Canada: Video Games As Canadian Culture: Navigating The Investment Canada Act In Interactive Entertainment Acquisitions

Last Updated: June 1 2016
Article by Ryan J. Black, Mark Opashinov and Ravipal Bains

Canada has been an attractive investment destination for foreign investors in recent years, particularly as the Internet has opened up the digital market throughout North America and the value of the Canadian dollar has declined against foreign currencies, especially the US dollar. While there are the usual antitrust concerns potentially raised by any merger or acquisition transaction, all investments in Canada that could result in foreign acquisition of control are also governed by screening and review mechanisms under the Investment Canada Act (Canada) (the "Act"). It is critical to keep the Act in mind for acquisition of businesses in the interactive entertainment or video games industry — not only for the usual reasons in any inbound investment, but also because they are considered to be cultural businesses worthy of additional scrutiny under the Act.

Brief Overview of the Investment Canada Act

Under the Act, there are two tracks by which inbound investments into Canada are analysed: the "notification" and "review" tracks. The notification track requires filing a notice of the transaction with an agency of the Canadian government in required form (including information about the foreign investor, the Canadian business, and the vendor) at any time before or within 30 days of closing. The review track requires the pre-closing submission of essentially the same information as is required in a notification plus a great deal more information about the investor itself, as well as its plans for the Canadian business. More critically, investments on the review track are reviewed by the government to determine whether the proposed transaction is of "net benefit to Canada" — if not, the transaction cannot close (or, if it has closed, may be unwound). Usually, the government will require that the investor make good on its assurances that the proposed transaction is of "net benefit to Canada" by requiring that the investor provide binding "undertakings" or commitments to run the acquired business in a particular manner, often relating to the role of Canadians on corporate boards and in senior management roles, minimum employment levels, minimum output commitments, commitments to Canadian input sourcing, and similar factors.

As the review track is typically only required when a proposed transaction exceeds certain very high financial thresholds, the notification mechanism is by far the most common and used for most smaller investments; however, other factors may influence the applicability of the review track including whether the investor is controlled by a resident of a World Trade Organization member state and whether the investor is a private or state-owned enterprise.

Video Games as Culture

Under the Act, a "cultural business" includes a business that "[...] (b) produces, distributes, sells or exhibits film or video recordings; (c) produces, distributes, sells or exhibits audio or video music recordings; [or] (d) publishes, distributes or sells music in print or machine readable form; [...]". The government's interpretation of the Act considers video games businesses to be "cultural businesses" since they involve one or more elements of film, video, audio, and music — all cultural businesses themselves.

In order to protect Canadian culture, the Act provides for two potential governmental review points in the acquisition of a cultural business such as an interactive entertainment business. First, there are substantially lower thresholds to trigger the review track: for example, the direct acquisition of control of a Canadian business with a mere CDN$5 million in book value can trigger a mandatory pre-closing review, as can the indirect acquisition of control (i.e., the acquisition of a corporation outside Canada operating a Canadian subsidiary) with a CDN$50 million book value. Second, even if those thresholds are not met, the government can demand an application for review from the investor by notifying the investor within 21 days of the investor's notification of the transaction.

Application to Video Games Transactions

Consider the case of a video game developer being acquired by a non-Canadian investor such as a US company. As with any other foreign acquisition of control of a Canadian business, the transaction will be at minimum notifiable under the Act's notification track. However, even a very small transaction in the video games space is more exposed than others to the review track, because the Canadian business is seen as being engaged in a "cultural business" and the thresholds are that much lower. Thus, for a transaction close to the CDN$5 million book value level, earn-outs or currency conversions can make the difference between a transaction merely triggering a notification and it being subject to mandatory pre-closing review and evaluation on the "net benefit to Canada" test. This should be part of the standard analysis of the Act's application to any transaction.

However, in the special case of a cultural business, the inquiry does not end there, because even if the transaction is below the thresholds that would require the review track, the government still could, within 21 days of the investor's required notification, demand an application for review. If the investor were to notify on a post-closing basis, and the government did exercise its right to demand review, this could create a risk that the transaction may ultimately need to be unwound (or that the investor may need to subject itself to undertakings).

Thus, even on the notification track, the determination of whether to file the notification pre-closing or post-closing depends on the parties' risk appetite and their estimation of whether or not the government will ask for a post-closing review. While this flexibility for filing the notification affords parties some room to manoeuvre, it does raise questions regarding optimal timing and allocating the risk of a potential review in the acquisition agreement.

If the notification is filed near the beginning of the deal process and the 21-day period for government demand for an application for review expires before closing, then, even if the government asks for a review, the parties would know before closing and can address it (assuming their transaction documents and closing procedures allow for this). If the notification is filed after closing and the government demands an application for review, the latitude to address any government concerns is materially restricted as the deal is closed (and, unless addressed in the transaction documents, the risk for this would fall entirely on the investor). While earlier notification as part of a closing process is the more conservative approach, since it permits the parties to determine definitively whether an application for review will be required, there sometimes could be a benefit to filing the required notification after closing so that, for practical purposes, the transaction is a "fait accompli".

For this reason, it is important for investors in Canadian interactive entertainment businesses to consider carefully the application of the Act to the transaction (i.e., whether or not it is on the notification track or the mandatory review track case), the appropriate timing of the notification under the Act, and any mechanism to build into the acquisition agreement to deal with a potential review. Either way, it is also important for the investor to ensure it is prepared to deliver a well-reasoned and well-supported case to the government that the transaction is, in fact, of net benefit to Canada.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2016

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ryan J. Black
Mark Opashinov
In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions