Doing Business in Canada: Technology

by Bennett Jones LLP
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Many Canadian businesses are involved in researching and developing cutting-edge technology in a number of areas including: information technology, high-tech, life sciences, pharmaceuticals, clean technology, environmental technology and energy technology. Several issues may arise when licensing, acquiring or investing in Canadian technology.

Security Interests

When acquiring technology assets, it is important to ensure that the assets are not encumbered by any third-party security interest. In Canada, federal intellectual property statutes and the Personal Property Security Act (PPSA) of each province operate concurrently. A secured party can address its security interest in intellectual property rights by addressing filings under both the provincial PPSA registry and under the federal intellectual property regimes.

Canada’s insolvency legislation provides some protection to intellectual property licensees in the event of a licensor’s bankruptcy. Under the Companies’ Creditors Arrangement Act and Bankruptcy and Insolvency Act, in most cases the licensee’s right to use the licensed intellectual property is not affected for the duration of the license agreement, conditional upon the licensee’s continued performance of its obligations under the license agreement in relation to that usage.

Ownership and Assignments

Before acquiring or investing in a company’s technology, verify the company’s ownership of (or right to use) the technology. To avoid any uncertainty, employment contracts should include explicit assignment clauses to give the employer all rights, title and interest in any technology developed by its employees or contractors.

In Canada, all intellectual property rights may be assigned, except for an author’s moral rights, which exist under the Copyright Act and may be waived but not assigned.

Licences

When acquiring technology assets that include a software license, limitations on license scope and confidentiality restrictions can affect the transferability of a license agreement. One should assess if a software license can be assigned or sublicensed.

Open source software (OSS) embedded in a software product might restrict the purchaser’s freedom to modify the product or limit the OSS developer’s liability. Some OSS licenses place downstream constraints upon recipients in relation to derivative works. When acquiring software technology, it is necessary to determine whether the technology includes any OSS and check the seller’s written OSS policies, compliance reviews and version control systems.

Financing

Research-intensive businesses may qualify for favourable tax treatment under the Income Tax Act. Prior to acquiring or investing in a company’s technology, the tax impact of the form of investment should be considered.

Many technology businesses benefit from a range of grants or repayable loans or other assistance from a range of federal and/or provincial government agencies and departments. In many cases, such agreements may contain restrictions or limitations on the technology businesses’ ability to commercially exploit the technology developed with such assistance. Alternatively, these agreements may contain government use licenses.

Early stage technology businesses may enter into a range of financing and equity arrangements in trying to grow the business. Sometimes, a degree of informality may exist in such arrangements. In some cases, third parties may acquire overriding revenue claims, distribution rights or rights in the technology itself under such arrangements.

Before acquiring or investing in a company’s technology, any prior commitment or licenses that may impact the company’s use or exploitation of the technology should be assessed.

Exporting Technology

The export of goods from Canada is subject to export laws, including the Export and Import Permits Act. The export of some technologies may require export permits issued by the Export Controls Division of Foreign Affairs and International Trade Canada.

Pharmaceuticals

In Canada, pharmaceutical products and devices are governed by an array of federal and provincial legislation. The Food and Drug Act sets out the prescribed procedure for new drug submissions and abbreviated new drug submissions, through which a Notice of Compliance (NOC) may be issued for a new drug. A NOC is a prerequisite to the sale of the new drug on the Canadian market.

The Patented Medicines (Notice of Compliance) Regulations is an enforcement scheme for pharmaceutical patents that allows a brand name drug company to obtain a two-year automatic injunction against generic competition, by linking health approval of the generic with patent issues. Brand name drug companies can file a patent list with Health Canada. The list is a form setting out the name of a drug and the relevant patent.

Depending on the timing of a drug submission, a brand name drug company generally has 30 days within the issuance of a drug-related patent to submit it to the patent list. Therefore, when acquiring pharmaceutical technology, ensure that any newly issued patent that is eligible for listing is submitted to Health Canada within the prescribed time limit.

In Canada, pharmaceutical wholesalers and manufacturers are subject to legislation and regulations governing the provincial formularies which deal with the use of discounts, rebates, professional allowances, requirements for pharmaceutical pricing, and the accreditation of manufacturers and wholesalers of medications.

E-commerce

Legislation has been enacted federally and provincially to govern online commerce. For example, Ontario’s Consumer Protection Statute Law Amendment Act, 2002 (CPA) applies to the purchase and sale of goods on the Internet. Similarly, Manitoba’s Consumer Protection Act and Alberta’s Fair Trading Act provide protections for consumers transacting online.

Under the CPA, Internet sales agreements must be prefaced by an extensive list of information which must be disclosed in a “clear, comprehensible and prominent” and “accessible” manner.

Further, before the conclusion of an online purchase, a confirmation screen summarizing the purchase details must be displayed to the buyer.

Some provincial statues also require that a copy of the online agreement be delivered to the consumer, and stipulate that a document be signed by an “electronic signature” to satisfy any legal requirement.

PIPEDA Compliance

Businesses that collect, use or disclose personal information during the course of commercial activity must comply with the federal Personal Information Protection and Electronic Documents Act (PIPEDA) or the applicable provincial private sector legislation. This e-commerce legislation sets out the legal effect of certain types of electronic signatures and documents.

Wrap Agreements

Online “click-wrap” and “browse-wrap” agreements have been enforced by Canadian courts where the buyer was impressed with the knowledge of the terms at the time of sale, or where there is proof of established prior business conduct, or via the subsequent conduct of the user.

Websites

A web page’s design, layout and appearance are protected by copyright. Domain names may be afforded trademark protection in Canada if they meet the statutory or common law requirements for trademarks. A trademark owner may assert its rights against cybersquatters under Canadian trademark law. The Canadian Internet Registration Authority offers an alternative dispute resolution process to deal with disputes relating to any .ca domain name.

Québec language laws may require electronic contracts and websites to have French translations if the parties or transactions have an office or employees in Québec. In certain circumstances, however, a contract may be written only in English if the contracting parties have an express agreement to that effect.

Foreign websites and Internet transmissions may be subject to Canadian law if there is a real and substantial connection between the activities in question and Canada.

Advertising and Marketing

In Canada, laws that govern traditional advertising and marketing practices, such as the Competition Act and the Criminal Code, also apply to online advertising and marketing.

Conclusion

 There are many legal issues for a technology-intensive business to bear in mind in licensing, acquiring or investing in Canadian technology. A well-considered plan that addresses the key legal and business factors applicable to such transactions are elements of a successful strategy.

Bennett Jones Technology Law Group

 Bennett Jones has more highly ranked technology lawyers than any tier 1 law firm in Canada. Coupled with the firm’s national depth and breadth of operations, the Bennett Jones Technology Law Group has the experience and expertise to assist foreign businesses in navigating the complex federal and provincial requirements involved in licensing, acquiring or investing in Canadian technology.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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