IP and Privacy Issues

Breakfast for the Mind: IP & Privacy Issues

1

Key Licensing Terms ‐ Practical Tips for
Licensors and Licensees
Presenter: Marlon Rajakaruna, Partner

2

Tips on how to Ensure Your License
Properly Addresses your Business Needs

3

Licensing ‐ General
• A license agreement involves granting someone rights to do
certain things with something you own or have a right to pass
on.
• In a license, a subset of rights is being provided to another on a
temporary and restricted basis.
• Licenses are a mixture of two distinct legal regimes – the law of
Intellectual Property (IP) and the law of contract

4

Types of Licensing Arrangements –
Common Agreements
• End User License Agreements (EULA)
• Distribution, Reseller and Value Added Reseller (VAR)
Agreements
• Original Equipment Manufacturers (OEM) Agreements
• Development Agreements
• Cross‐Licensing Agreements
• Open Source Agreements
• Clinical Trial Agreements

5

Example
• An example of a license grant:
– “ABC hereby grants, under all of its Intellectual Property Rights and
know‐how, a (non)‐exclusive, personal, non‐transferable, (non)‐
sublicenseable, royalty‐free/royalty‐bearing, fully paid‐up, perpetual
(for the term), irrevocable license to XYZ to [use, reproduce, display,
perform, modify] the Software solely for the purpose of _______.”

6

Ensuring Your License Addresses Your
Business Needs
1) Know who you are dealing with
‐ Litigation and insolvency searches
‐ IP searches
‐ Internet
2) Describe what is being licensed – it is more than simply
Schedule A
3) Beware of using U.S. or other foreign terminology
indiscriminately if the license is for use in Canada

7

Business Needs
4) Specify the rights being granted. Avoid simply stating that the
Licensee can “use” the subject matter of the license
5) Include a present tense positive grant of rights: “hereby
grants” instead of “will grant” or “agrees to grant”
6) Identify if the Licensee can transfer the license to a third party
7) Identify any compensation to which the Licensor is entitled
8) Exclusive vs. sole vs. non‐exclusive?

8

Business Needs
9) Length of license: Is it “perpetual” ‐ or for a set period of
time?
10) Is it “irrevocable” or are there certain circumstances when
the license can be revoked?
11) Consider appropriate restrictions on the use of the subject
matter
12) Restrict the Licensee’s ability to reverse‐engineer or
disassemble the product licensed to the Licensee
13) Reserve any rights not expressly granted

9

Negotiating a Reasonable Allocation of
Risk

10

Negotiating a Reasonable Allocation of
Risk
• There are 3 main sections in a license agreement that cover
allocation of risk:
– Indemnification
– Limitation of Liability
– Insurance

11

Indemnification
• Indemnity: an agreement to cover another party’s costs,
damages and expenses for certain acts.
• Licensee will seek, and most Licensors will be willing to
provide, an indemnity against claims that the licensed IP or
technology infringes or misappropriates a third party’s IP
rights.
• Indemnification can also be sought for:
– Product liability claims
– Open source contamination
– Personal Injury and tangible property damage
– Breach of license agreement

12

Indemnification
• Exceptions or limitations to indemnity obligations that are
commonly sought by Licensors:
– Jurisdictions
– Patents
– Obligations being subject to prompt notice and cooperation.
– Where caused by Licensee’s unauthorized use, combinations, or
modifications
– Use of other than a current version

13

Infringement and Continued Use
• Obligation for the Licensor to use some degree of effort to
permit the Licensee to continue to use the allegedly infringing
technology:
– Obtain a license to allow continued use
– Modify the software to become non‐infringing
– Provide a full or partial refund of license fees if neither option can be
achieved on commercially reasonable terms

14

Breach of Warranties and Remedies
• Specify remedies and ramifications for failure to achieve
warranties
– Credits/Refunds
– Remedial action to be undertaken by Licensor or third parties
– Replacement of defective products or material

15

Licensee Indemnity
• Licensee can be asked to indemnify Licensor if Licensee’s
modifications, combinations or use give rise to the claim
• Where Licensee receives a license to distribute Licensor’s IP,
technology or product, Licensee could be required to
indemnify Licensor for any unauthorized representations or
warranties made by the Licensee

16

IP Indemnity (sample)
• 1) Licensor shall, at its expense, indemnify, defend and hold Licensee including its directors,
officers, employees and subcontractors (the "Indemnified Parties") harmless from and against
any action, proceeding or claim including all liabilities, losses, damages, costs, accounting of
profits, and expenses (including reasonable legal fees and disbursements) associated with
such action, proceeding or claim, including settlement thereof by Licensor, made against the
Indemnified Parties, by a third party asserting or alleging that the Software, or any use
thereof, infringes or misappropriates any patent, copyright, trade secret or other intellectual
property right of any third party (collectively, the "IP Rights").
• (a) Licensee shall notify Licensor in writing within a reasonable time after the Indemnified
Parties first receive written notice of any claim, action, proceeding or allegation of
infringement or misappropriation;
• (b) Licensor shall be accorded sole control of the defense and of all negotiations for
settlement or compromise of such claim, action or proceeding; and
• (c) The Indemnified Parties shall cooperate with Licensor in the defense and settlement of
such claim, including providing to Licensor, at the expense of Licensor, such information and
assistance as Licensor may reasonably request.
• Nothing in this Section 1 shall prohibit the Indemnified Parties' participation, at their own
expense and with lawyers of their own choice, with Licensor in the defense of any
infringement or misappropriation action should the Indemnified Parties choose to participate
in such defense.

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IP Indemnity (sample) . . . cont’d
• 2) In the event that an action is brought against the Indemnified Parties which claims that the
Software infringes or misappropriates any existing IP Rights, or in the reasonable opinion of
Licensor it appears likely that such an action will be commenced, Licensor shall, at its expense
and without limiting its obligations under Section 1, and with minimal interruption of
Licensee’s operation:
• (a) use commercially reasonable efforts to procure the right for the Indemnified Parties to
continue to use the Software as contemplated by this Agreement and at no additional expense
to the Indemnified Parties;
• (b) if, using commercially reasonable efforts, Licensor is unable to comply with clause (a)
above, Licensor shall use commercially reasonable efforts to replace or modify the infringing
Software or part thereof, within a time period acceptable to the Indemnified Parties, with
other non‐infringing technology or technology components which are functionally equivalent
to the infringing Software and which conform in all material respects with the specifications
for the Software; or
• (c) if, using commercially reasonable efforts, Licensor is unable to comply with either clause (a)
or (b) within time periods acceptable to the Indemnified Parties, the Agreement shall be
deemed terminated with no liability to the Indemnified Parties and Licensor shall accept the
return of all or part of the Software furnished under this Agreement and refund to the
Indemnified Parties any fees paid under the Agreement related to such infringing Software.

18

IP Indemnity (sample) . . . cont’d
• 3) Licensor's obligations under Sections 1 and 2 shall not apply to the extent that such
obligations arise due to:
• (a) the modification by the Indemnified Parties of the Software or any portion thereof, except
where such modification is effected with the written approval of Licensor;
• (b) use of Software outside the scope of use authorized under this Agreement;
• (c) the specific use of the Software or any component thereof in combination with other
product(s) or other technology, except products or technology referred to in the Agreement
any other documentation that describes the Indemnified Parties' intended use for the
Software or in Licensor's applicable specifications or marketing documentation related to the
use of the Software; and
• (d) any written designs, requirements, instructions or other input set out in writing by the
Indemnified Parties and specifically complied with by Licensor and provided to Licensor by
Indemnified Parties hereunder infringe or misappropriate a third party’s IP Rights.
• 4) SECTIONS 1 TO 3 STATE LICENSOR'S ENTIRE LIABILITY TO THE INDEMNIFIED PARTIES FOR
CLAIMS BASED ON INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY
RIGHTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LICENSOR WILL ONLY BE
LIABLE FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES WHICH ARE ENFORCEABLE IN CANADA.

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Limitation of Liability
• Licensor should include a disclaimer of implied warranties and
statutory conditions
• Licensors will seek to have their indemnity obligations subject
to limitations on liability. Licensees will strive for the opposite
• Licensors may seek to limit direct damages
• Licensors may seek to exclude incidental, indirect or
consequential loss or damage

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• Third party infringement claims that form the basis for
indemnification will invariably include claims for indirect and
consequential damages
• Possible compromise position: deem costs and damages
resulting from an IP infringement or misappropriation claim
to be direct damages
• Another possible compromise position: exclude breaches of
confidentiality from disclaimer of consequential
damages/lost profits
• See sample wording for exclusions ((a) to (d))

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As Licensee,
• Be mindful that you are more often than not just an innocent
party caught up in the web of conflict between others
• Who will a third party pursue?
• Is the Licensor financially sound enough so that it will be able
to honour its indemnity obligations?

22

Limitation of Liability (sample)
• Neither party to this Agreement shall be liable to the other for any incidental,
indirect or consequential loss or damage arising out of or related to the
performance of this Agreement, including, but not limited to, lost profits, lost
business revenue, failure to realize expected savings, other commercial or
economic loss of any kind even if such party has been advised of the possibility of
these losses or damages, and regardless of the form of action, whether in contract
or in tort (including negligence); except that the foregoing limitation of liability shall
not apply to the following:
• (a) intellectual property rights indemnity provided by the Licensor in Article X of this
Agreement;
• (b) disclosure of confidential information by either party or any of its respective
employees, subcontractors, vendors or agents contrary to Article Y of this
Agreement;
• (c) claims for personal injury or death or damage to real property or tangible
personal property to the extent caused by a party's negligence; and
• (d) losses or damages that are recoverable under any of the insurance required
under Article Z of this Agreement.

23

Insurance
• Back‐stops some of the covenants of the parties
• Could exploitation of license lead to claims arising from death,
personal injury or property (real or personal) damage?
• IP infringement insurance is generally impractical

24

Insurance
• Contractual liability coverage
• Survival
• Notice of Change
• Liability not limited by stated insurance amounts
• Verify insurance coverage

25

Common Mistakes Leading to Erosion of
Intellectual Property Rights
Presenter: Heather Barnhouse, Associate

26

Outline
• Due Diligence – understanding what Intellectual Property
(“IP”) rights you own:
• Brief breakdown of different types of IP worth protecting
• Some general tips to know what to look for when IP is acquired

• General issues which can lead to the erosion of IP rights:
• Cross Border Issues in Contracts Dealing with IP
• Bankruptcy
• Monitoring and Enforcement

27

Why Protect Intellectual Property?
• IP can establish a brand identity for a product or service

• If someone else registers rights in and to IP, prior to the owner
registering, the true owner might be prohibited from using
that IP in the future – notwithstanding that the
inventor/owner created the IP

• It’s valuable – even if it isn’t required immediately, it’s an asset
that can be sold or licensed to generate revenue
– However, from a practical point of view, need to perform a cost‐
benefit analysis, i.e.: is it worth spending time and money to get a
patent on something with no commercial value?

28

What IP Can Be Protected?
• Patents – registered by jurisdiction – registration required
• Copyrights – registered by jurisdiction – no registration
required, but puts world on notice of rights
• Trade‐marks – registered by jurisdiction – registration not
required, but puts world on notice of rights
• Trade Secrets – no registration required

29

A. General Rule: Patents
The Inventor is the first owner

MAJOR EXCEPTION:
– Inventors often assign ownership rights to other entities
– No rule requiring an inventor to assign patent rights to an employer
– Inventions created or conceived within the scope of the inventor’s
employment

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B. General Rule: Copyright
• The author of a work is the first owner of the copyright in that
work (s.13.(1))
• Author is not defined but means the creator of work
• Exceptions to the general rule include:
– Work made in the course of employment
• Contract of service = employment
• Contract for services = independent contractor
– Photographs and engravings
– Crown copyright
• Registration not required – copyright arises automatically
upon creation of work

31

Copyright ‐ Moral Rights
• Authors and artists of a work receive rights known as moral
rights
– Right to be associated with the work (or the right to remain
anonymous)
– Right to the integrity of the work

• Moral rights cannot be assigned, but they can be waived

• Common Trap in IP Due Diligence
– IP assignment agreements should deal with a waiver of moral rights to
ensure that the IP that can be assigned is assigned, and that moral
rights are waived; otherwise author of work can continue to assert
moral rights in and to work that may be transferred

32

C. General Rule: Trade‐marks
• General rule is that trade‐mark owners obtain rights by being
the first to use the trade‐mark in a particular jurisdiction

• Registration not necessary to obtain rights in a trade‐mark, but
it puts the world on notice of the claim

• Registration is good for 15 years, renewable an infinite number
of times

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D. General Rule: Trade Secrets
• Confidential information that retains its value by being
confidential
– Software
– Client Lists
– Procedures / methods / recipes
• Protection lasts for as long as the secrecy is maintained
• In Canada, no statutory rules or protection ‐ any rights or
protection comes from contractual arrangements and the
common law
• Common Trap when acquiring IP: need to ensure non‐
disclosure agreements (“NDA”) are in place to cover the
disclosure of confidential and/or proprietary information

34

Trade Secrets in Other Jurisdictions
• Outside Canada, trade secrets can have statutory protection.
Many U.S. states have adopted some form of the model
Uniform Trade Secrets Act
• The Uniform Trade Secrets Act defines trade secrets as
information that: (i) derives independent economic value,
actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy

35

Tips to Maintain Patent Protection
• Due to cost and time involved in obtaining patent, seek to determine whether
patenting is the most appropriate method of protection:

• Software may be protected by patent or copyright
– Patents can take up to five years to be processed
– Will the software be obsolete in five years?
– Protect via copyright and/or by keeping it a trade secret

• Cannot patent scientific theorems

• Must be prepared to invest time and other resources to monitor for infringements,
and enforcing exclusive rights during life of patent or value of patent is reduced

• Once patent protection is obtained, the registration agency (CIPO/USPTO) does not
undertake any independent monitoring and/or enforcement activities. The onus is
on the owner of the IP to perform these functions

36

Tips to Maintain Copyright Protection
• Copyright markings or notices (the © symbol) are not required
under Canadian law, but serves as evidence of ownership,
brings the concept of copyright to the notice of inadvertent
infringers. Notices may be required to maintain rights in some
jurisdictions outside of Canada
• Registration of copyright is not necessary, it arises when the
work is created. Registration at CIPO does not create any new
rights, but creates evidence of a claim of ownership and a
presumption of ownership in any copyright dispute. It is
helpful in establishing damages to be awarded in any dispute

37

Tips to Maintain Trade‐Mark Protection
• Continuous use of trade‐mark, non‐use can cause loss of rights
• Use trade‐mark properly – generic use can cause loss of rights
• Always capitalize at least the first letter of the trade‐mark
• Do not pluralize trade‐marks
• Do not use trade‐marks as a verb
• Do not change the appearance of a design trade‐mark
• Use proper marking (® for registered, TM for unregistered)
• No generic use of trade‐mark
• No use of the trade‐mark by others without license and control (see s.50(2)
presumptions if public notice is given)
• Monitor in‐house and outside use of the trade‐mark
• Do not ignore infringements
• Maintain distinctiveness of trade‐mark – Distinctiveness is the ability of a trade‐
mark to distinguish the products and services of one owner’s mark from those of
another, therefore, AVOID CONFUSION!

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Tips for Protecting Trade Secrets
• Confidentiality clauses and NDAs are crucial to protecting trade secrets
– Avoid the mistake of assuming an NDA is “standard” and then execute it
without careful legal review
– NDAs should ensure that confidential information remains confidential for an
appropriate length of time
– It should also address the return of files, client lists, and other confidential
information upon termination or expiration of the agreement
• Oral disclosures of information, or information garnered by observation,
should be addressed in addition to documentary disclosure
– Agreements often require a written summary of an oral disclosure before it is
protected as confidential information. This process is rarely followed in
practice even if contractually required

39

Protecting Trade Secrets (cont’d)
• Marking of documents can help establish some protection

• Ensure confidential information is only disclosed to individuals
with a need to know the information – not a wide distribution

• Internal security procedures are necessary
– Physical and network security
– Storage of information
– Entry and exit interviews
– Disclosing information on a need‐to‐know basis
– Proper arrangements with independent contractors

40

General Issues to Prevent Erosion of IP
Rights
• Once a company has rights to certain IP, there are a number of
mistakes or pitfalls that can affect or lead to the erosion of the
IP rights:

(a) Cross Border Issues;

(b) Bankruptcy; and

(c) Monitoring and Enforcement

41

A. Cross Border Differences in Contracts
Dealing with IP
• Remember that IP rights are geographically bound ‐ a US patent or
trademark license for use in Canada is useless without a corresponding
Canadian registration

• Beware of blindly using forms or precedents ‐ to the extent that they
originate in the US, they likely will not reflect differences between the two
countries' legal systems

• Fighting for an IP infringement indemnity for US patents is a wasted effort
when the licensed IP is used only in Canada

• Consider the wisdom of agreeing to US law governing a license where the
subject matter is used only in Canada (and thus governed by Canadian IP
statutory regimes)

42

Cross Border Differences
• US copyright does not afford the same general moral rights
protection (there is some protection in visual arts and state
legislation). US agreements often do not address moral rights
or improperly include them in IP assignments. Canadian
agreements need to provide for obtaining signed waivers from
the authors or a representation and warranty from the
company that this has occurred

43

Cross Border Differences
• Joint ownership has different connotations in the US and Canada

• In Alberta you should be disclaiming statutory conditions, not implied
warranties

• The Uniform Computer Information Transactions Act applies in some states
and needs to be disclaimed, but there is not a Canadian equivalent

• Shortening a limitation period is commonly found in many US licenses, but
is not valid under Alberta's Limitations Act

• Agreeing to comply with applicable US export legislation creates additional
liability with respect to laws not otherwise existing for Canadian licensees.
US export control legislation may not be consistent with Canadian law or
public policy

44

B. Bankruptcy Issues Affecting IP Rights
• A trustee in bankruptcy generally has the ability to disclaim
executory contracts – agreements where obligations remain to
be fulfilled

• Exclusive licenses are essentially assignments of rights
amounting to a transfer of property (and thus out of the
bankrupt’s estate)

45

Bankruptcy – US Considerations
• The US has addressed the ability of a trustee to disclaim executory
contracts by amending the Bankruptcy Code. If a Licensor rejects a license,
the Licensee can elect to either: (1) sue for breach and attempt to recover
damages as an unsecured creditor; or (2) continue to enjoy the license and
continue to pay the applicable license fees or royalties (anything requiring
action from the Licensor like support or receiving updates and upgrades
would cease)

• There are some problems with the US approach – it purposefully excludes
trademarks (because ongoing quality control is necessary) and anything
requiring positive actions from the licensor is lost, including support

46

Recent Amendments to Bankruptcy
Legislation (Canadian Position)
• Under recent amendments to Canadian bankruptcy legislation,
much of the US approach has been adopted. 65.11 (7) of the
Bankruptcy and Insolvency Act reads:
– If the debtor has granted a right to use intellectual property to a
party to an agreement, the disclaimer or resiliation does not affect
the party’s right to use the intellectual property — including the
party’s right to enforce an exclusive use — during the term of the
agreement, including any period for which the party extends the
agreement as of right, as long as the party continues to perform its
obligations under the agreement in relation to the use of the
intellectual property

47

Unsettled Points‐ Bankruptcy
• Intellectual Property Rights are not defined, so it is unclear if
trade‐marks are excluded as they are under US legislation

• Neither is it clear whether trade secrets are included

• Moreover, the new provisions relate to restructuring, not to
actual bankruptcy proceedings

48

Bankruptcy – Consideration for Software
• Escrow agreements provide the source code to software to
allow one to fulfill support obligations oneself, but they must
be carefully drafted to avoid being disclaimed by the licensor
as well (i.e. transfer of ownership, non‐executory). Even if the
source code is provided, one needs a license to make use of
such code which must also meet the tests to escape the effect
of bankruptcy

49

Monitoring and Enforcement
• Remember that CIPO/USPTO are not the IP police – they do
not monitor how IP is being used or stop infringement

• Resources need to be devoted to monitoring for IP
infringement and/or misappropriation
– Determine who in the organization will be responsible to monitor
– Large organizations often will have a watch service to continually
monitor use of their IP

• Cost Perspective– need to factor in anticipated costs/resources
to monitor and enforce IP rights once IP rights are established
– ongoing and necessary

50

Intellectual Ownership Property Issues
Presenter: Craig McDougall, Partner

51

Intellectual Property Ownership Issues
1) When do ownership issues arise?
2) Is ownership necessary? Pros and cons of ownership – are
you asking for something that you do not need?
3) Do you own the IP? Think again.
– Contractors
– Employees
– Moral rights
4) Joint and Co‐Ownership – avoid the “can’t figure it out now,
we will get to it later" approach

52

1) When do IP Ownership Issues Arise?
• Part of due diligence for financing or acquisition
• Development agreements with contractors
• Development projects involving employees can also raise
issues
• Licenses where a licensee may: (i) modify or create derivative
works or improvements to the IP being licensed; (ii) integrate
the licensed IP into a new product; (iii) or develop new IP using
or incorporating the licensed IP
• Cross‐licensing agreements

53

2) Is Ownership Necessary?
• Is IP ownership necessary or even desirable? Ownership may
entail onerous responsibilities
– Applications, prosecutions, registrations, renewals and
maintenance
– Ongoing costs of protecting IP against infringement by
others
– Defending against infringement claims brought by others
• A sufficiently broad license grant may provide all necessary
rights without the burden of ownership, provided that the
owner can adequately protect the IP

54

3) Do You Own the IP?
• Answer depends on whether it is protected by copyright or
patent, who created it (employee or contractor), and what
agreements are in place

• For copyright, the general rule is that the author or creator of
a work owns the copyright in that work. One of the key
exceptions to the rule is a work made in the course of
employment, where the company owns the copyright in
absence of an agreement to the contrary

55

• For copyright, the general rule is that the author or creator of
a work owns the copyright in that work. One of the key
exceptions to the rule is a work made in the course of
employment (other exceptions relate to photographs, Crown
copyright)
• For patents and inventions, there is no presumption that the
invention is to be owned by or assigned to the employer. If this
is to occur, it must be pursuant to an agreement between the
inventor employee and the employer

56

• Even if a company owns the copyright in a work, it must
address moral rights. Moral rights give the author of a work
(not the owner) the right to the integrity of the work and the
right to be associated to the work by name

• Moral rights cannot be assigned and must be waived by the
author. Moral rights waivers should be included in the
employee invention disclosure and assignment agreement

57

• There is no presumption of ownership  in favour of a company
that hires a third party to create something (regardless if it is
protected by copyright or patent).  Unless the agreement
clearly indicates that the company owns the resulting work
product, and the intellectual property rights in such works are
assigned to the company, ownership of the work product
remains with the third party.  If the agreement is silent on
ownership, at best the company can expect an implied license
to use the work product

58

4) Joint or Co‐Ownership
• IP ownership is often a complex and controversial topic in
contractual negotiations. To avoid complexity and maintain
good relations, parties often agree to avoid the issue by
agreeing to joint ownership. However, beware the danger of
deferring difficult conversations

• Avoid agreeing on joint ownership unless you also agree on
how the joint or co‐owners can deal with the jointly or co‐
owned IP. Admittedly in doing so, you will become embroiled
in the complexity you hoped to avoid

59

4) Joint or Co‐Ownership

• Be careful when dealing with foreign companies who may be
more willing to embrace joint ownership. Their IP regimes
may have different limitations on joint owners, or even no
limitations

• When dealing with co‐ownership or joint‐ownership at
common law, we are generally talking about patents and
copyrights

60

4)Joint or Co‐Ownership
• What rights does a party have to use the jointly or co‐owned
IP? Is consent required from the other joint or co‐owners to
exploit the IP or license it to third parties? To assign all one’s
rights to a third party? Is there a duty to account to other joint
or co‐owners for such activities?
• In the absence of an agreement detailing the rights, the
parties’ rights at law will vary depending on whether it is a
patent or copyright, and whether we are talking about Canada
or the US (other jurisdictions have rules different from both
countries)

61

4) Joint and Co‐Ownership
• Registration and prosecution
– Primary and secondary responsibilities
– Foreign filings
– Costs
• Defense
– Primary and secondary responsibilities
– Costs
• Enforcement
– Primary and secondary (differences in jurisdictions)
– Costs and benefits from enforcement

62

Privacy: Business Impacts
Presenter: Tom Sides, Partner

63

Topics
• Cross‐border Privacy Issues

• Managing Privacy Compliance in Business Transactions

• Doing Business with Government: Getting "FOIP'd"!

64

Sources of Canadian Privacy Laws
• Alberta Personal Information Protection Act (“PIPA”)
– Purpose : Private sector, provincial legislation that governs the collection, use and disclosure of
personal information (“PI”) by organizations in a manner that recognizes the individual’s right to have
his/her personal information protected and the organization’s need to collect, use and disclose
personal information for purposes that are reasonable.
– BC and Quebec have also enacted private sector privacy legislation
• Personal Information Protection and Electronic Documents Act (“PIPEDA”)
– Purpose: Private sector, privacy legislation that sets out ground rules for the management of personal
information in the private sector. It balances an individual's right to the privacy of personal
information with the need of organizations to collect, use or disclose personal information for
legitimate business purposes. (Applies to federal works, undertakings and businesses, and to private
sector organizations in Nfld., NS, PEI, NB, Ontario, Manitoba, Sask. and the Territories)

65

Sources (cont’d)
• Freedom of Information and Privacy Act (Alberta) (“FOIP”)
– Purpose: Provides individuals with the right to request access to
information in the custody or control of public bodies while providing
public bodies with a framework within which they must conduct the
collection, use and disclosure of personal information.
– Federal Privacy Act and other provincial “FOIP” statutes
• Health Information Acts
– Alberta, Saskatchewan, Manitoba and Ontario – separate legislation
– BC’s PIPA applies to private sector health entities only, while PIPEDA applies to
private sector health entities in rest of country

66

Privacy primer
• “Personal information” – information about identifiable
individual
• Consent is key principle – express, implied, knowledge, opt‐
out/opt‐in
• Starting premise . . . collection for a necessary purpose
• Basic principle: privacy legislation requires that PI not be
collected, used or disclosed without that individual’s
knowledge and consent . . . except in limited circumstances
• Privacy legislation also gives individuals the right to access and
correct their PI held by organizations that are subject to it
• Security safeguards and retention limitations

67

Cross‐border Privacy Issues

68

Canada – PIPEDA
Transferring PI outside of Canada
• The flow of information across provincial and international borders is
governed by PIPEDA, e.g. outsourcing data storage
• Under PIPEDA, organizations may transfer PI outside of Canada
• Note the difference between ‘transfer’ and ‘disclose’. “A transfer for
processing is a "use" of the information; it is not a “disclosure.“
– Important distinction since “disclosure” requires consent

• If transferred PI is not being “used” for the purpose for which it was
originally collected … additional consent required

69

Canada – PIPEDA cont…
• Organization transferring PI is accountable for ensuring that the PI is adequately protected
while it is stored and/or accessible by an organization in another country
• Organizations should ensure that the receiving organization has security measures in place to
protect the PI that are comparable to those prescribed by PIPEDA
– Enter into agreement – confidentiality, security of PI, monitoring and ongoing regular audits /
inspections by the transferring organization

• Transferring organizations must advise customers that their PI is being stored in another
jurisdiction and that while stored in that jurisdiction it may be accessed by its courts, law
enforcement and national security authorities
– US Patriot Act concerns . . . but similar rights for Canadian authorities: see Proceeds of
Crime (Money Laundering) and Terrorist Financing Act, the Department of Immigration
and Citizenship Act, and the Canadian Security Intelligence Service Act

70

European Union: Safe Harbor Act / Data
Directive
Transferring personal information outside of the E.U.
• The Safe Harbor Act requires that organizations in the E.U. that send PI (customer data,
employee information, etc.) outside of the E.U. must ensure the receiving country has an
‘adequate level of protection’ in place
• If there is no ‘adequate’ privacy legislation in the receiving state, the E.U. organization is
not permitted to transfer PI
• The privacy standards under PIPEDA are considered adequate for the purposes of the
E.U.’s Safe Harbor Act; meaning PI may be exchanged between E.U. member
organizations and Canadian organizations legislated by PIPEDA
• In Alberta, PIPA is viewed as ‘substantially similar’ to PIPEDA; therefore, it would be
‘adequate’ legislation under the E.U.’s Safe Harbor requirements

71

United States – Safe Harbor
Transferring PI from the E.U. to the U.S.

• Privacy law in the U.S. is governed by state law, which makes it difficult to
gain compliance under the E.U.’s Safe Harbor Act
• U.S. and the E.U developed a Safe Harbor Agreement:
– Enables U.S. organizations to comply with the E.U.’s Safe Harbor Act.
– U.S. based organizations may be deemed ‘adequate’ under the Safe Harbor Act
despite the lack of ‘adequate’ privacy legislation in their jurisdiction
– U.S organizations must demonstrate that they have in place ‘adequate’
measures to protect the PI being transferred by the organization in the E.U. to
the U.S. based organization

72

Managing Privacy Compliance
in Business Transactions

73

Disclosure During Business Transactions
• Reasons for Disclosure:
– The transfer of PI may be necessary when conducting corporate due diligence in order
for organizations to assess the viability of a business transaction. e.g. acquisition / sale of
a business
– The need for consent may impede the business transaction

• PIPA permits parties or prospective parties to a business transaction to collect, use,
or disclose PI without the need for consent if:
– the parties have an agreement where the collection, use and disclosure of information is
restricted to the purposes of the business transaction, and
– the information is necessary for the parties to determine whether they want to proceed
and complete the business transactions
(PIPA, section 22(3))

74

Defining Business Transactions
• “Business transaction means a transaction consisting of the
purchase, sale, lease, merger or amalgamation or any other
type of acquisition or disposal of, or the taking of a security
interest in respect of, an organization or a portion of an
organization or any business or activity or business asset of an
organization and includes a prospective transaction of such a
nature.”
(Section 22(a) of PIPA)

75

Permissible Disclosure
• In reference to a “party” under PIPA this includes a “prospective party”:
Generally, this is referring to a party that enters into due diligence at the
initial stages of a business transaction

• Information disclosed may consist of personal information related to:

Employees Agents
Customers Contractors
Directors Assignors
Officers Shareholders, etc

76

Disposing of Information
• If a business transaction does not proceed or is not completed,
any PI still in the possession of the parties involved in the
transaction must either be destroyed or returned to the party
that disclosed the information
(PIPA, section 22(4))

77

Disclosure Under PIPEDA
• Currently, PIPEDA does not permit the disclosure of PI during the course of business
transactions. A strict interpretation requires the organization to obtain the consent
of the individual
• Currently, for an asset sale that includes PI, such as customer lists or employee
data, consent of all affected individuals to the transfer of their PI is required
• In contrast, a share sale transaction— where no specific assets are transferred —
does not require consent
– This imbalance within the law in addressing, in essence, the same transactions, has
required some legal gymnastics as well as some stretching of concepts, such as implied
consent, albeit with the approval of the federal Office of the Privacy Commissioner

78

Disclosure Under PIPEDA (cont’d)
• The practice of companies disclosing PI in an electronic,
password protected data room is likely informed by the fact
that the chance of complaint is small, rather than any legal
argument of implied consent

79

Proposed Amendments Under Bill C‐29
• Bill C‐29 (2nd Reading: October 2010) is a response to a 5 year mandatory
review of PIPEDA (2007). It contains a number of significant amendments.
Not in force yet
• Business Transactions Exemption: Organizations will be permitted to
collect, use and disclose PI without the knowledge or consent of an
individual, if done pursuant to an agreement, for the purposes of:
– conducting corporate due diligence with respect to prospective
business transactions or concluding transactions

80

Bill C‐29 cont…
• Specifically, business transactions under Bill C‐29 include:
– the purchase, sale or other acquisition or disposition of an organization or a portion of
an organization, or any of its assets;

– the merger or amalgamation of two or more organizations;

– the making of a loan or provision of other financing to an organization or a portion of an
organization;

– the creating of a charge on, or the taking of a security interest in or a security on, any
assets or securities of an organization;

– the lease or licensing of any of an organization’s assets; and

– the arrangement between two or more organizations to conduct a business activity
other than the processing of personal information.

81

Impact of Bill C‐29
– Brings PIPEDA in line with PIPA in Alberta and B.C.
– Organizations should review current standard
form NDA’s used in business transactions in order
to address the PIPEDA amendment (once
proclaimed)
– Post‐closing notification to individuals that PI had
been disclosed

82

Doing Business with Government: Getting
"FOIP'd"!

83

FOIP – Third Party Notice
• Examples . . . Third Party Notice from public body to business:
– Private sector organization enters into an agreement with public body
– Tendering process: unsuccessful bidders may request to see all or part
of successful bidder’s tender
– Application for government grants
– Government body prepares report
• The Third Party has 20 days to respond to public body (often extendible)

84

To be withheld from disclosure, the information must meet all three of the criteria in FOIP (Alberta)‐
Question to ask: will there be harm to the business interests of a third party?
Three criteria are:
1. The information is a trade secret or commercial, financial, labour relations, scientific or technical
information of a third party.
2. The information was supplied, implicitly or explicitly, in confidence. There must be evidence that
the information has been consistently treated in a confidential manner.
3. One or more of the following harms will occur if the information is disclosed.

The disclosure of the information will:
• harm significantly the competitive position or interfere significantly with the contractual or other
negotiations of the third party;
• result in similar information no longer being supplied to the public body where it is in the public
interest that similar information continues to be supplied. This does not apply where a
statute or regulation requires that the information be supplied;
• result in undue financial loss or gain to any person or organization; or
• reveal information supplied to, or the report of, an arbitrator, mediator, labour relations
officer, or other person or body appointed to resolve or inquire into a labour dispute.

85

• Protecting Third Party Information from Disclosure
– Information management procedures that evidence a consistent
practice of treating information as confidential
– Ensuring shroud of secrecy if disclosed to others
– Asserting confidentiality of information when submitted to
government body
• Contemporaneously identifying potential for harm if disclosed

– Making the case for trade secret status for information disclosed

86

Marking Information as Confidential
• Blanket claim of confidentiality risks lack of credibility
• Similarly, exaggerated claims of “harm” will be viewed with suspicion by public body
• If practicable, not disclosing confidential information to public body may be best option
• Include confidentiality legend on documents containing confidential information:
– The information contained herein is confidential [financial/scientific/commercial/technical/labour
relations] information and is supplied on that basis.  The information also contains trade secrets of
and organization and its disclosure could reasonably be expected to cause material financial loss to
the organization [and to prejudice its competitive position, or to interfere with contractual
negotiations].  In the event that you intend to disclose all or any part of the information, we should
be advised at [   ], to the attention of [   ], so that the organization can make appropriate detailed
representations to you about the nature of the information

87

Responding to Third Party Notice
• Mere recitation of non‐disclosure based on stated harm without
rationale invites further enquiry from public body and potential refusal
• Make it easy for the FOIP officer to adopt your organization’s rationale
for non‐disclosure
• The organization has right to appeal to the Commissioner the public
body’s decision to disclose to applicant
. . . but why resort to appeal, especially since onus is reversed, if matter can
be dealt with at FOIP officer level?

88

Privacy resources
• Fraser Milner Casgrain LLP
• Web‐site information:
– www.privcom.gc.ca (Federal Privacy Commissioner)
– www.oipc.ab.ca (Alberta’s Information and Privacy
Commissioner)
– www.psp.gov.ab.ca (Alberta Government’s web‐site
regarding privacy in the public sector)

89

Questions?
Thank You!
Tom A. Sides 780.423.7138 tom.sides@fmc‐law.com
Craig T. McDougall 780.423.7398 craig.mcdougall@fmc‐law.com
Marlon Rajakaruna 780.423.7281 marlon.rajakaruna@fmc‐law.com
Heather A. Barnhouse 780.423.7215 heather.barnhouse@fmc‐law.com

The preceding presentation contains examples of the kinds of
issues companies dealing with IP and privacy issues could face.
If you are faced with one of these issues, please retain professional
assistance as each situation is unique.

IP and Privacy Issues

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