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The Cassels Brock Report - April 2012

Published: 04/26/2012

By Casey Chisick, Catherine M. Dennis Brooks, Bernice Karn, Stephen I. Selznick

In This Issue

A Short Story About a Red Bus on a Monochrome Background

A recent decision of the English Patents Court involved a claim for copyright infringement relating to photographs used by the parties on the packaging of their respective products.

The Parties

The plaintiff sells souvenirs of London. A number of products sold by the plaintiff bear its photograph including mugs, stationery, key fobs and the like. The image has become famous in the souvenir industry. In addition, a number of other organizations have been licensed to use the image by the plaintiff including Historic Royal Palaces, the organization which operates the Tower of London, and the National Gallery. Click here to view the copy of the plaintiff’s photograph.

The defendants produce and sell tea to a wide variety of customers throughout the world. The defendants’ best selling teas come in tins and cartons bearing images of English landscapes, icons of England and images of London.

The defendants’ tea tins and boxes were frequently sold side by side with souvenirs bearing the plaintiff’s photograph.

The Plaintiff’s Photograph

The plaintiff’s managing director created the image by taking a photograph in August 2005. He wanted to create a single, modern and iconic scene of London. He had taken previous photographs of the river and the Houses of Parliament and knew where to stand. In fact, the place where he stood is used by many tourists as a vantage point to take photographs.

The image was manipulated using the standard computer software of Photoshop. The red colour of the bus was strengthened, the sky was removed completely by (electronically) cutting around the skyline of the buildings, the rest of the image was turned to monochrome save for the bus, the individuals present in the foreground were removed and the whole image was stretched to change the perspective so that the verticals in the buildings were truly vertical. The idea of making the red bus stand out against a black and white background came from the film Schindler's List. The film includes striking use of the technique in a different context.

The Defendants’ Photograph

The defendants wished to produce an image using iconic London landmarks with the same general format as that used by the plaintiff; greyscale Houses of Parliament and a red bus on the bridge. They believed that the plaintiff’s copyright did not prevent them from doing this.

An employee of the defendants took four photographs of different aspects of the Houses of Parliament and a red Routemaster bus while it was stationary on the Strand. These photographs and their elements were combined and manipulated as well as a stock image of a Routemaster bus that was resized to fit the defendants’ image. Click here to view the defendants’ photograph.

The Copyright Claim

When the plaintiff became aware of the defendants’ activities, it brought an action in which it claimed breach of its copyright in its photograph. Copyright is infringed by reproducing the whole or a substantial part of a work in a material form without the copyright owner’s consent.

Under the English legislation, copyright subsists in a photograph if it is the author’s intellectual creation resulting from the expression of skill and labour. However, the mechanical process of taking a photograph by merely pressing a button involves no skill at all. A photograph of an object found in nature can be protected by copyright if sufficient skill and labour is directed to the arrangement of the photograph including motif, visual angle, elimination, etc.

The judge said that skill and labour can arise in the following aspects of a photograph:

the angle of shot, light and shade, exposure and effects achieved with filters, developing techniques and so on;
the creation of the scene to be photographed; and
being in the right place at the right time.

The trial judge found that the plaintiff’s image was the photographer’s own intellectual creation both in terms of choices relating to the basic photograph itself; precise motif, angle shot, light and shade, illumination and exposure as well as the subsequent manipulation of the image to satisfy his own visual aesthetic sense.

In determining what is a substantial part of a work, the courts consider the quality of what is taken, not quantity.

The trial judge found that the common elements of the respective works were casually related, or in other words, had been copied. The evidential onus was on the defendants to show they had not copied it given the obvious similarities between the respective works and the fact that the defendants had access to the plaintiff’s work. It was not a coincidence that both images showed Big Ben and the Houses of Parliament in black and white with a bright red bus driving from right to left and a blank white sky.

The trial judge then found that the defendants’ photograph reproduced a substantial part of the plaintiff’s work. The elements that had been reproduced were a substantial part of plaintiff’s work because, despite the absence of some important compositional elements, they included the key combination of the visual contrast features with the basic composition of the scene itself. This is the combination that made the plaintiff’s work visually interesting and not just a photograph of clichéd London icons.

Comment

While the case is close to the line, the application of principles and the conclusion seem to be correct. The test applied by Canadian courts to determine when copyright arises is somewhat different, “skill and judgement” as opposed to “skill and labour”, but the result if the case was tried in Canada would not likely be different.

Brand owners need to be aware of how copyright applies to product packaging.

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Coping with Social Media

The emergence of social media sites such as Facebook and Twitter has materially affected brand owners. These sites, and others like them, allow brand owners to interact directly with their customers or potential customers. As a result the use of social media by brand owners is rapidly increasing.

The most popular media sites are Facebook¹, Twitter² and Youtube. In addition to the opportunity to take part in activities on these sites, each of the respective operators of the sites offers to brand owners digital advertising services and related products to assist in reaching consumers³.

At the same time, there are potential concerns with social media. Concerns include, but are not limited to, the unauthorized use and adoption of user names that incorporate brand names and the impact of unauthorized or negative publicity.

User Names

Typically each user of a social media site will have an individual username assigned to them that consists of a URL. Brand owners should secure user names consisting of their brand name. Controlling such user names serves two purposes; first, the user name can be used to reach consumers, and second, it is a proactive step to avoid problems relating to the control of the user name by a third party⁴.

The legal status of a username is unclear. Like existing domain names, there are few controls relating to who may apply for what. The dispute resolution policies that apply to confusing domain names do not apply to user names. There may not be sufficient “trade-mark use” to support an action in the courts for infringement. However, most of the major social media website operators have trade-mark policies that allow brand owners to report an infringement of a trade-mark by a user that can be helpful.

Unauthorized or Negative Publicity

False or negative product reviews and the like come within this category. Although it is a daunting task, the key is to have monitoring procedures in place so a brand owner can respond promptly in an appropriate fashion⁵.

In addition, brand owners need to develop and implement guidelines for their own employees concerning what they can and cannot do in an online context. The guidelines should instruct employees and should be incorporated in an employee handbook or a stand-alone document. The guidelines must be seen as part of and consistent with the overall brand management strategy of the brand owner.

Summary

Brand owners need to be proactive concerning social media. Brand owners should secure user names, monitor activities on the Internet and develop appropriate responses.

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¹ See Comscore The Power of Like by Andrew Lipsman et al, (2011) posted at http://www.brandchannel.com/papers concerning leveraging presence on Facebook.

² See 360i Twitter& the Consumer Marketer Dynamic (2010) posted at http://www.brandchannel.com/papers concerning leveraging presence on Twitter.

³ Pivot Conference Report: The Rise of the Social Advertiser (2011) posted at http://www.brandchannel.com/papers.

⁴See FairWinds Partners, What Brands Need to Consider about Usernames (2011) posted at http://www.brandchannel.com/papers.

⁵ Conversocial, Who’s Ignoring Their Customers? (2011) posted at http://www.brandchannel.com/papers.

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Retail Business Services?

A recent decision considered whether a trade-mark owner was able to show it had used its registered mark in association with the operation of a retail business in response to a notice under section 45 of the Trade-marks Act.

Section 45 Proceedings

Section 45 provides that the registrar, at any time and at the written request made after three years from the date of the registration of a trade-mark by any person who pays the prescribed fee, must, unless the registrar sees good reason to the contrary, give notice to the registered owner of the trade-mark requiring the registered owner to furnish within three months an affidavit or statutory declaration showing with respect to each of the wares or services specified in the registration, whether the trade-mark was in use in Canada at any time during the three-year period immediately preceding the date of the notice and, if not, the date when it was last so in use and the reason for the absence of such use since such date.

The purpose of this section is to provide a summary procedure for trimming the register of "dead wood". Frequently proceedings under the section will be instituted by third parties who are prevented from obtaining a registration for a desired mark by a registration which is perceived not to be in use.

The registrar must not attempt to resolve any question other than whether the registration is in use. The procedure under the section is not intended to create or rescind substantive rights.

The requesting party cannot file evidence or conduct a cross examination on the affidavit or statutory declaration of the registered owner. The requesting party is limited to filing written argument and taking part in an oral hearing to argue that the registration should be expunged or amended.

The Facts

The registrant owned the trade-mark HOME ENTERTAINMENT SOURCE & Design as shown below:

for use in association with the "operation of retail businesses selling electronic products".

The hearing officer summarized the registrant’s evidence as showing that the registrant did not itself sell electronic products at the retail level. The registrant appeared to be in the business of sourcing, buying and re-selling large volumes of brand name products to retailers who are members of the registrant's "network". The registrant did not operate a retail business in a specific geographic location or on the Internet. The primary purpose of the registrant's main website was to inform independent retailers that it was a source of products at a good price for resale to the end consumer. A separate electronic products website encouraged consumers to buy from independent retailers who are affiliated with the registrant.

The hearing officer concluded that the "operation of retail businesses" required that the registrant actually provide retail store services. Such services can be provided through a physical "bricks and mortar" store, through mail order or through the Internet to retail purchasers.

With respect to the Internet, it had by recently found by the Federal Court on an appeal from a determination under section 45, that the operation of a website accessible to Canadians that provided information and pricing concerning specific products, was sufficient to show use in association with "retail store services".

When the registrant’s evidence was considered from this perspective the hearing officer concluded that the registrant had not shown it was providing "retail store services" to the public and the registration was expunged.

Comment

The decision emphasizes the importance of ensuring that the services or wares are accurately described when an application for a trade-mark is filed. In addition, in cases where the nature of the applicant’s/registrant’s business changes with time, a new application or extension application should be filed to ensure it trade-mark rights are adequately protected.

Finally, nothing prevents the registrant in this case from filing a new application for its mark for use in association with the wares or services it is actually offering, but the party originally requesting expungement may attempt to oppose the application and there will be a period of time when the applicant’s rights are not protected by a registration.

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24 du 24?

A recent decision of the Trade-marks Opposition Board dealt with the trade-mark “24 du 24” proposed to be used in association with alcoholic brewery beverages, signs, banners, posters and packaging for beverages, namely containers for bottles or cans of beer by Labatt Breweries of Canada (“Labatt”), which was opposed by Molson Canada 2005 (“Molson”).

The Opposition

Labatt applied to register the trade-mark “24 du 24” in association with the above-noted wares based on proposed use. Molson opposed the application on the grounds, among others, that

the trade-mark was not registrable in that it was clearly descriptive in that the wares were packaged in containers having 24 by 24 bottles or cans. If the wares were not so packaged then the trade-mark was deceptively misdescriptive;
Labatt was not the person entitled to registration of the trade-mark since at the date of filing of the application, it was confusing with the trade-mark THE OFFICIAL BEER OF MAY 2-4 that was the subject of an application previously filed by Molson; and
the trade-mark was not distinctive as it was not adapted to distinguish the wares in association with which it is proposed to be used by Labatt from the wares of others, including the wares of the Opponent. The Opponent, and other manufacturers of beer, advertise and sell beer in connection with descriptive terms which include the term "24" and sell beer in containers containing twenty-four bottles or cans.

Clearly Descriptive or Deceptively Misdescriptive

The hearing officer noted that the allegation that the mark was clearly descriptive or deceptively misdescriptive was based on the assertion that the wares are packaged in containers having 24 by 24 bottles or cans. This allegation only made sense with respect to Labatt’s alcoholic brewery beverages and was not applicable to the other wares. In addition the reference to "containers having 24 by 24 bottles or cans" meant containers having 576 bottles/cans (i.e. 24 × 24).

The issue of whether a trade-mark is clearly descriptive or deceptively misdescriptive must be considered from the point of view of the average purchaser of the applied for wares. In addition, the trade-mark must not be dissected into its component elements and carefully analyzed, but must be considered in its entirety as a matter of first impression.

The hearing officer concluded on the evidence presented that it was not apparent what the immediate impression of the trade-mark would have been on the average Canadian beer consumer, nor was it apparent that the trade-mark would cause consumers to be deceived in any way. As a result, this ground of opposition was dismissed.

Entitlement

Molson also argued the applicant was not the person entitled to registration since the trade-mark was confusing with its previously filed application for the trade-mark, THE OFFICIAL BEER OF MAY 2-4.

The test for confusion is one of first impression and imperfect recollection. The Trade-marks Act (the “Act”) provides the use of a trade-mark causes confusion with another trade-mark if the use of both trade-marks in the same area would be likely to lead to the inference that the wares associated with those trade-marks are manufactured or sold by the same person.

In applying this test, consideration must be given to all of the surrounding circumstances and to a specific list of factors set out in the Act. The hearing officer referred to the recent decision of the Supreme Court of Canada¹ which indicated that the degree of resemblance is the statutory factor often likely to have the greatest effect on a confusion analysis. If the trade-marks do not resemble one another it is unlikely that even a strong finding on the remaining factors would lead to a likelihood of confusion. The other factors become significant only once the trade-marks are found to be identical or very similar. As a result, a consideration of resemblance is where most confusion analyses should start.

Applying this test, it was found that any resemblance between the trade-marks was minimal at best. The common features were the numerals 2 and 4 and the numbers are not inherently distinctive but are weak trade-mark formatives. There was no evidence that either party's mark has been used or promoted and the fact that the parties both sell beer, which presumably would travel in similar channels of trade, is not a significant factor when the marks are so different.

As a result it was found that confusion was not likely and this ground of opposition was dismissed.

Distinctiveness

Molson argued that the fact that beer was sold in cases of 24 bottles/cans in Canada rendered the trade-mark non-distinctive. However, the hearing officer refused to accept this argument. The mark may not be an inherently strong mark but that does not mean that “24 du 24” could not distinguish the Labatt’s wares from other beers that are being sold in a case of 24.

Comment

“24 du 24” does not seem to the writer to be a particularly good choice for a trade-mark as it is weak and not meaningful (primarily composed of a number that is common to the brewing trade). Presumably Molson was attempting to prevent a competitor from obtaining trade-mark rights in the mark.
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¹ Masterpiece Inc. v. Alavida Lifestyles Inc., 2009 FCA 290, 78 C.P.R. (4th) 243 (F.C.A.) reversed 92 C.P.R. (4th) 361 (S.C.C.)

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Canada’s Anti-Spam Legislation – Potential Delay?

By Bernice Karn

As readers of The Cassels Brock Report will recall, we have previously written on the progress of Canada’s Anti-Spam Legislation (CASL). The articles can be found here: Article #1 and Article #2. In March of this year the CRTC issued the final version of the Electronic Commerce Protection Regulations (CRTC). These Regulations clarified and streamlined the information required in a “commercial electronic message”, replaced the “two click” unsubscribe requirement with the requirement that the unsubscribe mechanism “be able to be readily performed” and confirmed that requests for consent could be obtained orally. Unfortunately, it did not go so far as to state that “in writing” requests for consent could include electronic requests such as may be available on a website for subscription to an email feed. Industry Canada has not yet published its revised regulations and interestingly, in a speech given on April 24, 2012, the Minister of Industry remarked that the anti-spam legislation is expected “to take effect next year”. Clearly the government is attempting to address the many concerns expressed by stakeholders about this new law, which provides for significant administrative monetary penalties and a private right of action. We will continue to monitor the progress of CASL and alert our readers as and when significant new developments occur.

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Lion’s Roar Caged! Certain Sounds Can Now Be Trade-marked

By Catherine M. Dennis Brooks

The Canadian Intellectual Property Office (“CIPO”) announced in a Practice Notice dated March 28, 2012, that, effective immediately, it would accept applications for the registration of sound trade-marks.

This announcement resulted from a consent order issued by the Federal Court on March 1, 2012, setting aside a decision of the Registrar of Trade-marks which refused a sound trade-mark application. The application was for the sound of a roaring lion and was filed by Metro-Goldwyn-Mayer Lion Corp. (“MGM”) in 1992 based on use of the mark in Canada since 1928. The application was refused registration on the basis of section 30(h) of the Trade-marks Act which requires a trade-mark application to contain a drawing of the mark.

With the consent of the parties and after consideration of the written representations of the Attorney General of Canada and the Registrar of Trade-marks, the Federal Court set aside the decision of the Registrar, approved the trade-mark application and directed that the application be advertised in the Trade-marks Journal. The application included a voice print or sonogram of the roaring lion sound as well as an audio recording, video recording and a description of the trade-mark. A voice print or sonogram is a time-varying spectral representation forming an image that shows how the spectral density of a signal varies with time. This was the visual representation included in the application:

The motion material filed by the Attorney General of Canada and the Registrar of Trade-marks stated that the purpose of section 30(h) of the Act is to ensure that the trade-mark is sufficiently defined so that there is public notice of the scope of the right sought by the applicant and that sound marks fall within the definition of “trade-mark” in the Act. As a result, the material stated that the Registrar ought to have accepted the visual representation of the sound mark, in combination with the voice print, audio recording, video recording and description of the mark as the application satisfied the requirement that the trade-mark application contain a drawing of the mark.

In accordance with the Federal Court order, the application was advertised for opposition in the Trade-marks Journal on March 28, 2012.

The CIPO Practice Notice requires that sound mark applications must:

State that it is for registration of a sound mark;
Contain a drawing that graphically represents the sound;
Contain a description of the sound; and
Contain an electronic recording of the sound in MP3 or WAVE format, limited to 5 megabytes in size and recorded on a CD or DVD.

This is a significant development as it brings Canada in line with other jurisdictions, including the United States, that permit the registration of sound trade-marks. This development may lead to acceptance of other forms of non-traditional trade-marks by CIPO. Current proposed amendments to the Trade-marks Regulations include allowing for the filing of applications to register sound marks as well as holograms and motion marks.

The owners of sound trade-marks that are distinctive and are considered by the owners to be valuable properties should consider seeking trade-mark protection.

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Copyright: A New Frontier – Bill C-11 Moves Out of Committee

By Casey Chisick

With the report of the Legislative Committee on Bill C-11 (the “Bill”) to the House of Commons on March 15, 2012, it looks like the government’s much-debated Copyright Modernization Act is well on its way to becoming the law of Canada. When it does, it will represent the first substantive reform of the Copyright Act in 15 years. Click here to download Cassels Brock’s annotated version of the Copyright Act as amended by Bill C-11.

The final days of the Committee’s work were devoted to a clause-by-clause review of the Bill, during which Committee members (both government and opposition) were entitled to propose amendments. As expected, the government’s amendments – all of which were adopted – were relatively few. Apart from a last-minute change to tighten up the provision for enforcement of copyright infringement against so-called “online enablers” (more on that below), the government limited its revisions to a handful of minor, highly technical drafting fixes.

The opposition’s proposals were somewhat more ambitious: they ranged from language designed to close a possible loophole in the 30-day exception for ephemeral recordings by broadcasters to the introduction of an entirely new right for visual artists to be compensated when their works are resold. However, also as expected, all of the opposition’s proposals (around 30 in total) were defeated.

The government’s stated intention when introducing the Bill was, among other things, to modernize the Copyright Act to bring it in line with advances in technology and international standards, and to establish technologically-neutral rules that are flexible enough to evolve with changing technologies and ensure appropriate protection for both creators and users. Whether the Copyright Act as amended will achieve that goal remains open to question. Among the issues that are certain to attract ongoing debate over the months and years to come are:

Do the prohibitions on the circumvention of technological protection measures – so-called “digital locks” – go too far, or not far enough, in protecting the economic and other interests of rightsholders? Do they interfere unfairly with the ability of users to access and use works for legitimate purposes? Are the provisions constitutional, or, as some have argued, do they intrude upon the provincial power to legislate with respect to property and civil rights?
Will ISPs and other providers of network services, who will now benefit from a broad new immunity from liability for copyright-infringing activities conducted by others via their facilities, still choose to play any role in helping rightsholders combat copyright infringement and secure compensation for the use of their works?
What will be the impact of expanding the fair dealing exception to include education? Will users – or the courts – take seriously the government’s statements that the exception is intended to apply only to education in a “structured context” or will the Supreme Court of Canada’s direction to give fair dealing a “large and liberal interpretation” lead to a different result?
Will the new exception for non-commercial user-generated content (UGC) allow services like YouTube, which often profit from the distribution of UGC whose creators had no commercial purpose in mind when posting it, to operate in Canada without compensating rightsholders for the use of their underlying works?
Will new hosting services provisions prove sufficient to allow cable companies to provide cloud-based network PVR services without further payment to broadcasters or other rightsholders?
Will the prohibition against “online enablers” – those who “provide a service primarily for the purpose of enabling acts of copyright infringement” – prove to be drafted widely enough to capture the activities of peer-to-peer services? Will the prohibition be of any practical use in relation to services located outside Canada?
Will the new caps on statutory damages turn out to be reasonable safeguards against excessive penalties for non-commercial infringers, or will they be viewed by those infringers as too low to take seriously?
Do any of the host of new exceptions to infringement in the Bill violate Canada’s international copyright obligations, which require exceptions to be limited to “certain special cases” that do not “conflict with a normal exploitation of the work” and do not “unreasonably prejudice the legitimate interests of the author”? If so, how will courts deal with the conflict?

These outstanding questions are sure to lead to a good deal of conflict in the near future, much to the dismay of a wide range of stakeholders – rightsholders and users alike – who have cautioned both the Committee and the government against “legislation by litigation.” Indeed, rather than simplifying the Copyright Act and making it more accessible or easier to understand, the government seems to have complicated it considerably. Especially in light of the five copyright appeals currently under reserve at the Supreme Court of Canada (click here), which will address important issues concerning the scope of the right to communicate works to the public by telecommunication, the interpretation of the fair dealing exception, and the extent of the communication right in sound recordings – it seems clear that the evolution of Canadian copyright law will continue to be a going concern for the foreseeable future.

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Roll Back of Foreign Investment Controls Competitive Signals in the Telco Sector

By Stephen I. Selznick

On March 15, 2012 we released a timely report on the Canadian federal government’s announcement of its intended action to roll back foreign investment controls for entry level participants in the telecommunications sector. Our report also noted the complementary proposal to set aside a portion of the anticipated 2013 government auction of the valuable long distance low frequency 700 MHz wireless spectrum (as well as the 2500 MHz spectrum auction to be held at a later date) for small carriers; many of whom may seek cost-effective foreign investment to fund their stake holding interest in this emerging spectrum market. For the benefit of our readers, we include our report below:

Canadians want and expect robust world-class wireless services. Not an unreasonable ask in a country marked by northerly stretching latitudes and pockets of residents separated, and in some cases isolated, by vast uninhabited distances. Underscoring this is an increasingly borderless international business and cultural environment in which we assume that our ability to receive and exchange information, and effectively compete in the international marketplace, should be ubiquitous and defined by consumer and business choice, not geographic situs. However, technical advancement is not without its cost; especially the financial cost of innovative wireless applications and the infrastructure require to make “choice” a seamless exercise to the ultimate consumer.

Canadian airwaves have always been considered a natural resource belonging to all Canadians and administered on their behalf by the Canadian federal government. Thus some level of foreign ownership control to ensure a Canadian voice and presence in the broadcasting and telecom sectors was an understandable and laudable licensing parameter. At present, foreign ownership of a Canadian telecom licensee is limited to direct control of 20%, and indirect control of not more than 46.7%, of the licensee’s voting shares. Clearly this has been effective. The “Three Canadian Sisters” – Bell, Rogers and Telus – currently control over 90% of the telecom market in Canada. They also complete aggressively among themselves for the consumer’s dollar and loyalty. This clearly has benefited the consumer. There is though an unseen cost to the consumer, which one can anticipate will become more poignant if we factor in the cost of remaining competitive in the provision of new and novel wireless solutions. In order to fund their operations and anticipated technological innovation, Canadian telcos are forced to borrow large sums on a debt (as opposed to equity) basis. In doing so, they incur significant debt service costs that have to be factored into the cost of their operations. In turn, these operational costs are ultimately charged back to the consumer in the pricing of telco products and services. Frustrating the laudable objective of some measure of control on foreign investment, is the reality that Canadian telco licensees are precluded from accessing more cost effective financial solutions in international common share markets which might allow them to seek investment of the same dollars from investors looking for capital appreciation and profit over regularized debt service. Prophetically, these foreign ownership controls may very well have the effect of stifling the very innovation and opportunity for choice, and thus a Canadian voice in choice, that they were intended to stimulate and protect.

Foreclosing access to foreign equity markets has a quantum effect on smaller Canadian based telcos (those residing on the fringe in the remaining 5% - 10% of the Canadian telecom marketplace), with the result that these market players face significant barriers to entry. They don’t have the installed customer base necessary to generate the cash flows, and cash flow projections, required to justify the debt borrowings required to tool-up and expand. Ultimately, consumer options end up limited in a marketplace in which market share among competitors is inelastic for reasons that have nothing to do with the quality of product and service offerings.

Yesterday the Canadian federal government announced a few steps to be taken along the road to manage these issues.

First, market share rules will apply to the anticipated 2013 government auction of the valuable long distance low frequency 700 MHz wireless spectrum (as well as the 2500 MHz spectrum auction to be held at a later date). Each of the Three Canadian Sisters will be limited to the purchase of not more than 25% of the 4 prime spectrum blocks in each of Canada’s 14 regions. That leaves 1 prime block in each region (25% of the prime spectrum in these frequencies) reserved for small carriers.

Second, the federal government will also set requirements for telcos that win two or more blocks in the 700 MHz band, to guarantee services to rural populations by specific dates, so that robust service offering are not limited to financially valuable cosmopolitan regions.

Third, and perhaps most importantly, the federal government intends to remove the foreign investment/ownership controls on telcos who possess 10% or less of the market. Moreover, the foreign investment/ownership control roll back will continue to apply even if the exempt small carrier’s market share grows to more than 10 percent; provided that growth is not in consequence of merger or acquisition.

Following along on the Canadian federal government’s removal of foreign-ownership restrictions on fixed and mobile satellite earth stations in 1998, and more recently, the removal of foreign-ownership restrictions on Canadian satellite carriers in 2010, yesterday’s announcement may signal positive Canadian federal government movement towards in-bound foreign investment in other sectors.

These proposals still require parliamentary approval, but that is not foreseen as a limiting or delaying step given the current Conservative Party majority in the House of Commons.

For more information regarding the government’s announcement, restructuring telco ownership or the upcoming 2013 spectrum auction, please contact Stephen Selznick sselznick@casselsbrock.com or contact our Business Law Group.

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