SOCAN Decision: Online music distributors must only pay a single royalty fee

December 1, 2022

In Society of Composers, Authors and Music Publishers of Canada v. Entertainment Software Association¹ (the “SOCAN Decision”), the Supreme Court of Canada ruled on the obligation to pay a royalty for making a work available to the public on a server, where it can later be streamed or downloaded. At the same time, it clarified the applicable standard of review for appeals where administrative bodies and courts share concurrent first instance jurisdiction and revisited the purpose of the Copyright Act²and its interpretation in light of the WIPO Copyright Treaty³.

The Supreme Court also took the opportunity to reiterate the importance of the principle of technological neutrality in the application and interpretation of the Copyright Act. This reminder can also be applied to other artistic mediums and is very timely in a context where the digital visual arts market is experiencing a significant boom with the production and sale of non-fungible tokens (“NFTs”).

In 2012, Canadian legislators amended the Copyright Act by adopting the Copyright Modernization Act⁴. These amendments incorporate Canada’s obligations under the Treaty into Canadian law by harmonizing the legal framework of Canada’s copyright laws with international rules on new and emerging technologies. The CMA introduced three sections related to “making [a work] available,” including section 2.4(1.1) of the CMA. This section applies to original works and clarifies section 3(1)(f), which gives authors the exclusive right to “communicate a work to the public by telecommunication”:

2.4(1.1) Copyright Act. “For the purposes of this Act, communication of a work or other subject-matter to the public by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public.”

Before the CMA came into force, the Supreme Court also found that downloading a musical work from the Internet was not a communication by telecommunication within the meaning of section 3(1)(f) of the CMA⁵, while streaming was covered by this section.⁶

Following the coming into force of the CMA, the Copyright Board of Canada (the “Board”) received submissions regarding the application of section 2.4(1.1) of the Copyright Act. The Society of Composers, Authors and Music Publishers of Canada (“SOCAN”) argued, among other things, that section 2.42.4(1.1) of the Copyright Act required users to pay royalties when a work was published on the Internet, making no distinction between downloading, streaming and cases where works are published but never transmitted.

The consequence of SOCAN’s position was that a royalty had to be paid each time a work was made available to the public, whether it was downloaded or streamed. For each download, a reproduction royalty also had to be paid, while for each stream, an additional performance royalty had to be paid.

Judicial history

The Board’s Decision⁷

The Board accepted SOCAN’s interpretation that making a work available to the public is a “communication”. According to this interpretation, two royalties are due when a work is published online. Firstly, when the work is made available to the public online, and secondly, when it is streamed or downloaded. The Board’s Decision was largely based on its interpretation of Section 8 of the Treaty, according to which the act of making a work available requires separate protection by Member States and constitutes a separately compensable activity.
Federal Court of Appeal’s Decision⁸

Entertainment Software Association, Apple Inc. and their Canadian subsidiaries (the “Broadcasters”) appealed the Board’s Decision before the Federal Court of Appeal (“FCA”). Relying on the reasonableness standard, the FCA overturned the Board’s Decision, affirming that a royalty is due only when the work is made available to the public on a server, not when a work is later streamed. The FCA also highlighted the uncertainty surrounding the applicable review standard in appeals following Vavilov⁹ in cases where administrative bodies and courts share concurrent first instance jurisdiction.

SOCAN Decision

The Supreme Court dismissed SOCAN’s appeal seeking the reinstatement of the Board’s Decision.

Appellate standards of review

The Supreme Court recognized that there are rare and exceptional circumstances that create a sixth category of issues to which the standard of correctness applies, namely concurrent first instance jurisdiction between courts and administrative bodies.
Does section 2.4(1.1) of the Copyright Act entitle the holder of a copyright to the payment of a second royalty for each download or stream after the publication of a work on a server, making it publicly accessible?

The copyright interests provided by section 3(1) of the Copyright Act

The Supreme Court began its analysis by considering the three copyright interests protected by the Copyright Act, or in other words, namely the rights provided for in section 3(1):

to produce or reproduce a work in any material form whatsoever;
to perform the work in public;
to publish an unpublished work.

These three copyright interestsare distinct and a single activity can only engaged one of them. For example, the performance of a work is considered impermanent, allowing the author to retain greater control over their work than reproduction. Thus, “when an activity allows a user to experience a work for a limited period of time, the author’s performance right is engaged. A reproduction, by contrast, gives a user a durable copy of a work”.¹⁰ The Supreme Court also emphasized that an activity not involving one of the three copyright interests under section 3(1) of the Copyright Act or the author’s moral rights is not protected by the Copyright Act. Accordingly, no royalties should be paid in connection with such an activity.

The Court reiterated its previous view that downloading a work and streaming a work are distinct protected activities, more precisely downloading is considered reproduction, while streaming is considered performance. It also pointed out that downloading is not a communication under section 3(1)(f) of the Copyright Act, and that making a work available on a server is not a compensable activity distinct from the three copyright interests.¹¹

Purpose of the Copyright Act and the principle of technological neutrality

The Supreme Court criticized the Board’s Decision, opining that it violates the principle of technological neutrality, in particular by requiring users to pay additional fees to access online works.

The purpose of the CMA was to “ensure that [the Copyright Act] remains technologically neutral”¹² and thereby show, at the same time, Canada’s adherence to the principle of technological neutrality. The principle of technological neutrality is further explained by the Supreme Court:

[63] The principle of technological neutrality holds that, absent parliamentary intent to the contrary, the Copyright Act should not be interpreted in a way that either favours or discriminates against any form of technology: CBC, at para. 66. Distributing functionally equivalent works through old or new technology should engage the same copyright interests: Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, 2012 SCC 36, [2012] 2 S.C.R. 326, at para. 43; CBC, at para. 72. For example, purchasing an album online should engage the same copyright interests, and attract the same quantum of royalties, as purchasing an album in a bricks-and-mortar store since these methods of purchasing the copyrighted works are functionally equivalent. What matters is what the user receives, not how the user receives it: ESA, at paras. 5-6 and 9; Rogers, at para. 29. In its summary to the CMA, which precedes the preamble, Parliament signalled its support for technological neutrality, by stating that the amendments were intended to “ensure that [the Copyright Act] remains technologically neutral”.

According to the Supreme Court, the principle of technological neutrality must be observed in the light of the purpose of the Copyright Act, which does not exist solely for the protection of authors’ rights. Rather, the Act seeks to strike a balance between the rights of users and the rights of authors by facilitating the dissemination of artistic and intellectual works aiming to enrich society and inspire other creators. As a result, “[w]hat matters is what the user receives, not how the user receives it.”¹³ Thus, whether the reproduction or dissemination of the work takes place online or offline, the same copyright applies and leads to the same royalties.

What is the correct interpretation of section 2.4(1.1) of the Copyright Act?

Section 8 of the Treaty

The Supreme Court reiterated that international treaties are relevant at the context stage of the statutory interpretation exercise and they can be considered without textual ambiguity in the statute.¹⁴ Moreover, wherethe text permits, it must be interpreted so as to comply with Canada’s treaty obligations, in accordance with the presumption of conformity, which states that a treaty cannot override clear legislative intent.¹⁵

The Court concluded that section 2.4(1.1) of the Copyright Act was intended to implement Canada’s obligations under Section 8 of the Treaty, and that the Treaty must therefore be taken into account in interpreting section 2.4(1.1) of the Act.

Although Section 8 of the Treaty gives authors the right to control making works available to the public, it does not create a new and protected “making available” right that would be separately compensable. In such cases, there are no “distinct communications” or in other words, “distinct performances”.¹⁶

Section 8 of the Treaty creates only two obligations:

“protect on demand transmissions; and
give authors the right to control when and how their work is made available for downloading or streaming.”¹⁷

Canada has the freedom to choose how these two objectives are implemented in the Copyright Act, either through the right of distribution, the right of communication to the public, the combination of these rights, or a new right.¹⁸

The Supreme Court concluded that the Copyright Act gives effect to the obligations arising from Section 8 of the Treaty through a combination of the performance, reproduction, and authorization rights provided for in section 3(1) of the Copyright Act, and by respecting the principle of technological neutrality.¹⁹

Which interpretation of section 2.4(1.1) of the Copyright Act should be followed?

The purpose of section 2.4(1.1) of the Copyright Act is to clarify the communication right in section 3(1)(f) of the Copyright Act by emphasizing its application to on-demand streaming. A single on-demand stream to a member of the public thus constitutes a “communication to the public” within the meaning of section 3(1)(f) of the Copyright Act.²⁰

Section 2.4(1.1) of the Copyright Act states that a work is performed as soon as it is made available for on-demand streaming.²¹ Therefore, streaming is only a continuation of the performance of the work, which starts when the work is made available. Only one royalty should be collected in connection with this right:

[100] This interpretation does not require treating the act of making the work available as a separate performance from the work’s subsequent transmission as a stream. The work is performed as soon as it is made available for on-demand streaming. At this point, a royalty is payable. If a user later experiences this performance by streaming the work, they are experiencing an already ongoing performance, not starting a new one. No separate royalty is payable at that point. The “act of ‘communication to the public’ in the form of ‘making available’ is completed by merely making a work available for on?demand transmission. If then the work is actually transmitted in that way, it does not mean that two acts are carried out: ‘making available’ and ‘communication to the public’. The entire act thus carried out will be regarded as communication to the public”: Ficsor, at p. 508. In other words, the making available of a stream and a stream by a user are both protected as a single performance — a single communication to the public.

In summary, the Supreme Court stated and clarified the following in the SOCAN Decision:

Section 3(1)(f) of the Copyright Act does not cover download of a work.
Making a work available on a server and streaming the work both involve the same copyright interest to the performance of the work.
As a result, only one royalty must be paid when a work is uploaded to a server and streamed.
This interpretation of section 2.4(1.1) of the Copyright Act is consistent with Canada’s international obligations for copyright protection.
In cases of concurrent first instance jurisdiction between courts and administrative bodies, the standard of correctness should be applied.

As artificial intelligence works of art increase in amount and as a new market for digital visual art emerges, driven by the public’s attraction for the NFT exchanges, the principle of technological neutrality is becoming crucial for understanding the copyrights attached to these new digital objects and their related transactions. Fortunately, the issues surrounding digital music and its sharing and streaming have paved the way for rethinking copyright in a digital context.

It should also be noted that in decentralized and unregulated digital NFT markets, intellectual property rights currently provide the only framework that is really respected by some market platforms and may call for some degree of intervention on the part of the market platforms’ owners.

2022 SCC 30.
Can. T.S. 2014 No. 20, (hereinafter the “Treaty”).
S.C. 2012, c. 20 (hereinafter the “CMA”).
Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34.
Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 35.
Copyright Board of Canada, 2017 CanLII 152886 (hereinafter the “Board’s Decision”).
Federal Court of Appeal, 2020 FCA 100 (hereinafter the “FCA’s Decision”).
Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.
SOCAN Decision, par. 56.
Ibid, para. 59.
CMA, Preamble.
SOCAN Decision, para. 70, emphasis added by the SCC.
Ibid, paras. 44-45.
Ibid, paras. 46-48.
Ibid, paras. 74-75.
Ibid, para. 88.
Ibid, para. 90.
Ibid, paras. 101 and 108.
Ibid, paras. 91-94.
Ibid, paras. 95 and 99-100.

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Gabrielle Mathieu
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April 15, 2024

Can artificial intelligence be designated as an inventor in a patent application?

Artificial intelligence (“AI”) is becoming increasingly sophisticated, and the fact that this human invention can now generate its own inventions opens the door to new ways of conceptualizing the notion of “inventor” in patent law. In a recent ruling, the Supreme Court of the United Kingdom (“UK Supreme Court”) however found that an artificial intelligence system cannot be the author of an invention within the meaning of the applicable regulations under which patents are granted. This position is consistent with that of several courts around the world that have already ruled on the issue. But what of Canada, where the courts have yet to address the matter? In this bulletin, we will take a look at the decisions handed down by the UK Supreme Court and its counterparts in other countries before considering Canada’s position on the issue. In Thaler (Appellant) v Comptroller-General of Patents, Designs and Trade Mark,1 the UK Supreme Court ruled that “an inventor must be a person”. Summary of the decision In 2018, Dr. Stephen Thaler filed patent applications for two inventions described as having been generated by an autonomous AI system. The machine in question, DABUS, was therefore designated as the inventor in the applications. Dr. Thaler claimed that, as the owner of DABUS, he was entitled to file patent applications for inventions generated by his machine. That being so, he alleged that he was not required to name a natural person as the inventor. Both the High Court of Justice and the Court of Appeal dismissed Dr. Thaler’s appeal from the decision of the Intellectual Property Office of the United Kingdom not to proceed with the patent applications, in particular because the designated inventor was not valid under the Patents Act 1977. The UK Supreme Court, the country’s final court of appeal, also dismissed Dr. Thaler’s appeal. In a unanimous decision, it concluded that the law is clear in that “an inventor within the meaning of the 1977 Act must be a natural person, and DABUS is not a person at all, let alone a natural person: it is a machine”.2 Although there was no doubt that DABUS had created the inventions in question, that did not mean that the courts could extend the notion of inventor, as defined by law, to include machines. An ongoing trend The UK Supreme Court is not the first to reject Dr. Thaler’s arguments. The United States,3 the European Union4 and Australia5 have adopted similar positions, concluding that only a natural person can qualify as an inventor within the meaning of the legislation applicable in their respective jurisdictions. The UK ruling is part of the Artificial Inventor Project’s cross-border attempt to ensure that the DABUS machine—and AI in general—is recognized as a generative tool capable of generating patent rights for the benefit of AI system owners. To date, only South Africa has issued a patent to Dr. Thaler, naming DABUS as the inventor.6 This country is the exception that proves the rule. It should however be noted that the Companies and Intellectual Property Commission of South Africa does not review applications on their merits. As such, no reason was given for considering AI as the inventor. More recently, in February of this year, the United States Patent and Trademark Office issued a guidance on AI-assisted inventions. The guidance confirms the judicial position and states in particular that “a natural person must have significantly contributed to each claim in a patent application or patent”.7 What about Canada? In 2020, Dr. Thaler also filed a Canadian patent application for inventions generated by DABUS.8 The Canadian Intellectual Property Office (“CIPO”) issued a notice of non-compliance in 2021, establishing its initial position as follows: Because for this application the inventor is a machine and it does not appear possible for a machine to have rights under Canadian law or to transfer those rights to a human, it does not appear this application is compliant with the Patent Act and Rules.9 However, CIPO specified that it was open to receiving the applicant’s arguments on the issue, as follows: Responsive to the compliance notice, the applicant may attempt to comply by submitting a statement on behalf of the Artificial Intelligence (AI) machine and identify, in said statement, himself as the legal representative of the machine.10 To date, CIPO has issued no notice of abandonment and the application remains active. Its status in Canada is therefore unclear. It will be interesting to see whether Dr. Thaler will try to sway the Canadian courts to rule in his favour after many failed attempts in other jurisdictions around the world, and most recently in the UK Supreme Court. At first glance, the Patent Act11 (the “Act”) does not prevent an AI system from being recognized as the inventor of a patentable invention. In fact, the term “inventor” is not defined in the Act. Furthermore, nowhere is it stated that an applicant must be a “person,” nor is there any indication to that effect in the provisions governing the granting of patents. The Patent Rules12 offer no clarification in that regard either. The requirement implied by the clear use of the term “person” in the wording of the relevant sections of the law is important: It was a key consideration that the UK Supreme Court analyzed in Thaler. Case law on the subject is still ambiguous. According to the Supreme Court of Canada, given that the inventor is the person who took part in conceiving the invention, the question to ask is “[W]ho is responsible for the inventive concept?”13 That said, however, we note that the conclusion reached was that a legal person—as opposed to a natural person—cannot be considered an inventor.14 The fact is that the Canadian courts have never had to rule on the specific issue of recognizing AI as an inventor, and until such time as the courts render a decision or the government takes a stance on the matter, the issue will remain unresolved. Conclusion Given that Canadian law is not clear on whether AI can be recognized as an inventor, now would be a good time for Canadian authorities to clarify the issue. As the UK Supreme Court has suggested, the place of AI in patent law is a current societal issue, one that the legislator will ultimately have to settle.15 As such, it is only a matter of time before the Act is amended or CIPO issues a directive. Moreover, in addition to having to decide whether AI legally qualifies as an inventor, Canadian authorities will have to determine whether a person can be granted rights to an invention that was actually created by AI. The question as to whether an AI system owner can hold a patent on an invention generated by their machine was raised in Thaler. Once again, unlike the UK’s patent act,16 our Patent Act does not close the door to such a possibility. Canadian legislation contains no comprehensive list of the categories of persons to whom a patent may be granted, for instance. If we were to rewrite the laws governing intellectual property, given that the main purpose such laws is to encourage innovation and creativity, perhaps a better approach would be to allow AI system owners to hold patent rights rather than recognizing the AI as an inventor. Patent rights are granted on the basis of an implicit understanding: A high level of protection is provided in exchange for sufficient disclosure to enable a person skilled in the art to reproduce an invention. This ensures that society benefits from such inventions and that inventors are rewarded. Needless to say, arguing that machines need such an incentive is difficult. Designating AI as an inventor and granting it rights in that respect is therefore at odds with the very purpose of patent protection. That said, an AI system owner who has invested time and energy in designing their system could be justified in claiming such protection for the inventions that it generates. In such a case and given the current state of the law, the legislator would likely have to intervene. Would this proposed change spur innovation in the field of generative AI? We are collectively investing a huge amount of “human” resources in developing increasingly powerful AI systems. Will there come a time when we can no longer consider that human resources were involved in making AI-generated technologies? Should it come to that, giving preference to AI system owners could become counterproductive. In any event, for the time being, a sensible approach would be to emphasize the role that humans play in AI-assisted inventions, making persons the inventors rather than AI. As concerns inventions conceived entirely by an AI system, trade secret protection may be a more suitable solution. The professionals on our intellectual property team are at your disposal to assist you with patent registration and provide you with a clearer understanding of the issues involved. [2023] UKSC 49 [Thaler]. Ibid., para. 56. See the decision of the United States Court of Appeals for the Federal Circuit in Thaler v Vidal, 43 F. 4th 1207 (2022), application for appeal to the Supreme Court of the United States dismissed. See the decision of the Boards of Appeal of the European Patent Office in J 0008/20 (Designation of inventor/DABUS) (2021), request to refer questions to the Enlarged Board of Appeal denied. See the decision of the Full Court of the Federal Court of Australia in Commissioner of Patents v Thaler, [2022] FCAFC 62, application for special leave to appeal to the High Court of Australia denied. ZA 2021/03242. Federal Register: Inventorship Guidance for AI-Assisted Inventions. CA 3137161. Notice from CIPO dated February 11, 2022, in Canadian patent application 3137161. Ibid. R.S.C., 1985, c. P-4. SOR/2019-251. Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77 at paras. 96–97. Sarnoff Corp. v. Canada (Attorney General), 2008 FC 712, para. 9. Thaler, paras. 48–49, 79. Ibid., para. 79.

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February 8, 2024

Official marks in Canada: The prospect of upcoming changes

Before delving into the topic, let’s begin with a definition. Official marks are statutory instruments specific to Canadian practice. They are not trademarks per se, but are treated similarly, because they are adopted and used by a limited group of organizations including universities, Canadian public authorities and Her Majesty’s Forces.1 In this article, we will be focusing on Canadian public authorities. There are several hundred marks in the Register belonging to public authorities, including the federal and provincial governments, government agencies and municipalities. Unlike traditional trademarks, official marks do not protect specific goods or services, but instead cover all classes of goods and services. They may even be descriptive, as they are not required to be distinctive. Moreover, they are not registered in the usual sense of the word. Instead, a notice of adoption is simply published in the Trademarks Journal. One unique feature of official marks is that they are not subject to a renewal process. They can therefore remain in the Register indefinitely. That being so, official marks may hinder the registration of a trademark filed subsequently, unless the public authority concerned voluntarily withdraws the notice of adoption of its official mark. Lastly, it is important to note that official marks are not subject to examination or opposition proceedings. In other words, the Registrar of Trademarks (the “Registrar”) makes no official verification as to their validity or compliance with the standard registration criteria. Thus, because of the extensive protection afforded to official marks, they appear to be virtually unassailable. But is that really the case? The Registrar considers that they have no discretion to refuse to give public notice of an official mark, unless it has not been registered by a Canadian public authority or such authority has not adopted or used its official mark at the time of filing its application. When the Trademarks Act (the “Act”) was amended in June 2019, trademark professionals were hoping that the criteria providing these marks with extensive protection would be revised. However, Parliament chose not to undertake an in-depth review of the laws governing official marks. That being said, the Office of the Registrar did provide some clarification in October 2020 as to its practice regarding official marks. First, since 2020, the Registrar requires evidence of public authority status. This change was made further to several comments on the questionable status of certain so-called “public authorities.” The decision in Ontario Association of Architects v. Association of Architectural Technologists of Ontario (C.A.), 2002 FCA 218, clearly states that for a body to qualify as a public authority, the government must exercise a significant degree of control over its activities, particularly as relates to its governance and decision-making, and such activities must benefit the public. Given that the laws governing public authorities have been in force for several decades, it is reasonable to assume that many published official marks are no longer held by public authorities or no longer meet the criteria defining a public authority. What is the proper way to respond to an opposition based on the resemblance between an official mark and a trademark? The options are limited. It is important to remember that subsection 9(1) of the Act states that no person shall adopt in connection with a business, as a trademark or otherwise, any mark consisting of, or so nearly resembling as to be likely to be mistaken for, an official mark. The test is not based on a likelihood of confusion, as is the case when examining the likelihood of confusion between two trademarks. Instead, it is based on resemblance. Trademark professionals may argue that the applied-for mark is not identical or so similar to the official mark as to be confused with it. Another option—mainly in cases where the applied-for trademark is identical or very similar to an official mark—is to seek the consent of the official mark’s owner to use and register the trademark. In some cases, however, contacting a public authority may prove difficult, either because it no longer exists, or because it simply will not respond to requests for consent. Some public authorities ask for financial compensation in exchange for their consent. Can an official mark be contested? For the time being, there is no simple mechanism for contesting an official mark. The process of publishing a public notice of an official mark is not subject to opposition proceedings. Third parties have the option of contesting an official mark by means of an appeal or an application for judicial review to the Federal Court. They may do so in cases where an official mark was not adopted and used before the public notice was issued, or the body in question is not considered a public authority, or the official mark infringes on another mark. However, it should be noted that such proceedings are costly and take time. So what does the future hold? While the laws governing official marks remain essentially intact, some amendments are expected. The Canadian legislative authorities intend to add two new sections to the Act, namely sections 9(3) and 9(4). The purpose of these amendments is to clarify that even where a public notice has been issued concerning an official mark, such notice does not apply if the entity that requested it is not a public authority or no longer exists. In such circumstances, the Registrar may, on their own initiative or at a person’s request, give public notice that section 9 does not apply. Our understanding is that the Registrar will have new powers, including that of requesting—either on their own initiative or at the request of a person who pays the prescribed fee—that a so-called official mark be invalidated should its owner fail to respond to the Registrar’s notice requiring evidence of public authority status. This amendment to the Act should be introduced shortly. On another note, there were some interesting decisions handed down in 2023. KASAP TURKISH STEAKHOUSE & Design: The decision in The Board of Regents of the University of Texas System and EDAM Ltd., 2023 TMOB 161, clearly establishes the limitations of official marks when it comes to assessing the likelihood of confusion between two marks. The Board of Regents of the University of Texas opposed the application for the trademark KASAP TURKISH STEAKHOUSE & Design (hereinafter “Kasap”): in particular, on the grounds that the Kasap mark bore such a resemblance to the official mark of the University of Texas that it could be confused with its official mark as shown below: However, as previously mentioned, when assessing the resemblance between a trademark and an official mark, particular attention is paid to the similarity between the marks. The Trademarks Opposition Board concluded that the applicant’s applied-for mark did not resemble the official mark as to be likely to be mistaken for it, despite the presence of an image of a longhorn cow’s head in both marks. The distinctiveness of the word “KASAP” in the applicant’s mark was deemed sufficient to distinguish the two marks. As such, the opposition was rejected. A mark that includes an official mark along with other elements does not “consist of” that official mark. Via Rail Canada Inc. and Via Transportation, Inc., 2023 TMOB 155 This decision concerns an opposition filed by Via Rail Canada Inc. (the Opponent and owner of an official mark) against a trademark application submitted by Via Transportation, Inc. (the Applicant). The application was for the mark “VIA & Design” as shown below: for use in association with the transportation of passengers and related mobile application software and telecommunication services. The Opponent opposed the application based on an allegation that the mark caused confusion with its trademarks, official marks and trade names containing the word “VIA” and used in association with its national railway services and related goods and services. Ultimately, the Applicant’s application was rejected in part because the Applicant’s mark was not registrable under section 12(1)(e), as it was deemed too similar to the Opponent’s official “VIA” mark, which was likely to cause confusion. The hearing officer summarized the resemblance test as follows in paragraph 106: The resemblance test under section 9(1)(n)(iii) of the Act differs from a standard confusion analysis in that it requires a likelihood that consumers will be mistaken as between the marks themselves rather than a likelihood that consumers will be confused as to the source of the goods or services. In short, the general consensus is that the laws governing official marks in Canada could certainly use a thorough revision, one that would help weed out any marks cluttering up the register of official marks that no longer fit the definition. Examples of university official marks: Université de Montréal (0910712), Universität Heidelberg (0923735), Louisiana State University (0923069). It should be noted that universities are not required to be Canadian to request publication of an official mark. The Armed Forces have adopted several marks on behalf of Her Majesty, including PORTE DAUPHINE (0903172) & Design, SKY HAWKS (0903269) and CORMORANT & Design (0903170). More specifically, we refer to sections 9 and following of the Trademarks Act.

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February 7, 2024

Sponsorship agreements in the sports world: the promise of fame and exposure

“I was outraged!” “It beggars belief!” “It’s ridiculous!”1 These are just a few of the comments heard in connection with a controversial clause in Neymar’s contract with the Saudi Arabia-based Al Hilal soccer club, which he signed in August 2023. It provided for a payment of approximately $500,000 for each Instagram post promoting Saudi Arabia... In stark contrast, other observers applauded this initiative, viewing Neymar as the harbinger of an era in which sports talent would finally be valued for its true worth. Even before he’d laced up his cleats for his new team, Neymar was already shining a warm spotlight on the Saudi kingdom. At a press conference on September 7, 2023, the Brazilian forward cheekily likened France’s League 1, in which he used to play (it is ranked the fifth-best soccer league in the world) to Saudi Arabia’s (ranked 36th): “Considering all the big names in this League, this championship may well be better than League 1.”2 Needless to say, his comment sparked a tidal wave of reactions. For comparison purposes, Major League Soccer (MLS), CF Montreal’s home league, is ranked #29 in the world. Figure 1: Photo posted on Instagram by Neymar (left), who appears to be enjoying himself in Saudi Arabia. This post was “liked” by over 7.3 million Instagram users. Thriving on competition, passion and adrenalin, the sports world is fertile ground for sponsorship agreements. These arrangements serve as strategic alliances that capture the essence of contemporary sports and transcend the limits of the games involved. In our last two articles, we took a look at issues surrounding the naming of sports teams, followed by agreements governing the naming of stadiums and arenas. This time around, we will delve into the topic of sponsorship agreements. In addition to defining what they are, we will focus on how these agreements are used and structured, including their objectives and associated risks. WHAT ARE SPONSORSHIP AGREEMENTS? Sponsorship agreements, also known as sponsorship deals, are commercial agreements entered into by a beneficiary (an organization, individual or event) and a sponsor (a company or brand). As a general rule, these agreements provide financial compensation, goods and/or services in return for visibility, promotional impact or the sponsor’s association with the beneficiary. To be sure, such deals are not exclusive to the sports world. However, sports have definitely played a key role in how these agreements have evolved, transforming them into tools at the forefront of commercial progress. In this article, we will focus on how these agreements are used in the sports world. THE POWER OF SPONSORSHIP AGREEMENTS In essence, sponsorship agreements enable a sponsor to benefit from the exposure, fame and/or positive image associated with an athlete. At the same time, they may allow athletes to boost their own visibility and develop their own brands in partnership with the sponsor. The film Air, initially released in cinemas in 2023 and now exclusively available on the Prime Video streaming platform, depicts the dynamic of sponsorship agreements. It retraces the origins of the emblematic partnership between Nike and basketball legend Michael Jordan, which ended up redefining how athletes approach business partnerships. The Nike partnership gave rise to Air Jordan, the world-famous line of basketball shoes, marking an initial milestone in the history of sponsorship deals. In April 1985, the first series of Air Jordans came onto the market (see Figure 2); Nike was aiming for $3 million in sales over an initial three-year period. However, by the end of the first year alone, sales topped an impressive $126 million. In 2022, it was reported that Michael Jordan had earned between $150 million and $256 million just from his contract with Nike. Figure 2: Michael Jordan and the very first Air Jordans in 1985. The colour red was in violation of National Basketball Association (NBA) rules at the time. As a result, Nike paid a fine of $5,000 per game. KEY OBJECTIVES OF SPONSORSHIP AGREEMENTS FOR ATHLETES Main objective: financial gain Quite often, the main objective is financial gain. In addition to Michael Jordan, other star athletes have signed agreements with Nike. LeBron James’ and Cristiano Ronaldo’ own deals with Nike are reportedly valued at US$1 billion. Meanwhile, Argentina’s Lionel Messi, the eight-time Ballon d’Or winner, entered into a similar agreement with the brand Adidas. The case of Michael Jordan, however, is unique insofar as a family of strong and distinctive brands was developed, including Air Jordan and various logos representing Michael Jordan playing basketball. This brand family is owned by Nike, although it is inherently linked to the athlete reaping its benefits. In Quebec, tennis player Félix Auger-Aliassime, a victim of his recent success, signed agreements with Dior and Renault in early 2023 as these companies added their names to his existing list of sponsors, which included Adidas. The compensation paid by these brands has not been disclosed, but Félix is now displaying the Renault logo on his T-shirts—even more prominently than the brand of the T-shirt itself (Figure 3). Figure 3: Félix Auger-Aliassime and the Renault logo. The Adidas logo is also visible on his wristbands. Objective: enhanced reputation and greater credibility Reputation and credibility are vitally important in the sports world. Teaming up with a reputable sponsor can boost an athlete’s credibility in the eyes of fans, the media, potential partners and other teams. As with naming rights agreements, upholding the same values and selecting the right sponsor are the key to these agreements. Consider Félix Auger-Aliassime’s remarks after signing his deal with Renault: “I’m proud to be associated with Renault because we share the same ambitions and values […].”3 Chelsea FC, which competes in England’s Premier League, kicked off its 2023-204 season without its main sponsor. In addition, there was no corporate logo displayed on the front of the players’ jerseys, even though that has become the norm in the soccer world (Figures 4 and 5). Figure 4: As CF Montreal’s main sponsor, Bank of Montreal (BMO) has its logo is displayed on the front of the team’s jerseys. Figure 5: Chelsea’s jersey has no corporate logos (the club has no main sponsor). In fact, Chelsea had signed an agreement with Stake.com, an online casino that describes itself as a pioneer in the area of crypto sports betting. As soon as the deal was announced, fans made their displeasure known: Chelsea Supporters’ Trust, which serves as the voice of the team’s fans, declared: “We understand CFC’s desire to maximise revenue streams across the whole club. Whilst we accept that will happen, it must not take place at the expense of the club’s values.”4 Chelsea thus terminated the agreement but appears to have found a new partner, the US-based technology company Infinite Athlete. That deal is valued at around $66 million per year. Objective: an equitable relationship between the parties (student athletes) For some athletes, sponsorship agreements are also a way to establish an equitable relationship between all parties, ensuring that they do not lose out on any benefits derived from their name, image or likeness. This is certainly the case for student athletes competing in the American university system, particularly the National Collegiate Athletic Association (NCAA). In June 2021, the US Supreme Court ruled that the NCAA was not legally authorized to limit payments related to students’ education. This gave rise to what are known as “NIL deals”(name, image, and likeness). Student athletes are now entitled to enter into sponsorship agreements covering their name, image and likeness (the latter term refers to any representations of the athlete, whether in videogames, cartoons, etc.). The champion of NIL deals is undoubtedly Olivia Dunne, a gymnast at Louisiana State University. She is one of the first student athletes to become a millionaire thanks to these deals; she is certainly the best known (Figure 6). Her arrangements with brands such as American Eagle, Forever 21 and Vuori have generated more than $4.7 million. She ranks third in earnings in the list of athletes with NIL deals, just behind quarterback Arch Manning at $5.1 million (nephew of former football players Peyton and Eli Manning) and basketball player Bronny James at $9.7 million (son of LeBron James). Will we ever see NIL deals for student athletes in Quebec? Figure 6: Olivia Dunne, gymnast and multi-millionaire at age 20 thanks to her sponsorship deals. KEY OBJECTIVES FOR SPONSORS As far as sponsors are concerned, their objectives are usually quite similar. They hope to obtain greater visibility and promotion by linking their brand, products or services to a famous professional athlete. This may entail significant media exposure while targeting a specific segment of the public. This was what lululemon had in mind when it partnered with Connor Bedard, the most recent #1 draft choice in the National Hockey League (NHL). The company, which started out selling yoga wear, is now reaching out to hockey fans in a bid to strengthen its reputation as a top-of-the-line sports apparel retailer. In the run-up to the NHL draft, the name of Connor Bedard—a once-in-a-generation talent—was on everyone’s lips. His endorsement deal with lululemon was announced a few days before the draft, thanks in part to a video in which he said: “If I make this shot, I’ll join lululemon as their newest ambassador.” He then executed a perfect shot, adding a dramatic note to the announcement (Video 1). Video 1: Announcement marking the sponsorship agreement between lululemon and Connor Bedard. Following the partnership announcement, Connor Bedard said: “Being from Vancouver, I’ve been a fan of lululemon for as long as I can remember. The gear is so comfortable, stylish, and great for training.”5 Since the company was founded in Vancouver, it is understandable that this partnership is seeking to capitalize on a shared sense of belonging. Obviously, sponsors are also seeking to boost their sales or profitability via increased exposure and visibility derived from a sponsorship deal. Gaining access to a specific target audience heavily engaged in the athlete’s chosen sport can be a major selling point. HOW SPONSORSHIP AGREEMENTS ARE STRUCTURED As regards structure, sponsorship agreements differ in terms of the breadth and scope of the visibility being sought. Structure of local sponsorship agreements Local sponsorship agreements are entered into when: A local company decides to fund an athlete or a sports event. A company sponsors a local athlete or a local sports organization. A local sponsorship agreement does not necessarily mean a smaller-scale deal. RBC’s and Air Canada’s sponsorship arrangements, under which their respective logos are featured on Montreal Canadiens jerseys, are examples of local agreements (Figures 7 and 8). Figure 7: The Montreal Canadiens team jerseys now feature the logos of RBC and Air Canada. Structure of national or international sponsorship agreements Seeking much more extensive visibility, national or international sponsorship agreements are typically larger-scale initiatives. More sophisticated and with farther-reaching ramifications, these types of agreements must also take into account issues spanning multiple jurisdictions. Compensation structure In certain major agreements, the athlete’s financial compensation structure may vary widely. Fixed and pre-determined compensation is typically the norm. Understandably, agreements in which a trademark linked to an athlete is used for a specific product line may include royalties or tiers (thresholds) associated with the products’ commercial performance. Duration impacts the structure of sponsorship agreements Sponsorship agreements also vary in terms of their duration. A company may decide to sponsor an athlete for a lengthy period or for a one-time event or competition. On September 13 2023, the new Professional Women’s Hockey League (PWHL) announced its very first sponsor: Canadian Tire Corporation (CTC). Strictly speaking, this is an international agreement because the PWHL operates in both Canada and the US. At the time, Sarah Nurse, a forward with PWHL Toronto, said: “Through numerous conversations with their key leaders, it has always been clear that [CTC was] committed to supporting a women’s hockey league. It is no surprise that CTC is an inaugural partner now that we have launched the PWHL. With our shared values and vision, I know that CTC will continue to put women’s hockey at the forefront”6 (Figure 8). Figure 8: Sarah Nurse, who represented Canada at the Winter Olympics, will be playing in the PWHL, which recently signed a sponsorship deal with Canadian Tire. RISKS OF SPONSORSHIP AGREEMENTS: WHAT YOU NEED TO KNOW There are also a number of risks associated with signing a sponsorship agreement. Professional athletes are continually being placed under a microscope. Everything they do has a potential impact on their sponsors. Morality clause Consider the case of golfer Tiger Woods, who was embroiled in a personal scandal back in 2010 that left his reputation in tatters. Seeking to avoid being associated with this loss of reputation, various companies and organizations terminated their deals with him (Table 1). Table 1: List of sponsors that terminated or continued their involvement with Tiger Woods in the wake of his scandal. Today, Nike and Upper Deck are still associated with Tiger Woods, along with 10 new sponsors. To enable the parties to terminate agreements easily and at no charge should any situations akin to that of Tiger Woods arise, sponsorship agreements typically include a morality clause (also known as a “morals clause”). Morality clauses impose “good conduct” obligations on athletes and stipulate that if they engage in any actions that could tarnish or harm their own reputation or that of their sponsor, the sponsor has the right to suspend or unilaterally terminate the agreement. It was thanks to this clause that Gatorade and Gillette, to take only two examples, ended their agreements with Tiger Woods. The first morality clause in the sports world was included in the employment contract of Babe Ruth, the renowned baseball player with the New York Yankees in the 1920s. Reciprocal clause One might think that certain athletes would prefer to have a reciprocal clause in place enabling them to cut ties with any sponsor whose reputation is marred by scandal (inhumane work conditions, pollution, financial wrongdoing, etc.). Although less frequent, these clauses could still prove useful, especially now that society is calling on the corporate world to conduct itself more ethically. On the credit side of the ledger, an athlete who stands out positively off the playing field may end up attracting new sponsors. On September 24, 2023, the pop singer Taylor Swift was spotted at a Kansas City Chiefs game, cheering on tight end Travis Kelce (Figure 9). Given Taylor Swift’s unprecedented levels of public adulation, Travis Kelce saw his social networks explode with 500,000 more followers; sales of his jerseys soared by 400% in less than a week. Sponsors are well known for appreciating the value of athletes associated with another celebrity, e.g. Tom Brady and Gisele Bündchen, or David and Victoria Beckham. Kelce, who is already pocketing $3 million annually from his sponsorships, now has the door wide open for some shiny new deals. Figure 9: Taylor Swift (right) alongside Travis Kelce's mother at Arrowhead Stadium, home of the Kansas City Chiefs. Conclusion All in all, sponsorship agreements play a pivotal role in the sports world. Above and beyond the financial benefits they generate, they reflect the values and identity of the partners involved. Transcending transactional considerations, these deals have turned into alliances that stimulate growth, emotional engagement and long-term viability. They embody shared passions for sports and an ongoing quest for excellence. As the sports world evolves and new opportunities emerge, we should continue to question how these agreements align with our collective values. In the future, these partnerships will not just be a critical component of commercial strategies; they will also be statements of principle. And they will continue to shape how sports are lived, perceived and experienced. Chronique de Ray Lalonde, August 16, 2023 Link. Ouest-France, Neymar: “Peut-être que le championnat d’Arabie saoudite est meilleur que la Ligue 1”, September 8, 2023 Link. QMI Agency, Nouvelle alliance entre Félix Auger-Aliassime et Renault, TVA Sports, January 25, 2023 Link. Ryan Dabbs, Why don't Chelsea have a sponsor for their new kit?, FourFourTwo, July 19, 2023 Link. Matt Carlson, Conor Bedard signs… with lululemon, The Hockey News, June 28, 2023 Link. News release, Professional Women’s Hockey League, Canadian Tire Corporation joins the PWHL with a landmark multi-year agreement, September 13, 2023 Link.

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January 8, 2024

Implicit inducement of patent infringement – The Federal Court of Appeal hands down its ruling

Can a patent be infringed even if the patented product is not manufactured, assembled, or even used? Indeed, such infringement is possible. In fact, this is known as the theory of inducement of infringement. Naturally, acts of “inducement” must meet certain conditions before inducement of infringement can be found. The Federal Court of Appeal recently clarified these conditions. Inducing infringement and the applicable test For example, if the patented invention is a solution containing components A, B, and C of a drink where component C is water, it is likely that if components A and B are sold to a consumer and said consumer is told to add a certain amount of water, mix well, and drink, the consumer can be said to have been induced to infringe the patent. To determine whether inducement of infringement has occurred, the courts apply a three-prong test. First, the acts of infringement must have been completed by the direct infringer. In the previous example, this would be the consumer. There can be no inducement of infringement if there has been no direct infringement. Second, the completion of the acts of infringement must be influenced by the acts of the alleged inducer to the point that, without the influence, direct infringement would not take place (for example, by selling the material and providing instructions). Third, influence must be knowingly exercised by the inducer; in other words, the inducer knows that this influence will result in the completion of the acts of infringement. The Federal Court case Returning to the Court of Appeal’s decision: in this case, Janssen had sued Apotex for inducing infringement of a patent. An important point is that the patent on the drug had expired. However, Janssen claimed that Apotex was inducing physicians to prescribe the drug in combination with a specific inhibitor to treat a rare condition called pulmonary arterial hypertension (PAH). Janssen’s patent covers the combination of the drug and the inhibitor to treat PAH. Apotex would have sold the drug alone, without including the inhibitor or the combination, had Health Canada authorized its drug.1 Nowhere in the product monograph is it suggested that the drug be used in combination with the inhibitor in question. However, the drug was being prescribed to treat PAH. The parties agreed that the first prong of the test had been met, namely that the drug was likely to be prescribed with the inhibitor to treat PAH. It was the second and third prongs that were actually at issue: Could Apotex be inducing infringement even though its product monograph contains no suggestion for use in combination with the inhibitor in question? The Federal Court had concluded that the second and third prongs of the test for inducing infringement had been met. It ruled that the product monograph sufficiently influenced physicians to prescribe the drug in combination with the inhibitor, and that Apotex knew that marketing the drug along with the product monograph would influence physicians to prescribe it with the inhibitor. This reasoning is based primarily on a study cited in the product monograph, which showed that the drug, whether prescribed alone or with the inhibitor, was safe and effective. The Federal Court of Appeal’s decision The Court of Appeal upheld the Federal Court’s decision, adding that influence need not be explicit. The Court thus affirmed that the absence of explicit instruction and of intention that direct infringement should result does not mean that there is no influence sufficient to satisfy the second prong. Therefore, while explicit instruction and intention may be relevant to assessing influence, they are not required. The Court of Appeal stated that: “Even without explicit reference to combination treatment, the Federal Court was entitled to find that the Apo-Macitentan PM would influence use of macitentan in that way.”2 With respect to the third prong, the Court of Appeal reiterated that the inducer must know that their actions or influence will lead another party to engage in specific activity, but that it is not necessary to prove that the inducer knows that such activity will constitute patent infringement. The Court of Appeal upheld the conclusion that, in the circumstances, Apotex knew or should have known that the product monograph for its drug would influence physicians to prescribe it in combination with the inhibitor to treat PAH. Conclusion Implicit influence can lead to findings of patent infringement when it can be said that the inducer should have been aware of the consequences of their actions. This decision confirms that Canadian courts have a flexible legal tool to protect inventions. The text is in the conditional tense because the action was brought under the Patented Medicines (Notice of Compliance) Regulations, which establish specific rules regarding litigation in the pharmaceutical industry and prevent Health Canada from authorizing the sale of a generic version of a drug that would infringe certain patents in certain circumstances. Apotex Inc. v. Janssen Inc., 2023 FCA 220 (CanLII), para. 17.

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