Canada: Tech Law Summit 2013 Recap - Six Minute Lawyer Sessions: Thinking Beyond

At McCarthy Tétrault's Toronto Technology Law Summit, Bram Abramson, Daniel Glover, James Archer, Bob Nakano, Pat McCay, Naseem Malik, and David Tait, were featured in the Six Minute Lawyer panel. Each lawyer provided brief updates on a variety of topical and timely tech law issues, ranging from the regulation of commercial communications to tax issues.

Unsolicited Telecommunications Rules

Bram Abramson provided an overview of the CRTC Unsolicited Telecommunications Rules ("UTRs"), which are overseen by the Commission's Compliance and Enforcement Section. These rules cover unsolicited phone calls or faxes for the purpose of solicitation. The most well-known feature of the rules is the National Do Not Call list, however they also include requirements for each organization to maintain its own internal Do Not Call list, as well as rules relating to the use of "Automatic Dialing-Announcing Devices" ("ADADs", also known as "robo-callers") and rules of conduct which govern the content and conduct of telemarketing calls.

Bram explained that the CRTC is in the midst of a comprehensive review of its UTRs. On the table are proposals to permit the use of ADADs, subject to certain limitations, and to allow some solicitation in "dual purpose" calls that would not be permissible now, as well as new limitations on B2B calls and extensive new record-keeping requirements. Organizations which may be affected by these proposed changes only have until June 3 to submit comments to the CRTC.

Disruptive Technologies and Copyright

Daniel Glover spoke about the on-going legal battles in the U.S. over Aereo, Inc.'s unlicensed distribution of broadcast ("over-the-air") television signals over the Internet. Daniel explained how Aereo's service had been carefully engineered to take advantage of a perceived gap in U.S. copyright law. However the case also offered a good jumping off point for some general thoughts about disruptive technologies and business models.

Daniel offered three key points for technology businesses to consider:

  • Technology moves faster than the law. Disruptive entrants take advantage of this and those confronted by them must respond equally quickly. In Canada it is much harder to obtain an injunction against a service after it has launched.
  • Individual cases have broader implications. Daniel noted that Google and Amazon have made significant investments in cloud music services that rely on some of the same legal assumptions as Aereo's. A ruling that Aereo is infringing could jeopardize those services as well. Tech businesses need to pay attention, because somebody else's legal fight can easily impact them.
  • What works in one place may not work elsewhere. The Supreme Court of Canada has taken a very different view than the U.S. decisions that underlie the Aereo service model. If your business depends on Internet distribution, it is critical to carefully assess the different legal models that will apply in different jurisdictions.

Mobile Payments

James Archer offered an update on recent developments in the mobile payments space. Since October 2012 the only mobile payment product to come to market has been an offering from CIBC and Rogers. However this is system is limited in that it only supports CIBC credit card products and is only supported by a limited number of vendors. New, broader service offerings from MasterCard, Interac and VISA are all still in development; some or all of these may roll out this year.

Progress has been limited in part because merchants have been concerned that they may be saddled with additional costs for little benefit. James suggested that the way forward was to grow the market for small transactions, which would benefit merchants as well as card providers. In this regard, he noted that more than one provider has launched active promotional campaigns to encourage consumers to use their cards for small transactions.

Tax Issues in Tech Transactions

Pat McCay highlighted a number of tax issues that may affect technology transactions. One key take-away message was that parties to cross-border transactions must be careful in how they characterize intangibles in a transaction, for example as services vs. IP licenses. Doing so injudiciously can create exposure to transfer pricing or withholding tax liability, which may be substantial.

On the withholding front, Pat pointed to the FMC Technologies case as an example of an issue that outsourcing clients in particular may have to consider. In that case a service was contracted for outside of Canada, but subcontracted back into Canada, creating unexpected tax liability in Canada.

Patents – Your New FRAND

Bob Nakano spoke about the evolving controversies relating to licensing of standards-essential patents. He explained that technology standards are critical for the creation of interoperable products that enable technological ecosystems. This makes patents which cover technical standards very powerful tools, because they give the patent holder a legal monopoly allowing them to control the right to implement the standard.

Courts have responded to this situation by imposing the requirement that such patents must be licensed on so-called "FRAND" (Fair, Reasonable and Non-Discriminatory) terms. However valuing these patent licenses remains a difficult and controversial issue. Bob highlighted the recent suit between Motorola and Microsoft in which Motorola claimed $4 Billion in damages but was awarded only $1.8 Million. By contrast, in a similar case between Apple and Samsung, Apple received $600 Million.

Temporary Foreign Workers

Naseem Malik spoke about issues relating to the Temporary Foreign Worker program, in light of the recent RBC controversy. Naseem noted that the potential penalties for illegally employing a foreign national can be severe. Moreover, both organizations and individuals risk a variety of less-formal negative consequences ranging from travel restrictions to public relations difficulties.

Naseem discussed how organizations can conduct immigration audits to review how they deal with temporary foreign workers. He also explained that it is important for every organization to put in place hiring practices to ensure that the organization knows the immigration status of its employees. This may need to extend to third party vendors and service providers. Moreover, it is critical that organizations maintain good lines of communication with foreign offices and subsidiaries about travel into Canada.

Tech Litigation

Last, but not least, David Tait spoke about technology litigation. He explained that, at some point in their development, most technology companies are likely to need or want to enforce their IP rights and he offered five practical questions to consider.

  • What jurisdiction do you want? Both Federal and Provincial courts will frequently be available options and each offers distinct procedural advantages and disadvantages.
  • Should you threaten litigation as a negotiating tactic first? This must be considered carefully because it can have unintended consequences, including giving the opposite side the opportunity to invalidate the IP before you are ready, or even creating potential liability for damages if you are ultimately unsuccessful.
  • What does a win look like? You must prepare to manage the business both during and after the lawsuit. Frequently this will involve some form of co-existence with the opposing party.
  • Are you prepared to see the litigation through? Litigation can involve a long road. It can be a risky strategy to start a lawsuit in the hope of a quick settlement.
  • Who are the parties? It is important to think carefully about both the proper plaintiffs and defendants. Leaving out potential plaintiffs may mean that even if you win you won't receive full recovery. On the defendant side, consider who may potentially be a third-party indemnifier. Your suit could inadvertently bring in an important customer or other strategically important party against you.

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