Resources

Related expertise

Advertising & Marketing
Intellectual Property

The Cassels Brock Report

The Cassels Brock Report - September 2011

Published: 09/21/2011

By Bernice Karn, Chad Matheson, Eric Mayzel, John McKeown, Stephen I. Selznick

In This Issue

What Is a "Sculpture" for Copyright Purposes? Can an Action Be Brought for the Infringement of a Foreign Copyright?

By John McKeown

In an article published in March 2010, we commented on a decision of the English Court of Appeal which considered the meaning of the term "sculpture" in a copyright context as well as a conflict of law issue.

The Facts

During the course of making the first Star Wars film, Lucas Film Limited ("Lucas Film") had created for it paintings and drawings showing scenes that included storm troopers and their helmets and armour. Lucas Film asked a designer who was a UK national to develop a final version of the storm trooper helmet and armour in plastic.

After the film was made, the designer kept the moulds that he used to make the helmets and the armour. In 2004, the designer set up a website from which he sold copies of the helmet and the armour he had created for the film. It was emphasized that the replicas were made from the original moulds. Some of the replicas were sold to customers located in the United States. The server was located in the United Kingdom but the price for the products was quoted in US dollars.

The Action

When Lucas Film became aware of the designer’s activities, it initiated an action in California for infringement of copyright and other related relief. The designer unsuccessfully challenged the Court’s jurisdiction. Eventually, a US default judgment was obtained for $10 million dollars. Subsequently, proceedings were brought in the UK to enforce the US copyright and the default judgment.

Infringement

Under US law, the designer’s actions were an infringement of the US copyrights owned by Lucas Film. However, under UK law, the helmet and armour would only be protected if they were "sculptures" within the meaning of the UK Copyright Act.

The Canadian Copyright Act contains a similar concept relating to "sculptures", but the exemption from infringement applies to useful articles which are defined to mean articles, including models, which have a utilitarian function, that is, a function other than merely serving as a substrate or carrier for artistic matter. Most sculptures will not likely be considered to be a "useful article."

Meaning of "Sculpture"

The Court said that a precise definition of the term was not possible but agreed with the Trial Judge’s list of considerations, which were described as signposts to the right answer. It is not possible or wise to attempt to devise a comprehensive or exclusive definition of "sculpture" sufficient to determine the issue in any given case.

The list of considerations developed by the Trial Judge was as follows:

1. Some regard should be made to the normal use of the word "sculpture."

2. The concept can be applicable to things beyond what one would normally expect to find in an art gallery.

3. It is inappropriate to stray too far from what would normally be regarded as sculpture.

4. No judgment should be made about artistic worth.

5. Not every three dimensional representation of a concept can be regarded as a sculpture.

6. It is of the essence of a sculpture that it should have, as part of its purpose, a visual appeal in the sense that it may be enjoyed for that purpose
alone, whether or not it might have another purpose. The purpose is that of the creator. An artist (in the realm of the visual arts) creates something because it has visual appeal which he wishes to be enjoyed.

7. The fact that the object has some other use does not necessarily disqualify it from being a sculpture, but it still has to have the intrinsic quality of being intended to be enjoyed as a visual thing. For example, a pile of bricks, temporarily on display at the Tate Modern for 2 weeks, is plainly capable of being a sculpture. The identical pile of bricks dumped at the end of a homeowner’s driveway for 2 weeks preparatory to a building project is equally plainly not. The difference is determined in having regard to purpose. One is created by the hand of an artist, for artistic purposes, and the other is created by a builder, for building purposes.

8. The process of fabrication is relevant but not determinative. There is no reason why a purely functional item, not intended to be decorative, should be treated as a sculpture simply because it is, for example, carved out of wood or stone.

After applying these considerations, it was decided that the helmet and armour were primarily utilitarian and lacked artistic purpose and therefore, not protected.

On appeal to the UK Supreme Court on this issue, the judgements of the Trial Judge and the Court of Appeal were upheld very largely for the reasons that they gave as noted above. It was said that the film was the work of art that had been created. The helmet was utilitarian in the sense that it was an element in the process of the production of the film.

The Enforcement of Foreign Intellectual Property Law

The Court of Appeal said that foreign intellectual property rights should be treated in the same fashion as claims concerning foreign property. Rights concerning foreign intellectual property are strictly territorial in nature and courts following the common law tradition should decline to entertain actions concerning their enforcement. As a result, the Court refused to enforce US copyrights owned by Lucas Films. The Court also refused to enforce the US judgment.

On appeal, the UK Supreme Court did not agree and allowed Lucas Film to continue the proceedings it had brought in the UK to enforce the US copyrights. One of the primary issues was applicability of the first limb of the rule in Phillips v Eyre. Under this rule, an act done abroad was only actionable in England if it was actionable as a tort according to English law; that is, was an act, which if done in England, would be a tort. Also in issue was application of the Moçambique rule and the act of state doctrine. The rule and doctrine relate to the concept that the Courts of one country will not sit in judgment on the acts of the government of another done within its own territory.

After a detailed review of the application of these principles it was said that the rule in Phillips v Eyre had been abolished by statute in the U.K. In addition, while the Moçambique rule and the act of state doctrine could apply to trade-marks and patents that depend on state grant, they did not apply to copyright since it subsists automatically and there was no need to consider the validity of the acts of foreign government officials.

As a result of this decision, the law of the UK on the enforcement of foreign copyright is now similar to the law of the US concerning claims based on foreign copyright.

Comment

The decision has confirmed the restatement of the law concerning sculptures and may have a significant impact concerning claims in Canada based on the infringement of foreign intellectual property. While the legislative background in Canada is different, the impact of this judgement as well as what it says about US law will be persuasive.

Top

Infringement of Design Trade-marks

By John McKeown

A recent decision of the High Court of Justice in the United Kingdom provides some useful comments concerning the infringement of design trade-marks.

The Facts

Samuel Smith Old Brewery (“Samuel Smith”)

Samuel Smith, based in Yorkshire, is one of the oldest established and still operating breweries in the United Kingdom. It is family run and prides itself with carrying on business in a traditional manner. It operates over 200 tied public houses that are concentrated in Yorkshire, Lancashire and Nottinghamshire.

Samuel Smith brews and sells a large range of beers and other beverages. Almost all of its labels feature its registered trade-mark consisting of a stylized rose design (the Trade-mark). The Trade-mark is reproduced below.

A white rose is the traditional symbol of the County of Yorkshire, having been the emblem of the House of York during the war of the Roses. The Trade-mark was intended to remind consumers of Samuel Smith’s strong connection with Yorkshire. The Trade-mark has been widely used in the U.K. since the 1970s.

Cropton Brewery (“Cropton”)

Cropton was founded in 1984. It sells a range of approximately 16 types of beer, once again mainly distributed in Yorkshire.

In 2008 Cropton began to supply Marks & Spencer with a Yorkshire Bitter, a bottled beer. A copy of the entire label of the beer laid flat is reproduced below:

In the same year Cropton began to produce a beer in conjunction with the Yorkshire regiment. The label of the beer reproduced the cap badge image used by the regiment with the addition of the word “Warrior”. A copy of a photograph of the label laid flat is reproduced below:

Samuel Smith complained about Yorkshire Warrior to Cropton but did not mention Yorkshire Bitter. However an action alleging infringement of Trade-mark and passing off was brought which related to the use of both labels.

The Likelihood of Confusion

While the relevant directive and legislation uses language that is different than the Canadian Trade-marks Act, the issue to be resolved in the case is very similar. The Court was required to determine whether there existed a likelihood of confusion on the part of the public between the registered Trade-mark and the trade-marks reproduced on the label designs of the Yorkshire Bitter and Yorkshire Warrior beers .

Crompton argued that the Trade-mark was not distinctive because of its geographical connotation. However, on reviewing the evidence the Judge was satisfied that the Trade-mark had become distinctive as a result of the lengthy period that it had been used.

Yorkshire Bitter

The Judge concluded that as far as this label was concerned, the identity of the goods and the distinctive character of the Trade-mark favoured a likelihood of confusion, but the differences between the white rose device and the Trade-mark, the remainder of the label and the identification of Cropton Brewery as the producer on the front of the label all militated against it. In addition, Samuel Smith did not adduce any evidence of weight to demonstrate a likelihood of confusion.

Samuel Smith's delay in pursuing Cropton concerning this label suggested that it did not consider that there was a real likelihood of confusion. It was inferred that Yorkshire Bitter was only included in the case because Samuel Smith thought it would look odd to pursue Yorkshire Warrior without pursuing Yorkshire Bitter.

As a result, the Judge was not persuaded that Samuel Smith had established that there was a likelihood of confusion concerning Yorkshire Bitter and the claim for infringement and passing off was dismissed.

Yorkshire Warrior

The Judge said that the identity of the goods and the distinctive character of the Trade-mark again favoured a likelihood of confusion. The white rose device on the label was more similar to the Trade-mark, and a more a dominant element of the design, than in the case of Yorkshire Bitter. Importantly, Cropton Brewery was not identified as the producer on the front of the label. Furthermore, it was said many consumers would miss the small print identifying it on the rear of the label.

Although there was no evidence of actual confusion in practice, there was some evidence that suggested it could occur. The Judge concluded that while the majority of consumers would not be confused, there was a likelihood that some consumers would be confused into believing either that Yorkshire Warrior was a Samuel Smith product or that it had some other connection with Samuel Smith. As a result the claim for infringement and passing off was allowed.

Comment

It is not clear that a Canadian Court would adopt quite the same approach concerning infringement. Under the Trade-marks Act the registration of a mark in respect of wares gives to the owner of the mark the exclusive right to the use of the mark throughout Canada in respect of the wares. The right is deemed to be infringed by a person not entitled to its use who sells wares in association with a confusing mark. There are cases that take the position that the addition of “get up” or the fact that the plaintiff’s mark is used with other marks is not relevant. However, the issue of confusion always needs to be resolved in cases of this type.

A Canadian court would adopt the same approach in the context of a claim for passing off.

Top

Trade-mark Genericism

By John McKeown

A recent decision of the US Trademark Trial and Appeal Board (“TTAB”) made interesting comments concerning whether the trade-mark applied for was generic.

The Facts

The Application

The applicant filed an application to register the trade-mark THUMBDRIVE in association with “portable digital electronic devices for recording, organizing, transferring, storing and reviewing text, data, image, audio and video files on portable digital devices”. The application was based on acquired distinctiveness.

In the course of examination the examiner took the position that the mark was merely descriptive and not registrable. The applicant responded by filing evidence of acquired distinctiveness and the application was approved for publication. At the conclusion of the opposition period, without receiving any opposition, the examiner refused registration on the ground that the proposed mark was generic and not registrable. While the applicant took the position that this was procedurally inappropriate, it was required to appeal the decision to the TTAB.

The Appeal

The only issue on the appeal was whether the applicant’s trade-mark was generic since the examiner accepted that sufficient evidence of acquired distinctiveness had been filed to justify a registration leaving aside the issue whether the mark was generic.

The evidence filed by the applicant showed that it had coined the term THUMBDRIVE in 2000 and had continually used it as a brand name since that time. Significant sales and advertising of the applicant’s products had occurred. Typically the applicant used its trade-mark in association with a trade-mark notice consisting of the letters “TM”. It had also taken steps to police the use of third parties of its mark. Finally, the applicant argued that the term “flash drive” was used as the generic designation of the goods in issue.

Generic Terms

The TTAB said that generic terms consisting of names that describe the genus of the goods being sold are incapable of indicating the source of the goods, are the antithesis of trade-marks and can never attain trade-mark status. If trade-mark protection was allowed for generic terms, even when they had become identified with a source, this would grant the owner of the mark a monopoly, since a competitor could not describe its goods as what they are.

However, to determine that a trade-mark is generic and force it into the public domain is a significant step. It penalizes the trade-mark owner for its success in making the trade-mark a household name and forces it to scramble to find a new trade-mark. Consumers who continue to associate the trade-mark with the owner’s brand may be confused when they find competitors using that name. Typically, the decision finding a trade-mark to be generic is not made until the trade-mark has gone so far as to become the exclusive descriptor of the product and that sellers of competing brands cannot compete effectively without using the name to identify the product they are selling.

The TTAB, on reviewing the material before it, found that evidence of generic use was offset by the applicant’s evidence that showed not only a significant amount of proper trade-mark use but also trade-mark recognition by third parties. Specifically the applicant coined the term and used it as a brand name in association with a new product. The applicant used the term “external storage device’ as the name of the product. In addition the term “flash drive” was the commonly used term to describe the product. Media outlets had also agreed not to use the mark in a generic manner. As a result, the TTAB could not conclude that members of the relevant public use or understand the trade-mark to refer to the genus of goods in issue. While the record created some doubt, the doubt was resolved in favour of the applicant.

The Canadian Position

The Trade-marks Act provides that a trade-mark is not registrable if it is clearly descriptive of the character or quality of the wares with which it is used. Like the US, evidence of acquired distinctiveness is sufficient to overcome the prohibition. The position taken by Canadian cases is similar to that adopted by US courts.

In the leading case, the Canadian trade-mark registration for the word “THERMOS” was sought to be expunged on the basis, among others, that it was generic. At the relevant date, this trade-mark had become a commonly used word descriptive of ordinary vacuum bottles. At the same time, an appreciable portion of the population in Canada knew and recognized “THERMOS” as a trade-mark and its trade-mark significance. To this portion of the public, the mark was distinctive of the vacuum bottles it was sold in association with. As a result the Court refused to expunge the trade-mark.

Comment

For a brand owner who is concerned that their mark could be attacked as generic, the key is to ensure that the trade-mark is used properly as a trade-mark. Typically this means using the mark as an adjective or adverb and not as a noun and in association with a trade-mark notice. For example, the Applicant should refer to its THUMBDRIVE® external storage devices. Evidence of trade-mark recognition by third parties through enforcement of rights or otherwise is also helpful.

Top

The Status of the New gTLDs

By John McKeown

Potentially significant changes to the operation of the Internet are about to be implemented. The changes will influence how brands are presented on the Internet and there are potential benefits and risks for brand owners.

History

The process of implementing the new gTLDs has continued since our report of March 2011. As readers may recall, the Governmental Advisory Committee (“GAC”), which is made up of representatives of more than 100 governments and is intended to give governments from around the world a voice in ICANN’s multi-stakeholder community, made it clear to the ICANN Board that it had concerns about some issues needing resolution before the launch of new gTLDs. In response, ICANN’s Board of Directors indicated that they would meet with GAC to resolve the concerns of the Committee’s members.

ICANN said it would, in addition to consulting with the GAC:

a) Take into account public comment on the final draft of the Applicant Guidebook, the economic analyses, and the final written proposals regarding issues affecting morality and public order, and make revisions to the guidebook as appropriate; and

b) Provide a thorough and reasoned explanation of ICANN decisions, the rationale thereof and the sources of data and information on which ICANN relied.

Based on community feedback and consultations between ICANN's Board of Directors and the GAC, a revised Applicant Guidebook, dated May 30, 2011, was posted by ICANN (the “Applicant Guidebook”).

On June 20, at its Singapore meeting, the ICANN Board approved the introduction of new gTLDs.

The Timeline

The announced timeline specifies the new program will be launched January 12, 2012, at which time applications will be accepted. The initial application window will close on April 12, 2012, with evaluation results to be published within approximately 5 months. Thereafter, there will be a succession of rounds during which applicants may apply for new gTLDs in accordance with terms and conditions set by ICANN but it is not clear when this will take place.

What to do

Brand owners need to start the process of securing their new gTLD, if this is seen to be advantageous, or find a way to deal with third party applications for new gTLDs, or in some cases do both.

Securing a New gTLD

Many parties are said to be interested in securing new gTLDs. Unfortunately, the costs are relatively high. The ICANN evaluation fee is USD $185,000 which must be paid before the process begins. The total costs may be much higher.

Many brands have not yet publicly indicated what steps they intend to take concerning obtaining new gTLDs. An evaluation needs to be undertaken by all aspects of the business in order to decide whether it makes sense to apply. Decision makers should obtain input from marketing including ecommerce, IT, and security, as well as legal since all may be potentially affected.

Consideration also must be given to the potential actions of competitors and other trade-mark owners. For example, if a third party owns the same or similar mark for use with different wares or in another country, the first party to file an application may obtain the gTLD that reflects the mark to the exclusion of others.

An application requires significant detail including responding to all applicable technical requirements. Because of this, time is running perilously short.

Monitoring Third Party Applications

An alternative and perhaps concurrent strategy is to monitor the actions of third parties, including competitors, as they seek to obtain new gTDLs. ICANN will post all applications considered complete and ready for evaluation as soon as practical after the close of the application submission period.

An objection may be based on any one of four grounds, including a "Legal Rights Objection," asserting that the applied-for gTLD string infringes the existing legal rights of the objector. Where formal objections are filed and filing fees paid during the objection filing period, a dispute resolution process applies. An independent dispute resolution service provider will initiate and conclude proceedings based on the objections received.

In addition, once the new gTLD is granted, defensive registrations at the second level (the first portion of the domain name) may also be possible and necessary to help prevent cybersquatting.

Conclusion

In light of the potential advantages and the risks of non-activity, brand owners need to work out a strategy to deal with these issues as soon as possible.

Top

Lawyers and Accountants Qualify for .xxx Sponsored Top-Level Domain Registration. An Exercise in Brand Protection

By Stephen I. Selznick

We thought that headline might get your attention.

After years of lobbying for and against a sponsored top-level Internet domain (an sTLD) for the adult entertainment community, the Internet Corporation for Assigned Names and Numbers (ICANN) approved the new “dot triple-x” (.xxx) sTLD registry in March 2011, to be operated by ICM Registry LLC. sTLDs, as distinguished from generic top-level domains (gTLDs) like .com, .info, .net and other soon to be available unrestricted gTLD formatives, are domains based on themes proposed by private organizations that in turn establish and enforce rules restricting the eligibility of registrants who request use of their sTLDs.

A skilful allusion drawn from the motion picture rating system that identifies pornographic subject matter by the designation “x”, the .xxx sTLD is intended for a sponsored community comprised of providers of online adult entertainment (adult webmasters, performers, studios, store owners and the like), and their representatives and service providers (which include – in validation of the title of this piece – their lawyers, accountants and merchant account service providers, among others).

Proponents of the .xxx regime argue that a specific sTLD suffix will make it easier for parents and employers to block offending sexual material rather than having to rely upon more subjective and imprecise content based filtering techniques. ICM Registry LLC also advertises on its website that each .xxx site will be scanned for malware (thus offering some baseline virus protection to users), and that in 2012 it will offer a new (and one would have to assume secure) micropayment system to .xxx registrants. Opponents are of the view that while a step in the right direction, the .xxx sTLD is not a mandatory regime for providers of sexually explicit content. Inconsequence, they assert that plenty of pornographic content will remain readily available on the web through traditional gTLDs, rendering the .xxx sTLD more of a brand grab and dilution exercise for trade-marks and domain names not available to the adult entertainment community through the gTLD regime.

These concerns lead to the object of this article. In anticipation of a land rush to obtain .xxx domain names, ICM Registry LLC has compiled a Reserved ICM Registry of culturally significant names and the names of celebrities, entertainers and other newsworthy persons that will not be available for registration with the .xxx suffix. A quick search using the .xxx WHOIS search engine on the ICM Registry LLC website discloses that Madonna, Brad Pitt, Angelina Jolie and Bono have nothing to fear – their names in association with the .xxx suffix have been reserved by the ICM Registry and thus do not appear to be available for use by others.

The rest of us who aspire to be rich, as well as the almost famous, will have to rely upon a second level of brand protection and anti-dilution; namely the sunrise provisions of the .xxx sTLD regime. During the sunrise window that runs from September 7th to October 28th, 2011, owners of trade-marks that were registered prior to September 1st, 2011 can opt-out of the .xxx sTLD regime by simply requesting that their registered trade-marks be blocked for use with the .xxx suffix. During that same sunrise window, owners of trade-marks and domain names who otherwise qualify for membership in the adult entertainment sponsored community may apply to grandfather their trade-marks and existing domain names within the .xxx sTLD regime so long as they have not been blocked from doing so by trade-mark owners who have applied to opt-out and block use of their trade-marks.

During the period November 8th to November 25th, 2011, other adult entertainment sponsored community members may stake a claim to domain names with the .xxx suffix that have not already been grandfathered or blocked during the sunrise window, by participating in a land rush and tie-breaking auction.

General registration of .xxx sTLDs commences on a go-forward basis on December 6th, 2011, subject to priority accorded to grandfathered and land rushed name claims that have not been blocked by trade-mark owners who have opted-out during the sunrise window. As well, owners of trade-marks that did not opt-out or did not qualify to opt-out during the sunrise period, or who evolve new brand names or trade-marks after September 1st, 2011, may still apply to register so-called "non-resolving" .xxx sTLD names from and after December 6th, 2011, so long as the non-resolving names have not already been registered for use by others in the adult entertainment sponsored community.

On the basis that a little bit of prevention can save a much more expensive pound of cure, brand owners are encourage to apply to block use of the .xxx sTLD suffix with their valuable registered trade-marks well before the October 28th, 2011 close of the sunrise window. While not without recourse thereafter, aggrieved trade-mark owners who do not apply to opt-out will have to challenge .xxx domain name use that reads upon their valuable brand names through traditional litigation, by availing themselves of ICANN’s Uniform Dispute Resolution Policy, or by reliance upon ICM Registry LLC’s Rapid Evaluation Service Policy available for trade-mark abuse or impersonation. It would also be prudent for brand owners to include the non-resolving registration of their evolving trade-mark brands under the .xxx sTLD regime as part of their general, ongoing brand protection program.

For further information on this topic, please contact Stephen I. Selznick sselsznick@casselsbrock.com

Top

Privacy Compliance – Just Good Business Practice?

By Bernice Karn

By now most organizations dealing with personal information in Canada are aware that Canada has a federal law that regulates the collection, use and disclosure of personal information. For ten years businesses have been trying to figure out how to comply with the requirements of the Personal Information Protection and Electronic Documents Act (“PIPEDA”). Compliance with PIPEDA is often a tricky balancing act. The statute is fairly general in its requirements and leaves much up to the judgement of the organization that is attempting to handle personal information. Clients are understandably nervous about getting it wrong. What if they do get it wrong – after all, mistakes do happen. A recent case suggests that sanctions may be imposed as a way to prod organizations into tightening up their privacy compliance programs, even when a complainant’s damages are not obvious.

Under PIPEDA, if a person has a complaint about the privacy practices of an organization subject to the jurisdiction of PIPEDA, he or she may make a written complaint to the Office of the Privacy Commissioner of Canada (the “OPC”). All complaints must be investigated by the OPC and, subject to limited exceptions, the OPC must issue a report within one year of the filing of the complaint. In addition, the OPC may also initiate a complaint and issue a resulting report.

The OPC’s report will describe the different issues described in the complaint as “well-founded” or “not well-founded” and in those cases where the offending organization has taken acceptable steps to address the problem, the OPC will categorize the complaint as “resolved”. In most cases, that’s where the matter ends. However, there is a right to take the matter further to the Federal Court of Canada.

If a complainant is not satisfied with the results of the OPC’s report in respect of specific sections of PIPEDA, he or she may make an application to the Federal Court of Canada for a trial de novo of the matter, which means that it is a new hearing – it is not an appeal of the OPC’s findings. The OPC may apply to appear at that hearing and also has a right to apply to the Federal Court in respect of any complaint that the OPC has initiated, which presumably would only happen if the investigated organization failed to adhere to the OPC’s recommendations.

Landry v. Royal Bank of Canada 2011 FC 687 was an application in the Federal Court of Canada to compel the Royal Bank to “change its practice of disclosing personal information without the authorization of the person concerned” (translation), and to seek damages totalling $100,000 for injury to the applicant’s “reputation, honour and dignity”, “moral prejudice, pain and suffering” as well as exemplary (punitive) damages resulting from the bank’s actions. The applicant was self-represented and the facts are fairly colourful.

Nicole Landry was involved in divorce proceedings and her bank, (the Royal Bank of Canada) received a subpoena duces tecum from her ex-husband’s lawyer. (A subpoena duces tecum requires the recipient to appear in court with requested documentation.) In this case, the documentation concerned certain bank accounts of Landry held with the bank. The bank dutifully assembled the requested documentation and for reasons that are not entirely clear, a clerk of the bank faxed the documents to Landry’s counsel, in contravention of the bank’s policy which required consent for disclosure of the documents to third parties. The bank’s employee then apparently tried to cover up the mistake.

Upon receipt of Landry’s complaint, the OPC investigated and found that, although the complaint was well founded, the bank had taken corrective measures to prevent such events in the future and that, therefore, the matter was considered resolved. However, the applicant was not satisfied with the OPC’s conclusions and brought the subject application. The Court ultimately awarded $4,500 for the bank failing to follow its own privacy policy and its offending employee attempting to cover up her actions.

One might wonder why the court awarded anything at all since, in the divorce action, that court eventually ordered production of the mistakenly-disclosed documentation to the ex-husband’s counsel anyway – what damages could the applicant have suffered by the disclosure of information that a court ultimately ordered disclosed? In this application to the Federal Court for breach of PIPEDA, Justice Scott even acknowledged that the bank had not commercially benefitted from the breach, had not acted in bad faith (except for the employee cover-up) and the applicant was partially to blame because she was apparently trying to conceal the existence of her personal bank accounts in the divorce action even though she was obliged by law to disclose their existence.

The message that the Federal Court seems to be giving in awarding $4500 to the applicant is that even in these circumstances where the entitlement to actual damages seems dubious, as a policy matter it’s serious business to contravene PIPEDA. To avoid these types of distractions, organizations need to embed privacy principles in their core operating values, be vigilant in maintaining them and constantly train their employees in privacy compliance. That’s just good business!

Top

Salary, Solicitation And Standards Of Conduct For Sports Agents

A recent decision of the Court of Queen’s Bench of Alberta examines the fiduciary obligation a sports agent owes to his or her employer/agency. Furthermore, it examines the extent to which non-solicitation agreements affect the communication and solicitation an agent may engage in with former clients and/or employees.

Evans v The Sports Corporation, 2011 ABQB 244 was an action brought by Mr. Richard Evans (“Evans”) against his former employer, The Sports Corporation (“TSC”), a sports agency based out of Edmonton, Alberta. The principles of TSC are Ritch Winter and Steve Kotlowitz.

The Evans case examines the breach of non-solicitation clauses in the player agent context and outlines the ways in which courts have addressed the fiduciary obligations a player agent owes to his or her agency.

FACTS AND KEY ISSUES

TSC is in the business of representing professional hockey players. Evans brought an action against TSC for damages and payments allegedly owed to him resulting from his employment relationship with TSC. Upon the termination of his TSC contract in 2006, Evans started his own hockey agency. Several TSC clients subsequently terminated their relationship with TSC in favour of working with Evans.

Two clauses in the employment agreement between Evans and TSC (the “Agreement”) became key at trial: first, a lockout clause that was meant to suspend salaries and protect TSC from lost revenues during the impending 2004-2005 NHL Lockout (the “Lockout”), and second, a non-solicitation clause prohibiting Evans from directly or indirectly soliciting TSC clients or employees. Under the Agreement, Evans was only authorized to solicit his own clients.

The main issues discussed by the court may be summarized as follows:

1. Salary issues resulting from: (a) the early termination of Evans’ employment, (b) the suspension of salary payments during the Lockout, and(c) bonuses in relation to the signing of Radim Vrbata (“Vrbata”) as a TSC client.

2. Whether Evans breached the Agreement by attempting to solicit any TSC employees within 24 months from the end of his employment with TSC.

3. Whether Evans breached the Agreement by attempting to solicit any TSC clients within 24 months from the end of his employment with TSC.

4. What type of damages should be awarded?

These issues are examined in greater detail below:

1. Salary Issues

(a) The Court held that where an employment agreement is for a fixed term, both parties are entitled to hold one another to provisions of the agreement. As such, Evans was entitled to be paid for the period of time between when he was asked to leave TSC and the expiration date of his contract.

(b) Evans was unsuccessful in arguing that non-payment of his regular wages during the Lockout constituted a breach of Section 4 of the Employment Standards Code (the “Code”) which provides that parties cannot contract out of the Code. Evans essentially argued that by not paying a salary during the Lockout, TSC had attempted to provide less than minimum wage. The court held that a "wait and see" approach was to be used in such situations. Accordingly, the salary provisions regarding the Lockout should not have been declared void from the outset.

(c) The Court held that Evans was entitled to receive the bonus he should have received by signing Radim Vrbata while still employed by TSC.

2. Fiduciary Obligation & Solicitation Issues

The court in Evans discusses the fiduciary obligation a sports agent owes to his or her agency. Evans establishes that it does not necessarily matter whether the sports agent has hiring or firing power or control over other employees. The most important factor is the discretion or power the agent has and how he or she may exercise that discretion in negotiating contracts and servicing clients’ needs. In these cases, one may be held to have breached a fiduciary obligation owed to their employer. In this case, the Court held that Evans breached his fiduciary duty to TSC.

This fiduciary obligation stemmed from TSC providing Evans with almost complete control over the Czeck-Slovak hockey player pipeline for 6 years. During that time, Evans became closely connected with TSC clients in the region. To many of those young hockey players, Evans was the only senior TSC employee that they had known and worked with. As such, the Court held that Evans did owe a fiduciary obligation to TSC.

Soliciting Employees: Evans was in breach of the Agreement by soliciting TSC employees to provide services to him and his new sports agency. The Court held that, while not technically “employees” as indicated by the Agreement, TSC agents would be deemed as such for the purpose of solicitation.

Soliciting Clients: There was no evidence that Evans directly solicited any former TSC clients. Instead, the court held that Evans indirectly solicited by turning a blind eye to the activities of Mr. Henys and Mr. Kadlecek (former TSC employees) who were pursuing clients on Evans’ behalf.

3. Should the Lack of a Geographic Restriction on the Non-Solicitation Clause be a Bar to Enforceability?

The court held that TSC was able to enforce the non-solicitation restriction, despite the fact that there was no geographic restriction built into the provisions of the Agreement. The court held that there was no clear reason not to prevent someone from dealing with former clients for a reasonable period of time, wherever that client may be geographically located.

4. The Appropriate Non-Solicitation Period for Sports Agents

The court also held that the two-year non-solicitation period was not unreasonable.

5. Damages

Evans was entitled to $32,102 USD from TSC and $2,016 for unpaid salary and bonuses. By breaching his fiduciary obligations, Evans was not entitled to any further compensation.

TSC was entitled to damages resulting from Evans’ breach of the non-solicitation provisions of the Agreement and breach of his fiduciary duties to TSC. TSC recovered 50% of the profit generated in the two years following Evans’ departure, 5% for subsequent seasons and other related income for a total of $194,168.10 USD.

CASE COMMENTARY

Central to this decision is the judge’s analysis of what Evans was and was not allowed to tell clients when he was leaving. After discussing some cases involving lawyers and other professionals who departed their employment, the judge said:

“Giving a departing professional the right, let alone an obligation, to advise clients that they have the right to follow him essentially negates any non-solicitation obligations that may exist for fiduciaries or under contract. In my view, that goes too far. I agree with a right and duty to advise of departure. Beyond that any direct or indirect solicitation should be governed by fiduciary duties (if any) or by contracts, or by the rules of their professional associations. The clients of professionals can find out their rights from others, not from the departing professional him or herself.... The cases referred to above, and the principles relating to the rights and duties of departing professionals, do not entitle any departing employee who has a personal relationship with clients to do any more than notify his or her clients that he has left. There is certainly no general duty (or right) to advise clients that they have a choice as to whether to stay, follow, or find someone new.”

While not professionals in the sense that they belong to self-regulated industries, sports agents hold a position of critical importance to the careers of their clients who typically are not experts in the matters in which they rely on their agents for advice and guidance. This decision puts the agent in the difficult position of having an obligation to advise of his departure, but not being able to answer his client’s obvious first question: “What does this mean to me?”

Equally importantly, an agency contemplating bringing on an agent from a competitor will want to tread softly before concluding that something as basic as letting the new agent’s former clients know that they have options available to them is a wise or even permissible course of action. It is not uncommon for litigation of this nature to be brought against not only the departing employee, but also any agency hiring that individual on the theory that the agency induced breach of contract, or is vicariously liable for damages resulting from a finding of breach of the new agent’s fiduciary duties to his former employer.

This decision should leave departing agents (and their new employers) with a significant amount of unease about liability arising from dealing with clients of the agent’s former agency.

Top

Tucows.Com Co. V. Lojas Renner S.A., 2011 ONCA 548

By Chad Matheson, Eric Mayzel

On August 8, 2011, the Ontario Court of Appeal (the “CA”) released its decision in Tucows.Com Co. v. Lojas Renner S.A., 2011 ONCA 548, ruling that a domain name owned by an Ontario corporation is personal property in Ontario and may be the subject matter of an action served on a defendant outside Ontario.

Tucows.com Co. (“Tucows”), a technology corporation with its principal office located in Toronto, purchased the domain name <renner.com> along with over 30,000 other surname domain names from Mailbank Inc. in 2006 and it is the registrant of these domains names with the Internet Corporation for Assigned Names and Numbers. As the owner and registrant, Tucows derives revenue from these domain names by allowing subscribers to use the domain names for personal email services.

Lojas Renner S.A. (“Renner”), a subsidiary of JC Penny, is a Brazilian company operating a series of retail department stores in Brazil and is the registered owner in Brazil and other countries of the trademark RENNER.

Renner initiated a complaint before the World Intellectual Property Organization (“WIPO”) pursuant to its Uniform Dispute Resolution Policy (“UDRP”) and related Rules. Instead of responding to the complaint, Tucows commenced an action in the Ontario Superior Court for declarations it had rights and legitimate interests in respect of the domain name, the domain name was not registered or used in bad faith by Tucows, and Renner was not entitled to the transfer of the domain name. Tucows served Renner with the statement of claim outside Ontario.

Pursuant to the UDRP Rules, an administrative panel may, at its discretion, suspend or terminate a complaint, where some other legal proceedings are commenced in respect of the domain name that is the subject of the complaint. In this case, the WIPO Administrative Panel granted Tucows’ request to terminate the complaint, noting that the issues before it were “not straightforward” and “almost indistinguishable” from those set out in the action. The WIPO Administrative Panel also noted that the “parties could afford the cost of litigating.”

In light of the termination of its complaint, Renner brought a motion pursuant to Rule 17.06 of the Rules of Civil Procedure¹ of Ontario (the “Rules”) to set aside service of Tucows’ statement of claim and to permanently stay Tucows’ action for want of jurisdiction. Tucows argued that it was entitled to serve the statement of claim outside of Ontario without leave pursuant to Rule 17.02(a), which permits service outside Ontario without a court order in respect of real or personal property in Ontario. The motions judge set aside the service of the statement of claim, finding that the domain name was not personal property and that, being intangible, it was not located in Toronto. On Appeal the decision of the motions judge was overturned and the motion by Renner was dismissed.

In its analysis, the CA distinguished an earlier decision of the Ontario Superior Court, Easthaven Ltd. v. Nutrisystem.com Inc.²which had concluded that because a domain name lacks a physical existence it was not property in Ontario and the mere fact the domain name was registered through a corporation that happened to carry on business in Ontario (the domain name Registrar) did not give it a physical presence. After distinguishing this case, the CA examined international jurisprudence and academic papers, citing Kremen v. Cohen³ to conclude that a domain name is intangible property because it satisfies a three-part test for the existence of a property right: (i) it is an interest capable of precise definition, (ii) it is capable of exclusive possession or control, and (iii) it is capable of giving rise to a legitimate claim for exclusivity.

Next the CA considered whether a domain name was personal property for the purpose of Rule 17.02(a). As the term “personal property” is not defined in the Rules, the CA examined Canadian as well as other jurisprudence relating to common law attributes of property. It found that property must have a bundle of rights that allows for an element of exclusivity, and must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability. The CA concluded that a domain name had all of these elements and was therefore personal property pursuant to the Rules.

Finally, the CA examined whether the domain name is property in Ontario, by applying the “connecting factors” test, in which the location of intangible property is determined by where it has the strongest contacts. As the domain name is part of the intangible property of Tucows’ business (located in Ontario), the CA found that the domain name had its maximum contacts with Ontario.

In addition, the CA held that the Superior Court may assume jurisdiction of a dispute that is or was also the subject of a UDRP complaint. The CA observed that the UDRP provides, “an alternative, and not a substitute for court litigation, which remains open to the parties.” The CA explicitly rejected the finding of the motions judge that Tucows had undermined the UDRP administrative process by commencing the action.

Accordingly, in dismissing the motion by Renner the CA held that the service of the statement of claim outside Ontario was valid and Ontario had jurisdiction over the dispute.

The CA made it clear that the UDRP administrative process is not the sole forum for domain name ownership disputes. The CA’s apparent willingness to adjudicate such disputes, and its clarification of the legal nature of domain names, may potentially give rise to an increase in litigation of this kind. It is yet to be seen whether other domain name registrants will follow in Tucows’ footsteps in response to the initiation of a UDRP complaint. However, potential claimants should take note of the possibility that a domain name registrant may seek declaratory relief in the courts, at any time prior to or during a UDRP administrative proceeding. Moreover, this decision should alert all parties to the possibility of suing and being sued in a foreign jurisdiction, in respect of a domain name.

_____________________________________
¹R.R.O. 1990, Reg. 194.
² (2001), 55 O.R. (3d) 334.
³337 F.3d 1024 (9th Cir, 2003).

Top