Copyright Monetization (IPIC McGill Aug 8 2014)

Issues relating to the monetization and exploitation of
copyright
August 8, 2014
Lisa Abe-Oldenburg, B.Comm., JD
IPIC-McGill 2014
Copyright Master Class

• Key contractual issues relating to development by others and licensing of software
and other content
• Dealing with source material
• Escrow issues
• IP due diligence for transactions
2
Issues relating to the monetization and exploitation of copyright

• Parties
• Who is the Developer ,Vendor, Assignor or Licensor? Are they solvent and able to honor
their obligations under the contract? Are parental guarantees needed?
• Will there be use by third parties, e.g. affiliates, customers, outsourcers, subcontractors,
agents? If so, will they be directly licensed or will the license be sublicensable or
transferable to them? Will they get direct benefit of indemnities and protection under
limitations clauses? Will they have right to sue or be sued directly? (See Nautical Data v.
C-Map below)
• IP rights in the software or content
• What is the subject matter? Code, databases, documents, multimedia?
• Ensure assignment or license of rights wording is consistent with statutory rights in the
applicable territory
3
Key contractual issues relating to development by others and
licensing of software and other content

• E.g. In Canada, s. 3(1) Copyright Act – right to produce, reproduce, perform, publish,
communicate to the public by telecommunication, and depending upon the work, convert,
adapt, present, and for software - rent; and s.14.1, moral rights of author (integrity, association,
pseudonym, anonymous)
• Which IP rights does the Purchaser, Licensee or Assignee, need to ensure it can meet
its intended future use? Which IP rights does the Developer,Vendor, Assignor or
Licensor need to continue its business? Type of license or assignment required?
• Will there be any changes/modifications/updates to the software or content? If so,
the contract will also need to address right to source code and ownership of the
newly developed works, licenses back, etc.
• SaaS/Cloud models – is a copy being made? How about a communication to the
public?
4

• Entertainment Software Association v. Society of Composers, Authors and Music
Publishers of Canada, 2012 SCC 34, [2012] 2 S.C.R. 231
• Issue: Is transmission of musical works contained in a video game through an Internet
download a communication to the public – Copyright Act, R.S.C. 1985, c. C-42, s.3(1)(f)
• Copies are identical to copies purchased in stores or shipped by mail
• Royalties for reproduction rights were already negotiated
• SOCAN applied to copyright board for additional tariff covering the downloads
• Copyright Board and Federal Court of Appeal allowed tariff, saying that downloading of file is a
communication to the public by telecommunication
• SCC held: Internet download of a copy of a work/file, is not a communication to the public
by telecommunication. Based on history that communication right is connected to
performance-based activities, not to capture activities that resemble reproduction.
• Dissent: Communication right is self-standing and independent of performance right
Note: May have been a different outcome if the work had not been a permanent copy
5

• Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of
Canada, 2012 SCC 35, [2012] 2 S.C.R. 283
• Issue: Is streaming of music files from the Internet (online music services) triggered by
individual users, a communication to the public – Copyright Act, R.S.C. 1985, c. C-42,
s.3(1)(f)
• A stream is a transmission of data that allows the user to listen to or view a work at the time of the
transmission, resulting in a temporary copy of the file on the user's hard drive.
• Copyright Board set a tariff for streaming, and FederalCourt of Appeal dismissed the appellant's
application for judicial review of the Board's decision.
• SCC Held: Appeal allowed in part. In respect of downloads, Court referred to
Entertainment Software Association v. SOCAN and allowed the appeal. Transmission of a
single copy of a work to a single individual is not a communication to the public.
6

• However, in respect of streamed music from the Internet, appeal was dismissed. Where
there is a series of repeated transmissions of the same work to different recipients, each
transmission cannot be analyzed in isolation, even if each transmission is initiated at the
request of an individual. True character of the activity – engages the exclusive right to
communicate to the public.
• Nothing in s.3(1)(f) of the Act excludes pull technologies from its scope or restricts
communications to the public to a purely non-interactive context. The section is
technology-neutral.
• It matters little for the purposes of copyright protection whether the members of the
public receive the communication in the same or in different places, at the same or at
different times, or at their own or the sender's initiative.
• A stream of a musical work from the Internet is not a private transaction outside the scope
of the right to communicate to the public.
Note: Analysis can be applied to software streaming, cloud computing, and "pull"
technologies that distribute software and content.
7

In 2012, Bill C-11 amended the Copyright Act
• New Section 2.4(1.1) of Act - For the purposes of this Act, communication of a work
or other subject-matter to the public by telecommunication includes making it
available to the public by telecommunication in a way that allows a member of the
public to have access to it from a place and at a time individually chosen by that
member of the public.
• New Section 19.1 of the Act - Despite subsection 2.2(1), a sound recording that has
been made available to the public by telecommunication in a way that allows a
member of the public to access it from a place and at a time individually chosen by
that member of the public, or that has been communicated to the public by
telecommunication in that way, is deemed to have been published for the purposes
of subsection 19(1).
8

• Software and content test versions/samples – fair dealing exemption?
• Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, 2012
SCC 36, [2012] 2 S.C.R. 326
• Issue: Whether the use of previews constitutes "fair dealing" – exception to copyright
infringement under Copyright Act, R.S.C. 1985, c. C-42, s. 29
• Copyright Board and FCA found that 30-90 second excerpts of musical works that can be
listened to by consumers prior to purchasing the work, was "fair dealing" for the purpose
of research under s. 29 of the Act
• SCC Held: Agreed with Copyright Board. Test for fair dealing in CCH Canadian Ltd. v. Law
Society of Upper Canada, involves 2 steps:
• Is the purpose for one of the two allowable purposes under s. 29: "research" or "private study"?
• Given large, liberal interpretation
• From the perspective of the consumer/user, not the online service provider
• Research to identify which music to purchase – need not be for creative purposes only
9

• Is the dealing "fair" based on factors of purpose, character and amount of dealing, existence of
alternatives, nature of work and effect of dealing on that work?
• Again, from the perspective of the consumer
• Reasonable safeguards in place to ensure previews are being used for this purpose
• Users don't keep permanent copy of preview – file is streamed and automatically deleted from user's
computer once heard
• Copies cannot be duplicated or further disseminated
• Look at proportion of preview in relation to the whole work, not the aggregate amount of music heard
• Several seconds is modest amount when compared to whole work
• No alternatives to dealing that effectively demonstrate to consumer what music sounds like
• Previews reasonably necessary to help consumers research what to purchase
• Short, low-quality previews do not compete with or adversely affect the downloading of the works
themselves. Instead, effect is to increase sales
10

• Type of license: non-exclusive, sole or exclusive?
• To be able to sue for copyright infringement, must be owner or have exclusive license
Nautical Data v. C-MAP (2013 FCA ) and s. 2.7 and 36(1) of the Copyright Act
• Examples of sole or exclusive license conditions :
• obligation on the Licensee to exploit, effectively market and advertise, meet minimum
performance/volume goals, profits, sales, royalty structure
• restricted territory, channels of distribution, markets, products, specific technology
• Licensee maintaining certain product quality standards
• requirement on Licensee to provide Licensor with samples, inspections, testing
• license to convert back to non-exclusive if conditions or terms not met
• Licensor’s (or third party agent’s) right to audit Licensee
11

• License scope and restrictions (can also be applied to partial assignments):
• User type, user number, only certain rights exercised by certain third parties (e.g. affiliates,
customers, subcontractors, etc.)
• Simultaneous vs. non-simultaneous use
• Territory, geography (e.g. world-wide or only in Canada?), site location, specified
equipment or hardware, hot sites, cold sites, servers, workstations, or address; be careful
with restrictions on CPUs - re virtualization and cloud computing
• Product/technology, format, subject matter
• Purpose, e.g. evaluation, due diligence, testing, internal data processing, pilot, in-
production/live, joint venture, for support services, maintenance, outsourcing, consulting,
distribution, back-up, disaster recovery, retrieval, etc.
12

• License scope and restrictions (cont.):
• Term, survival
• Confidentiality and non-disclosure obligations
• Transferability (beware of silence - licenses are personal)
• Sublicensability
• Revocability
• Contractual obligations and restrictions may create “new rights” which are beyond what is
statutorily available for traditional IP, e.g. digital rights management
• Exclusions and restrictions must be carefully drafted since ultimately these affect pricing
calculations
13

• Competition Concerns :
• Beware of anti-trust/competition violations, e.g. § 77 - 78 of the Competition Act:
• tied selling, e.g. where a supplier of a product, as a condition of supplying to a customer the
“tying product” (i.e. a product in a market in which the supplier has market power), requires the
customer to acquire any other product (the “tied product”) from the supplier or induces the
customer to acquire the tied product from the supplier by offering to supply the tying product on
more favourable terms or conditions.
• abuse of dominant position, e.g. where a supplier of a product, as a condition of supplying the
product, requires the customer to deal only or primarily in product supplied by the supplier, or
induces the customer to deal only or primarily in product supplied by the supplier by offering to
supply the product on more favourable terms and conditions.
• exclusive dealing, e.g. where (1) the entity engaged in the tied selling and/or exclusive dealing
must have market power in a relevant market, (2) the tied selling and/or exclusive dealing alone or
combined with other conduct must amount to a practice of anticompetitive acts, and (3) the
practice is likely to prevent or lessen competition substantially in one or more markets.
14

• Fees (or Royalties)
• Fixed amounts: base or minimum
• Variable rates: volumes (e.g. users, CPUs, locations, access time), ascending or descending
over time, percentages e.g. based on sales, profits (define gross or net), # sublicenses
• Single/one-time or multiple payments (e.g. milestones, deliverables, fixed dates)
• Purchaser/licensor wants to ensure what they pay for works – need testing
• Specify timing of invoicing and payment, interest on overdue amounts, any set-off or
withholdings (e.g. for cross-border deals or phased in acceptance testing)
• Separate license royalties from fees for other services, e.g. customizations, support,
maintenance, consulting or professional services
• Tax issues
• Included or excluded from the price
• Which party will remit
• Certain provinces contain exemptions for tax on custom software or different tax implications
based on where server or user is located – may want to choose license jurisdiction for tax
advantages
15

• Confidentiality obligations:
• How do you define “Confidential Information”?
• Are terms of the agreement confidential?
• Intangibles that don’t get statutory IP protection, e.g. trade secrets, ideas and concepts, raw data,
mathematical formulae
• Is personal information (as per privacy laws) included?
• Other information learned about either party, e.g. from reports, audits, service
• Info provided/learned orally, from third parties e.g. customers
16

• Types of confidentiality covenants:
• Maintain a level of security
• Not to disclose
• Compliance with privacy laws (collection, use, storage, correction, deletion and disclosure)
• Return or destroy (if possible)
• Each covenant may have separate term/survival
• Damages for breach: direct, indirect, third party claims? Required indemnities and
carve-outs from limitations on liability? Need right to seek equitable remedies.
17

• Exclusions from confidential information definition (i.e. its non-confidential), or
exclusions from confidentiality obligations/covenants (i.e. right to disclose) :
• Info publicly available info through no default of other party
• Info in prior, rightful possession of other party, without restriction
• Info rightfully obtained info from third parties
• Info independently developed; residuals
• Used for purpose of exercising the licensed rights
• Required disclosure under applicable law or investigative authority - subject to advance
notice and opportunity to obtain protective order, if not in violation of applicable law
• Disclosure to legal, accounting, tax, technical advisors – do they have a duty of confidence
or are they willing to sign a similar NDA?
• Disclosure in the course of a business acquisition/sale – must sign NDA
18

• Purchaser/Licensee representations and warranties:
• Authority to enter contract
• Scope of business, jurisdiction, territory
• For sole or exclusive licenses: ability to meet threshold requirements, e.g. minimum level
of experience, pre-existing technology, customers, distribution channels, market
penetration, profits, etc.
• Not providing any personal information toVendor/Licensor
• Control over affiliates and other end users
• Appropriate sublicensing and confidentiality agreements in place with third parties
• Tips:
• Consider whether breach of warranty should trigger termination of license?
• Licensee may prefer stating it as a condition of exclusivity, or payment of liquidated
damages, not termination.
19

• Vendor representations and warranties :
• Ownership, ability to assign or right to sublicense, as applicable
• Registered IP, valid and in good standing
• No disputes (actual or threatened), no third party claims in respect of the subject matter
• Power/authority to enter contract, right to disclose the software and content
• Exercise of granted rights by Licensee/Purchaser will not infringe third party copyright,
breach or violate any agreement or duty, or require third party consent
• Functional/performance/technical warranties, quality, security, compatibility, scalability,
no disabling devices, locks, etc. or that appropriate tests have been done to identify them
• Vendor/licensor will want to tie to objective criteria
• May also be linked to payment milestones over course of development
• No open source, or identification of open source software
20

• Vendor/Licensor representations and warranties (cont.):
• No prior assignments (e.g. partial, equitable, legal), no sole or exclusive licenses granted
previously, no joint owners, no security interests, no options
• Original work, no infringement, legal opinions, developers and source of origin
• Not providing any personal information
• Tips:
• Consider commencement, duration and survival period of warranty
• Remedies for breach, e.g. obligation to replace or modify, not sole and exclusive remedy;
negotiation of third party consents or settlement, with Licensee approval
• Consider termination triggers
• Consider carve-outs from limitations on liability and disclaimer clauses
• Corresponding indemnities for third party claims resulting from breach of warranty
• Vendors/Licensors will want qualifications and exceptions (see next slide)
21

• Warranty qualifications and exceptions:
• Licensee must be in compliance with license, for warranty to be effective
• Exceptions as disclosed in schedule
• Best of knowledge
• Territory limitation
• As delivered, unmodified software or content
• Only applicable to recorded/registered IP
• Warranty term (duration)
• Applicable subject matter, scope, materiality
• Consider relevance and applicability of standard disclaimers of implied warranties of
merchantability, quality, fitness for a particular purpose, and those arising out of a course
of dealing or usage of trade – ensure no conflict with intended scope of warranties
22

• Indemnities
• Indemnify, defend and hold harmless? Ability to settle?
• Who apply to? Parties, directors, officers, agents, subcontractors, affiliates, sub-licensees,
end users, customers, successors and assigns?
• Amounts? Only final damages awarded by court of competent jurisdiction? Only for third
party claims/liability (e.g. infringement) or internal losses and damages? Other claims,
e.g. legal costs, settlement costs, arbitration awards, etc.?
• Qualifications and exceptions similar to warranties (see next slide)
• Tips:
• Ensure all indemnities are consistent/flow-through with any upstream licenses
• Third party claims could be direct damages – if you have an indemnity, make sure not
excluded in limitation of liability clauses (i.e. no indirects)
23

• Typical situations where indemnities shouldn't apply:
• Claim arose from modifications to the software or content that were made without
indemnifying party’s (Licensor's/Vendor's) direction or control
• Claim relates to unlicensed third party or Licensee/Purchaser-supplied property
• Unauthorized use of the software or content - breach of license by Licensee
• Indemnified party fails to notify of a claim
• Continued use after notification of infringement or third party claim
• Failure of indemnified party to co-operate in defence or settlement
• Foreign jurisdictions in which Licensor/Vendor has not registered IP, or outside scope of
license
• Tip:
• copyright infringement warranties, indemnities, and damages arising from breach of
confidentiality, privacy and security, are typically carved out of limitations on liability
24

• Term:
• When is contract effective and if applicable, when does it end
• When does license commence? Any conditions precedent?
• What is the license duration? Survival of any rights?
• Is license renewable?
• Tip:
• Term may differ as between licensed rights, warranties, indemnities and other obligations
25

• Termination :
• By which party?
• Typical reasons for termination:
• Without cause, i.e. for convenience – need to discuss amount of notice and any fees/cost
• For cause (e.g. breach of agreement, infringement or disclosure of confidential info)
• For insolvency
• Change of control, unauthorized assignment to a competitor
• When is termination effective?
• Immediately
• Upon stipulated amount of notice
• After opportunity to cure
• After transitional services provided
• Survival of any terms?
• Tips:
• Beware of inconsistency with a "perpetual" license
• Should Licensor have right to terminate vs. remedy to sue for damages?
26

• Determine who the authors of the copyright work are and their status, e.g.
employees, contractors, government work – differing ownership rules depending
upon jurisdiction
• Any open source software embedded?
• Ensure authors have assigned their IP rights and waived moral rights in favour of all
Licensor’s successors, assignees and licensees
• Ensure assignments and waivers are properly described in writing and signed
• Effects of joint ownership: limitations in respect of jointly owned IP rights
“work of joint authorship” requires collaboration, non-distinct contributions and mutual intent
• may need consent of joint owner for transfer/assignment of joint interest,
license of rights, right to use and right to enforce/sue; may need to share
revenues
• e.g. for copyrights and patents:
• in Canada (except Quebec re patents) and U.S., can transfer/assign without consent of
joint owner provided not a partial transfer
• in Canada, cannot license without consent of joint owner, while in U.S. can license if
no agreement to the contrary and not exclusive license
Dealing with Source Material

Escrow Issues
• What is deposited into escrow – is it current and complete? Format?
• Additional legal documents required, e.g. assignments, source code licenses
(including right to modify), waivers
• Additional materials required, e.g. tools, passwords, compilers, instruction manuals
• When are deposits made? How often?Where held?
• Verification and testing of deposits to ensure they work
• Ability to solicit and hire developers – need contact info
• Triggering events and process: Licensor’s failure to support, no longer in business,
continued force majeure, insolvency, bankruptcy, notification and timing – ensure
licensee is relieved of its obligation to continue to pay licensor
• Problems if only 2-party escrow contract (no privity with escrow agent), or
requirement of Licensor's consent for release

IP due diligence for transactions
 Identify the technology, software and content and what IP rights exist in it and which
jurisdiction's laws apply
 Does it include any third party products/rights? Embedded technology? Open source?
 What are the copyrights (bundles of rights) available in each applicable jurisdiction?
 What specific rights does each party need? Consider future applications, virtualization,
modification, reorganization, etc.
 Who needs/gets benefit of any licenses? Affiliates, customers, outsourcers? Directly or via
sublicense? What does head license say as to survival of sublicensees' rights?
 Copyright registry: searches of title for ownership and any registered licenses
 Have any sole or exclusive licenses been previously granted or any assignments?
 Contract review: licenses, assignments, NDAs, development contracts, maintenance contracts,
service/consulting agreements, source code escrow agreements
 What is being contracted for? Who owns the technology, software or content? Who owns any
developed work or modifications? Any joint owners?
 What is the scope of the copyright license? Any restrictions on use?
 Has the scope of rights been properly drafted, e.g. right to “use” is not a copyright – must
define "use" in light of applicable IP statute(s)
 Is it an exclusive, sole or non-exclusive license?

IP due diligence for transactions
 Are assignments of ownership in writing, signed and to correct party?
 Who are the authors of any copyright works? Have they assigned moral rights? In favour of
correct party, its future assignees and licensees?
 What are the non-disclosure/confidentiality obligations? Any conflict with the license or
assignment of ownership provisions?
 Any non-compete provisions?
 Can the contract be terminated early? What happens to the license? What happens to the
physical software being licensed, or content/data?
 What is the term of the contract vs. license? Is the license perpetual? Does it conflict with the
term and termination provisions?
 What happens to sublicenses on termination? Does head licensor acknowledge sublicensees?
 Is license irrevocable?
 Is license expressly transferable?
Note: Silence in licenses as to transferability does not mean it will be transferable, as licenses have
been held to be "personal" to Licensor.

Abe-oldenburgL@bennettjones.com
416-777-7475
www.bennettjones.com
• This presentation contains
statements of general
principles and not legal
opinions and should not
be acted upon without first
consulting a lawyer
who will provide analysis
and advice on a specific
matter.

Copyright Monetization (IPIC McGill Aug 8 2014)

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