IP : A year in review – Best Business Practices and Lessons Learned

IP:AYEARINREVIEW
B
ESTBUSINESSPRACTICESANDLESSONSLEARNED

LAURENTCARRIÈREETJASONMOSCOVICI*
ROBIC,
LLP
L
AWYERS,PATENTANDTRADEMARKSAGENTS

AnyprofessionalpracticinginIntellectualPropertytodaywillagreetothefollowing:
whenprovidingbusinesscounsel,itisnolongersufficienttofocusonthecoretrinity
ofpatents-copyright-trademarks.IntellectualPropertymattershavebranchedoutto
includesuchaccessoryissuesasfranchiseandlicensingagreements,trade-secrets,
unfaircompetition,antitrust,defamation,commercialtransactions,trade-name
matters,languageconsiderations,andsoon.

Thissophisticatedbranchingoutofthefieldisreflectedbytheselectionofcaselaw
reviewsfoundbelow.Whilenotnecessarilyheadlinematerial,eachillustrateimportant
“lessonslearned”andprovideessentialbestbusinessadvicetopractitioners,whether
inhouseornot.TheseIPdecisions,renderedbetweenJune2009andJune2010,
wereanalysedtounderline:i)thefactsandii)theCourt’sdecision,toreachiii)the
bestbusinesspractices,withtheobjectivetoillustratehowcrucialcertain
considerationsaretoavoidinglitigioussituationsrelatingtoIPmatters.[Laurent
CarrièreandJasonMoscovici]
Patents-PublicDisclosuresthatInvalidatePatents
BauerHockeyCorp.v.EastonSportsCanadaInc.,2010FC361

Publicdisclosureofaninventioncanoftenbaranapplicantfromobtainingpatent
protectionfortheirinvention.Canadaprovidesaone-yeargraceperiodforsucha
publicdisclosureprovidedthatthepatentapplicationisfiledwithinthefirstyearof
disclosure.However,thequestionofwhatconstitutesapublicdisclosureisoften
raised.Anexampleoftheimportanceofthisquestionhasbeenrecentlyaddressedin
apatentinfringementcasebetweenBauerHockeyCorp.andEastonSportsCanada
Inc.
Inthiscase,BauerallegedthatcertainEastonskatemodelsinfringedonBauer’s
rightsunderCanadianPatentNo.CA2,302,953.EastoncounterclaimedthatBauer’s

©CIPS,2010.*AllauthorsaremembersofROBIC,LLPisamultidisciplinaryfirmofLawyers,andPatentandTrade-
markAgents.PublsihedintheSeptemberissueofLEXPERT.Publication402E.

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patentwasinvalid,amongotherreasons,asbeinganticipatedthroughapublic
disclosureoftheinventionmorethanoneyearpriortothefilingofthepatent
application.Theallegedpublicdisclosureinvolvedtestingofskatesinapublicarena
atanathletes’eventwheretheskatesweretestedbyNHLplayers.Notallthe
individualspresentattheathlete’seventhadsignedaconfidentialityagreement.

Thepatentinthepresentcaserelatedtoaninteriorcomponentoftheskatewhichis
madefromasinglepiecenotvisibletoauserlookingattheskatewithoutitbeing
dismantled.TheCourtstatedthatinorderforapublicdisclosuretoconstitutegrounds
forinvalidityofapatent,thedisclosuremustbesuchthatapersonskilledinthefield
oftheinvention,ifaskedtodescribetheconstructionandoperationoftheinvention,is
abletowritedownaclearandunambiguousdescriptionoftheinvention.

TheCourtconcludedthatamerevisualinspectionoftheskate,withoutdismantling
thereof,couldnothaveenabledapersonskilledintheartoftheinventiontowrite
downacompletedescriptionoftheinvention.Consequently,thepatentwasjudgedto
bevalidnotwithstandingthispriorpublicdisclosure.

This“closecall”stillservesasanillustrationastowhyconfidentialityagreements
shouldalwaysbeobtainedfrompeopleinvolvedwithpreliminarydisplaysofthe
invention.[AdamMizera]
Patents–EvidenceofOralAgreementtobeCleartobeConvincing
Gatterv.RisleyEnterprisesLtd.,2009BCSC826

DouglasGatter(“thePlaintiff”)isawelderandinventorofthe“snubber”,adeviceto
preventthebucketdoorsofaminingmachinefrombangingagainsttheframewhena
loadisreleased.ThePlaintiffcontactedRislevEnterprisesLtd(“theDefendant”)in
ordertodevelophisinventionandeventuallymarketit.Thepartiesenteredintoan
oralagreementtotheeffectthatthePlaintiffwouldreceiveroyaltiesequaltoa
percentageofthesales.However,itwasuncleariftheagreementextendedto
snubbersmanufacturedbythirdpartiesthroughlicensingagreements.

TheCourtfoundthattheagreementconcernedthe“useofthesnubberinvention”,
whichnotonlyincludedthe“manufactureofsnubbers”byoneoftheDefendant
Companies,butbythirdpartiesaswell.Theonlydocumentthatmadereferenceto
thisagreementwasaletterinresponsetoarequestbythePlaintiffforanadvanceon
royaltiesthatstatedthatroyaltieshadtobepaidonthe“useofthesnubberinvention”.
TheCourtalsoacceptedthePlaintiff’sevidenceregardingthediscussionsand
negotiationswiththeDefendant,asthewitnesstestimonywasclearanddirect.

Thiscaseremindsusthatwhendevelopingaproductofinvention,itisvitaltoclearly
andpreciselyputinwritingeveryagreementrelatingtotheinvention.Thiscasealso
illustrates,whilenotnecessarilyrelatingtobusinessperse,theimportanceofawell-
preparedwitness.Theassessmentofcredibilitybythejudgemayplayinfavourof

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eitherparty,especiallywhenthereisnospecificwrittendocumenttocorroboratethe
testimonyofawitness.[Anne-ChristineBoudreault]

Trade-marks–AlwaysUseyourTrade-MarkasRegistered
CIBCWorldMarketsInc.v.StennerFinancialServicesLtd.,2010FC397

Forthoseinterestedintipsontrade-markuse,thiscaseprovidesatimelylessonin
hownottouseyourregisteredtrade-mark.

Thebackdropforthistrade-marklessonis“partofanastycontinuingintrafamilyfight
pittingfatheragainstdaughterandfatheragainstson”.Variousmembersofthe
Stennerfamilyworkedinthefieldoffinancialservicesandeachhadreasontousethe
familynametoadvertisehisorherownservice.
Thetrade-markatissueinthiscasewasSTENNER;ithadbeenregisteredinMayof
2005byGordonStenneronbehalfofhiscompanyStennerFinancialServicesLtd.in
associationwithfinancialservicesandtheprovisionofseminarsandradioprograms
inthefieldoffinancialservicesandinvestments.

GordonStenner’sson,ThaneStenner,aregisteredfullservicefinancialadvisor,
workedforhisfatherbutlatermovedonandwashiredbyCIBCWorldMarketsInc.
There,heusedhislastnametoadvertisehisservices.However,bothThaneand
CIBCWorldMarketsInc.weretoldbyGordonthattheiruseofthename“Stenner”
constitutedtrade-markinfringementandpassingoff.

Thaneandhisemployercommencedexpungementproceedingsagainstthe
STENNERregistrationunderCanada’sTrade-marksAct.Theapplicantsallegedthat
thetrade-markSTENNERshouldbedeclaredinvalidandexpungedfromtheregister
sinceitwasnotregistrableatthedateofregistrationbecause“Stenner”isasurname
andithadnotbecomedistinctiveatthattimeofStennerFinancialServicesLtd.;
moreover,itwasfurtherallegedthatitwasnotdistinctiveatthetimeofthe
commencementoftheexpungementproceedingsinlate2007.

TheCourtfoundthatthefather’suseofthenameStennerwasalwaysmadein
conjunctionwithotherwordssuchas“group”or“team”orsimilarwords;Stennerwas
obviouslyasurname;thecontinuallychanginguseofothertermsinassociationwith
thewordStennerpreventedthefather’smarkSTENNERfromacquiringany
distinctivenessbyitselfandthefatherdidnotestablishthattheword“Stenner”,the
markactuallyregistered,waseverusedalone.
Consequently,thelackofuseofthetrade-markSTENNER,themarkactually
registeredbytherespondent,allowedtheCourttofindthatsuchtrade-markwasnot
distinctiveandordereditsregistrationexpunged.

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Themostimportantlessontotakeawayfromthiscaseisthatifyouregisteramark
thatisinherentlyweak,suchasafamilyname,youshouldalwaysusethemarkasa
standalonemarkinordertoenableittoacquiredistinctiveness.Failingsuchuse,the
registrationbecomesvulnerabletoexpungementasthefalloutfromthisfamilydispute
illustrates.[BarryGamache]
Trade-marks–IndirectControlinSublicensing
TucumcariAero,Inc.v.Cassels,Brock&BlackwellLLP2010FC267

ThisappealfromadecisionofCanada’sRegistrarofTrade-marksexpunginga
registration,highlightstheimportanceofensuringthatappropriatelicensing
arrangementsareinplacewhenatrade-markislicensed,orevensub-licensed,for
usebyathirdparty.
InCanadiantrade-markpractice,thelicenseduseofamarkmustultimatelybe
subjecttoacertainlevelofqualitycontrolbytheownerofthemark.Beforethe
Registrar,Tucumcari’sregistrationforthemarkMOTOMIRROR&designwas
expungedbecausetheRegistrarconsidereditsevidenceofdirectorindirectcontrol
overthecharacterorqualityoftheproductsmarketedunderthetrade-mark,asper
thetermsofanunspecifiedlicenceagreement,wasambiguous.Assuch,the
licenseduseofthetrade-markcouldnotinuretoitsbenefit.

Onappeal,Tucumcarisubmittedadditionalevidence,includingadescriptionofthe
corporateandcontractualrelationshipsbetweenTucumcari,itslicenseeandasub-
license,thelatterhavingbeenidentifiedasthemanufacturerandsellerofthegoods
inCanada.Copiesoflicensingandsub-licensingagreementsformedpartofthe
recordbeforetheCourt.
TheCourtrejectedtheargumentthatinthecontextofsub-licensing,theindirect
controlcontemplatedunderCanadianTrade-marklawrequiresanexpresscondition
inthesub-licensethattheownerofthetrade-markwillcontinuetodeterminewhether
thequalityofthegoodsproducedhasbeenmaintained.Instead,itstatedthekey
elementistheexistenceofacontinuityofqualitycontrolthatcanbeeffectively
maintainedbythetrade-markownerunderthechainofcontracts.Therefore,aslong
asthetrade-markownerisabletocontrolproductqualitythroughtheexerciseofits
contractualrightstowardstheintermediary,whointurnisentitledtocontrolproduct
qualityundercontractwiththesub-licensee,nospecialconditionsorlanguageare
requiredinthesub-license.
TucumcariretainedtherightsundertheLicenseAgreementtocontrolthequalityof
theproductsproducedundertheMOTOMIRROR&designmark,includingtheright
ofannualinspection.Also,iftheproductsproducedbythesub-licenseewere
deficient,Tucumcaricouldhaveterminatedthelicenseagreement,therebybringing
anendtothesub-licensearrangement.TheCourtdecidedtheseelementswere
sufficienttoestablishindirectcontrolbyTucumcari.

5

Thiscaseshedssomenewlightontheissueofqualitycontrolprovisionsinsub-
licenses.Itwouldappearthataslongasthetrade-markOwnerretainstherightunder
alicenseagreementtocontrolthequalityoftheproducts,includingtherightof
inspection,thereisnorequirementthatthesub-licenseagreementshouldexplicitly
bemadesubjecttothetermsandconditionsofcontrolcontainedinthemaster
licensingagreement.[StellaSyrianos]
Copyright-JointAuthorsofaBooknotontheSamePage
Neugebauerv.Labieniec,2009FC666

Inthiscase,HenryNeugebauer,aPolishoctogenarianandHolocaustsurvivor,
appliedbeforetheFederalCourttoexpungeacopyrightregistrationidentifyingboth
himselfandAnnaLabieniec,aPolishwriterandjournalist,asco-authorsofabook.

InSeptember2005,thepartiesfirstagreedAnnaLabieniecwouldprovidetranscripts
ofthetapesrecordedbyMr.NeugebauerandeditthePolishwrittenmaterialsintoan
organizedmanner.Subsequently,thepartiesalsoverballyagreedthatAnna
LabieniecwouldwriteabookbasedonMr.Neugebauerlifestory.Thebookwasfirst
publishedinMay2006withacopyrightnoticereferringtobothpartiesasco-authors.
Thepresentcasearisesfromadisagreementastotheauthorshipofthebook.

Inordertoruleonthevalidityofthecopyrightregistrationatissue,theCourthadto
decidei)whetherAnnaLabieniec’scontributiontothebookqualifiedasauthorship
andii)whethertheparties’respectivecontributionconstitutedjointauthorship.

Ontheissueofauthorship,theCourtfoundthat,duetoAnnaLabieniec’screativeand
originalcontribution,thebookwasnottheresultofameretranscriptionofMr.
Neugebauernarrativewithsimpleeditorialarrangements.Shewasthusentitledto
claimauthorshipofthebook.
Ontheissueoftheparties’respectivecontributions,theCourtheldthattheparties
shouldbeconsideredasco-authors.Giventheparties’verbalagreementleadingto
thepublicationofthebook,thecreativeeffortsofAnnaLabieniecaswellasthe
parties’post-publicationbehaviour,includingMr.Neugebauerhavingidentifiedhimself
astheco-authorofthebook,theCourtrejectedhisclaimthathewasthesoleauthor.
Theapplicationtoexpungethecopyrightregistrationwasthereforedismissed.

Thiscaseprovidesfoodforthoughtontheissueofentitlementtojointauthorship
whosestatutorydefinitionrequirestwoelements:theremustbecollaborationandthe
contributionmustnotbedistinct.WhileMr.NeugebauerandMs.Labieniecmetthese
tworequirements,whataboutthecollaborators’intention?TheCourtseemingly
openedthedoortofuturedebatebyaddingtoitsconclusionthat“thepartiesintended
thattheircontributionsbejoinedinfurtheranceofacommondesign”.Thisdebatemay

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beresolvedsoonerratherthanlaterbytheFederalCourtofAppealgivenMr.
Neugebauerhasappealedthisdecision.
Whendealingwithaworkofjointauthorship,co-authorsarebestadvisedtoenterinto
awrittenagreementprovidingclearindicationsastothecollaborativeandindivisible
natureoftheworkandmoreimportantly,theircommonintentionwithregardtothe
work.[CatherineBergeron]
Informationtechnologies-HyperlinkingtoaSitedoesNotAmounttoPublication
ofHyperlinkedMaterial
Crookesv.Newton,2009BCCA392

WayneCrookes,aVancouverbusinessmanoccasionallyvolunteersfortheGreenParty
ofCanada.JonNewton,whodescribeshimselfasajournalist,isabloggerwho
publishesawebsiteforcommentaryonissuessuchasfreespeechandtheInternet.Mr.
Newtonpublishedanarticleonhiswebsiteentitled“FreeSpeechinCanada”,inwhich
hecommentedtheimpactofdefamationactionsondiscussionforumoperators,suchas
theactionbroughtbyMr.Crookesin2006againstanindividualnamedMr.Pilling.

Bymeansofhyperlinks(andwithoutreproducinganycontent),Mr.Newtonadded
referencestothewebsitesofusgoverneticsandopenpolitics,wherearticlesonCrookes’
casewereavailable.AsofFebruary1,2008,thearticle“FreeSpeechinCanada”had
beenaccessed1,788times.Mr.CrookesthenrequestedthatMr.Newtonremovethe
hyperlinksfoundonhiswebsite,allegingthattherelatedwebsitescontaineddefamatory
material.
TheCourthadtodecidewhetherornottheinclusionofahyperlinkonawebsite,orthe
refusaltoremoveahyperlinkwhennotifiedofitsallegeddefamatoryaspect,amounted
tothepresumptionofpublicationbytheMr.Newtonofthematerialsfoundatthe
hyperlinkedsites.Indismissingtheappeal,theCourtagreedthathyperlinkscouldbe
comparedtofootnotesinthisparticularcase,butindicatedthatthefootnoteanalogyis
notacompleteanswerforallcases.
Insomecircumstances,hyperlinkingtoasitecouldnonethelessamounttopublication
ofthematerialfoundatthehyperlinkedsite.Factorstoconsidermayincludethe
prominenceofthehyperlink,anywordsofinvitationorrecommendationtothereader
associatedwiththehyperlink,thenatureofthematerialsthatmaybefoundatthe
hyperlinkandtheapparentsignificanceofthehyperlinkinrelationtothearticleasa
whole.
Noteworthy,theCourtrefusedtoinferfromthe1,788“hits”associatedwiththearticle
thatatleastonepersonwithintheCourt’sjurisdictiondidhaveaccesstotheimpugned
articlesbywayofthehyperlinks.

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Thiscasemayserveasanillustrationthatbusinesseswishingtoallegedefamation,
shouldconsiderhavingandmakinguseofwebtrafficanalyticaltoolsthatassistin
keepingtrackandarchivingsuchinformationwhichcouldproveusefulintheircases.
[MarcelNaud]
Defamation–ANewDefenceAvailable
Grantv.TorstarCorp.,2009SCC61;Quanv.Cusson,2009SCC62

OnDecember22,2009,theSupremeCourtrenderedtwodecisionsintroducinganew
defenceinacommonlawclaimforlibel.
InGrantvs.TorstarCorp,thePlaintiffandhiscompanyfiledanactionforlibelagainst
anewspaperandreporterpursuanttoanarticlepublishedwithrespecttoaprivate
golfcoursedevelopmenttobebuiltontheplaintiff’sland.Thestoryincluded
commentsfromlocalresidentswhocriticisedtheprojectbecauseofitsenvironmental
impactandwhoinformedthereporterthattheysuspectedtheplaintiffwasexercising
politicalinfluencebehindthescenestoobtainthenecessaryapprovals.

TheSupremeCourtanalysedthebalancebetweendefamationandfreedomof
speechandafterareviewofforeignjurisprudence,agreedthatthecommonlawof
defamationshouldbemodifiedtoenhancetheprotectionaffordedtocommunications
onmattersofpublicinterest.Thisdefenceincludestwoconditions:(1)thepublication
inquestionmustbeonamatterofpublicinterest,and(2)thecommunicationmustbe
responsible.
Todeterminewhetherthecommunicationwasresponsible,certain(nonexhaustive)
circumstanceswerelookedat:theseriousnessoftheallegations,thepublic
importanceandurgencyofthematter,thestatusandreliabilityofthesource,whether
theplaintiff’ssideofthestorywassoughtandcorrectlyreported,whetherthe
inclusionofthedefamatorystatementwasjustifiable,andwhetherthedefamatory
statement’spublicinterestlayinthefactthatitwasmaderatherthaninits
truthfulness.
ThesamedefencewasacceptedinQuanv.CussonwhenaCanadianpoliceofficer
objectedtoanewspaperarticlereportingthathehadmisrepresentedhimselftoNew
YorkauthoritiesaftertheSeptember11attacksandhadinterferedwiththerescue
operationsatGroundZero.TheCourtreiteratedthatthedefenceofresponsible
communicationonmattersofpublicinterestwasapplicablewherethepublicationisa
matterofpublicinterestandthepublisherwasdiligentintryingtoverifythe
allegations.
Ifthereissomethingtotakeawayfromthiscase,itisthatbusinessesinvolvedin
dealingswiththepress,directlyorindirectly,shouldbemindfulofthefactthatthis
newdefencecanlimitrecoursesforlibelmatters,wherethepublic’sinterestina

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reasonablecommunicationistakenintoaccountwhenevaluatingdefamationclaims.
[FranceLessard]
QuebecCharteroftheFrenchLanguage-MarkingsonSpecialityProducts
Québec(Procureurgénéral)c.DistributionPercourtinc.,2010QCCQ2858
Inthiscase,thedefendantDistributionPercourtinc.wasaccusedofviolatingthe
QuebecCharteroftheFrenchLanguagebecausethepackagingofsomeproductssold
initspremiseswerelabelledinalanguageotherthanFrench.Asageneralrule,the
Charterprovidesthateveryinscriptiononaproduct(whetherontheproductitselforon
itscontaineroronitswrappingoronadocumentorobjectsuppliedwithit),alongwith
catalogues,brochuresandsimilarpublications,mustbedraftedinFrench.Whilethe
inscriptiononaproductmaybeaccompaniedbyatranslation,itmaynotbegiven
greaterprominencethantheinscriptioninFrench.
AninspectorfortheOfficequébécoisedelalanguefrançaise(thegovernmentagency
mandatedwithenforcingtheCharter)presentedhimselfintheestablishmentcarrying
thegoodsandfoundthattheinformationontheproduct’slabel(asexualaiddevice)
wassolelyinEnglish.
ThecourtrejectedDistributionPercourtinc’sdefenceallegingastatutoryexception
whichallowsforproductinscriptionstobeexclusivelyinalanguageotherthanFrench
iftheproductcomesfromoutsideQuebecandisinlimitedusewithnoequivalent
substitutepresentedinFrench.DistributionPercourtinc’shadpreviouslyattemptedto
prepareFrenchlabelsfortheproductandthereforethelegalexemptionwas
inapplicable.Itisinterestingtonotethatthecourtalsorejectedthedefendant’s
allusiontotheelevatedproductioncostsassociatedwithobtainingcompliantlabels.

.Thiscaseservesasastarkremindertobusinessessellingorcontemplatingselling
productsinQuébecofthisprovince’sparticularlanguagerequirements.Asdictatedby
theCharter,productssoldinQuebec,whichdonotbenefitfromanyexplicit
exemptions,mustcarryFrenchinscriptionsandshouldtherebeanyaccompanying
translations,theymustbegivenequalorlesserprominencethantheFrench
inscriptions.[AudreyBenoualid]
FalseAdvertising:AsianNightMarketsandtheArtofPassingOff
TargetEventProductionLtd.v.PaulCheungandLionsCommunicationsInc.2010
FC27
Inpractice,itisnotuncommonforclientstoquestionthescopeofcopyrightand
trademarkprotection.Inthepresentmatter,bothconceptswereaddressedinan
actionforpassingoffandcopyrightinfringement.Theplaintiff(Target)sought
damagesforthedefendant’s(Lions)operationofanAsiannightmarketin2008.

9
From2004to2007,Targethadbeenoperatinganightmarketinthetownof
Richmond,BritishColumbia,onaleasedpropertyunderthenameof“THE
RICHMONDNIGHTMARKET+Logo”(andRICHMONDSUMMERNIGHTMARKET,
inChinesecharacters).Themarketgatheredvendorswhooperatedboothsat
locationsdefinedbyamarketsiteplandraftedbyTarget.Everyyear,vendors
reservedtheirboothsthroughanapplicationprocess,usingformsalsoauthoredby
Target.
In2008,despitethemarket’ssuccess,Targetcouldnotreachanacceptable
agreementwiththeproperty’slandlordandtheleasewasnotrenewedforthe2008
event.Lions,takingadvantageofthisopportunity,leasedthesamepropertyto
organizeasimilarmarketandsolicitedTarget’spreviousvendorsusingthesamefloor
plansandapplicationprocess.Lion’smarketoperatedunderthename“SUMMER
NIGHTMARKET”and“RICHMONDSUMMERNIGHTMARKET”inEnglishand
Chinesecharacters.
Attrial,thejudgefocusedonevaluatingtheallegationsofcopyrightinfringementand
passingoffinlightofCanada’sCopyrightActandTrade-marksActandawarded
damagestotheeffectof$15,000.00(CAD).
Forinfringement,Targetshowedthatcopyrightexistedinboththeirmarketfloorplans
andtheirapplicationforms.Thejudgeestablishedthat“theinfringementofTarget’s
SitePlanwasthesinequanonfortheoperationofLions’Marketin2008.Withoutthis
infringement,itisunlikelythatLionscouldhaveopenedwithallvendorsinplacein
June2008.”Lion’sdefence,thattherewasnootherlogicalwaytoestablishthesite
duetoitsfunctionality,wasnotaccepted.

Forpassingoff,itwasshownthatatthevisitorlevel,thechoiceofthenameforLions’
eventwascalculatedtoconveytovisitorsthattheeventwasTarget’ssuccessfulnight
marketorwasatleasta“continuationofTarget’ssuccessfulRichmondNightMarket”.
However,atthevendorlevel,sufficientpublicityoftheorganisationalchangeresulted
intheabsenceofconfusion.
Businesswise,asshownwiththepresentcase,pickingupwheresomeoneelseleftoff
canbeaperilousventureifonedoesnotinvestindistinguishingitselffromthe
previousoperation,especiallyinthemilieuofeventplanning,wheredesignandlayout
arecriticalelements.Aswell,achangeinorganisationshouldbepubliclyapparent,so
asnottoimplycontinuanceofbusiness.Finally,prudencedictatesthatmaking
referencetothepriorentity’ssuccess,inanassociativemanner,shouldbeavoided.
[JasonMoscovici]
Patent–Ownership–EnforceabilityofaMemorandumofUnderstanding
QuantumLeapResearchInc.c.Kay,2010QCCS1449

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Thiscasedealtwiththeownershipofrightstoaninventiondevelopedthrougha
collaborationbetweenMr.IraKay,anexternalconsultant,andQuantumLeap
researchInc.(“Quantum”),forwhichapatentwasfiledandgranted(the“Invention”).
In2004,thepartieshadagreedtodeveloptheInventionuponcertainconditions,set
outinaletterofintent,including,amongstotherelements,thatMr.Kaybenamedas
thesoleinventoroftheInventionwhileassigningallofhisrightstoanewcompany
(“Newco”)ownedbyMr.KayandQuantum.Shortlythereafter,thepartiesexecuteda
memorandumofunderstanding(“MOU”)wherebyMr.Kaywouldimmediatelyassign
hisrightsintheInventiontoQuantumforandonbehalfofNewco.TheMOUprovided
foranassignmentwithimmediateeffect,subjecttodetermination(resolution)at
Mr.Kay’soptionintheeventthatQuantumrefused
toenterintoagreementsgiving
effecttothetransaction.Atthebeginningof2005,Mr.Kaylostinterestinhis
collaborationwithQuantumandrequestedtheretrocessionofhisrightsinthe
Invention,asperhisoptionintheMOU.
ThecourtdeterminedthattheMOUwasenforceableandthattheconditiontoclose
thetransactiondidnotpreceedtheMOU,itwassubsequenttotheMOU.TheCourt
alsofoundthattheconditionthatwouldtriggerMr.Kay’srightstoretrievehisrightsin
theInventionwasQuantum’srefusal
toenterintotherelevantagreementsandnotthe
absenceofagreementamongsttheparties.Accordingly,theCourtconfirmed
QuantumastheownerofallrightsintheInvention,anddeclaredtheretrocession
rightsofMr.Kayforfeited.
Thisdecisiondemonstratestheimportanceofnegotiatingandenteringintoclear
agreementsandestablishingunambiguousclosingconditions.Moreover,thisdecision
servesasareminderthatincertaincases,intellectualpropertyrightsareessentialin
ordertobeabletocommercializecertaininventions.Theassignmentandcooperation
oftheinventorcouldberequiredeveniftheownershiprightsintheinventionbelong
tothepartyhavingfinancedororderedthedevelopmentoftheinvention.Itis
thereforeessentialtohaveclearanddefinitiveagreementsinplacewithanypartner,
collaboratorandevenemployeesinordertosecureallrightsrequiredinthepursuit
andcommercializationofcontemplatedbusinessprojects.[Marie-ÈveCôté]

Anti-trust–SettlementAgreementMaybeAnticompetitive
ApotexInc.v.ADIR,2009FCA222

Inthepresentcase,theFederalCourtofAppealupheldadecisionstatingthatthe
mereexerciseofpatentrightsdoesnotamounttoimpairmentofcompetition,as
contemplatedbyCanadianlawunlessthereis“somethingmore”.

Whilethepresentcaseinvolvespatentinfringement,coreelementsoftheCompetition
Actwereanalysedandattherootoflengthyconflictproceedingsinvolvingpatent
applicationsfiledbyADIR,ScheringCorporation(Schering)andHoechst
Aktiengesellschaft(Hoechst),whichwerefinallysettledwhenaFederalCourtorder
wasissuedonconsent.TheOrderprovidedfortheallocationofcertainrightstoclaim

11
aninventionbetweenADIR,ScheringandHoechst,therightsallocatedtoADIR
resultedinthegrantingofthepatentatissue.
Apotexarguedthatthesettlementagreementundulylessenedcompetition.Its
argumentsweretwofold:1)hadtheconflictproceedingsbeendecidedbytheCourt
ratherthansettled,ADIRmaynothavebeengrantedexclusivepatentrights,
thereforeraisingthe“probability”thattheagreementprovidedADIRwithgreater
marketpowerthanitwouldotherwisehavehad;2)ADIRenteredtheagreement
specificallytoavoidtheresultthateithernoclaims,oroverlappingclaims,covering
therelevantproductwouldbeissued.
TheCourtrejectedApotex’sargumentsasitfoundthattheyweresolelybasedon
speculation,observingthat,firstly,theCourtcouldhavegrantedtheclaimsprecisely
astheywereallocatedinthesettlement,andsecondly,everystepoftheprocess
leadingtothesettlementagreementwasinaccordancewiththerightsofADIRunder
Canadianlaw.However,theCourtalsostatedthateventhoughthefactsofthiscase
didnotwarrantafindingofoffenceundertheCompetitionAct,therecouldbe
circumstanceswhereasettlementagreementcouldconstitutethe“somethingmore”
requiredforsuchafinding.
Thislatterremarkisimportantforbusinessesenteringintopatentsettlements,asit
opensthedoortofuturechallengeofthesesettlementsunderCanadiancompetition
law.Thereispresentlylittleindicationastowhatcouldconstitutethe“something
more”thatcouldrenderasettlementagreementunlawful.Consequently,specialcare
shouldbetakenwhenenteringintoapatentagreementthatmayhaveanimpacton
competition.Licensingandassignmentofpatentrightsshouldparticularlybeanalysed
carefully,bearinginmindtherequirementsoftheCompetitionAct.

Finally,itshouldbenotedthatamendmentstotheCompetitionActcameintoforceon
March2010whichnowlimittheapplicationofthecriminalchargesofconspiracy
(whichwereatissueinthiscase)andcreateanewcategoryofoffencesfor
agreementsthatlessen,orarelikelytolessencompetitionsubstantiallyinamarket.It
isunderthisnewcategoryofoffencesthatIPagreementsriskbeingchallengedinthe
future.[Jean-FrançoisJournault]
Trade-names-ThreeLettersWorthMorethan$300,000.00
MichelinAmériqueduNord(Canada)Inc.andCompagnieGénéraledes
ÉtablissementsMichelinv.JohnMitchel20091020420(REQ)

Thepresentcaseaddressestheissueofallegedconfusionbetweenatrade-markanda
trade-name.MichelinNorthAmerica(Canada)Inc.(“Michelin”)isawellknowncompany
whichoperatesinthesaleofvarioustypesoftires,innertubesandrelatedservices.A
certainMr.JohnMitchelregisteredhimselfduringthemonthofFebruary2008atthe
QuebecEnterpriseRegisterasdoingbusinessunderthecorporatenamesof“Michelin
NorthAmerikaINCA”and“MichelinNordAmériqueINCA”,listingitseconomicactivities

12
asthetransportofmerchandiseaswellasimport/export.Michelinwouldeventually
learnthesimilarityinthenameswasnotacoincidence.

Acheckdraftedfor”MichelinNorthAmerica”bytheIronOreCompanyofCanada(“Iron
Ore”)fortheamountof$332,818.44wasstolenbeforeitreacheditsaddressee.Mr.
Mitchelwasputinpossessionofthischeckandaddedtheletters”NCA”.Thecheckwas
depositedinhiscommercialaccount.ThemoneywasneverrecoveredandMr.Mitchel
waseventuallysentencedonMarch10,2010forthisfraud.Michelinthensetitssights
ongettingthenameMichelinin“MichelinNorthAmerikaINCA”and“MichelinNord
AmériqueINCA”removedfromtheQuebecEnterpriseRegister.

ThisadministrativerecoursewasbasedonthegroundsthatMr.Mitchel’scorporate
namescreatedconfusionwithMichelin’strade-markandnameunderwhichitconducted
itsbusiness.Michelinsucceededinitsrecourse;however,whilethelawprovidesthat
theRegistraroftheQuebecEnterpriseRegistercanorderapersonoracorporationto
changeitsname,ithasnoauthoritytoremoveorchangearegisterednameitself.The
RegistrarthereforeaddedanotetoMr.Mitchel’spublicEnterprisefilethatadecision
wasrenderedagainsthim.Thisfileisfoundinapublicregistrycontainingallthelegal
informationconcerningeverycompanyregisteredwithintheprovinceofQuebec.

CompaniesshouldperiodicallychecktheQuebecEnterpriseRegisterdatabaseinorder
tomakesuretherearenoothercompaniesorindividualsdoingbusinessunderaname
thatmightcreateconfusionwiththeirbusinessnameortheirtrade-marks.Suchpolicing,
coupledwiththeadministrativerecourseusedbyMichelin,isacheapandefficientway
ofmakingsureacompany’snameandtrade-marksremainuniqueanddistinctiveinthe
fieldsofbusinessinwhichitoperates.[AlexandreC.Archambault]

Tradesecrets–FranchiseandConfidentialityOrders
FairviewDonutInc.v.TheTDLGroupCorp.,2010ONSC789

Theplaintiffs,franchiseesoperatinginthefastfoodindustry,wishedtoinitiateaclass
actionsuitagainsttheirfranchisor,thedefendant.TheyallegedtheDefendanthad
breacheditslicenceagreementsbyforcingthemtoconvertfroma“full-baking
system”,wherebydonutsandothergoodsarebakedon-site,toamethodcalled
“AlwaysFresh”,wheregoodswerebakedatacentrallocationandthenpreparedfrom
frozenon-site.TheyalsoallegetheDefendantobligedthemtoprovidealunchmenu
atunreasonablylowprofitmargins.Plaintiffsarguedtheseobligationshadcaused
themtobearincreasedcostsatlowerprofits.
Onitsend,thefranchisorallegedthattheplaintiffsrepresentedinefficientand
inexperiencedoperatorswhichdidnotreflectthefranchiseeclassasawhole.

Thefranchisorsoughtasealingorderasitwasconcernedaboutthedisclosureof
confidentialfinancialinformationandtradesecretspertainingtoconfidentialmanuals
forproductpreparationmethodsandprocedures.

13

TheCourtreviewedtherequestforaconfidentialityorderasperthetestestablished
bytheSupremeCourtofCanada:1)theevaluationofthenecessityoftheorderto
preventaseriousrisktoanimportantinterestandwhetheralternativemeasuresexist;
and2)theevaluationofthesalutaryanddeleteriouseffectsoftheorder,includingthe
righttoafairtrialandtherighttofreeexpression.

TheCourtstatedthat“itisparticularlyimportant[…]thattheopencourtprinciple
shouldbeobserved[…]andarequestforasealingorderinaclassactionshouldbe
approachedwithparticularcaution.”Asfortradesecretsatissue,theCourtmentioned
theywereofthemostgeneralnatureandofaverylowlevelofsecrecy.Thesealing
orderwasthereforedenied.
Thisdecisionillustratestheimportanceofknowingthevalueofyourtradesecrets.
Litigationcanforceyoutodiscloseinformationinviewoftheopencourtprinciple,
especiallyinthecaseofclassactions.Ifthetradesecretsareofvalue,particularlyto
potentialcompetitors,negotiationsmaybepreferabletolitigation,pendingthe
evaluationofthelikelihoodofobtainingasealingorder.[SimonPicard]

Franchising–Franchisees:BackseatDrivers
Bark&FitzInc.v.2139138OntarioInc.,2010ONSC1793

Inthiscase,aninterlocutoryinjunctionwasgrantedrestrainingcertainfranchisees
fromterminatingtheirrespectivefranchiseagreementswiththefranchisor,Bark&Fitz
andconsequentlybreachingtheirongoingobligations,includingpaymentofroyalty
andadvertisingfees.
Bark&Fitzdeliveredunsolicitedinventoryofcoreproductstothefranchisees,
togetherwithdeliveryfeeinvoicesandproceededtode-listotherproductscarriedby
thefranchisees.Thefranchiseesrefusedtocarrythesecoreproductsandceased
payingtheiradvertisingandmarketingcontributions,resultinginthefranchisorputting
themindefault.
Ontheirend,thefranchiseesclaimedthatthefranchisorhaditselfcausedthe
repudiationandterminationofthecontractbasedonitsownfundamentalbreachof
thecontracts.Thefranchiseeswantedtooperateindependentlyofthefranchise
system.
Initsdecision,theCourtremindsusthat:“afundamentalbreach”requiresthatthe
conductofapartydeprivetheotherofsubstantiallythewholebenefitofthe
agreement.Thisisahighthreshold,eveninthefaceofclearfranchisormisconduct,
andrequiresthatthebreacheshavemadeitintolerableforthefranchiseestocontinue
tooperatethefranchise.Thecruxofafranchiseagreementistheuseofthename
andtrademarkinexchangeforroyaltypaymentsanditsexclusiveterritory[…].As

14
well,consistentqualityandadvertisingandpromotionarealsocriticalbenefitstoa
franchiseagreement”.

Evenifthefranchisorarbitrarilyimposedproducts,inventorylevels,handlingand
deliverycharges,etc.,itwasinsufficienttoconstituteafundamentalbreachbythe
franchisor.Thefranchiseeswerenotdeprivedof“substantiallythewholebenefitofthe
agreement”,astheywereabletocontinuetooperateunderthebrand,logoandon
theirexclusiveterritories.Sinceitwasproventhatthefranchisesystemcouldnot
survivethetrial,theinjunctionwasgranted.
Themainlessontobelearnedfromthiscaseisthatregardlessofthecontentofa
contract,afranchisorcanarbitrarilyimposenewtermstofranchiseeswithout
breachingitscontractualobligations,ifitcanbeproventhatthefranchiseescan
continuetooperatethefranchise.Bearinginmindthatinthecontextoffranchises,the
burdenofprovingafundamentalbreachisaheavyone,tobetterprotectthe
franchiseeagainstsuchtypeofmisconduct,arightofterminationbythefranchisee
shouldbeprovidedincaseswherethefranchisorunilaterallyimposesnewproduct
lineswhichwoulddefeatthefranchiseesexpectedearnings.[JulieLarouche]

Franchising-EquitableAssignmentofFranchiseAgreements
InvictaFoodsServicesLtd.v.CaféSuprêmeCanadaInc.,2010BCSC634

InarecentdeclaratoryjudgmentrenderedbytheCourtsofBritishColumbia,theplaintiff
InvictaFoodsServicesLtd.(“Invicta”)successfullysoughtadeclarationthatthe
defendantC.S.CaféSuprêmeInc.(“Company2”)wasliabletowardsCaféSuprêmeInc.
(“Company1”).
InFebruary2004,InvictaandCompany1enteredintoafranchiseagreementenabling
Invictatooperateabistrounderthe“CaféSuprême”trade-mark.Afterthefailureofthe
business,InvictawasawardeddamagesinarbitrationagainstCompany1duetoa
materialbreachofthefranchiseagreement.Itwasonlywhentryingtoexecutethis
judgmentthatInvictalearnedthatCompany1hadbeenstrippedofallitsassets,which
inturnhadbeenassignedtoCompany2.
InvirtueofthefranchiseagreementbetweenInvictaandCompany1,thelatterhadthe
righttoassignitsinterestsintheagreementtoanyaffiliate,suchasCompany2.This
beingsaid,theagreementalsostatedthatsuchassigneewouldthenhavetoassume
andbeboundby,amongstothers,alloftheobligationsincludedinthefranchise
agreement.

Attrial,thedefendantstookthepositionthatitwasonlythebenefitsensuingfromthe
agreementthatwereassignedtoCompany2,andnottheobligations.

15
Inrenderingitsdecision,theCourtfoundthattherewasanequitableassignmentof
Company1’sinterestsinthefranchiseagreementtoCompany2,andthatsuch
equitableassignmentincludedalltherightsandobligationsofCompany1.

SincealloftheobligationsofCompany1werealsoassignedtoCompany2,thelatter
wasthereforefoundliabletoInvictaonthejudgmentoriginallyissuedagainstCompany
1andrelatingtothematerialbreachofthefranchiseagreement.

Thiscasemayserveasacautionarytaletofranchisorsthattheyshouldnotemploy,
deviousmeans,suchasassignmentsaswaystoescapefromtheirobligations
containedinthefranchiseagreement.AstheCourtputit,ifequitypermittedan
assignmentoftherightsunderafranchiseagreementwhileretainingtheobligations,
“unscrupulousfranchisorscouldthencausehavocinthisimportantsegmentofthe
economy”.[CatherineDaigle]

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