Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?
In general, any business entity established by a foreign licensor in Canada, and any joint venture involving a foreign licensor may carry on business in Canada, with or without a domestic subsidiary or branch office.
Licence agreements are made subject to normal rules of contract interpretation. If the agreement includes a choice of law clause Canadian courts will generally give effect to it, unless the choice lacks bona fides, or is contrary to public policy, etc.
A foreign licensor that plans to set up an entity or enter a joint venture in Canada must notify Industry Canada as required by the Investment Canada Act, RSC, 1985, c 28. Foreign investors should be aware of World Trade Organization rules requiring reviews related to acquisitions. In addition, a foreign company that seeks to do business in Canada through a subsidiary, branch or joint venture will likely need to register in every jurisdiction in which it will carry on business. Depending on its type, the business may be subject to further registration, licensing and reporting obligations.
Kinds of licencesForms of licence arrangement
Identify the different forms of licence arrangements that exist in your jurisdiction.
Licence agreements in Canada may cover virtually any form of intellectual property, including patents, trade secrets, know-how, registered trademarks, unregistered trademarks, service marks, trade names, copyright, software, personality rights, characters, etc.
Law affecting international licensingCreation of international licensing relationship
Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.
There is no legislation in Canada specifically governing the creation or regulation of an international licensing relationship, provided that the relationship does not contravene Canadian law, for example, the Competition Act, RSC 1985, C-34, or does not involve franchise agreements.
Royalties charged by copyright collectives including SOCAN, Re:Sound, Access Copyright and COPIBEC, etc, are regulated according to tariffs specified by the Copyright Board of Canada.
Several provinces including Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Prince Edward Island have legislation relating to franchise relationships under the respective provincial Franchises Acts.Pre-contractual disclosure
What pre-contractual disclosure must a licensor make to prospective licensees?
Subject to not making any material misrepresentations to prospective licensees, whether expressly or by implication, licensors other than franchisors generally have no disclosure obligations to prospective licensees. In the case of franchise agreements, such as a restaurant franchise, a number of Canadian provinces have specific disclosure requirements. Furthermore, Quebec has a civil system that imposes a general disclosure duty. There is no requirement to register a grant of international licensing rights with authorities in Canada.Registration
Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?
There is no requirement to register a grant of international licensing rights with authorities in Canada.
Intellectual property issuesParis Convention
Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?
Canada acceded to the Paris Convention for the Protection of Industrial Property on 21 August 1923, and to the Stockholm Act on 16 March 1970, with a declaration that its accession does not apply to articles 1 to 12.
Canada ratified the Patent Cooperation Treaty on 29 October 1989, which came into force in Canada on 2 January 1990.
Canada adhered to TRIPs by the World Trade Organization Implementation Act, SC 1994, C-57, effective as from 1 January 1996.Contesting validity
Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?
A licensee generally is estopped from contesting the validity of a licensor’s intellectual property rights during the subsistence of the licence agreement, whether by the express terms of the contract or by implication from the licensor/licensee relationship. See Curtis Wright Corporation v The Queen  1 Ex Ct 519 (Ex Ct); Deering Milliken Research Corp v Louisville Spinners Ltd (1971) 4 CPR (2d) 18 (Que SC) Rymland et al v Regal Bedding Co Ltd (1966) 51 CPR 137 (Man CA).
Such estoppel generally does not exist after termination of the licence agreement. If the licence agreement precludes the licensee from disputing validity of the intellectual property right after termination of the licence, the licensee may be estopped from disputing validity: see Campbell v G Hopkins & Sons 49 RPC 38 (Ch 1931).Invalidity or expiry
What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?
Normally licence agreements provide that the licence agreement as well as an obligation to pay royalties under the licence agreement will end if the patent is held invalid by a court of competent jurisdiction from which no appeal is taken or can be taken. Where there is no such term, the result will depend on the terms of the agreement and the nature of the invalidity judgment. If the term of the agreement or the obligation to pay royalties is linked to the duration of the patent, for example, the agreement might be interpreted to mean that such term or obligation ended with the invalidity of the patent.
Trubenizing Process Corporation v John Forsythe Ltd  SCR 422 (SCC) reversing  OR 271 (Ont CA) concerned a non-exclusive licence for two patents, which included a covenant that the licensor would not sue (upon any patent that it owned or controlled) as long as the licensee paid the agreed royalties. Although the patent was held invalid by a decision of the Supreme Court of Canada, the licensee was obliged to continue to pay royalties.Requirements specific to foreigners
Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?
In general, it is not required to have a prior registration in the jurisdiction of origin.
However, if an applicant applies for a Canadian trademark registration based on use and registration of the mark in the country of origin, it is essential that the trademark is used in one or more specified countries prior to the filing date in Canada.Unregistered rights
Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?
Unregistered trademarks may be licensed in Canada. Copyright works may be licensed, and it is not mandatory to register copyright in Canada. Trade secrets, know-how, computer software and other forms of unregistered intellectual property that are proprietary in nature, may also be licensed.Security interests
Are there particular requirements in your jurisdiction to take a security interest in intellectual property?
An intellectual property licence in general should be in writing and must not violate Canadian law. For example, if the licence is part of an illegal combine or otherwise is an illegal restriction of trade, or if the licence involves any similar anticompetitive activities, it may not be enforceable. In general, an intellectual property licence involves only the parties to the agreement, and cannot be the subject of a third-party attack unless the licence illegally restrains competition to the detriment of the third party.
There is no requirement to take a security interest in intellectual property. The law relating to perfection of security interests in intellectual property rights in Canada is uncertain. It is considered best practice for the lender to register the security agreement at the Canadian Intellectual Property Office (CIPO) against every intellectual property right listed in the security agreement. If the debtor is located in Canada, it is also best practice to register the security interest at the personal property security registry of the province where the debtor resides.Proceedings against third parties
Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?
It is recommended that the issue of which party is involved in instituting proceedings is provided for in the licence agreement.
A foreign owner or licensor of intellectual property can institute proceedings against a third party for infringement without joining the licensee.
A licensee can be contractually prohibited from instituting proceedings without the consent of the licensor, but where possible can do so as follows:
- patents - in the case of patents, a licensee or even a non-exclusive licensee can institute proceedings against an infringer if the licence agreement so provides, under section 55(1) of the Patent Act, RSC 1985, c P-4 that gives a right of action for infringement to a patentee and all persons claiming under the patentee including exclusive and non-exclusive licensees. The Supreme Court of Canada in Domco v Armstrong  1 SCR 907 held that this section gives a right of action to a non-exclusive licensee. The patentee, however, must be, or must be made a party to the proceedings as provided in section 55(3) of the Patent Act. It may be advantageous to join the licensee in order to recover damages suffered by the licensee as a result of the infringement, but unless contractually obligated to do so, the patentee, in an action for infringement brought by it, is not obliged to join a licensee;
- copyright - to institute a proceeding, a copyright licensee must be an exclusive licensee or the copyright owner. Section 34(1) of the Copyright Act, RSC 1985, c C-42 gives the remedies for infringement to the owner of the copyright. In Milliken & Company v Interface Flooring (1998) 83 CPR (3d) 470, it was held that there is no right of action by a non-exclusive licensee;
- trademarks - section 50(3) of the Trademarks Act, RSC 1985, c T-13 provides that an owner may be required by a licensee to institute proceedings against an infringer. If the owner refuses or neglects to institute proceedings within two months of being so requested by the licensee, the licensee may institute proceedings for trademark infringement in its name as if it were the owner, making the owner a defendant; and
- industrial designs - section 15(1) of the Industrial Design Act provides that an action for infringement may be brought by the proprietor of the design or by an exclusive licensee, subject to any agreement between the proprietor and the licensee. Section 15(2) requires that the proprietor of the design to be a party to any infringement action.
A licensee of an industrial design can institute proceedings against an infringer, subject to any agreement between the patentee or proprietor and the licensee. As with a patent, the proprietor of the industrial design must be made a party.Sub-licensing
Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?
A trademark licensee (including licensees of service marks) is not permitted to sub-license use of the mark unless the licence agreement specifically permits the licensee to do so. This may be reasonable where the licensee in effect acts as a licensing authority for the licensor, finding and supervising licensees, collecting royalties, etc. Such sub-licence right exists only contractually, and is not the subject of statute.Jointly owned intellectual property
If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?
Joint ownership of intellectual property rights may cause significant problems, and therefore there should be a contract between the parties that deals with all likely contingencies. Usually, the better alternative is to divide the intellectual property ownership rights between the parties, with cross-licences if appropriate, so that each party then is free to exploit their own intellectual property without having to refer to the other party, except as required by the terms of the agreement. A relevant case regarding the rights of patent co-owners is the Forget v Specialty Tools of Canada Inc  BCJ No 822. Forget has several important holdings. First, that a patent co-owner can sell their interest without the consent of the other (and if the interest is sold the purchaser of the patent interest becomes a co-owner). Second, that there is no infringement by a co-owner when making or selling a patented article in Canada. Third, that a co-owner cannot grant a valid licence without the consent of the other co-owner (and if a licence is granted in this situation it is invalid). Fourth, that a patent is infringed when the licensee of one co-owner makes or sells a patented article without the consent of the other co-owner. If the parties are determined to jointly own the intellectual property, they should enter into an agreement that clearly sets out their respective rights and obligations. The agreement should address issues such as whether one co-owner is entitled to obtain revenue from the jointly owned intellectual property right without the consent or involvement of the other co-owner, and with or without having to account to the other co-owner for a portion of such revenue, and the extent to which each co-owner is responsible for the costs involved in enforcement.First to file
Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?
Since 1 October 1989, Canada has been a ‘first to file’ jurisdiction for patents. A foreign licensor may license the use of an invention subject to a pending patent application in Canada.Scope of patent protection
Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?
Provided it is new, non-obvious and useful, software inventions in general may be patented in Canada, but a great deal depends on the nature of the invention and the manner in which it is claimed. The provision in section 27(8) of the Patent Act, RSC 1985, c P-4 that an invention cannot be directed to a ‘mere scientific principle or abstract theorem’ excludes some software inventions that are directed primarily to performing calculations. The patentability of software is dealt with in Amazon.com Inc v Canada (Attorney General) 2011 FCA.
In Amazon.com, the court held that there is no categorical exclusion of business method patents in Canada provided the invention otherwise qualifies, which is not always easy to demonstrate.
Higher life forms were held to be non-patentable in Harvard College v Canada (Commissioner of Patents),  4 SCR 45. However, in Monsanto Canada Inc v Schmeiser  1 SCR 902, a majority of the Supreme Court held that lower life forms such as single cells or genes may be patentable.Trade secrets and know-how
Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?
Trade secrets are protected at common law in Canada (civil law in Quebec). There are several references to trade secrets in a number of statutes including section 20(1) of the Access to Information Act, RSC 1985, c A-1 and sections 17 and 18 of the Ontario Freedom of Information and Protection of Privacy Act, RSO 1990, c F-13, but there is no per se trade secrets legislation.
There is no clear definition of ‘trade secret’ in Canadian law, although in general the subject matter must be of a proprietary nature (ie, not generally or easily available to the public). The Supreme Court of Canada in Merck Frosst Canada Ltd v Canada (Health)  1 SCR 23, defined trade secret as a subset of confidential information. Other references may be found in international agreements such as Chapter 17, article 1711(1) of the North American Free Trade Agreement and the TRIPS agreement.
Injunctive relief is available to prevent unlawful disclosure or use of a trade secret or other proprietary information. Remedies are also available for breach of contract and breach of confidence. In situations involving parties in fiduciary roles, restitutionary remedies are available.
Employers are generally entitled to ownership of patents for inventions made by employees in the course of their employment and it is recommended that all employment agreements should deal with invention ownership in cases where employees are expected to make inventions, or which may arise out of their employment, if the employees are hired to invent.
There is a common law duty of confidence in contracts of service in Canada, including a duty to refrain from disclosing or using confidential information belonging to a former employer. It is better to provide for this in the employment contract and to remind the departing employee of his or her obligations in an exit interview.
Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?
Written confidentiality or non-disclosure agreements can be freestanding or may be a part of a licensing agreement, and they may prohibit the disclosure or use of trade secrets and know-how by the licensee both during and after the term of the agreement.
Whether third parties are entitled to use a trade secret turns on whether the third party knew the information was communicated in a breach of confidence. An innocent third-party purchaser of a trade secret for value without notice may be able to resist a claim by a plaintiff for injunction (see International Tools Ltd v Kollar  1 OR 669 (CA) at 674). A third party who is aware or who learns that information they receive is a result of a breach of confidence may be restrained from using it (see Cadbury Schweppes Inc v FBI Foods Ltd  1 SCR 142 at paragraph 19).
A licence agreement may include a clause requiring assignment of rights to improvements made by an employee-based knowledge communicated to or acquired by an employee during the course of his or her employment.Copyright
What constitutes copyright in your jurisdiction and how can it be protected?
According to section 3(1) of the Copyright Act, RSC 1985, c C-42, copyright, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right:
- to produce, reproduce, perform or publish any translation of the work;
- in the case of a dramatic work, to convert it into a novel or other non-dramatic work;
- in the case of a novel or other non-dramatic work, or of an artistic work, to convert it into a dramatic work, by way of performance in public or otherwise;
- in the case of a literary, dramatic or musical work, to make any sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced or performed;
- in the case of any literary, dramatic, musical or artistic work, to reproduce, adapt and publicly present the work as a cinematographic work;
- in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication;
- to present at a public exhibition, for a purpose other than sale or hire, an artistic work created after 7 June 1988, other than a map, chart or plan;
- in the case of a computer program that can be reproduced in the ordinary course of its use, other than by a reproduction during its execution in conjunction with a machine, device or computer, to rent out the computer program;
- in the case of a musical work, to rent out a sound recording in which the work is embodied; and
- in the case of a work that is in the form of a tangible object, as long as that ownership has never previously been transferred in or outside Canada with the authorisation of the copyright owner, and to authorise any such acts.
Copyright subsists in the following:
- every original literary, dramatic, musical and artistic work, including every original production in the literary, scientific or artistic domain, whatever may be the mode or form of its expression, such as compilations, books, pamphlets and other writings, lectures, dramatic or dramatico-musical works, musical works, translations, illustrations, sketches and plastic works relative to geography, topography, architecture or science;
- performer’s performances;
- sound recordings; and
- broadcast communication signals, among other works.
In general, copyright subsists in Canada, in every original literary, dramatic, musical and artistic work if in the case of any work, whether published or unpublished, including a cinematographic work, the author was, at the date of the making of the work, a citizen or subject of, or a person ordinarily resident in, a treaty country.
Software licensingPerpetual software licences
Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?
In general, software licences may be granted on a ‘perpetual’ basis (ie, not restricted as to time). Usually, licence agreements have a specified term of duration, often coextensive with the term of the intellectual property right. If a licence term is time limited, the licence agreement may provide for the renewal or extension of term.
Contracts in general are governed by provincial law in Canada, and therefore it is important to review the requirements in the relevant provincial jurisdiction to determine whether ‘perpetual’ licences are problematic.Legal requirements
Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?
Some forms of software such as encryption are subject to export restrictions. See, for example, the Exports and Imports Permits Act, RSC 1985, c E-19 and the Customs Act, RSC 1985, c 1. These restrictions also include military and dual-use software, nuclear technology including nuclear software and any software destined for countries on an area control list such as Myanmar.Restrictions on users
Are there legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?
Anti-competitive licensing terms may face challenges under the Competition Act, RSC 1985, c C-34. Licensing terms contrary to the abuse of rights provisions in section 6571 of the Patent Act, RSC 1985, c P-4 may similarly be problematic.
Royalties and other payments, currency conversion and taxesRelevant legislation
Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?
Generally, the contract governs the payment of royalties. In some specific situations there are statutory provisions affecting royalties.
The Copyright Board of Canada is a federal tribunal that establishes royalties to be paid for the use of protected copyright works pursuant to the Copyright Act, RSC 1985, c C-42. The board has a mandate to establish, either mandatorily or at the request of a party, the royalties to be paid for the use of protected works when the rights are administered by a collective society such as SOCAN, Access Copyright or Re:Sound.
Under section 77 of the Copyright Act, RSC 1985, c C-42, a person may apply for a statutory licence from the Copyright Board at a fixed royalty rate for works where the owner cannot be located.
Canada has acceded to the Marrakesh Treaty and therefore is subject to section 32.01 of the Copyright Act, of which it is not an infringement for a non-profit organisation acting for the benefit of a person with a print disability to reproduce works in a limited manner. In such a case, royalties for the reproduction are fixed by regulations.Restrictions
Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?
In general, there are no restrictions on transfer and remittance of currency in Canada, but remittances in excess of C$10,000 (or equivalent in foreign currency) generally must be reported to the Financial Transactions and Reports Analysis Centre of Canada.Taxation of foreign licensor
In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?
Royalty payments made to non-residents generally are subject to withholding taxes. The statutory withholding tax rate is 25 per cent. This rate is usually reduced as a result of Canada’s tax treaties with other countries. Foreign investors doing business in Canada through a subsidiary are considered to be Canadian residents and are taxed as such. Income tax is applied to the worldwide income of the subsidiary, but relief generally is provided for taxes paid in other countries.
Competition law issuesRestrictions on trade
Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?
In general, there are both civil and criminal sanctions for such conduct under the Competition Act, RSC 1985, c C-34. The civil branch of the Competition Bureau deals with issues relating to abuse of dominance, refusal to deal, exclusive dealing, tied selling and price maintenance.
The criminal branch of the Competition Bureau deals with cartels, conspiracies, agreements between competitors to fix prices, market allocation, supply restriction and bid rigging.
Section 32 of the Competition Act includes specific restrictions on the exercise of intellectual property rights.Legal restrictions
Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions, and grant-back provisions?
There are no restrictions on duration. The Competition Bureau may review the exclusivity or non-competition terms of a licence agreement if they involve a refusal to deal, exclusive dealing, tied selling or terms that otherwise fall within its purview. The Competition Bureau released the Intellectual Property Enforcement Guidelines that indicate the direction the Bureau may take in various licensing situations.IP-related court rulings
Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?
The Competition Bureau has indicated that something more than the mere exercise of an intellectual property right is required to trigger an investigation of alleged anticompetitive behaviour.
In Toronto Real Estate Board v Commissioner of Competition, 2017 FCA 236, the Federal Court of Appeal dismissed an appeal by the appellant Toronto Real Estate Board over the use of data from their Multiple Listing Service. The Commissioner applied to the Competition Tribunal under section 79(1) of the Competition Act, RSC 1985, c C-34, the abuse of dominance portions of the Act.
Pay for delay contracts involving pharma products may attract Competition Bureau scrutiny. Understandably, the situation is highly fact-driven. The following is stated in a 2014 Bureau publication entitled Patent Litigation Settlement Agreements: A Canadian Perspective:
When a brand pays more than the generic could have obtained from PM(NOC) Regulation proceedings, such payments are less likely to be justified. In contrast, more nuanced analysis is called for when the payment falls within the realm of what could be expected in PM(NOC) Regulation litigation, such as where the brand faces section 8 damages liability and makes a modest payment that is less than the expected damages the brand would owe the generic
This does not provide free rein for brands to make whatever payments they wish. For example, the amount of section 8 damages could be low when there is generic competition, as generic prices tend to fall with more generics on the market. One commentator has explained that the presence of authorised generics ‘significantly reduces the size of the market available to other generic competitors’ and ‘drastically reduces the amount of damages that are possibly recoverable under section 8.’ In fact, the court, in Teva Canada Limited v Sanofi-Aventis Canada Inc made clear that authorised generics can be considered in determining the generic’s likely profits. In short, as a result of authorised generics and other entrants, the amount of section 8 damages for which the brand would be responsible could be significantly reduced, which would increase the concern with large payments to generics.
Indemnification, disclaimers of liability, damages and limitation of damagesIndemnification provisions
Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?
Indemnification provisions are commonly used and available in Canada and are generally enforceable. Insurance coverage for a foreign licensor is also available.Waivers and limitations
Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?
Disclaimers and limitation of liability including liquidated damages are generally enforceable.
TerminationRight to terminate
Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?
If a valid, enforceable licence agreement is stated to be irrevocable, neither party can terminate it without the consent of the other party. If a licence does not include a termination provision, which is unusual, generally such licences are terminable on reasonable notice. However, the termination must meet the general principle of good faith performance of a contract in Bhasin v Hrynew, 2014 SCC 71 (Bhasin).
In Bhasin, the Supreme Court of Canada held that good faith performance of a contract is a general principle of Canadian law and that it is inherent on parties to honestly perform their obligations.Impact of termination
What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?
In the absence of a contractual provision to the contrary, the rights of a sub-licensee of the licensee cease as of the termination or expiry of the licence.
BankruptcyImpact of licensee bankruptcy
What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?
The Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA) and the Companies Creditors Arrangement Act, RSC 1985, c C-36 (CCAA) give trustees in bankruptcy broad rights to deal with assets of any bankrupt. An intellectual property licence in general is a contractual rather than property right. A trustee in bankruptcy of the licensee is entitled to disclaim the licence, and in some cases depending on the licence, to transfer the licence to a third party. Licence agreements often give the licensor the right to terminate the licence if the licensee commits an act of bankruptcy, and that result might be automatic if the licence so provides. The mere filing of a notice by a licensee of its intention to file a proposal in bankruptcy, or the filing of a proposal, in general does not justify the licensor terminating the licence. If the licensor suspects the licensee is insolvent or is about to be insolvent, it is advisable to consider the possibility of terminating the licence for cause (if such cause exists) before the licensee commits an act of bankruptcy. Assignability of licences by a trustee in bankruptcy may be possible provided such assignments are not inconsistent with the licence agreement.Impact of licensor bankruptcy
What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?
Effective from 1 November 2019, Bill C-86 amends the BIA to replace section 65.11(7) with section 65.13(9), and the CCAA to add section 36(7) to include greater protection for intellectual property licensees in the event of a licensor bankruptcy.
Provided that a licensee continues to perform its obligations under the licence agreement, these new amendments provide that that a sale or disposition of intellectual property assets does not affect the licensee’s right to use (and right to enforce) that intellectual property for both exclusive and non-exclusive licensees.
Governing law and dispute resolutionRestrictions on governing law
Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?
In general, there are no restrictions on forum selection clauses. One exception may be contracts of adhesion (ie, a ‘take-it-or-leave-it’ agreement), where there is a significant disparity in bargaining power of the respective parties.Contractual agreement to arbitration
Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?
Arbitration is subject to provincial legislation, and the provincial statutes are generally based on the UNCITRAL Model Law. In Quebec, arbitration is governed by the Civil Code of Quebec (the relevant sections are in Books 5 and 10) and the Quebec Code of Civil Procedure (Book 7).
For agreements between large commercial parties, the licence can include arbitration clauses and they are generally enforceable (see TELUS Communications Inc v Wellman 2019 SCC 19). Tribunals apply the law of the jurisdiction specified by the parties, and if one is not specified the forum with the closest and most substantial connection prevails.
The enforceability of arbitration clauses in other contexts may be non-uniform, and the clauses are increasingly vulnerable. For example, in class actions with franchisors, see 405341 Ontario Limited v Midas Canada Inc  OJ No 2845, 2010 ONCA 478, 2038724 Ontario Ltd v Quizno’s Canada Restaurant Corp  OJ No 2845, 2010 ONCA 478, Stoneleigh Motors Limited et al v General Motors of Canada Limited  OJ No 1621, 2010 ONSC 1965 and small businesses, Griffin v Dell Canada Inc 2010 ONCA 29, 98 OR (3d) 481.
In consumer agreements, or ‘contracts of adhesion’, arbitration clauses are generally invalid and unenforceable unless the consumer agrees to submit the dispute to arbitration after the dispute arises under Schedule A, section 7(5) of the Consumer Protection Act 2002, SO 2002, c 30. See also Seidel v TELUS Communications Inc 2011 SCC 15  1 SCR 531.Enforceability
Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
Foreign arbitral awards are generally enforceable in Canada (see Popack v Lipszyc 2018 ONCA 625). Canada acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) on 12 May 1986.Injunctive relief
Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?
Injunctive relief is available in all provinces and may be granted on an interim, interlocutory or permanent basis. The right to injunctive relief is available at the discretion of the court and cannot be waived.
Updates & TrendsKey developments of the past year
Please identify any recent developments in laws or regulations, or any landmark cases, that have (or are expected to have) a notable impact on licensing agreements in your jurisdiction (including any significant proposals for new legislation or regulations, even if not yet adopted). Explain briefly how licensing agreements might be affected.Key developments of the past year39 Please identify any recent developments in laws or regulations, or any landmark cases, that have (or are expected to have) a notable impact on licensing agreements in your jurisdiction (including any significant proposals for new legislation or regulations, even if not yet adopted). Explain briefly how licensing agreements might be affected.
Amendments to the BIA and the CCAA came into force on 1 November 2019. These amendments include new rights for licensees (both exclusive and non-exclusive) in the case of a sale or disposition of a licensor’s assets.
On 30 September 2018, the text of the United States-Mexico-Canada Agreement (USMCA) was released, and on 30 November, Canada, the United States and Mexico signed the new trade agreement that replaces the North American Free Trade Agreement. There are significant changes included in the USMCA, including a copyright term extension to life plus 70 years from life plus 50 years.
Amendments in the Budget Implementation Act, 2018 (SC 2018, c 27) will change the role of the Copyright Board. Included within the amendments are changes to Canada’s notice-and-notice scheme for alleged infringement. Further, the Industry, Technology and Science Standing Committee (INDU) has conducted a review of the Copyright Act and released a report including several policy recommendations that may be incorporated into legislative amendments.
Amendments to the Trademarks Act came into force on 17 June 2019, including an accession to the Nice Agreement (International Classification of Goods and Services for the Purposes of the Registration of Marks) and the Madrid Protocol (International Registration of Marks).
Amendments to the Patent Act came into force on 30 October 2019. These amendments include significant changes to filing requirements, requests for examination, the Patent Cooperation Treaty National Phase entry into Canada, and introduces file-wrapper estoppel into Canadian patent law. In particular, the prosecution of a US family member was considered during the litigation of a Canadian patent in Canmar Foods Ltd v TA Foods Ltd 2019 FC 1233 (which is currently under appeal).
The federal government has launched a comprehensive intellectual property strategy that covers:
- intellectual property legislative reforms;
- a reduction in the complexity and cost of intellectual property protection; and
- initiatives to improve intellectual property awareness and education.