Interlocutory Injunction in Trade-mark Infringement Action Upheld by Federal Court of Appeal

Justine Whitehead and Komil Joshi -

On April 23, 2015, in Jamieson Laboratories Ltd. v. Reckitt Benckiser LLC and Reckitt Benckiser (Canada) Limited 2015 FCA 104, the Federal Court of Appeal upheld a decision granting an interlocutory injunction against a defendant in a trademark infringement suit.  Successful motions for such interlocutory relief are relatively rare in the Federal Court, and this case provides some interesting insight into the type of evidence that might allow a moving party to obtain such relief.

Background Facts

The facts of the case have their origin in activities undertaken in 2012, when Reckitt Benckiser LLC and Reckitt Benckiser (Canada) Limited (Reckitt) decided to enter the North American market in respect of supplements containing omega-3 fatty acids.  In pursuit of this goal, Reckitt engaged both Schiff International, Inc. (Schiff) and Jamieson Laboratories Ltd. (Jamieson) in acquisition talks.

Reckitt acquired Schiff in December 2012, and thereby gained rights to Schiff’s trademark MEGARED, which had been used successfully in the United States in association with a line of omega-3 supplement products. 

The next month, Jamieson decided to undertake the rebranding of its own line of omega-3 fatty acid products in Canada from SUPER KRILL to OMEGARED.  In June 2013, Jamieson launched the new brand in Canadian stores.

This launch prompted two warning letters from Reckitt, which had not yet launched the MEGARED product in Canada.  Jamieson refused to withdraw or rebrand its product.  Accordingly, on October 16, 2014, Reckitt initiated an action for infringement of its MEGARED trademark.  On November 28, 2014, Reckitt also filed a motion seeking interlocutory injunctive relief to prohibit Jamieson from using the trademark OMEGARED, and mandating the recall of products and other materials that would offend the terms of the prohibition.

Test for Obtaining an Interlocutory Injunction

In determining whether to grant the interlocutory injunction, the Federal Court applied the tripartite test set out in RJR-MacDonald Inc. v. Canada (Attorney General) [1994] 1 SCR 311 [RJR-Macdonald],which required Reckitt to establish:  (1) a serious issue to be tried on the merits of the case;  (2) that Reckitt would suffer irreparable harm if the injunction were not granted; and (3) that the balance of convenience favours granting the injunction.

Court Analysis

(1)  Serious Issue to be Tried

The threshold for establishing a serious issue is a low one.  Unless it can be shown that the moving party’s arguments are frivolous or vexatious, a serious issue will be made out.

In considering whether a serious issue of potential trade-mark infringement had been established by Reckitt, the Federal Court found that the timing of Jamieson’s re-branding strategy was a deliberate strike to prevent MEGARED from gaining acceptance in the Canadian market, and the trial judge proceeded to conduct a fairly detailed overview of the merits of the case. 

On appeal, Jamieson argued (and the Federal Court of Appeal agreed) that the Federal Court judge delved too deeply into the merits of the underlying action.  However, the Court of Appeal found that the trial judge gave sufficient reasons to conclude that Reckitt had established a serious issue of potential trade-mark infringement.

(2)  Irreparable Harm

In RJR-Macdonald, the Supreme Court of Canada confirmed that the term “irreparable harm” defines “the nature of the harm suffered rather than its magnitude.”  There is a high standard for establishing irreparable harm, and Federal Court case law requires specific and clear evidence demonstrating that monetary damages are insufficient relief.

In upholding the Federal Court’s determination that Reckitt had, indeed, established irreparable harm, the Federal Court of Appeal agreed that Reckitt’s potential harm would be impossible to quantify, and noted that it “makes no practical sense to require a plaintiff to demonstrate such damages as lost sales or price reductions when the only market environment in which the plaintiff has ever operated has been one in which the alleged infringer has operated as well”.

(3)  Balance of Convenience

The trial judge decided that the balance of convenience favoured Reckitt, concluding that Jamieson had failed to demonstrate irreparable harm if the injunction issued.  The Federal Court found that the potential harm from reverting to the trademark SUPER KRILL was compensable by damages, and that Reckitt had made an undertaking to cover such damages.

The Federal Court of Appeal agreed that there may be potential irreparable harm to Jamieson’s reputation, given the “forthwith” nature of the injunction originally sought.   To address this issue, the Federal Court varied the terms of the order to give Jamieson 30 days from the date of the order, as varied on appeal, to comply with the injunction.

Conclusion

The case provides interesting insight into the applicability of the RJR-Macdonald test in the context of a trademark infringement matter, and provides an additional opening to plaintiffs who have yet to enter a market to try to establish irreparable harm allowing for interlocutory relief.

Federal Court of Appeal clarifies Industrial Design Act

Justine Whitehead and Gina Demczuk - 

In Zero Spill Systems (Int’l) Inc. v Heide (Zero Spill), the Federal Court of Appeal (FCA) has clarified that a functional feature of an industrial design may be protected under the Industrial Design Act.

The underlying action involved four plaintiffs, and concerned allegations of patent and industrial design infringement with respect to fluid containment apparatuses that were manufactured and distributed by the defendants (referred to collectively herein as “the Heide Defendants”) for use in oil field operations.  While many arguments with respect to patent infringement were raised at the Federal Court and FCA, this post will focus solely on the arguments with respect to the industrial designs. 

The Federal Court initially dismissed the action (see 2013 FC 616), and Zero Spill appealed all of the Federal Court’s findings.  In particular, the Federal Court held that the Heide Defendants had not infringed Canadian Industrial Design 86,793 (the ‘793 Design), by selling a line pipe tray known as a “CAPP tray”, which is designed to capture fluids that leak or are spilled during oil field operations. The Federal Court’s reasons revolved around paragraph 5.1(a) of the Industrial Design Act, which states that “[n]o protection afforded by this Act shall extend to features applied to a useful article that are dictated solely by a utilitarian function of the article”.

Although there were many similarities between the ‘793 Design and the CAPP tray, and despite the fact that the Heide Defendants had used Zero Spill’s product as a model for their own, the Federal Court found that Zero Spill had failed to prove infringement on a balance of probabilities.  In particular, the Federal Court noted that Zero Spill had not addressed the “legal distinction between design features that are visually appealing and those that are purely functional or utilitarian”.   The Federal Court’s reasons indicated that because many features of the ‘793 Design were in some way functional, these features were also unprotectable pursuant to paragraph 5.1(a) of the Industrial Design Act, notwithstanding that they might also appeal to the eye.  

Furthermore, the Federal Court found that Zero Spill had failed to lead evidence establishing that the CAPP tray had trenched on the visual features of the ‘793 Design. As the Federal Court held that the plaintiffs carried the burden of proving that the CAPP tray infringed the ‘793 Design, the Federal Court found that Zero Spill had failed to prove infringement on a balance of probabilities.

On appeal, Zero Spill argued that it had no burden under paragraph 5.1(a), and rather, the burden was on the Heide Defendants to show that the paragraph applied. Second, Zero Spill argued that paragraph 5.1(a) only excluded features that were dictated solely by their function, rather than all features which may have some coincident function.

In agreeing with Zero Spill’s arguments, the FCA stated that subsection 7(3) of the Industrial Design Act, creates a presumption of compliance with the entire Act.  Subsection 7(3) of the Industrial Design Act states that the certificate of registration for an industrial design is sufficient evidence, in the absence of proof to the contrary, “of the design, the originality of the design, of the name of the proprietor, of the person named as proprietor being proprietor, of the commencement and term of registration, and of compliance with [the Industrial Design Act]”.

In overturning the Federal Court, the FCA held that the effect of this subsection is to place the burden on the defendant in an infringement action to challenge the validity of the registration. One way to rebut the presumption would be to successfully invoke paragraph 5.1(a) of the Industrial Design Act.

As a result, the FCA held that the defendants were required to plead that certain features of the design were unprotectable because they were dictated solely by function. As the defendants had failed to do this, the Federal Court’s finding of non-infringement could not stand, and the issue of infringement was remitted back to the Federal Court for redetermination.

With respect to Zero Spill’s second submission, the FCA clarified the protection afforded under paragraph 5.1 (a) of the Industrial Design Act, and disagreed with the Federal Court’s finding that all functional features of an industrial design are unprotectable by virtue of paragraph 5.1(a), despite the fact that these features may also appeal to the eye.  In its reasons, the FCA found that this interpretation ran counter to the ordinary meaning of paragraph 5.1(a), and the purpose of the Industrial Design Act. As paragraph 5.1(a) states that “features … dictated solely by a utilitarian function” (emphasis added), are unprotectable, the FCA found that features could be both useful and visually appealing. In these circumstances, paragraph 5.1(a) could not apply.

Furthermore, the FCA noted that under subsection 64(2) of the Copyright Act, an article is exempt from copyright protection if there have been more than 50 copies made, and if the article is functional. In light of this, the FCA found that the Industrial Design Act would serve no purpose if it did not protect functional features. The FCA found that both the text of paragraph 5.1(a), and the underlying purpose of the Industrial Design Act confirmed that “functional features of designs may be protected under the Act. Only those features whose forms are dictated solely by function are not protected.” 

Supreme Court of Canada addresses important issues in Canadian Copyright Law

Justine Whitehead and Gina Demczuk -

On December 23, 2013, a unanimous Supreme Court of Canada issued its decision in Cinar Corporation v Robinson. The decision provides clarification on a number of important issues in Canadian copyright law, including (but not limited to): (i) the appropriate test for determining if a substantial part of a copyrighted work has been reproduced; (ii) when expert evidence in respect of substantial taking should be adduced in copyright infringement cases; and (iii) several issues in respect of the calculation of damages and accounting of profits.

The Supreme Court decision is the last word in a case that has its genesis in actions undertaken decades ago. Claude Robinson began developing an idea for a children’s television show, The Adventures of Robinson Curiosity (Curiosity), in the early 1980’s. He spent more than a decade after that trying to get the project developed. During this time, Robinson shared his work (which included detailed sketches, storyboards, scripts and synopses), with several of the individual and corporate defendants (including Cinar Corporation).

In 1995, Robinson watched the first episode of a new children’s television show called Robinson Sucroë (Sucroë). He was stunned to see that the program was (in his view) “a blatant copy” of Curiosity.  He then found out that several parties to whom he had given access to his Curiosity project materials were involved in the production of Sucroë, and Robinson and his production company (Les Productions Nilem Inc.) commenced an action for copyright infringement.

Robinson was largely successful at trial: the trial judge concluded that the creators of Sucroë had infringed Robinson’s copyright and awarded damages and costs on a solicitor-client basis.  The decision on infringement was upheld by the Court of Appeal, but some changes were made to the damages awards. The Supreme Court of Canada also upheld the copyright infringement claim, but made some changes to the damages awards. A summary of some of the key parts of the Supreme Court’s decision in respect of the further appeals from the Quebec Court of Appeal is set out below.

The Test for Copyright Infringement

Copyright infringement occurs when a copyrighted work, or any substantial part of a copyrighted work, has been reproduced without the consent of the owner of the copyright. In considering what constitutes a “substantial part” of a work, the Supreme Court noted that it is a “flexible notion”, which is “a matter of fact and degree”.  In fact, the Copyright Act protects authors against both literal and non-literal copying, so long as the copied material forms a substantial part of the infringed work. However, the Supreme Court again cautioned about the need to strike an appropriate balance between giving appropriate protection to the skill and judgement of authors in their expression of ideas, and leaving ideas and elements in the public domain free to all to draw upon.

The trial judge had found that the Cinar appellants copied a number of features from Curiosity, including the character’s visual appearance, personality traits of the main character and other characters in the series, visual aspects of the setting, and recurring scenographic elements. He concluded that, considered as a whole, these features constituted a substantial part of Robinson’s work.

The Supreme Court noted that the trial judge’s conclusion on that point was entitled to appellate deference, since the issue of substantiality is one of mixed fact and law.  Following its decision in Housen v. Nikolaisen (Housen), the Supreme Court confirmed that an appellate court should defer to the trial judge’s findings on substantiality, unless those findings are based on an error of law or palpable and overriding errors of fact. The Supreme Court held that the trial judge committed no reviewable errors in finding that Sucroë reproduced a substantial part of Curiosity

The Cinar appellants had argued that the trial judge erred in not applying a three step approach requiring him to (i) determine what elements of Curiosity  were original, within the meaning of the Copyright Act; (ii) exclude non-protectable features of Robinson’s work, such as elements drawn from the public domain, and generic elements common place in children’s television; and (iii) compare what remains of Curiosity  after this “weeding-out” process to Sucroë, and determine whether a substantial part of Curiosity was reproduced.

While not ruling out the possibility that this approach might be useful in determining if other types of works, such as computer programs, have been copied, the Supreme Court noted that many types of works do not lend themselves to that type of reductive analysis. Rather, a qualitative and holistic approach must be adopted to assess substantiality, and a piecemeal approach should be avoided. To determine whether a substantial part of Robinson’s work was copied, the copied features must be considered cumulatively, to determine whether they amount to a substantial part of Robinson’s skill and judgement expressed in his work as a whole. In short, the substantiality analysis should focus on whether the copied features constitute a substantial part of the plaintiff’s work,and not whether they amount to a substantial part of the defendant’s work. “The alteration of copied features or their integration into a work that is notably different from the plaintiff’s work does not necessarily preclude a claim that a substantial part of a work has been copied”, because the Copyright Act states that infringement includes “any colourable imitation” of a work. That said, if differences are so great that the work viewed as a whole is not an imitation, but rather a new and original work, then there is no infringement.  Adopting the words of the Court of Appeal, the Supreme Court noted that “[e]verything is therefore a matter of nuance, degree and context”.

Use of experts in a copyright case:

The Supreme Court affirmed that the test for admissibility of expert evidence from R. v. Mohan applies equally to trials for copyright infringement (and other intellectual property cases). To be admitted, the evidence must be (a) relevant; (b) necessary; (c) not offend any exclusionary rule; and (d) involve a properly qualified expert.

At trial, Robinson introduced the evidence of a professor of semiology (the study of signs and symbols and how they create meaning). The expert opined that there were latent similarities in how the two works used atmosphere, dynamics, motifs, symbols and structure to convey meaning. The trial judge relied on this evidence in finding copyright infringement.

The Cinar appellants had argued that the expert evidence did not meet the necessity criterion because the question of whether a substantial part has been copied must be assessed from the perspective of the lay person in the intended audience for the works at issue.

In holding that the expert evidence was admissible, the Supreme Court noted that it was sometimes necessary to go beyond a rigid application of the lay person standard.  Here, the works at issue were intended for a young audience. A rigid application of the standard would shift the question to whether the copied features were apparent to a five-year-old. Second, the works at issue – an unrealized submission compared to a finished product – were not easily compared without an expert’s help.  Lastly, the works had both patent and latent similarities. Expert evidence was necessary to help distill and compare the “intelligible” aspects that affect a viewer’s experience indirectly, such as atmosphere, dynamics, motifs, and structure.  As a result, the Supreme Court held that the trial judge did not err in admitting the expert evidence.

Personal Liability of Directors for Copyright Infringement

The Supreme Court affirmed prior jurisprudence of the Federal Court of Appeal that held that for a director and/or an officer of a corporation to be held personally liable for his or her company’s infringement of a copyright, “there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it.”  An officer cannot be held personally liable merely on the basis of his hierarchical status as officer of a corporation.

Disgorgement of Profits

Under section 35 of the Copyright Act, a defendant can be ordered to disgorge its profit to the extent that such profit is caused by the infringement.  Disgorgement of profits is designed mainly to prevent unjust enrichment, although it can also serve the goal of deterrence. The necessity of a causal link between infringement and profit may require that profit be apportioned between that which is attributable to the infringement and that which is not.  In some cases, however, the two works may be so interwoven that separation is impossible. The Supreme Court affirmed that the apportionment of profits between infringing and non-infringing components of a work is a factual determination subject to judicial discretion. Under Housen, an appellate court may only disturb a trial judge’s findings on apportionment if there are errors of law or palpable and overriding errors of fact.

The Supreme Court found that the Court of Appeal erred in interfering with the trial judge’s conclusion that the profits from the soundtrack could not be dissociated from the profits derived from the infringing material.  There was no evidence that the soundtrack could have been commercialized as a separate product if Curiosity had not been infringed.  As a result, the Supreme Court upheld the trial judge’s conclusion that it was inappropriate to apportion profits to the soundtrack as a non-infringing component of the work.

In contrast, the Supreme Court overturned the trial judge’s finding that profits be disgorged on a solidary basis, holding that a defendant can only be made to disgorge profits that it made, as opposed to the profits of other defendants with whom it participated in an infringement.

Non-Pecuniary Damages and the Application of the Andrews Cap

Prior Supreme Court case law in the context of bodily injury set a cap on the non-pecuniary losses that can be recovered following bodily injury.  Non-pecuniary loss is a broad category that covers elements such as loss of enjoyment of life, physical and psychological pain and suffering, and inconvenience. The Cinar appellants had argued that this cap on non-pecuniary damages should be extended and imposed on all non-pecuniary damages, regardless of whether they stem from bodily injury.  

Holding that the policy concerns specific to bodily injury cases (the socially burdensome inflation of amounts awarded as non-pecuniary damages) was not made out in the context of copyright infringement cases, the Supreme Court declined to apply a cap on the non-pecuniary damages awarded to Robinson. Moreover, the Supreme Court confirmed that damage to physical health arising as a consequence of copyright infringement is not sufficient to allow characterization of the loss as one arising from bodily injury.

Punitive Damages:

In Quebec, punitive damages can only be awarded where they are provided for by statute. In this case, the evidence established unlawful and intentional interference with several of Robinson’s Charterrights, and therefore the Supreme Court agreed with the Court of Appeal that punitive damages were justified.  However, since there was no statutory basis to justify the award of punitive damages on a solidary basis, they must be individually tailored to each defendant against whom they are ordered.

In assessing the quantum of punitive damages awarded, the Supreme Court held that the gravity of the conduct was an important factor. The award must strike an appropriate balance between the overarching principle of restraint that governs punitive damages and the need to deter conduct of this gravity. As a result, the Supreme Court overturned the Court of Appeal’s reduction in damages and increased the award to $500,000, which was still $500,000 less than the trial judge’s original award of punitive damages.

Cost Awards

The Supreme Court noted that there were serious points of law to be argued in the appeals, and therefore declined to award solicitor-client costs for the appeals before the Quebec Court of Appeal and the Supreme Court. However, the Supreme Court allowed the trial judge’s award of $1,500,000 in solicitor-client costs for the proceedings at the trial level to stand.

Most of Copyright Modernization Act provisions now in force

Alexandra Stockwell -

As we noted in our post on July 3, the Copyright Modernization Act  had received royal assent, but would not come into force until an Order-in-Council was issued. This has now happened: on November 7, 2012, most of the new provisions of, and amendments to, the Canadian Copyright Act came into force as a result of the publication in the Canada Gazette of Order SI/2012-85. The Order also specified that certain provisions, which relate to the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty, will come into force when those treaties are ratified by Canada.

A notable exclusion from the Order is the “Notice-and-Notice” regime (the future sections 41.25, 41.26 and 41.27(3) of the Copyright Act), which will only come into force after a consultation process and the establishment of regulations that will be needed to implement the regime. The Canadian “Notice-and-Notice” regime, which differs from the “Notice-and-Take-Down” rules in the United States, will oblige Internet Service Providers (ISPs), after being notified of infringement allegations by a rights holder, to notify the relevant subscriber of the allegations received.  ISPs will also be required to retain records that would enable the identification of the subscriber allegedly engaged in the infringing activity for a period of six months (or one year, if infringement proceedings are commenced in respect of the claimed infringement within six months of the initial notice from the rights holder). Once the regulations are ready, the date when the “Notice-and-Notice” provisions come into force will be published in a separate Order-in-Council.

The new provisions that are now in force include the following:
 

  • Protection of Digital Rights Management (DRM). Also known as “technical protection measures” or, more commonly as “digital locks”, DRM is built into digital music, DVDs, and other media and technology products to ensure that they are not subject to unauthorized copying. The amendments include anti-circumvention provisions that prohibit the removal or tampering with DRM. The new provisions also prevent the removal of, or tampering with, Rights Management Information, which is used to identify the rights holders of an original work or to outline restrictions on use of the copyrighted work.
     
  • Reproduction for private purposes. Provisions have been added to the Copyright Act to allow individual Canadians to make copies of music and other copyrighted material if the original copy is not an infringing copy, the individual legally obtained the original copy other than by borrowing it or renting it, and the individual owns or is authorized to use the medium or device onto which the copy is reproduced (such as a computer, iPod or MP3 player) and as long as a digital lock is not picked in making the copy. The reproduction may only be used for private purposes and cannot be given away, sold or rented without first destroying all reproductions of the original copy. In addition, these provisions do not apply if the reproduction is made onto a medium that is governed by the private copying provisions currently found at Part VIII of the Copyright Act, such as CD-Rs.
     
  • Education exemptions. Provisions have been added to the Copyright Act to make it legal for students at schools and higher learning institutions to download copyrighted information for the purpose of study and research. The provisions permit schools to transmit materials used in classrooms to students located off-campus to facilitate learning, as long as the material is restricted to students.  In addition, teachers and students are allowed to use copyrighted material in lessons conducted over the Internet. This applies both to teachers and students in a physical classroom and those who may be viewing recordings of the lessons over the Internet at a later time. Teachers can also digitally deliver course content to students, subject to fair compensation to copyright owners. 
     
  • Time-shifting provisions have been added which finally legitimize the decades long practice of viewers making one recording of communication signals or programs for private purposes. The time-shifting recording must be obtained from a legal source and used only for private purposes. As well, technical protection measures could not be circumvented to make the recording, and the recording cannot be kept “longer than is reasonably necessary in order to listen to or view the program at a more convenient time”.
     
  • Statutory damages for non-commercial infringement have been lowered from the previous maximum of $20,000.00 for infringement of each protected work, to a new maximum of $5,000.00 in respect of all infringements involved in the proceedings for all works or other subject-matter.  Moreover, if a plaintiff elects statutory damages for non-commercial infringements, it will be barred from collecting statutory damages from that defendant for any other non-commercial infringements occurring before the proceeding began, and no other copyright owner may elect statutory damages against that defendant for non-commercial infringements that were done before the initiation of the proceedings in which statutory damages were elected.
     
  • Expanded fair dealing exceptions. Fair dealing, which permits use of a copyrighted work without permission of the copyright owner, has been expanded to include uses for the purposes of education, parody or satire in addition to prior fair use exemptions such as use for research or private study.  While procedurally, a defendant is required to prove that his or her dealing with a work has been fair, the Supreme Court of Canada has noted (most recently in Alberta (Minister of Education) v. Canadian Copyright Licensing Agency, which we wrote about here) that a fair dealing exception is a user’s right, and should not be interpreted restrictively.   
     
  • A new non-commercial “mash-up” exemption, exempting from copyright infringement the use of pre-existing works to create new non-commercial works, defined as “user-generated content”. This exemption is only available if the use of the copyrighted work is done solely for non-commercial purposes and does not have a substantial adverse effect (financial or otherwise) on the exploitation of the existing work (including that the new work isn’t a substitute for the existing one), and provided that the individual making the new work reasonably believes that the source material is not itself infringing copyright and that there is a mention (if it is reasonable in the circumstances) of the sources of the works incorporated in the new work.
  • Also effective November 7, 2012, engravers, photographers and portraitists will be the default owners of copyright in the engravings, photographs and portraits they create on commission, unless there is an agreement to the contrary.  This is the result of the repeal of section 13(2) of the Copyright Act, which provided that a person who commissions an engraving, photograph or portrait is the first owner of copyright of those types of works. 

Free delivery! Supreme Court rules no copyright royalties for internet transmission of downloads

David Elder -

In a major, but slim, victory for proponents of electronic commerce, a majority of the Supreme Court of Canada has ruled that online sellers of music and video game downloads are not required to pay more copyright royalties than their “bricks and mortar” counterparts, solely because the products from the virtual stores are delivered via the internet.

In addition, although not considered by the Court, these rulings would also suggest that another copyright tariff, for the delivery of ringtones to mobile phones, may be invalid.

In two decisions that form part of the unprecedented “copyright pentalogy” of copyright tariff appeals heard by the top court last year, the Supreme Court considered whether a download of a recording of a musical work, either on its own or when incorporated into a video game, constituted a “communication to the public by telecommunication,” such that a download could attract a distinct copyright royalty, in addition to the royalty payable to the copyright holder for the reproduction of the work on the buyer’s computer or device. 

In overturning decisions of the Federal Court of Appeal, which had upheld decisions of the Copyright Board, a five Justice majority found that using the internet to transmit to a buyer a permanent reproduction of a work did not amount to a “communication” under the statute.

Among other rights, the Copyright Act grants rights holders both the sole right to reproduce and authorize the reproduction of their works, as well as the right to communicate their works to the public by telecommunication and to authorize such communication. Under these provisions, the Copyright Board of Canada had approved tariffs requiring royalty payments to the Society of Authors, Composers and Music Publishers of Canada (SOCAN) for the communication of downloads of recordings of musical works and for the communication of downloads of recordings of musical works incorporated into video games; as well as a separate tariff, payable to different copyright collective societies, for the reproduction of musical works in permanent downloads, limited downloads and on-demand streams of music transmitted over the internet. Royalties for the reproduction of musical works incorporated into games are individually negotiated with rights holders.

In the view of objectors to the SOCAN tariff at issue, the tariff amounted to “double dipping” in that both a communication royalty and a reproduction royalty arose from the same act or transaction (the downloading of a work), whereas only the reproduction royalty was payable with respect to a tangible copy of the work (such a CD or game cartridge) in a retail store.

In Entertainment Software Association v. SOCAN, which considered the application of the “communication by telecommunication” right to downloads of video games incorporating musical works, the majority of the court found that the Act must be interpreted in light of the principle of technological neutrality, avoiding the imposition of additional layers of protections and fees based solely on the method of delivery of the work to the end user. In this regard, the majority found that the internet was simply an alternative form of delivery. The majority also found that the legislative history of the Act demonstrated that the right to “communicate” was connected to the right to perform a work, not to the right to reproduce permanent copies of the work, and that the performance right did not contemplate the delivery of permanent copies of the work.

That's a wrap: BC Supreme Court enforces website terms of use and validates "browse wrap" agreements in Century 21 v Zoocasa

Amy Hu and Michael D. Smith -

In Century 21 Canada Limited Partnership v Rogers Communications Inc., the BC Supreme Court upheld the validity of the so-called “browse wrap” agreements and awarded damages against Zoocasa and its parent Rogers for Zoocasa’s breach of the Century 21 website terms of use when it pulled listings from the Century 21 website for use on its own real estate listing search engine. The BC court confirmed that industry standard browse wrap agreements (i.e. a website’s posted terms of service) can form valid contracts without being brought to the attention of users or requiring any review/acknowledgement by the user before accessing the website.

The conflict between the parties arose in 2008 when Zoocasa, a search engine and aggregator of real estate listings, began “scraping” images, descriptions, and property details from the Century 21 website and reproducing them on its own site. Century 21 claimed that Zoocasa’s scraping was in breach of the terms of use of its website (the Terms of Use), and made additional claims that Zoocasa had both trespassed and violated Century 21’s copyright over the images and descriptions.

The court found Zoocasa liable for copyright infringement and for breach of contract, and dismissed Zoocasa’s claim that the Terms of Use lacks proper acceptance or consideration, ingredients which make a contract valid. Unlike its shrink wrap and click wrap predecessors, browse wrap agreements such as the Terms of Use lack the “click-through” license (e.g. in click wrap agreements, user acceptance is indicated by clicking on the “yes” or “accept” bottom) or active step taken by the user (e.g. in shrink wrap agreements, users signal their acceptance of software licensing terms by removing the plastic wrap from a software package) which signal the user’s acceptance of the terms of use. Zoocasa argued that there is no proper acceptance for browse wrap agreements and claimed that the terms of use on a website were like a billboard, where the user has no opportunity to accept or reject the terms. The court rejected this analogy, finding that “[t]here is nothing the observer of a billboard does that is capable of indicating consent. The observer merely views the billboard. A user of a website can respond by accessing deeper layers (pages) of the website.”

The court in Century 21 v Zoocasa found there to be proper acceptance in browse wrap agreements where there is continued access of a website by a user with notice of the terms of use, thereby indicating its acceptance of those terms. Century 21 also gave consideration by providing access to the information on its web site. The court specifically noted that Zoocasa is a sophisticated commercial entity who has not only been given notice of the Terms of Use, but who had also relied on similar terms of use on its own website with the knowledge that such terms were the industry standard. Zoocasa’s scraping of the Century 21 website after notice of these terms of use was found to be a breach of its contract with Century 21.

Century 21 was awarded a permanent injunction against Zoocasa preventing further breaches of the Terms of Use, damages of $1,000 for breach of contract, and $32,000 for copyright infringement ($250 per infringement for 128 infringements). While the decision marks an important step in the evolution of browse wrap agreements, the facts of this case were somewhat unique: Zoocasa was a sophisticated internet business which was aware of the terms of use, and the court recognized that those terms were reasonable. Whether the courts will be as willing to find the existence of a contract between a less sophisticated individual, or perhaps in a situation of more egregious terms of use, remains to be seen.

Federal Court refuses to award summary judgment for alleged infringement of copyright in builder's plans and design

The Federal Courts Rules provide a summary judgment procedure that allows a party to prevent claims or defences that have no chance of success from proceeding to trial. Although the summary judgment procedures were amended a year ago, a recent decision of the Federal Court demonstrates that summary judgment is still only granted in the most appropriate cases.

In Concept Developments Ltd. v. Webb, the plaintiff (Concept), a designer and builder of homes, brought a motion for summary judgment against the defendants, Mr. and Mrs. Webb, alleging infringement of its registered copyright in the plans and design of one of its model homes. The Webbs had apparently viewed Concept’s model home, but disliked Concept’s quoted price to build the house, so they subsequently took their business to another home building company (High Grade). According to the facts (which had not been fully established), the Webbs showed Concept’s model home design to High Grade and requested something similar for their house, albeit with some modifications. The Webbs then drew up what they wanted, gave that drawing to High Grade, and the house was subsequently built as desired. Concept claimed $124,000 for its direct loss from not building the home, as well as $40,000 for intangible loss. 

The legal issue on Concept’s motion for summary judgment was whether the Webbs’ case was so flawed that it did not deserve consideration by a Court. After evaluating and applying the applicable principles as set out in Society of Composers, Authors and Music Publishers of Canada v. Maple Leaf Sports & Entertainment, 2010 FC 731, the Court denied Concept’s motion.

The threshold question of actual infringement and that of how substantial the Webbs’ changes to Concept’s model design were could not be determined on the evidence. There were also serious issues of credibility involving the Webbs’ explanation of how things transpired, the role of High Grade, and whether any assurances of non-infringement were given by High Grade. In addition, the measure of damages could not be established on the evidence before the Court. As a result, the Court concluded that these were issues that were better left to a trial judge to weigh in the context of all the evidence.

This decision should serve as a reminder to counsel that summary judgment will still only be granted in the clearest of cases. As the court quoted: “It is essential to justice that claims disclosing real issues that may be successful proceed to trial.”

Court questions expert's credibility in patent infringement finding

Weatherford Canada Ltd. et al. v. Corlac Inc. et al., 2010 FC 602

Justice Phelan of the Federal Court of Canada released a 119-page judgment in respect of Canadian Patent No. 2,095,937 (the “’937 Patent”) relating to a seal assembly combination designed to fix the problem of leaking stuffing boxes on rotary progressive cavity pumps – a problem that has troubled all the heavy oil producers since the early 1980’s.

The plaintiffs alleged that the defendants had been directly infringing the ‘937 Patent since at least 1999 as a result of manufacturing and selling drive systems for rotary oil well pumps that included the patented assembly for restraining oil leakage.  They also alleged the Defendants had induced and procured others including their customers to infringe the '937 Patent.

The defendants basic defence was that the named inventor of the ‘937 Patent was not the true inventor, and that the plaintiffs therefore had no valid rights under the ‘937 Patent.  The defendants further denied infringement and attacked validity of the ‘937 Patent.  In addition, the defendants argued that they were the true owners of the ‘937 Patent by assignment/licence and that it was the plaintiffs who had in fact infringed their patent rights.

The plaintiffs were largely successful on the issues and judgment was granted accordingly.  As to infringement, Justice Phelan found that the absence of direct evidence from one or more employees of the defendants was startling. There was no corporate evidence as to the development of the defendants’ devices, the knowledge of competing devices, efforts to create a differentiated product or anything else to suggest that there was no intended infringement.  In fact, a former head engineer of one of the plaintiffs, which designed rotating stuffing boxes, left his employment (shortly before the owner of the ‘937 Patent licensed his employer) to join one of the defendant companies, which subsequently began the manufacture and sale of infringing product.  The timing of the change of jobs, the nature of the competitive market for this product then and later and the timing and similarity of the defendants’ products called out for an explanation. Absent an explanation and given the plaintiffs’ evidence of infringement, the Court drew an adverse inference and came to the conclusion that the defendant intentionally set out to create a product which they knew or ought to have known would infringe the '937 Patent.

It is interesting to note that much of the outcome of this case turned on the fact that the evidence from the plaintiffs’ experts was overwhelmingly preferred to that offered by the defendants’ experts.  In fact, the defendant’s key expert was found to lack credibility.  Dicta from Justice Phelan provides a useful lesson on how experts are expected to conduct themselves in Court:

“[52] Muller’s testimony did not stand up under cross-examination and he was shown to be evasive, aggressive, arrogant and unhelpful. Mr. Muller’s evidence was significantly undermined by his failure to directly answer questions which admitted of only a direct answer, and by his disrespect and arrogance towards opposing counsel and his longwinded diatribes in giving unresponsive answers.

[53] The Court must conclude that his evidence was of little specific assistance and particularly where it conflicted with that of the Plaintiffs and in particular Dr. Salant, the Court accepts the Plaintiffs’ evidence. While no doubt sincere in trying to assist his client, Mr. Muller was apparently unaware of the obligations that an expert owes to the Court and the assistance which an expert is to render in aiding the Court’s understanding.”

Three things you (and your attorney) should know about DMCA notifications

The Digital Millennium Copyright Act (DMCA) is an American statute that provides for the automatic takedown of counterfeiting materials posted on the Internet simply by sending a notification (a “DMCA Notification”) from the copyright holder to the website hosting the counterfeiting materials. While drafting and sending a DMCA Notification is easy as shooting fish in a barrel, this articles presents three important tips to avoid problems later in the DMCA-driven process.

  1. Don’t overreach: Avoid liability and “bad press” by making a serious effort to determine if the materials really are infringing… And that implies that you consider the possibility that the materials qualify under “fair use” before sending the DMCA Notification;
     
  2. Properly save a copy of the infringing materials prior to sending the DMCA Notification;
     
  3. Consider search engine optimization: Limit the impact of future infringements by creating legitimate content and making sure that your content is optimized in search engines.

Consider the following scenario:

Yesterday, your Legal VP’s teenage son advised him that he watched on YouTube several video taken at your company’s corporate retreat. Since these videos are copyrighted (like most works created in Canada, whether published or not, regardless of any registration formality), your Legal VP advises that you should send an infringement notification to YouTube pursuant to the DMCA. What should you know before sending such a notification?

DMCA Primer

Pursuant to the DMCA, Internet Service Providers (“ISP”) are granted a “safe harbour”, protecting them against liability for copyright infringing material that is uploaded by their users, and therefore transmitted or hosted by the ISP.

To be within the boundaries of this “safe harbour”, however, the ISP must act expeditiously to remove or disable access to the infringing material upon obtaining knowledge that the material is infringing. Practically speaking, the procedure for having infringing materials removed from a website is the following:

  1. The copyright holder notifies the ISP that it hosts (or transmits, etc.) infringing material (a “DMCA Notification”);
     
  2. The ISP automatically takes down the allegedly infringing material;
     
  3. The user-infringer may respond to the DMCA notification (by submitting a “Counter Notification”) if he has good faith belief, that the content he uploaded is not infringing;
     
  4. If no further action is undertaken by the copyright owner, the ISP must cease disabling access to the materials. However, the ISP must indefinitely disable access to the allegedly infringing material if the DMCA complainant institutes “an action seeking a court order to restrain the subscriber from engaging in infringing activity relating to the material on the service provider’s system or network.”

Drafting and sending a DMCA Notification is extremely easy. Most ISPs even provide their users with a webform (or at least a detailed walk-through) on how to submit a DMCA complaint. 

Because of this “user friendly” and automatic takedown procedure, the DMCA is a great tool for intellectual property owners. However, and although in some cases the volume of counterfeiting material posted online appears simply too large to allow for the compliance with “DMCA best practices”,1 copyright owners should be careful when using the DMCA, since they may end up creating a much bigger problem for themselves than that which is caused by the posting of the potentially infringing material online.

As simple as it is to draft a DMCA notice, you and your attorney must know that things can get considerably trickier as the DMCA-driven process evolves. Certain choices you made in a hurry when you enthusiastically sent the internally drafted DMCA notice to the ISP may come back to haunt you later in the process.

With that in mind, there are thus three things that we have learned from experience that you, or your attorney, should know when submitting a DMCA Notification.

1. Play Fair: Don’t Overreach

Generally, copyright owners will have to deal, at the same time, with numerous infringing files uploaded by the same user: Rarely is there one single file uploaded by one single user on one single ISP.

Given how simple and efficient it is to draft a DMCA Notification, it is tempting to draft a “blanket” notice in order to save on legal costs associated with reviewing every infringing item, thinking that you can just get these files offline immediately, and deal more seriously with their actual legality later in the process. However, a bad call on whether a file should be included in a DMCA Notification could:

  1. Engage the complainant’s liability;
     
  2. Make the complainant look awfully bad.

Complainant’s Liability for Misrepresentations

The DMCA provides that any person who knowingly materially misrepresents (1) that material or activity is infringing, or (2) that material or activity was removed or disabled by mistake or misidentification, shall be liable for any damages, including costs and attorneys’ fees, incurred by:

  • the alleged infringer;
     
  • any copyright owner or copyright owner’s authorized licensee; or
     
  • by an ISP, who is injured by such misrepresentation.

Avoiding “misrepresentations” is not just about making sure that a substantial part of your copyrighted work has been reproduced in the infringing materials. Indeed, complainants should know that the fair use defence is to be considered as well. The “Fair Use Doctrine” permits the use of copyrighted materials for certain restricted purposes, such as education, criticism, but also parody.  At least in the United States where the fair use doctrine has traditionally been more expanded that its Canadian counterpart, the equitable use. (Yet, this might have changed in Canada.)

In light of a relatively recent judgment of Mr. Justice Jeremy Fogel in Lenz v. Universal Music Corp, it is now clear that DMCA complainants could be liable for the damages they cause by failing to consider fair use before submitting a DMCA Notification.

Making the Complainant Look Bad

On this point, copyright owners must understand that the DMCA is a controversial statute2 and that lots of parties, including stars of the academic blogosphere,3 watch its application closely. In the same vein, copyright owners that submit DMCA Notifications to Google are now advised that Google may send a copy of their DMCA Notification to Chilling Effects Clearinghouse:[4]

Based on this, we can only conclude that, in some cases, it will not be worth sending a DMCA Notification to an ISP like YouTube for a video that was seen by only 24 persons (including the DMCA complainant’s staff and its attorney), only to attract criticism about the complainant’s DMCA practices on blogs read by thousands.

2. Save the Trail

As simple as it seems, copyright owners need to realize that, once a DMCA Notification is submitted to an ISP, the material will disappear from the Internet and may be difficult to recuperate later in the process, therefore creating avoidable evidentiary challenges in the event that court proceedings are undertaken pursuant to the fourth step of the DMCA takedown process (see above). ISPs are generally big companies that are more interested in making money or fighting Chinese hackers than responding to your subpoenas: DMCA complainants will learn, at their expense, that they don’t have much control over the time that an ISP will take to respond to a subpoena.

As a result, we recommend that complainants properly save the infringing materials before sending the DMCA Notification. For example, if the infringing material consists of pictures illegally posted on a blog, they should take screenshots of each of the infringing pictures as they appear on the blog. If the infringing material consists of videos posted on a site like YouTube, they should consider asking IT professionals to help them save the information properly in the event that they need to take legal action. Here is a quick tip on that regard, the website Zamzar allows you to save YouTube videos (and other streamed media) on a local drive.

3.Consider Coupling Your Legal Proceedings With Search Engine Optimization Techniques

Sometimes, legal proceedings could be most effective when used in conjunction with search engine optimization techniques. The best example of this is when a web user posts infringing content that is of relatively little interest to the public, for personal revenge or just to make a mockery of one’s business. 

If this business does not have enough legitimate web content under its control, the infringer’s illegal content may come up surprisingly high in search engine search results when searching just for the name of the business or (maybe worse) for the name of the members of its management team. In such a case, the copyright owner will be much more successful if, in addition to its DMCA Notification, he uses search engine optimization techniques, and floods the web with authorized content in order to make it less likely that its clients stumble upon the materials with just an innocent Internet search about the company’s CEO.

How Can We Help?

All of this is good, but why would Canadian copyright owners need the assistance of Canadian lawyers with the application of the DMCA, an American statute? 

Remember that, in the event that the infringer responds to a DMCA Notification, the ISP has to cease disabling access to the material, unless a court proceeding is instituted by the DMCA complainant. Canadian copyright owners may feel more at ease taking legal action in Canada instead of in the United States after receiving a Counter Notification from the web user. 

In fact, even if the legal proceeding is instituted in the United States, it is possible that Canadian law applies to the issue of the ownership of the copyrighted work (in a case involving a Canadian corporation that took legal action in California against an infringer after receiving a Counter Notification, the Court decided that “because the parties reside in Canada and the original works were made in Canada, the court applies that country's copyright laws to determine initial ownership.”)

To sum up copyright owners should not hesitate to enforce their rights, but we suggest they respect these tips to avoid creating for them more trouble for their business by, inter alia, (i) complicating the process (ii) making them liable for damages or (iii) creating a public relation problem.

Remember, any “copying” is not necessarily infringement and some business (but not all, of course), could find more value in letting some of their content go viral than opposing any and all reuse of their works, regardless of possible fair use defences. In any case, call us if you need help.



1 For some copyright owners, fighting infringement in social media websites must feel like being Staff Sergeant William James: http://www.abajournal.com/magazine/article/copyright_in_the_age_of_youtube/

2 Its detractors argue that the balance of the DMCA favours copyright owners by making it too easy to retrieve potentially legal media from the web by send overreaching DMCA Notifications. Other parts of the DMCA are also contested, like its anti-circumvention provisions.

3 http://www.michaelgeist.ca/, http://wendy.seltzer.org/blog/dmca-nfl

4 A joint project of the Electronic Frontier Foundation and Harvard, Stanford, Berkeley, University of San Francisco, University of Maine, George Washington School of Law, and Santa Clara University School of Law clinics that aims to help web users understand the protections that the First Amendment and intellectual property laws give to your online activities.”