththeproceedsappliedinsatisfactionoftheloan,
afteracertainnoticeperiodinwhichanyinterestedpartycanremedythe
default.
6TaxConsiderations
Taxconsiderationsapplicableintheevaluationofanacquisitioncanbevery
complex,especiallywhenrelatedtotechnologybaseddeals
1.TheCanadian
IncomeTaxAct
1(hereinafterthe”ITA”)providesanumberofincentivesinthe
formoftaxdeductionsandcreditsforcorporationsengagedactivelyin
scientificresearchanddevelopment.Furthermore,theITAprovidesfora
numberofmechanismsthatmayreducetheimpactofthetaxationprocess
duringamergeroracquisition.
Thefollowingprovidesabriefoverviewofissuesthatmayarisegiventhe
natureoftheCanadianincometaxsystemasitrelatestomergersand
acquisitionsandintellectualproperty.
6.1EligibleCapitalExpenditures
Ofparticularimportancetointellectualpropertyassetsistheconceptofan
eligiblecapitalexpenditure,whichisdefinedatsubsection14(5)ITA.Such



















































90SeePitneyBowesInc.v.YaleSecurity(Canada)Inc.(1987),80N.R.267(FCA);BlocVibre
QuébecInc.v.EntreprisesArsenault&FrèresInc.(1983)76C.P.R.(2d)269(F.C.T.D.)
91GeorgeS.Takach,HighTechM&A:ThePreparationStage,Lexpert,April2000109.


expenditurescangenerallybesaidtobe(i)intangibleinnature,and(ii)
expendituresforwhichnootherprovisionexistsintheITAwhichallowsfor
depreciationordeductionfromataxpayer’sincome(whichtherefore
excludespatents).Furthermore,theassetinquestionmusthavebeen
acquiredforthepurposeofgainingorproducingincomefromabusiness.
InterpretationBulletinIT-386R,“EligibleCapitalAmounts”providesthe
followingexamplesofthetypesoftransactionsthatcouldresultinaneligible
capitalamount.
1.apersonsellsafranchiseorlicenceforanunlimitedperiod;
2.asaleofgoodwillwhichwouldincludetrademarksortrade
names;
3.asaleofaprocesswhichanindividualhasdeveloped;
4.apaymentmadetodisclosetheprocessandallowittobe
usedbythepayer.
Underthisheading,therefore,apurchasercandeductovertime75%ofthe
costsofacquisitionwitharateof7%onaregressivebaseasthecostsof
customerlistsorcostsrelatedtotheacquisitionoftrade-marksorcopyrights.
Thisincludesanycostsrelatedtotheregistrationoftrade-marksorcopyrights.
Notethattrade-markandcopyrightswhichhavebeengrantedforalimited
timeperiodfallintoclass14ofscheduleIItotheincometaxrulesandare
thereforedepreciableandnotdeductibleforthepurposesofsection14ITA
(howeveranydepreciationmaybedeductedpursuanttoparagraph
21(1)(cc)ITA).Afurthereligiblecapitalexpenditureisthecostofrightsor
licencesissuedundergovernmentauthority,whichcouldinclude,for
example,theacquisitionofbroadcastinglicencesissuedbytheC.R.T.C.
6.2DepreciationofIntellectualPropertyCostsandUndepreciatedCapital
Cost(UCC)
Pursuanttoparagraph20(1)(a)ITAataxpayermaydeductanamountfrom
certainlistedcapitalassetsduetodepreciation.Themannerinwhichthe
costsforintellectualpropertymaybedepreciateddependsonthetypeof
propertyinquestionandisgovernedbyPartXIoftheITAandScheduleIIof
theRegulations,whichliststhecontentsofeachclass.Themethodfor
calculatingthedeductionfordepreciationreveals4majorcharacteristics:
1.propertytobedepreciatedisgatheredintoclasses
1;
2.thedeductioniscalculatedbasedontheundepreciatedcapital
cost(UCC)ofallpropertyinaclass;



















































92Thereappearstobeanattempttoclassifyassetsaccordingtotheirnormalexpectedlife.


3.ataxpayerisentitledtodeductinagivenyearthemaximum
amount,oralesseramountifhesochooses;
4.thereisanadjustmentfollowingsaleordeductionforterminallossto
reconcileanyamountsdeductedfordepreciationwiththeactual
lossinvalueoftheproperty;
Notethatroyaltiesandmaintenancefeespaidunderlicensingagreements
fortheuseofapatentedinventionorothertypesofintellectualpropertymay
bedeductedfromcurrentexpenses.
Intangiblepropertiesthatdoqualifyasdepreciablepropertiesarelistedin
Class14(“patent,franchise,concessionorlicenceforalimitedperiodin
respectofproperty”)andClass44(“apatent,orarighttousepatented
informationforalimitedorunlimitedperiod”).Aclass44assetcanbetreated
asaClass14asset(ifithadalimitedlife)orasaneligiblecapitalexpenditure
(ifithasanunlimitedlife),ifthetaxpayersoelects.SincetheClass44capital
costallowancerateis25%(declining-balance),whichallowsforarelatively
fastwrite-off,itisusuallyadvantageoustotreattheassetasaClass44asset.
1
Thecostsofacquisitionofapatent,forexample,whichcanbegrouped
eitherunderclass14orclass44,maybedepreciatedeitherlinearlyatarate
of10%over10yearsoratarateof25%usingregressivedepreciation.
Alternatively,anamountmaybedeductedeachyearbasedontheuse
madeofthepatentedinvention.
Thecostsofacquiringacopyrightforalimitedtimemaybedepreciated
linearlyaccordingtoclass14.Intheeventthatthetermofusageisforan
unlimitedduration,75%ofthecostsofacquisitionmaybedepreciatedusing
aregressivedepreciationof7%.
Similartocopyright,75%ofthecostsofacquisitionoftrade-marksmaybe
depreciatedusingaregressivedepreciationof7%.Inaddition,thecostsof
acquisitionofatrade-markmaybedepreciatedaccordingtoitsuse.
Thecaseissimilarforlicencesofalloftheabovetypesofintellectualproperty
excludingsoftware.Inthecaseofsoftware,thelicencemaybeamortizedin
thefirstyear(i.e.a100%deduction),exceptforoperatingsystemsoftware,
pursuanttoclass12.Thecostsofacquisitionofsystemsoftwaremaybe
depreciatedusingaregressiverateof30%pursuanttoclass10.Notethata
supplementaryaccelerateddepreciationappliesinQuebec.



















































93HOGG,PeterW.andMAGEE,JoanneE.PrinciplesofCanadianIncomeTaxLaw,1995atp.
248.


Know-howpurchasedintheformofservicesmaybedeductedasacurrent
cost.Thepurchaseofrightstoaccessinformationmayinsomecasesbe
depreciatedasaneligiblecapitalexpense(i.e.75%oftheacquisitioncosts
amortizedusingaregressivedepreciationwitharateof7%).
UndepreciatedCapitalCost(UCC)
Asstatedabove,oneofthemajorconceptsusedintheITAindealingwith
theacquisitionanddisposalofcapitalassetsisthatofundepreciatedcapital
cost(UCC)andanotionalUCCaccount.Whenthetaxpayeracquiresan
assetofaparticularclasstheUCCofthatclassisincreasedbyanamount
equaltothecostsofacquisition.Likewise,whenataxpayerdisposesofa
depreciatedassetofaparticularclass,thelesseroftheproceedsofsaleor
thecapitalcostoftheassetmustbedeductedfromtheUCCaccountofthat
class.
IntheeventthatthenotionalUCCaccountisnegativefollowingthedisposal
ofanasset,thenegativeamountmustbeaddedtothetaxpayer’sincome
forthetaxyearinquestion.Inthiswaytaxdeductionsgrantedforcapital
assetsthatareeventuallysoldatapremiumare“grabbedback”byRevenue
Canada.Thetaxpayercanavoidhavingtodeclarethenegativebalanceas
incomebypurchasingadditionalassetsofthesameclass,thusraisingthe
UCCofthatclass.Intheeventthatanamountstillremainsinthenotional
UCCaccountfollowingdisposalofallassetsofaclass,theterminalloss
provisionsofsubsection20(16)ITAtakeeffect.Thisnotionalamountis
deductedfromincomeasaterminalloss.
Notethatanydispositionofanassetinexcessofitscapitalcostwillresultina
capitalgainequaltotheexcess.Capitalgainsaretaxedinaccordancewith
paragraph39(1)(a)ITA.
Inaddition,specialconsiderationsexistwithrespecttocapitalcostforassets
purchasedotherthanatarm’slength.Subparagraph13(7)(e)(i)ITAdeems
thecapitalcostofassetsacquiredinsuchatransactiontobethesameas
thecapitalcostoftheassetsimmediatelypriortotransferplusanycapital
gainrealizedbythetransferorontheassets(butonlytotheextentthata
capitalgainsexemptionwasnotappliedtothecapitalgain).
6.3ScientificResearchandDevelopment
Alargenumberofcorporationsareinvolvedinscientificresearchand
developmentinCanadainlargemeasurebecauseofgeneroustax



incentivesofferedbybothFederalandProvincialgovernments.The
combinationofrelativelylowratesofcorporatetaxationandthebenefitsof
taxcreditsonthepurchaseofsometypesofequipmentareofparticular
advantage.
AdvantagesundertheIncomeTaxAct
TheIncomeTaxActprovidesbroadincentivestoencouragescientific
researchandexperimentaldevelopmentinCanada.WhatRevenueCanada
considersscientificresearchandexperimentaldevelopmentisdefinedin
considerabledetailbyregulation2900oftheIncomeTaxRegulations.
Subregulation2900(1)providesanoverviewdefinitionofscientificresearch
anddevelopmentas“systematicinvestigationorsearchcarriedoutinafield
ofscienceortechnologybymeansofexperimentoranalysis.”Subregulation
2900(1)goesontodefinescientificresearchanddevelopmentmore
preciselyas:
(b)basicresearch,namely,workundertakenfortheadvancementof
scientificknowledgewithoutaspecificpracticalapplicationin
view,
(c)appliedresearch,namely,workundertakenfortheadvancement
ofscientificknowledgewithaspecialpracticalapplicationin
view,or
(d)development,namely,useoftheresultsofbasicorapplied
researchforthepurposesofcreatingnew,orimprovingexisting,
materials,devices,products,orprocesses.
Thefederalgovernmentofferstwoprincipletypesofbenefitsforcorporations
engagedinscientificresearchanddevelopment:Deductionsforallexpenses
relatedtoscientificresearchanddevelopmentandtaxcreditsfor
investmentsmadeinscientificresearchanddevelopment.
Deductions–Section37ITA
Expendituresofacurrentandcapitalnaturerelatingtoscientificresearch
anddevelopmentcarriedoninCanadamaybedeductedincalculatingthe
incomefromabusinesscarriedonbythetaxpayerfortheyearinwhichthe
expenditureismade,ormayberolledoveranddeductedinanysubsequent
year.Thisincludesallexpensesbutgenerallyexcludesexpensesrelatedtothe
acquisitionorleaseofimmovables(exceptinthecaseof“specialpurpose
buildings”whichareessentiallycleanroomswithstrictrequirementsastothe
numberofairborneparticlesallowed).


Section37ITAdoesnotpermitthedeductionofcapitalexpendituresfor
scientificresearchanddevelopmentmadeoutsideofCanada.However,
section37(2)ITAallowsforadeductionforcurrentexpendituresincurred
outsideofCanadaintheyeartheexpenditurewasmadeprovidedthe
scientificresearchanddevelopmentwasundertakenbyoronbehalfofthe
taxpayerandisrelatedtohisbusiness.
InvestmentTaxCredit–Section127ITA
Theinvestmenttaxcreditisavailableforexpensesrelatedtoscientific
researchanddevelopmentcarriedoutinCanada.Thecreditiseitherof20%
or35%andvariesasafunctionofthetypeofbusinessengagedin,itstaxable
capitalandtaxablerevenues,aswellasthoseofanyaffiliates.
6.4WithholdingTaxWhenPurchasingIntellectualPropertyAssets
ItispossibletostructurethepurchaseofanIntellectualPropertyassetinone
ofthreeways:
1.alumpsumpayment,
2.paymentsbyinstallments,or
3.royalties.
Thetaximplicationswillvarydependingonthemannerinwhichtheassets
areacquired.Furthermore,paragraph212(1)(d)ITAingeneralleviesa
withholdingtaxof25%onrent,royaltyorsimilarpaymentsmadebyaresident
(althoughincertaincasesanon-residentisdeemedaresidentforthe
purposesoftheAct,seesubsections212(13),(13.1)&(13.2)ITA)toanon-
residentforthepurposesof:
(i)Obtainingtherighttouseatrade-mark,patent,secretformulaor
anumberofothertypesofintellectualproperty(subparagraph
212(1)(d)(i)ITA);
(ii)servicesofanindustrial,commercialorscientificnature
performedbyanon-residentwherethetotalamountpayableas
considerationisdependentontheuseorthebenefittobe
derivedfromthoseservices,productionorsalesorprofits,butnot
includingapaymentforservicesinconnectionwiththesaleof
propertyorthenegotiationofcontract.(subparagraph
212(1)(d)(iii)ITA);or
(iii)obtaininganegativecovenantnottouseorpermitotherstouse
anyofthoseitemslistedaboveat(i)(subparagraph212(1)(d)(iv)
ITA).


However,theabovewithholdingtaxdoesnotapplyinthecaseofroyaltiesor
similarpaymentsmadewithrespecttoacopyrightfortheproductionor
reproductionofanyliterary,dramatic,musicalorartisticwork(subparagraph
212(1)(d)(vi)ITA).Thesewithholdingsmaybereducedgenerallyto10%bythe
applicationoftaxtreaties.
Thewithholdingtaxalsodoesnotapplyinthecaseofanoutrightpurchaseof
apatentortheassignmentofanexistinglicenceorinthecaseofalumpsum
paymentmadeforthepurposesofobtaininganexclusiverighttodistribute
certainproducts
1.Itisalsoofnotethattheabovewithholdingtaxdoesnot
applytopaymentsmadefortheuseofintellectualpropertyoutsideof
Canada(seeagainsubparagraph212(1)(d)(i)ITA).
Inthecaseofcomputersoftware,however,whichisprotectedunderthe
CopyrightActasaliterarywork,itisRevenueCanada’sopinionthatwhere
thetaxpayerhasobtainedanend-userlicencetouseacomputerprogram
whichincludestherighttomakecopiesforhisownpersonaluse,sucha
taxpayerisnotmakinguseofacopyrightbutisratherexercisinghisrights
underthelicenceagreement,andthereforetheexceptiondoesnotapply.
AlsoofnoteisthatpursuanttoArticleXII,paragraph4oftheCanada-U.S.Tax
Treatyservicesareexcludedfromthedefinitionofroyalties.Asthetreaty
takesprecedence,itoverridesthesubparagraph212(1)(d)(iii)thatexpressly
includesservices.TheprovisionsrelatedtobusinessprofitsoftheCanada-U.S.
TaxTreatythereforeapplytoservicesandnowithholdingtaxwillbelevied
againstpaymentsmadebyaresidenttoanon-residentintheirregard.
NonArm’sLengthTransfers
Intheeventthatthetransferofanintellectualpropertyassetisnotatarm’s
length,andtheconsiderationreceivedfortheassetislessthanthefairmarket
valueoftheassets,thenthedeemingprovisionofParagraph69(1)(b)ITA
applies,andthevendorisdeemedtohavereceivedfairmarketvalueforthe
asset.
6.5TaxFreeTransfersofPropertytoaCorporation
TheMinisterofRevenuetaxes50%ofallcapitalgainsatthetaxpayer’srate
whichmayresultinsomeoneroustaxconsequencestoavendorduringa
transactionthatincludestheacquisitionofacapitalassetthathas
appreciatedinvaluesinceitsinitialacquisition.Iftheintellectualpropertyis
depreciablepropertyoraneligiblecapitalproperty,thetransfercouldtrigger



















































94TheQueenv.FarmPartsDistributingLtd.,80DTC6157(FCA).


arecaptureofdeductionsclaimedfordepreciation;thisdoesnotapplyonly
tocapitalgains.Iftheintellectualpropertyiscapitalpropertytothetransferor,
thegainwillbeacapitalgainandhalf
95ofthegainwillbetaxed.Ifthe
intellectualpropertyiseligiblecapitalproperty,itcouldbetaxableasincome
onhalf
96oftherecapturedamount.Iftheintellectualpropertyisdepreciable
propertyoraneligiblecapitalproperty,thetransfercouldtriggerarecapture
ofdeductionsclaimedfordepreciation.
Section85ITAprovidesarollovermechanismbywhichacorporateassetmay
betransferredonataxdeferredbasistoataxableCanadiancorporation.To
takeadvantageoftherollover,thetaxableCanadiancorporation,as
definedinsection89(1)ITA,makesanelectionprovidedconsiderationpaid
fortheassetincludessharesinthecorporation.Theelectionisnotautomatic
andmustbemadeintheformandwithinthetimelimitsprescribedby
subsection85(6)ITA.
Pursuanttosubsection85(1)ITAany“eligibleproperty”maybesubjecttoa
section85election.Eligiblepropertyisdefinedinsubsection85(1.1.)ITAand,
giventheinclusionofeligiblecapitalproperty(amongstanumberofothers)
inthedefinition,providesfortherolloverofgoodwillandotherintangibles
suchasintellectualpropertyacquiredviaaneligiblecapitalexpenditure.
Intheabsenceofsection85ITAthetransferofpropertytoacorporationisa
taxabletransaction.Insuchacasetheproceedsofthedispositionareequal
tothevalueoftheconsiderationreceivedfortheasset.Thismayresultina
capitalgain,acapitalloss,recaptureofcapitalcostallowanceoreven
ordinaryincomeif,forexample,theassetssoldareinventory.
Wherethetransferorandtransfereecorporationsdonotoperateatarm’s
length,paragraph69(1)(b)ITAoperatestodeemtheproceedsofdisposition
tobenolessthanthefairmarketvalueofthepropertytransferred.Thisgives
rise,inthecaseofnon-depreciablecapitalproperty,toacapitalgainorloss
totheextentofthedifference,ifany,betweentheproceedsofdisposition
andthecostofthepropertytransferred.
Paragraph85(4)(b)ITAprovidesthatincomputingtheadjustedcostbaseof
allthesharesofthetransferredcorporationownedbyhimimmediatelyafter
thedisposition,thereshallbeaddedtheamountoftheloss.



















































95FortaxationyearendingafterOctober17,2000.96Underproposalsofchangesmadeon21-12-2000,achoicecouldbemadetotaxthe
amountascapital.ThechoicecouldmemadefortaxationyearsendedafterFebruary27,
2001.


Insomecaseswhenthefairmarketvalueofanassetexceedsthecostitisnot
desirabletomakeanelectionundersubsection85(1)ITA.Thisispotentiallythe
casewhereatransfereehascapitallossesfromothertransactionswherethe
transfercanbeadjustedtotakeadvantageofthosecapitallosses.The
adjustedcostbaseoftheassetasheldbythetransferorwouldbeincreased.
6.6DivisiveReorganizations
TheITAdoesnotprovideforanydirectdistributionofassetstoshareholders
whichdonotgiverisetotaxconsequences.However,bystructuringthe
transactioninamannersuchthattherolloverofsubsection85(1)ITAmaybe
applied,insituationsinvolvingadivisivere-organizationthetaxationevent
maybedeferred.
Thebasicformofthetransactionisasfollows:theassets(typicallyadivisionof
thesellingcorporation)aretransferredtothepurchasingcorporationin
exchangeforpreferredshareswitharedemptionvalueequaltothefair
marketvalueoftheassetsinanarm’slengthtransaction
1.Theselling
corporationmakesanelectionundersubsection85(1)ITAsuchthatthecost
baseofthepreferredsharesissuedtothepurchaseristhecostoftheassets.
Thepreferredsharesareredeemedwherebythevendorcorporationreceives
atax-freedividendequaltothefairmarketvalueoftheshares.
Generallyredemptionofthepreferredsharesinsuchatransactionwould
giverisetoadeemeddividendpursuanttosubsection55(2)ITA.However,
duringadivisivere-organizationparagraph55(3)(b)ITAactstostopthe
applicationofsubsection55(2)ITA.Paragraph55(3)(b)ITAonlyapplieswhere
thesellingcorporationiswound-uporallsharesinthesellingcorporationheld
bythepurchasingcorporationisredeemed.Furthermore,subsection55(2)
doesnotapplyinthecaseoftransferofassetsbetweenrelatedcorporations,
asthisisnotadispositionofpropertytoanunrelatedpartyandthereforethe
testinsubparagraph55(3)(a)(i)ITAisnotmet.
6.7DoingtheBumpduringCorporateReorganizations
Subsection88(1)ITAprovidesamechanismthatmaybeusedtoselectively
increasethecostbasisofassetsofatargetcorporationduringafriendlytake-



















































97Somerestrictionsapply.Forexample,theassetscanonlybedividedbetweenshareholders
pro-ratabasedonshareholdings.Furthermore,3typesofpropertyareforeseenandeachof
thesemustbedividedequallypro-ratawithshareholdings.


over.Thisisreferredtoasbumpingthe(adjusted)costbaseoftheassetsin
question.Inatake-oversituationthetargetcorporationmaybewoundupor
mergedwiththebidderwhilethecostofthetarget’ssharesmaybe
transferredtoanyeligiblecapitalproperty.
Theessentialelementsofthetransactionareasfollows:priortothewinding
upormerger,thetargettransferstheassetsinquestiontoasubsidiary.During
themergerwithorwindingupofthetarget,thebiddertransfersthecostof
thetarget’ssharesontothesharesofthesubsidiary,increasingthecostbasis
oftheseshares.Ifthesharesinthesubsidiaryaredisposedoftoathirdparty
atalaterdate,anypotentialcapitalgainswhichmayhavearisenfromthe
disposalwillhavebeendecreasedbyanamountequaltothevalueofthe
targetsharestransferredtothesubsidiary’sshares.
6.8LiabilityforUnpaidTax
WithholdingTax
Asstatedabove,non-residentsaresubjecttotaxoncertaininvestment
incomederivedfromCanadiansources.PartXIII(sections212to218.1ITA)
imposesaflatrate(generally25%)ongrossamounts.Inparticular,
subparagraph212(1)(d)(i)ITArequiresthepaymentofawithholdingtaxof
25%onpaymentsinregardtocertaintypesofintellectualpropertymadetoa
non-resident.Thequestionofresidencyisoneoffactanddependsuponthe
specificfactsofeachcase
1.
ThePartXIIIflatratetaxexhibitsthreemaincharacteristics:(i)anonresident
mustbepaidorcredited,ordeemedtobepaidorcredited,anamountbya
personresidentinCanada;(ii)theamountmustbecreditedas,onaccount
oforinlieuofpaymentof,orinsatisfactionof,specifiedtypesofamounts
includingbutnotlimitedtothepaymentofinterest,dividends,rentsor
royalties(assetforthinsection212ITA);and(iii)specifiedpercentagesofthe
amountsarepayablebytheresidentpersonasawithholdingtaxonbehalfof
thenon-resident.
ItshouldbenotedthatthePartXIIIwithholdingtaxof25%isoftenreducedby
taxtreaty,ofwhichtherearealargenumberinforceatanygiventime,with
thereductionoftendependentonthetypeofinvestmentinvolved.



















































98Seee.g.DenisM.Leev.MNR,[1990]1CTC2082,90DTC1014(TCC)foralistoffactors
whicharetakenintoaccountwhendeterminingresidencyaswellasIT-221R2“Determination
ofanIndividual’sResidenceStatus”.


TheCanadianresidentactsasanagentoftheRevenueCanadain
collectingtaxunderPartXIIIfromthenon-resident.Subsection215(6)ITA
providesthatwhereapersonfailstodeductorwithholdanamountas
requiredbyPartXIII,hewillbeliabletopaythewholeamountnotwithheld.
Thesubsectionalsoallowsthetaxpaidonbehalfofthenon-residenttobe
recoveredfromhim.Failuretodeductorwithholdmayalsoresultinapenalty
pursuanttosubsection227(8)ITAbeingleviedaswellasinterestpursuantto
subsection227(8.3)ITAontheamountsnotwithheld.Ingeneralitcanalsobe
saidthatthisisthecasenotwithstandingthatthefailuretowithholdwasdue
toabonafideerror.



ROBIC,ungroupedavocatsetdagentsdebrevetsetdemarquesdecommercevoué
depuis1892àlaprotectionetàlavalorisationdelapropriétéintellectuelledanstousles
domaines:brevets,dessinsindustrielsetmodèlesutilitaires;marquesdecommerce,marques
decertificationetappellationsdorigine;droitsdauteur,propriétélittéraireetartistique,droits
voisinsetdelartisteinterprète;informatique,logicielsetcircuitsintégrés;biotechnologies,
pharmaceutiquesetobtentionsvégétales;secretsdecommerce,know-howetconcurrence;
licences,franchisesettransfertsdetechnologies;commerceélectronique,distributionetdroit
desaffaires;marquage,publicitéetétiquetage;poursuite,litigeetarbitrage;vérification
diligenteetaudit;etce,tantauCanadaquailleursdanslemonde.Lamaîtrisedes
intangibles.
ROBIC,agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892tothe
protectionandthevalorizationofallfieldsofintellectualproperty:patents,industrialdesigns
andutilitypatents;trademarks,certificationmarksandindicationsoforigin;copyrightand
entertainmentlaw,artistsandperformers,neighbouringrights;computer,softwareand
integratedcircuits;biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,
know-how,competitionandanti-trust;licensing,franchisingandtechnologytransfers;e-
commerce,distributionandbusinesslaw;marketing,publicityandlabelling;prosecution
litigationandarbitration;duediligence;inCanadaandthroughouttheworld.Ideaslivehere.

COPYRIGHTER
IDEASLIVEHERE
ILATOUTDEMÊMEFALLULINVENTER!
LAMAÎTRISEDESINTANGIBLES
LEGERROBICRICHARD
NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
PATENTER
R
ROBIC
ROBIC+DROIT+AFFAIRES+SCIENCES+ARTS
ROBIC++++
ROBIC+LAW+BUSINESS+SCIENCE+ART
THETRADEMARKERGROUP
TRADEMARKER
VOSIDÉESÀLAPORTÉEDUMONDE,DESAFFAIRESÀLAGRANDEURDELAPLANÈTE
YOURBUSINESSISTHEWORLDOFIDEAS;OURBUSINESSBRINGSYOURIDEASTOTHEWORLD