Royalty fraudsters can’t hide behind ‘corporate veil’

For the London Free Press – March 31, 2014

Read this at lfpress.com

The British Columbia Court of Appeal recently held the owner of a company personally liable for a fraud his company perpetrated against a company it had licensed technology from.

It’s rare for courts to “pierce the corporate veil” and find personal liability for owners and employees or companies, but they will if fraud is involved.

In this case, Mr. Zhu was the controlling shareholder of a company called JingJing. JingJing signed a license agreement with a company called XY, where XY gave JIingJing the right to use XY technology related to animal genetics. The fee for using the technology was an ongoing royalty paid to XY based on how much money JingJing made from using the licensed technology.

XY relied on JingJing to report JingJing revenues and to pay the correct amounts. But JingJing, Mr. Zhu, and two other employees falsified the revenue records and significantly underpaid XY.

It was clear that JingJing breached the contract by doing the false reporting. But the court also found that Mr. Zhu and the two employees who participated in the false reporting committed the tort of deceit by falsifying the records with the intent to deceive XY and pay it less than was actually owed. Mr. Zhu, the two employees and JingJing were held jointly and severally liable for the payment of damages exceeding $8 million.

Though it may seem odd to have a contractual arrangement where the price is paid based on metrics that only the person paying knows, it is not that unusual.

Things such as software licences and reseller agreements, and the use of technology in general are often paid for based on what the buyer knows about the usage of the product. For example, fees can be based on things such as the number of sales, revenue from sales, numbers of employees, numbers of customers, or even the number of servers the technology runs on.

In these types of arrangements, the contracts typically require the buyer to report on the payment metrics along with payment. Sellers often include audit rights allowing them to inspect the buyer’s records or systems to confirm the reporting is accurate.

Depending on the nature of the technology being licensed, and the way the seller sets it up, it may in some cases be possible for the seller to be able to monitor the use metrics itself and avoid the risk of buyer fraud.

The facts and law in this case were very complex and dealt with many issues other than the reporting fraud, but lessons from this decision include:

  • Company owners and employees cannot do fraudulent acts and hide behind the corporate veil. Arguing that the fraud was in the course of their regular duties won’t save them.
  • Businesses that get paid for their products and services based on use metrics should try to deliver them in a way that allows them to monitor the use themselves.
  • Contracts that rely on reporting should contain an audit provision.

http://harrisonpensa.com/lawyers/david-canton

A really dumb idea

For the London Free Press – March 14, 2014

Read this at lfpress.com

In February a “Dumb Starbucks” store appeared in Los Angeles. At first glance the coffee shop may have seemed like any other Starbucks store, but it gave away “dumb” versions of items sold by the Seattle-based coffee company, such as “Dumb Iced Espresso” and “Dumb Vanilla Blond Roast”.

People lined up to get in when it first opened, many probably thinking it was a real Starbucks. At least, that is, until they noticed the word “Dumb” in from of all the signage and product names, saw the interior, or actually tasted the products.

Dumb Starbucks turned out to be a publicity stunt. To extend the ruse, the creators anticipated the “how is this legal?” question. They published FAQs stating that because of parody exceptions to copyright and trademark law adding the word ‘dumb” meant that they were technically “making fun” of Starbucks. The shop said that by doing this, it allowed them to use the Starbucks trademark under a law known as “fair use.” The FAQ defined fair use as a legal doctrine that permits use of copyrighted or trademarked material in a parody without permission from the rights holder.

Although the shop was a fully functioning coffee shop, the FAQ stated “that for legal reasons Dumb Starbucks needs to be categorized as a work of parody art. So, in the eyes of the law, our ‘coffee shop’ is actually an art gallery and the ‘coffee’ you’re buying is considered the art”.

This legal explanation caused a bit of a kerfuffle for a short time until it became apparent that the FAQ was as fake as the store.

That legal explanation was a nice try, but conveniently overlooked some things. Such as the fact that fair use exceptions like parody rely on a fairness test and are not absolute. And the fact that the basic purpose of adding “Dumb” to the Starbucks brands was to trade on the goodwill Starbucks has earned for their brands.

Parody and satire have existed as fair use exceptions to copyright and trademark law in the United States for some time. They were added to Canadian copyright law in 2012. The Canadian Copyright Act states that fair dealing (as it is called in Canada) for the purpose of research, private study, education, parody or satire does not infringe copyright.

To determine whether fair use or dealing is indeed fair, the courts look at criteria such as its purpose; its character; the amount; available alternatives; the nature of the work; and the effect of the use on the original work. In other words, was it a reasonable thing to do, how necessary was it, and might it hurt the copyright owner?

This turned out to be a short-lived publicity stunt, but if anyone actually thinks they can trade on the goodwill of another’s brand by simply adding “dumb” to the name to turn it into a parody or satire they are just, well, dumb.

http://harrisonpensa.com/lawyers/david-canton

Copyright process a complex action

For the London Free Press – February 24, 2014

Read this at lfpress.com

In December 2013, the Supreme Court of Canada confirmed that copyright applies to protect how an idea was expressed in a story, but not the idea behind the story.

The case of Cinar v. Robinson dealt with an author’s claim that a Cinar television show was so similar to an idea he pitched to them previously that it breached his copyright. The court agreed.

Claude Robinson “spent years developing an educational children’s television show, The Adventures of Robinson Curiosity (… Robinson) drew his inspiration (for this project) from Daniel Defoe’s novel Robinson Crusoe, as well as from his own life experiences.”

During the mid-1980s, Robinson and his company, Les Productions Nilem Inc., pitched the idea of his television show to Cinar Corporation.

Several years later, Robinson happened to watch a television show entitled Robinson Sucroe, a show that appeared to copy several aspects of his creation The Adventures of Robinson Curiosity — the show he had pitched years earlier to Cinar.

Upon further investigation, Robinson “discovered that several parties who had been given access to his Curiosity project . . . were also involved in the production of” the show that actually made it to television.

Robinson launched a copyright infringement case against the individuals behind the production of the show that made it to television.

The court had to determine what constituted part of the public domain, versus the property of an individual that attracts copyright protection. Both shows were, after all, modelled after the novel Robinson Crusoe. The Supreme Court agreed with the trial judge decision that there was an infringement by Cinar and other related parties upon Robinson’s work.

This decision was based on the similarity of the distinct visual appearance and personalities of the characters. Their appearance and personalities were the product of Robinson’s skill and judgment. The court also felt that particular visual elements of the island were conceived by Robinson and copied by Cinar.

The test to determine if copyright has been breached is whether the defendant copied a substantial amount of the author’s work. The Supreme Court stated that “a qualitative and holistic approach must be adopted (in determining whether someone’s idea was stolen). In order to determine whether a substantial part of Robinson’s work was copied, the features that were copied by Cinar appellants must be considered cumulatively, in the context of Robinson’s work taken as a whole.”

In other words, the test for infringement (at least for written works) is not to tear the work apart and compare only the original elements.

The court awarded damages, punitive damages and costs totalling more than $2 million. But given the complexity and time involved in seeing this copyright action through to the Supreme Court of Canada, it has been suggested that Robinson is still behind financially.

http://harrisonpensa.com/lawyers/david-canton

 

Anti-spam bill impact will be immense

For the London Free Press – February 10, 2014

Read this at lfpress.com

The Canadian anti-spam act comes into force July 1, 2014. If you think it won’t affect your business or not for profit because you don’t send mass e-mails trying to sell random products, you would be wrong.

It defines spam — the act calls it commercial electronic messages — so broadly that it will affect how most organizations communicate. The definition goes far beyond what the average person would consider spam. It then layers on a series of complex exceptions and implied consents that allows commercial electronic messages to be sent in certain circumstances.

Volume is irrelevant. One e-mail sent to one person can be spam, and subject the sender to a fine of up to $10 million. Starting in 2017, remedies will include a private right of action (the right of recipients to sue the sender) that allows for the payment of statutory damages. In other words, there will be no need to prove actual damages were suffered from receiving the message.

Depending on the nature of the message and the relationship between the sender and recipient, some commercial electronic messages can be sent without any conditions, some require an unsubscribe mechanism, and some can’t be sent at all.

Unfortunately the act’s biggest impact will be the compliance headache it will cause the average business or not for profit.

In the short term, we can expect to receive a deluge of e-mails requesting that we consent to receive e-mails from various entities for various things. In many instances recipients may be confused or perhaps ignore those requests, based on the thought that they are already getting the messages or have already consented.

Recipients may not understand that subtle differences in how consent is requested, granted or tracked.

Some things worth noting include:

  • Directors and officers can be personally liable if they participate in or acquiesce to violations under the act.
  • Charities benefit from some additional exemptions, but the act still applies to many things most charities do.
  • Commercial electronic messages are defined broadly to include more than e-mail — such as certain social media messaging tools.
  • The onus of proof is on the sender, meaning that the sender must track and document compliance on an individual recipient basis in order to defend itself from alleged violations of the act.
  • Consents to receive commercial electronic messages must be obtained in specific ways and by disclosing specific information.
  • Consents one already has that are sufficient for privacy legislation may or may not be grandfathered, as valid consents depending on the circumstances.
  • the act includes a three-year grace period for consents — but only in certain defined situations.
  • Sending an e-mail to request consent is itself considered spam.

Given the complexity of the Canadian anti-spam act and the consequences for non-compliance, businesses and not for profits can’t afford to ignore this. Legal help is available to assist. More information on the act can be found on the author’s blog by searching for “anti-spam” at elegal.ca.

http://harrisonpensa.com/lawyers/david-canton

 

Social Media in the Workplace

This article originally appeared in the December 2013 edition of the HRPA London and District Digest. (See page 10 of this pdf copy.)

Social media sites such as Twitter, Facebook, LinkedIn and Pinterest – to name a few – permeate our lives. As we spend a majority of our day at the workplace, most of us can’t help but use social media sites while at work.

The rise in social media’s prevalence brings opportunities and challenges for employers and employees alike. Despite the doom and gloom we often hear, social media should not be shunned or feared. A happy medium can be reached.

There are two fundamental issues for social media in the workplace. The first is how to use it to effectively promote business. The second is how to discourage employees from spending excessive amounts of time on their own social media, and from saying things that don’t sit well with employers.

We are still feeling our way around what control and recourse an employer actually has over employee social media use, especially when it is on the employee’s account, and on the employee’s time. Internet tools and social media increasingly blur how one’s personal and work life overlap.

Employers struggle with the extent to which they may be prejudiced by what employees say on social media.

Should employers just ignore things they don’t like? What legal rights do employers have over actions employees consider personal? Employers should be careful not to push back too hard, because situations can play out badly for the employer in the court of public opinion.

An outright ban of social media use in the workplace is not the answer. Depending on the nature of the business, it may be beneficial to allow employees to use it. And an employer’s attempts to ban it or control access from company systems will make employees simply pull out their phones.

The better approach is to put guide-lines in place and educate employees on acceptable behaviour. This is not to say that employee use of social media carries no risk. It is not unusual for people to say things on social media that they would never do in a letter or email.

For example, a 2009 survey of United States employees indicated that 74 per cent agreed that it would be easy to damage an employer’s reputation via social media. Despite this, 27 per cent of those employees said they do not consider the ethical consequences of posting comments, photos or videos; 37 per cent rarely or never consider what their boss would think; and 34 per cent rarely or never consider what their customers would think. 15 per cent agreed that if their employer did something they did not agree with they would comment about it online.

RISKS TO EMPLOYERS INCLUDE

  • violation of workplace harassment laws and policies,
  • messages inconsistent with the employer’s corporate image,
  • inappropriate use of employer resources,
  • defamation,
  • copyright violations,
  • privacy breaches, and
  • security breaches.

While one can argue that existing rules and common sense should be sufficient to cover an employee’s use of blogs and social media, it doesn’t seem to work that way in practice. After all, people sometimes tend to use new tools without a lot of thought about what they are doing, or whether they are doing something that they shouldn’t do.

Many employers have implemented social media policies for their employees. In essence, a social media policy describes acceptable behaviour. It will remind employees what is appropriate, and what is not. The goal is to foster safer behaviour, and to set a standard against which behaviour can be judged

A social media policy can stand on its own, or be incorporated into a wider, technology-use policy that covers the appropriate use of technology in general.

If you are not sure where to start, or what issues should be addressed, visit www.policytool.net. This online service (created by the author and rTraction) allows you to answer questions based on your situation and generates a draft policy customized to your business.

http://harrisonpensa.com/lawyers/david-canton

Tech trends for 2014

For the London Free Press – January 5, 2014 – Read this at lfpress.com

It was announced in December that the Canadian Anti-Spam legislation (sometimes called CASL) will be in force July 1, 2014.

The legislation is complex, and because of its extremely broad definition of spam, will be a compliance nightmare for many businesses and charities. Many of us routinely send seemingly innocuous emails that will be considered spam. The time and effort required to comply will be significant. Penalties for violating the act are severe, so it’s not something that can be ignored.

Technology that becomes part of us is a long way off, but it’s inevitable. For now, smart watches and Google Glass are examples of wearable computing that will become more common. Wearable computers will be interfaces to our smartphones, monitor our activities, fitness and health, and act as cameras and gps guides.

The latest gaming consoles (Xbox and PS4) do far more than just play games. They include smart TV functions and access to entertainment services such as Netflix. Watch for these to become the central entertainment and communications device for many people.

Courts are starting to understand just how personal our electronic devices — ranging from computers to smartphones — are, and how invasive it is for others to look at them. They can be a window to personal information such as email, banking details, our location and health. Looking at one can be as invasive as searching our home.

The Supreme Court of Canada recently released a decision saying that a warrant to search a house does not give the right to search the contents of a computer found in the house unless it specifically mentions the computer.

The Supreme Court will soon decide whether police can search someone’s cellphone when they arrest them. The Ontario court of Appeal said it could be searched if the phone is unlocked, but not if it was locked by a password. Given current and future technologies that give us access to our phones, such as fingerprint readers, facial recognition and heartbeat recognition, that distinction may not be as simple as it seems.

It would not be surprising to see a decision that requires a warrant to look at any smartphone regardless if it is locked. While the locked vs unlocked theory does follow a certain logic, it can be argued that it is like saying police require a warrant to enter a locked house, but not an unlocked one.

The very tools that we use to work and interact with others also make it easier to watch and track us. The NSA / Snowden revelations will continue, along with continued attempts by governments to increase their ability to surveil and get information about us without warrants.

There’s a great fear that we are already in a surveillance society, let alone be headed to one. Many service providers and privacy advocates will continue to push back at that, such as by implementing increased encryption and more robust security.

http://harrisonpensa.com/lawyers/david-canton

Where’s your “Freaky Line”?

For the London Free Press – December 23, 2013 – Read this at lfpress.com

How much privacy and control of your personal information are you willing to give up to get useful information in return?

Technology is becoming increasingly integrated with us — both psychologically and physically. And its use increasingly requires us to trust others with sensitive information about us.

This new age of information gathering has been described by author Robert Scoble as the “age of context.” Scoble said, “It’s scary. Over the freaky line, if you will.”

He predicts that this “freaky line” will create a new kind of digital divide between those who will and will not cross it

Take for example Google Glass, a wearable computer with a head-mounted display. Essentially it is a pair of glasses that displays Internet information hands-free, all using voice commands. This may sound relatively harmless, but can give away detailed information on your daily routine, habits and haunts.

For some, that is a bit too much. More and more of our personal and intimate information will be collected from devices and converted into usable data — both for the user and others.

Users will get valuable information such as traffic, nearby attractions and the latest deals through behavioural advertising, which is a method of tracking consumers’ activities on websites to personalize advertisements.

There is a price to getting this information. That price is that our information has to go to a mothership somewhere, and that mothership now has information about us.

As users move along the continuum from personal computers to mobile devices to wearable computers, the ability to track user’s activities moves with it. Instead of tracking websites visited, wearable devices will provide advertisers with information about the user’s physical location, movements, interactions, health, heart rate, temperature, purchases, photographs taken, and whatever other data is being collected.

Some issues that arise include what that information will be used for, the extent to which it is kept anonymous, how long it will be kept, and who will have access to it. Privacy laws don’t fit nicely into this subject. It isn’t clear what is and what is not a reasonable expectation of privacy.

Manufacturers and service providers may argue that simply purchasing and using these types of devices amounts to implied consent for the use and dissemination of your personal information. But it’s not that simple.

For now, the choice is yours. You can choose to use these devices, or not. If you choose to use them, you do have some control over how your information is used and where it goes. But it’s not always easy to figure out or understand, and it may mean giving up using certain features.

If you choose to not use them, you keep a firmer grasp on your personal information, but you tend to miss out on new technologies and the benefits they bring.

This is the “freaky line” that you must choose to cross . . . or not.

http://harrisonpensa.com/lawyers/david-canton

There’s no shortage of possibilities as you do your techno-shopping

For the London Free Press – December 9, 2013 – Read this at lfpress.com tetris-light big

In case you didn’t cross everyone off of your gift list on Black Friday or Cyber Monday, here are a few gadgets to consider.
More people want to watch this “over the top” content on their TVs as the amount of streaming content (such as Netflix and YouTube) continues to grow. New Smart TVs have this capability built in. But if you are not in the market to buy a new TV, several devices are available to connect to your TV to get this content.
There are a wide range of options, each with their own advantages and features. If you’re shopping for an Apple fan, the Apple TV seamlessly integrates into the Apple ecosystem. Other options include a Roku box that comes in various models, and the Google Chromecast. The new Xbox One works as a smart TV as well as a gaming console.
Although battery life on most devices is improving, it never hurts to have a backup. Portable battery chargers make great stocking stuffers. There’s a massive range of products to choose from with varying features such as solar charging and simultaneous charging.
Bluetooth speakers are appealing for those who love music. Anyone can play their songs from any Bluetooth-enabled device such as a smartphone or laptop. There are many portable bluetooth speakers to choose from, ranging from budget-minded to audiophile quality.
Tech geeks will likely appreciate an 802.11ac router, the new standard for WiFi routers. They are faster than existing 802.11n routers, but only if the laptop, smartphone or tablet being used to access also uses 802.11n. Many of the latest models do. But if no one has an 802.11ac device to access it, you may want to wait for a while for the price of these new routers to come down.
A dash cam is another interesting gift idea. These cameras are popular in places like Russia where people use them to help protect themselves against accident insurance scams. These devices could be a wallet saver if you’re in a fender bender that wasn’t your fault. There are lots of different models to choose from.
If you are looking for something truly high-tech, check out the Double from Double Robotics — the ultimate gadget for telecommuting. It’s essentially an iPad attached to a remote controlled robot allowing someone to have a telepresence in the workplace while being physically elsewhere.
For something more reasonably priced than a telecommuting robot, you can always drop into London’s Uber Cool Store or browse their online shop for unique and fun products.
Wind-up “critters” by Kikkerland are a perfect way to relieve stress. They hop, scuttle and climb about and even shoot sparks.
Those who appreciate retro games will love the Tetris Light that has Tetris puzzle pieces that can be connected in hundreds of combinations to create a multicoloured LED glow that looks like a Tetris puzzle.

 

Creating links that will never break

For the London Free Press – November 25, 2013 – Read this at lfpress.com

We have all seen the “404 Not Found” or “Page does not exist” error response when we click on a broken Internet link. Though the Internet is a dynamic and constantly evolving medium for creating and sharing information, it can lack permanence.

“Link rot” describes hyperlinks that direct users to web pages or other sources that have since been moved or become permanently unavailable. This often occurs with news-related links where stories are moved around or deleted to make room for new ones.

The content you linked to may still exist but simply has a new address. Link rot can also occur when a website is reorganized or the domain has been changed without the creation of redirects.

Whether you’re an academic or amateur blogger, link rot undermines the professionalism, quality and relevance of your content. When citing information, you want to ensure the information you link to is accessible for future users. However web pages you’ve linked to can easily be changed, moved or deleted at any time making your content immediately less relevant because the information can’t be verified or the primary source can’t be referred to.

Link rot also poses an obstacle for those conducting research. When a link is dead or broken, it’s analogous to someone trying to perform research at a library but finding footnotes in the books have been ripped out.

Recognizing the problems caused by link rot, services such as Internet Archive and Google are archiving Internet documents by effectively taking snapshots of webpages for future access. However, these services are limited in that content chosen for archive is random and cannot be initiated by authors, editors or publishers seeking a specific reference.

Given the pervasive threat link rot poses to academics, a handful of “on-demand” archiving consortiums have surfaced that allow scholarly authors, editors and publishers to create links that “will never break.” This is achieved by submitting the URL to the service that then archives the material on the page as a user would view it on that same day and then sending a new URL that a future reader can click to be directed to both the original web source (that may have since changed) and the archived version.

One such service is Perma CC managed by universities, libraries and the Internet Archive.

Another is WebCite, a non-profit consortium supported by publishers, editors and donations. Since its launch in 1997, more than 200 academic journals have relied on Webcite to create “stable” links. WebCite is seeking crowdfunding on fundrazr.com to continue archiving new material past 2013.

Without archiving services, information online could easily be lost to future generations.

http://harrisonpensa.com/lawyers/david-canton

Top court to rule on cell privacy

The Supreme Court of Canada will soon decide when police can look at one’s cell phone without a warrant.

Given the large amount of personal information that exists on our smartphones, this will be an important decision.  A smartphone can be a window to personal information such as email, banking details, our location over time, personal photos, and even health information.  Looking at a cell phone can be as invasive as searching our home.

In the case going to the Supreme Court, the accused, Mr. Fearon, was arrested on suspicion of his role in a robbery.  At the time of his arrest, he had a cell phone, which did not have a password restricting access.  .Incident to the arrest, the police looked through the contents of his phone finding messages and pictures incriminating him for the robbery.  At trial, Mr. Fearon attempted to have the evidence deemed inadmissible, arguing that the police should have obtained a warrant to search his phone.  The Court held that the evidence was admissible. 

The Court reasoned that since the phone did not have a password, a cursory examination of its contents incidental to arrest was acceptable.  The court stated that had access to the phone required a password, the police would need a warrant to go through the phone.

The court recognized “the highly personal and sensitive nature of the contents of a cell phone” and the fairly high expectation that such information would attract an expectation of privacy, but allowed the search nonetheless.

The Supreme Court will determine whether that principle should be upheld or replaced with something different.  

Some may argue that the court did a good job balancing the privacy interests of individuals with the enforcement interests of the police.  However others may think it is akin to saying that whether police can search one’s house depends on whether the door is locked. 

The concept of a phone being locked may not be as straightforward as it seems, given ever changing technology. 

For example the iPhone 5S has a finger print reader that can be used instead of a password to gain access to the phone. 

A password is something contained in the mind of an individual, whereas a finger print is physical.  It is easily obtained through a minor amount of force, by putting the phone to the user’s finger. 

Other authentication processes are on the horizon, including some that unlock the phone when in close proximity to its owner.  For example, the upcoming Nymi is a bracelet that senses the unique heart rhythm of its owner which effectively serves as a password to provide access to everything from phones to computers to doors.  Other technology that would accomplish the same thing are electronic tattoos and authentication pills.

In a situation where an individual uses one of those authentication methods, their phone would appear to be unlocked, even though they intended to restrict access to their phone. Let’s hope the Supreme Court of Canada considers the technology in this light, rather than just a simple password.

A condensed version of this article appeared in my last Tech Watch column.

http://harrisonpensa.com/lawyers/david-canton