Publications

Packed with valuable information, our publications help you stay in touch with the latest developments in the fields of law affecting you, whatever your sector of activity. Our professionals are committed to keeping you informed of breaking legal news through their analysis of recent judgments, amendments, laws, and regulations.

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  • Intellectual property in open innovation and co-innovation in the field of artificial intelligence

    Moving far beyond the traditional models of closed innovation, artificial intelligence is progressing by means of collaborations and exchanges, both with the academic world and between companies. In Canada, the United States and Europe, innovation has evolved in ways that have changed the very design of research and development projects. In the world of information technology, closed innovation within one company is generally not sufficient, particularly for technologies using artificial intelligence. Distinguishing between collaborative innovation, open innovation and co-innovation In the field of information technology, collaborative innovation was the first model to replace closed innovation. In this type of innovation, an organization collaborates with various partners to build a value chain that it tries to organize and control. Apple is often cited as an example: it has some control over both the hardware (usually sold under its brand) and the software (third party software is made available through a virtual store that it controls). The most significant change in recent years has been the arrival of open innovation, in which several companies foster innovation both internally and externally1. Exchanges between companies are generally targeted to meet the needs of each company. Large companies, such as Samsung, enter into partnerships with start-up companies and assist them in their development. Collaborative innovation was therefore a precursor to open innovation. Indeed, the focus in collaborative innovation is on the company creating a new product or developing a new technology by means of the offerings of external parties. Open innovation, on the other hand, has a broader purpose and refers to all the means that can be used by a company to access new technology.2 Co-innovation3, or collective innovation, is the emerging model within the artificial intelligence community. It aims to promote an ecosystem that fosters innovation across several entities. Co-innovation can go hand in hand with respect for intellectual property. It is likely to4: Generate a continuous flow of ideas; Build a broad pool of knowledge, in particular through sharing data and analysis; Foster a culture of innovation through a shared vision and common objectives among partners; andCreate tacit convergence strategies between partners that are unique to them and difficult to replicate. This last point is particularly important for those who fear losing the benefits of their efforts. In this context of co-innovation, stakeholders create complex relationships between themselves, and each becomes difficult to replace. This is currently the case in artificial intelligence for some stakeholders who have developed specialized platforms that integrate into other companies' software. For example, as part of the integration of chatbots, the roles of the developers of these platforms, the companies offering conversation analysis tools, marketing firms and user companies all intersect. The implementation of APIs (application programming interface) between these players makes it possible to exchange information between them in a fairly fluid way, with each stakeholder playing a more important role in its own field of expertise. Protecting intellectual property in this context Open innovation and co-innovation are not incompatible with the notion of intellectual property. Strong intellectual property rights promote open innovation, according to the most recent studies5, as they protect members of the innovation community. Moreover, intellectual property can provide a way for stakeholders to coordinate6 and can even be a reason for a company to innovate in an open way. For example, where patents are possible7, they promote interaction between stakeholders during innovation because they ensure the innovation is protected and also disclosed. When the patent application is published, the other stakeholders obtain a fairly complete description of the technology, while at the same time becoming able to establish the identity of the party that holds the rights to it. The publication of the patent is therefore a form of knowledge exchange that also promotes alliances between stakeholders. Moreover, a potential licence would allow the company to earn revenue from a technology it has developed if it chooses not to exploit it itself. An example of this development in innovation comes from the academic world. Rather than simply licensing their technologies, universities now frequently offer technology transfer services and research partnerships.8 Some measures can be implemented to accelerate the development of artificial intelligence solutions: Adopt a design thinking approach, taking into consideration the fluid nature of innovation. Identify an ecosystem of partners, particularly keeping an eye on patents and published patent applications. Establish a flexible contractual framework for sharing data and allowing its use by partners. File patent applications, where possible. Facilitate the licensing of your technology to your partners. Implementing these measures requires agreements with various partners. It is important for your lawyers and patent agents to be involved in your company’s innovation process. In particular, they must ensure that the contracts to be entered into and the measures to protect intellectual property are in line with the desired approach to innovation.   Chesbrough, Henry William. Open innovation: The new imperative for creating and profiting from technology. Harvard Business Press, 2003. Gallaud D. (2013) "Collaborative Innovation and Open Innovation. " In: Carayannis E.G. (eds) Encyclopedia of Creativity, Invention, Innovation and Entrepreneurship. Springer, New York, NY Lee, Sang M. and Silvana Trimi. "Innovation for creating a smart future" Journal of Innovation & Knowledge 3.1 (2018): 1-8 Ibid. Da Silva, Mário APM. "Open innovation and IPRs: Mutually incompatible or complementary institutions?" Journal of Innovation & Knowledge 4.4 (2019): 248-252 Bortolami, Giovanni. "Risolvendo il paradosso dell'innovazione: come la protezione della proprietà intellettuale promuove l'innovazione aperta." (2018). Algorithms alone are usually not patentable, but several applications of artificial intelligence can be. See: https://www.lavery.ca/en/publications/our-publications/3167-artificial-intelligence-intellectual-property-cross-border-challenges-to-protect-personal-information-and-privacy.html. Nambisan, Satish, Donald Siegel and Martin Kenney. "On open innovation, platforms, and entrepreneurship." Strategic Entrepreneurship Journal 12.3 (2018): 354-368.

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  • 5 keys to successfully sell your franchise system

    Though it doesn’t happen often, some franchisors start a franchise system with the goal of selling it in the short or medium term. However, the quality of the infrastructure required to build a viable franchise system and the amount of resources (financial or other) that need to be invested over time is likely to lead such franchisors to reconsider their initial goal and either develop a strategic partnership or simply cave in and sell their franchise system to a competitor. Given that a potential partner or buyer will likely carry out due diligence to substantiate the business opportunity, it is preferable to determine what issues may compromise or interrupt negotiations and try to resolve them in advance. Identifying issues in the relationship with franchisees and making the necessary adjustments Before thinking of selling all or part of your franchise system, you should assess the quality of your franchisees and your relationship with them. If you have conflicts with some of them, it is high time to resolve them. Unless faced with an isolated case that you have already taken steps to resolve, your potential partner or buyer may react negatively upon learning that some franchisees in your system are critical of the franchisor and may fear the impact that claims could have on the franchisor’s image, concept and brand. The most frequent criticisms against franchisors are related to a lack of support and collaboration, a lack of transparency in the use of national advertising funds, a concept and/or operations that aren’t viable, and the belief that the franchisor does too little for its franchisees. To learn if your system harbours any such criticisms, you should not visit your franchisees only to assess the quality of their operations. You should give them the opportunity to openly discuss the challenges and situations they face with your management team. It is always better to get franchisees to confide directly in their franchisor rather than letting dissatisfied franchisees discuss their points of contention between themselves. A better understanding of the state of your franchise system will make it possible for you to be more transparent in disclosing the issues underlying a potential transaction to your prospective buyer. Even if such transparency may lead to a lower sale price, it avoids the financial consequences of incomplete or inaccurate representations that you may make to the future buyer and helps to maintain trust. Reviewing and structuring documentation As part of its due diligence, the buyer and its lawyers and financial advisors will review all key aspects of the franchisor’s system, including contracts (franchises, leases, suppliers, etc.), intellectual property and accounting. Missing or incomplete documentation will likely discourage the buyer and justify a reduction in the sale price, or, even worse, withdrawal from the proposed transaction. It is therefore essential, before the buyer’s due diligence begins, that you instruct your resources to verify that your documentation is compliant and reliable, correct any deficiencies and obtain missing information, if any, even if it means hiring external consultants. Compiling your system’s financial information A potential buyer will undoubtedly want to analyze your financial statements and tax returns. It is also very likely that it will want to consult accounting records and verify some key performance indicators. Thus, your system’s monthly sales (compared to those of previous years), geographic trends, how profitable franchisees’ operations are and how frequently they pay their royalties will certainly be of interest to a buyer. In addition, a diligent buyer will pay close attention to a franchisor’s contractual obligations towards third parties, such as lessors and suppliers, and any warranties that it may have made to third parties. In short, full and structured disclosure of the financial information underlying your system will make it easy to demonstrate future profitability. Negotiating an advantageous Earn-out clause Negotiating the sale price of a franchise system can be done in different ways. In addition to the traditional EBITDA valuation of the business, it is not unusual for a franchisor (whose management will ensure an operational transition after the sale) to negotiate an upward adjustment to the sale price should the franchisor achieve, after a determined post-transaction period, better financial results than those on which the buyer based its valuation of the sale price (the “Earn-out”). For example, the sales agreement could provide that a sum equal to the increase in EBITDA that the franchisor achieves during the Earn-out period, multiplied by the EBITDA multiple applied to the transaction, be paid in addition to the sale price. Limiting the chances of your transaction failing by choosing a suitable buyer Make no mistake: a transaction isn’t concluded upon signing a letter of intent. There’s still a long way to go. A multitude of conditions in favour of the buyer generally need to be fulfilled in order for the transaction to proceed. Stipulated time limits often need to be extended by mutual agreement for the parties involved to cover all bases and close the sale. This doesn’t mean that you must consent to all the buyer’s requests to extend time limits. While delays in a transaction are usually well-founded, sometimes a buyer tries to buy time in order to exert pressure on the seller, or it will do so to finish due diligence that it deliberately made more complicated in order to find arguments justifying a decrease in the sale price./p> To avoid such an unfortunate situation, it is in your interest to be well informed about your potential buyer and how it handled past transactions. To assist you and make the best of your business model, feel free to contact a professional of our team!

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  • What can be done to discipline a manager? Potential solutions to keep in mind

    Except in cases of “serious misconduct,” managing a manager whose performance is unsatisfactory or whose conduct is inappropriate can be delicate. Because of workplace usage and practices in Quebec, disciplinary management of managers differs from that applied to other employees of the company. Progressive disciplinary measures do not apply to managers, who are rarely, if ever, suspended. HR Manager : Guidelines In a situation involving an executive, an HR manager will have to assess whether or not there is a “serious reason” for dismissal in light of the duties assigned to the executive and his or her responsibilities with respect to alleged actions or situation. For example, an executive who does not take into account the requests of the Board of Directors or his or her supervisor would be guilty of insubordination, which is a serious reason for dismissal, as is the inability to put into place an effective team. Given that executives have a high degree of discretion in how they carry out their duties and responsibilities, it is up to them to find ways to meet the company’s expectations and objectives, unless these are unrealistic or unreasonable in the circumstances. Nevertheless, executives must be notified of any dissatisfaction on the part of their employer when their conduct is inappropriate or does not meet stated expectations and objectives. It will then be up to them to make the necessary adjustments. The courts recognize these special rules for executives. The employer’s power to sanction Section 2094 of the Civil Code of Québec (C.C.Q.) provides that an employer may unilaterally resiliate an employee’s employment contract without notice for a “serious reason.” The courts consider that a serious reason is synonymous with dismissal for “good and sufficient cause,” as defined in jurisprudence or in section 124 of the Act respecting labour standards. Taking into account the specific context of executives is necessary. They have considerable latitude in the performance of their duties, they exercise control over many company employees, their responsibilities may influence the future of the company, and they generally have better working conditions. As a result, employers may be more demanding of executives, who [translation] “should not be treated as subordinate employees in disciplinary matters1.” Thus, the courts have recognized the following principles: Executives cannot “benefit” from so-called progressive discipline like other company employees, as a suspension would be illogical given the nature of their position. Disciplinary measures are intended to help employees understand the seriousness of a situation in order to be able to remedy it. This cannot reasonably be achieved because a suspended manager would suffer a loss of credibility with the teams that he or she supervises2. An employer must inform an executive of any dissatisfaction in terms of conduct or performance. “When the executive in question knows the reasons for the dissatisfaction, it is up to him or her to review his or her ways of doing things and meet senior management’s expectations. Senior management is not required to explain what needs to be changed, even more so when the executive has many years of experience.”3 A “serious reason” refers to an employee’s violation of one or more essential conditions of his or her employment contract, or improper conduct on his or her part. In Sirois c. O'Neil, the Court of Appeal considered that the dismissal of Microcell’s President and Chief Executive Officer was justified because, by his conduct, he had alienated the majority of the senior managers that he was responsible for. The Court considered that he had failed to fulfil the obligations inherent to the task entrusted to him, which involved direction, management and organization: [Translation] “He had been given a command position. It was his obligation to form a united, motivated and efficient team.  That was his main role.  He failed in his task. To illustrate the situation, the locomotive was unable to pull the cars4.” In order to determine whether the employer’s reasons for dismissal are “serious,” the various factors are assessed according to the circumstances, including the importance of the executive’s position, the nature of his or her employment and the seriousness of the complaints.  In Marc Van Den Bulcke c. Far-WicSystèmesLtée et GroupeSécuritéC.M. inc. the Superior Court held that: [Translation] [61] “Depending on the circumstances, negligence in the performance of duties, lack of self-discipline and performance below that agreed upon with the employer constitute serious reasons for dismissal without notice or compensation in lieu of notice5.” The Tribunal administratif du travail essentially applies the same principles as the courts. As an illustration, the Commission des relations du travail pointed out that it is up to an executive to know what conduct is incompatible with his or her obligations under the employment contract in Mommaerts c. Élopak Canada Inc.6: [Translation] [122] “(...) Moreover, when the latter is given considerable responsibilities, it becomes clear that he or she cannot be treated in the same way as an employee.  Indeed, the greater a person’s responsibilities in a company, the less need there is to warn them of the consequences of the actions that they take or fail to take. This is implicit to the function. [Translation] [123] “How can we believe that a suspended executive would have the same credibility with employees, fellow executives, suppliers and customers? The answer is obvious and favours a different application of the principle of gradation of sanctions.” Conclusion Although executives have privileges over other employees in an organization due to their status, this status can quickly render them vulnerable if they fail to live up to their responsibilities.   Valcourt c. Maison l'Intervalle, D.T.E. 95T-322 (S.C.), page 12 Yersh c. CRT et FCA Canada inc. (Chrysler), 2019 QCSC 740, para. 111-113 Bélanger c. Opéra de Québec, D.T.E. 98T-197 (S.C.), page 23. See also Laramée c. Poly-Actions Inc., D.T.E. 90T-923 (S.C.) and Houle et Fédération de l’U.P.A. de Sherbrooke, D.T.E. 84T-303 (A.T.) J.E.99-1343 (C.A.), page 29 2010 QCSC 6654, para. 61 2011 QCCRT 0375, para.122 and 123

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  • Estoppel based on patent prosecution history in Canada: The Pandora’s box is opened

    Nearly twenty years ago, the Supreme Court of Canada1 rejected the theory of estoppel based on a patent’s prosecution history, more commonly known as "file wrapper estoppel"2). At the time, Justice Binnie wrote, “[…]purposive construction, which keeps the focus on the language of the claims, seems also to be inconsistent with opening the pandora's box of file wrapper estoppel”. However, in December 2018, section 53.1 was added to the Patent Act (the "Act"), which allows for references to communications with the Canadian Intellectual Property Office ("CIPO") "to rebut any representation made by the patentee in the action or proceeding as to the construction of a claim". In Canmar Foods Ltd v. TA Foods Ltd 2019 FC 1233, Justice Manson of the Federal Court rendered the first decision on file wrapper estoppel in Canada since this new provision came into force. The decision was handed down in the context of a motion for summary judgment. Salient points When a patentee amends the claims to limit their scope, the elements thus introduced are essential elements of the claims. Section 53.1 of the Act can apply even if the patentee has not adopted a construction that contradicts a previous statement. Where the patentee refers to the "file wrapper" of another jurisdiction (in this case, the US) during prosecution of the patent application in Canada, they make that file wrapper relevant for the purposes of applying section 53.1 of the Act. The Federal Court appears to be loosening the jurisprudence applicable to motions for summary judgment. The party challenging a motion for summary judgment must submit the best evidence available. The construction of certain terms of the claims may be made by a judge even in the absence of expert evidence. Background Canmar Foods Ltd. ("Canmar") holds a patent on a method for roasting oil seeds as well as products derived therefrom (the "Patent"). The method claimed in the Patent consists of foursteps, including heating the seeds to a certain temperature in a "stream of air" and transferring the heated seeds "into an insulated or partially insulated roasting chamber or tower." During prosecution of the Patent, the aforementioned steps of heating the seeds in a "stream of air" and transferring the heated seeds had been added to the claims; this amendment to the claims was made to reduce the scope thereof. While making this amendment, Canmar mentioned that the claims “correspond substantially” to those submitted during prosecution of a related US patent application. Canmar sued TA Foods Ltd. ("TA") for patent infringement. TA made a motion for summary judgment on the grounds that the method employed by TA does not include heating the seeds in a "stream of air," nor does it include transferring the heated seeds "into an insulated or partially insulated roasting chamber or tower." In support of the motion for summary judgment, the parties both produced affidavits. However, no expert evidence as to the construction of the terms of the Patent by a person of ordinary skill in the art ("POSITA") was presented. Issues before the Federal Court Should the Court grant the motion for summary judgment or leave these questions to the trial judge? Can the Court use the file wrapper of the corresponding US patent application to construe claims under section 53.1 of the Act? Can the Court conclude on the basis of the file wrapper that the elements "stream of air" and "into an insulated or partially insulated roasting chamber or tower" are essential elements of the patent claims? Is the evidence presented sufficient to construe the terms in question and to conclude that they are absent from the defendant's method? The judgment In his judgment, Justice Manson first considers the criteria applicable to a motion for summary judgment. The case law indicates that when certain issues require assessing the credibility of witnesses, these issues should be left to the trial judge. Justice Manson refuses to apply these principles, which had been elaborated by the Federal Court of Appeal in MacNeil Estatec v. Canada (Department of Indian and Northern Affairs), 2004 FCA 50. Justice Manson further writes: The Supreme Court held that “summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims” (Hryniak, above at para 5) […]There is no determinative test for summary judgment. One articulation is that the test is not whether the Plaintiff cannot possibly succeed at trial, but whether the case is so doubtful that it does not deserve consideration by the trier of fact at a future trial […]3. He adds that the party defending an application for summary judgment cannot simply claim that the applicant has not met its burden and speculate as to grounds that could possibly be raised on the merits: Parties are required to put their best foot forward. The responding party cannot rely on what might be adduced as evidence at a later stage, but must set out specific facts and adduce evidence showing that there is a genuine issue for trial (Federal Courts Rules, r 213; Sterling Lumber Co v Harrison, 2010 FCA 21 at para 8)4. Justice Manson refers to the principles of claim construction developed by the Supreme Court in Free world trust and to the fact that Justice Binnie refused to apply the doctrine of file wrapper estoppel; however, Justice Manson then refers to the newly added section 53.1 of the Act, and adds: This new provision is specific to using Canadian prosecution file histories to rebut any position taken on claim construction.5 “However, in this case, I find that the patentee specifically referred to the corresponding US Application prosecution history and acknowledged that the amendments to the claims in the ‘376 file history were made to overcome novelty and obviousness concerns as raised in the US Application prosecution history. Accordingly, the Court may look at the US Application prosecution history as part of a purposive construction of the claims of the ‘376 Patent.”6 The Court in part imports the principles of US law to determine the scope of section 53.1 of the Act. Quoting the United States Supreme Court, Justice Manson adds: "By amending the application, the inventor is deemed to concede that the patent does not extend as far as the original claim” (Festo at 737-738)7. Consequently, Justice Manson concludes that the elements of heating the seeds in a "stream of air" and transferring them "into an insulated or partially insulated roasting chamber or tower" are essential elements of the claim. The plaintiff argued that the Court cannot construe the terms of the Patent in the absence of expert evidence demonstrating how said terms would beconstrued by the POSITA. The Court rejected this argument: Based on the claim, the disclosure, and the prosecution history of the ‘376 Patent, I find that expert evidence is not required for me to be able to purposively construe the two elements of Claim 1 that are at issue.8 Although not explicitly stated in the judgment, it can be reasonably assumed that, had the plaintiff submitted expert evidence regarding claim construction by the POSITA which supported a finding of infringement, the Court would have possibly dismissed the motion for summary judgment. In the absence of such evidence, the Court seems to take for granted that it does not exist (since the plaintiff had to "put their best foot forward"). Therefore, patent agents in Canada must be cautious in their representations to CIPO and especially when referring to the prosecution of corresponding applications and patents in other jurisdictions. An admission that an amendment was made to limit the scope of a claim in response to prior art will likely result in the application of section 53.1 of the Act. Unsurprisingly, the Federal Court interprets section 53.1 of the Act as a desire on the part of the legislature to introduce the doctrine of file wrapper estoppel into Canadian law. It will, however, be interesting to see whether its application will be limited to merely rebutting "any representation made by the patentee in the action or proceeding as to the construction of a claim in the patent," or if, as Justice Manson appears to have done, it will be used to support the notion that the "prosecution history aids in the purposive construction of the disputed elements"10 of the claims11.   Free World Trust v. Électro Santé Inc., 2000 SCC 66, para 66. Despite this clear decision, the Federal Court has accepted / refused variations of this doctrine in the past: see interalia Distrimedic Inc. v. Dispill Inc., 2013 FC 1043, para 210; Eli Lilly Canada Inc. v. Mylan Pharmaceuticals ULC, 2015 FC 125, para 154; and Pollard Banknote Limited v. BABN Technologies Corp. 2016 FC 883 paras 238 and 239. Paras 46 and 48 Para 50 Para 62 Para 70 Para 67 Para 81 See para 79 “Regardless of the US Application prosecution history, I do not see how the process described in the Popowich Affidavit could possibly constitute heating the oil seed “in a stream of air” as that term is used in Claim 1 of the ‘376 Patent.” Para 85 On the other hand, Justice Mansonwrites the following at paragraph 84: The Plaintiff argued that section 53.1 is not engaged, as the Plaintiff did not make any representation as to the construction of Claim 1.Further, the Plaintiff argued that the Court is not in a position to determine whether the disputed claim elements are essential or not. However, as submitted by the Defendant, the Plaintiff made multiple representations in its written submissions to the effect that the language of Claim 1 is not limited to a particular type or source of heating. Note, however, that these representations would have only been submitted in response to the motion for summary judgment, which would certainly have referenced the file wrapper before any representations had been made by the plaintiff.

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  • Bill 37: What changes can be expected for Public Contracts?

    On September 18, 2019, the Minister Responsible for Government Administration and Chair of the Conseil du trésor introduced Bill 37, An Act mainly to establish the Centre d’acquisitions gouvernementales et Infrastructures technologiques Québec1 As its name suggests, this bill is intended to implement the restructuring of government procurement announced in the 2019–2020 budget2. If the bill is passed, the Centre de services partagés du Québec (CSPQ), as well as some other procurement organizations, will be replaced by two bodies: the Centre d’acquisitions gouvernementales will be the organization responsible for meeting the government’s general procurement needs, and Infrastructures technologiques Québec will handle its digital procurement. In 2017–2018, information technology contracts accounted for 17% of public body contracts3. Some administrative functions of the CSPQ would also be transferred to the Agence du revenu du Québec and the Conseil du trésor. Bill 37 also makes a number of amendments to the Act respecting contracting by public bodies, CQLR c. C-65.1, and its regulations, two of which are noteworthy. It is planned that, as of April 1, 2020, information relating to contracts involving an expenditure of more than $10,000, whether reached by mutual agreement or following a call for tenders, will have to be published in the electronic tendering system. The current limit is $25,0004. The bill also provides that, as of the date its assent (currently scheduled for the end of 2019), the imposition of a penalty for a final reassessment under the general anti-avoidance rule regarding an abusive tax avoidance transaction5 on the part of a company or related person will be recorded in the Register of Enterprises Ineligible for Public Contracts for five years. Such penalties will also be considered by the Autorité des marchés publics in its decision to authorize a contract with a public body. A 60-day transitional period is provided for in Bill 37, during which a taxpayer may make a late preventive disclosure to the Minister of Revenue6 by filing the form Mandatory or preventive disclosure of tax planning (TP-1079.DI-V). However, this type of disclosure will not be accepted if an audit by the Agence du revenu du Québec or the Canada Revenue Agency is already ongoing with respect to such a transaction. This measure is part of the current fight against aggressive tax planning7.   Quebec (National Assembly), Bill 37, An Act mainly to establish the Centre d’acquisitionsgouvernementales and Infrastructures technologiques Québec, 42nd Legislature, 1st Session. Quebec (Conseil du trésor), 2019–2020 Budget Plan (Quebec, Off. Publ., March 2019), p. H.61. Québec (Conseil du trésor), Statistiques sur les contrats des organismes publics 2017–2018 (Québec, Direction de la reddition de comptes et du soutien à l’encadrement des contrats publics, March 2019), p. 1. Sections 22 and 23 of the Act respecting contracting by public bodies, CQLR c. C-65.1; sections 39 and 39.2 of the Regulation respecting supply contracts of public bodies, CQLR c. C-65.1, r. 2; sections 52 and 52.2 of the Regulation respecting service contracts of public bodies, CQLR c. C-65.1, r. 4; sections 42 and 42.2 of the Regulation respecting construction contracts of public bodies, CQLR c. C-65.1, r. 5; sections 73 and 75 of the Regulation respecting contracting by public bodies in the field of information technologies, CQLR c. C-65.1, r. 5.1. Sections 1079.13.1 and 1079.13.2 of the Taxation Act, CQLR c. I-3. Section 1079.8.7.1 of the Taxation Act, CQLR c. I-3. See, in particular, Quebec (Conseil du trésor), 2019–2020 Budget Plan (Quebec, Off. Publ., March 2019), p. D.81.

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  • Changes to the Canadian Patent Rules came into force on October 30th 2019

    The new Patent Rules, as well as certain amendments to the Patent Act, came into force on October 30, 2019. These changes implement the Patent Law Treaty and reduce the risk to applicants of a loss of rights but also bring about practice changes worthy of mention. Canadian national phase of a PCT application For applications filed in Canada via PCT national phase entry: A little bit faster… Under the new system, the deadline to request examination will be reduced to 4 years from the PCT international filing date (currently 5 years). The shortened deadline will apply to cases having a PCT international filing date on or after October 30, 2019. Further, the deadline to respond to an Office Action will be reduced to 4 months with possible fee-based extension to 6 months (currently 6 months with no extension).That means that prosecution shall take less time overall. “Late” national phase entry It is currently possible to enter the CA national phase past the 30-month deadline and up to 42 months from the priority date, as a matter of right. Under the transitional provisions, the current system shall continue to apply to PCT applications with a PCT international filing date prior to October 30, 2019. Subsequently, for cases with a PCT international filing date on or after October 30, 2019, such “late” national phase entry will only be possible if missing the original 30-month deadline was unintentional. A statement must be submitted to that effect. The Canadian Intellectual Property Office (CIPO) will have the discretion to accept or refuse such declarations. So it will be wise to consider the 30-month deadline a hard deadline for CA national phase entry. Missing deadlines for requesting examination or paying maintenance fees Under the current system, if such a deadline is missed, a further 12 months would be available via the abandonment/reinstatement system (for applications) or the late payment system (for patents), as a matter of right. The new system will provide an additional safeguard to applicants, as missing such deadlines will trigger the issuance of a CIPO notice requesting that the required action be taken within a new deadline. However, missing the new deadline will result in a new category of abandonment requiring reinstatement under a “due care” standard. A statement must be submitted to show “due care”. Once again CIPO will have discretion to accept or refuse declarations of “due care”. This new system will apply to any deadline to request examination or pay a maintenance fee that falls on or after October 30, 2019. The prudent approach will be to avoid relying on a showing of due care by meeting all deadlines. Restoration of priority Canadian practice will come into line with the restoration of priority provisions of the PCT. This extends the usual 12-month priority period by a further 2 months if missing the original 12-month deadline was unintentional (the standard to be used in CA), and will apply to cases with a PCT international filing date on or after October 30, 2019. Therefore, applicants can rest easy that such a restoration of priority will also be available in Canada. Certified copies of priority applications Under the new system, it will become necessary to file a certified copy of any priority applications (or refer to a digital library to access the document). Note that satisfying the PCT certified copy requirements during the international phase will also satisfy the new Canadian requirements for the national phase application. “Regular” Canadian applications For Canadian applications directly filed with the CIPO (i.e., not via the PCT), equivalent changes to those noted above (with the exception of “late” national phase entry, which is not applicable) will be implemented by comparable provisions. The following additional changes are also noteworthy: Certified copies of priority applications For Canadian applications claiming priority under the Paris Convention, it will become necessary to file a certified copy of any priority applications or refer CIPO to a digital library such as WIPO-DAS to access the document. The deadline will be the later of 4 months from filing and 16 months from priority. It will of course be good practice to have such certified copies available upon filing in Canada. Easier to secure a Canadian filing date It will be easier to obtain a filing date for such direct-filed applications, as various requirements may be fulfilled shortly after filing. Notably, a translation into English or French, if applicable, may be submitted post-filing, in contrast to Canadian national phase applications filed via the PCT. It will nonetheless be good practice to have all documents and information ready at filing. We can show you the way! We can help guide applicants as we transition to this new era of Canadian patent practice. Feel free to contact a member of our team!

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  • Right to Privacy: Can the Employer conduct Surveillance?

    On October 3, the Court of Appeal of Quebec overturned an arbitral decision in which videotaped surveillance of an employee, suspected of activities incompatible with her alleged disability, would not be admitted into evidence. The majority of the appeal court judges concluded that the employer was justified in following the recommendation of its designated physician, who, for various reasons, strongly questioned the employee’s credibility. What led the Court of Appeal to overturn the arbitration award? Background The employee had been working as an orderly in a seniors’ residence for more than ten years when she took time off work due to an injured left shoulder. About two months after the onset of her disability, the employer summoned her for a medical expert opinion by its designated physician. On the day of the appointment, the physician happened to be in his vehicle when the employee arrived at his office. He decided to observe her in his rearview mirror. He noted that the employee was moving her left arm normally and that she had placed the strap of her purse on her left shoulder without hesitation or discomfort. The physician then formally examined the employee and, based on his objective examination, concluded that she was simulating all of her symptoms. He recommended that the employer carry out surveillance. The physician reminded the employer that the employee had already made false statements about her health during a period of disability a year earlier. The employer therefore had the employee followed for a day during which she drove and shop in public commercial establishments (places where an individual’s expectations of privacy are low). After viewing the videotape, the designated physician said he believed that the employee was simulating her disability. She was dismissed for failing to comply with her obligations of loyalty and honesty, as well as for her lies, exaggerations, and fraud related to her participation in activities incompatible with her alleged health status. This situation was then assessed successively by the Arbitration Tribunal, the Superior Court in a judicial review of that decision, and the Court of Appeal. Court of Appeal decision The Court of Appeal concluded that the employer was justified in relying on the findings and recommendations of its designated physician, which constituted reasonable grounds to conduct the surveillance. The Court of Appeal added that it was entirely legitimate for the employer to take into consideration the employee’s previous false statements: it believed that ignoring them would be inappropriately idealistic. The surveillance satisfied the proportionality test in the search for the truth, since the means were reasonable: one day of surveillance in public places and without traps. The Court of Appeal returned the case to the Arbitration Tribunal to review the validity of the dismissal on the basis of the video evidence. What do you need to know as an HR Manager? Ultimately, an employer may be justified in requesting surveillance when it relies in good faith on the observations and recommendations of its physician, and when the surveillance is carried out sensibly. When there are reasonable grounds to suspect activities incompatible with the employee’s limitations, surveillance can be an effective tool for unmasking fraud. We will keep you informed of any developments in this case, including a possible application for leave to appeal to the Supreme Court of Canada. Our Labour and Employment Law team is available to provide you with timely advice and solutions.

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  • Insurers’ Duty to Defend: The Court of Appeal makes a new ruling

    The Court of Appeal of Quebec was once again called upon to rule on a Wellington type application aiming to force an insurer to defend its insureds1. Over the years, the scope of this duty has developed extensively in case law. In this particular case, the Court ordered that defence costs be shared, because it concluded that the part of the damages that could be covered by the insurance policy was divisible and identifiable. Facts Développement Les terrasses de l’Îles Inc., Darcon Inc. and Groupe Dargis Inc. (collectively the “Insureds”) had purchased a commercial general liability insurance policy (the “Policy”) from Intact Insurance Company (“Intact”). The Insureds sued Intact to force it to defend them in an action for damages brought against them by the Syndicat des copropriétaires Prince of Wales (the “Syndicate”), who alleged the existence of defects in the construction of a divided co-ownership building. The originating application was amended during the proceedings to add damages resulting from water infiltration, mould and structural problems found in the building. The issue in dispute was whether the damages claimed were covered by the Policy, and if, as a result, the insurer had the duty to defend. The decision by the court of first instance According to the Superior Court, there was no reason to consider a design or construction defect as a loss or accident, as the Insured were claiming. The Court thus concluded that the damages claimed did not result from a “loss” within the meaning of the Policy, but rather from defects attributable to errors the Insured or their subcontractors had made. This reasoning also applied to the allegations of water infiltration and mould resulting from alleged poor design or construction defects. In addition, the Superior Court concluded that, in any event, the damages claimed were not covered under clauses 2.7, 2.9 and 2.14 of the Policy, which covered, respectively, material damage during construction, material damage to the work and material damage resulting from the provision of professional services. The appeal The Court of Appeal unanimously overturned the trial judgment. First, the Court reiterated the general principles set out in Progressive Homes2 regarding insurers’ duty to defend, namely that this duty to defend will arise when the alleged material damages, by their true nature, may possibly fall within the scope of the insurance policy. Hence, (1) the insured must demonstrate that the damage could be covered by the insurance policy. Thereafter, (2) the insurer may defer liability by proving that a clear and unambiguous exclusion clause precludes coverage. At this point, (3) the insured may still argue that an exception to said exclusion applies. The Court of Appeal went on to reiterate the principle that the coverage provisions must be interpreted broadly and the exclusion clauses must be interpreted restrictively. On this basis, the Court of Appeal determined that the trial judge had interpreted the terms “loss” and “accident” too narrowly in light of the legal precepts drawn from the case law. In this case, the design or construction defects had caused material damage to the building that was not anticipated, triggering the insurer’s duty to defend. Moreover, because Intact had not proven that an exclusion precluded the insurance coverage, it could be required to compensate for material damage resulting from the deficiencies, but not for the costs of correcting the latter. In this case, the Court of Appeal noted that the Syndicate was alleging not only a series of defects, but also problems caused or likely to have been caused by the defects, including water infiltration. However, according to the Court of Appeal, it was not clear whether the alleged defects have caused damages (often referred to as resulting damages) and whether these damages were claimed. Nevertheless, the Court of Appeal concluded, based on the proceedings, that the duty to defend had been triggered. Despite this uncertainty, it also concluded that the part of the damage that could be covered was divisible and identifiable, and it limited the insurer’s duty to this part. Comments The Court of Appeal applies the principles developed by the courts with respect to the duty to defend. Doing so, the Court of Appeal however limited the insurer’s duty to defend despite the fact that it is not clear whether the claim actually included damages other than defects. This conclusion may pose serious practical difficulties, given that it is usually hard to establish a distinction between defense measures taken, and incidentally the costs, strictly in relation to defects and those related to the resulting damages. It should be noted that, in Cirvek Fund I3, the Court of Appeal held that the insurer's duty to defend should only be limited in cases where the insurer demonstrates that the tasks required for the defence of the covered items are distinct from those relating to the uncovered items.   Développement les Terrasses de l’Îles inc. v. Intact, Compagnie d’assurances, 2019 QCCA 1440 Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 SCR 245, 2010 SCC 33 245. Société d'assurances générales Northbridge (Lombard General Insurance Company of Canada) c. Cirvek Fund I, l.p., 2015 QCCA 168

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  • Neural Network and Liability: When the information lies in Hidden Layers

    Many of the most advanced machine-learning techniques rely on artificial neural networks, which allow systems to "learn" tasks by considering examples, without being programmed specifically to perform those tasks. Neural networks are nothing new, however the emergence of deep learning1, and of computers able to rapidly manipulate large amounts of data, have led to the development of a myriad of solutions incorporating machine learning for various aspects of life. From image recognition to financial data processing, machine learning is becoming ubiquitous. From a mathematical perspective, modern neural networks almost always incorporate what are known as “hidden layers”, which process information between the input and output of a neural network system. Hidden layers’ nodes are not specifically assigned any task or weight by a human programmer, and typically there is no direct way of knowing how information is processed within them. In plain language, most of the current machine-learning techniques rely on methods which function in such a way that part of what is happening is not known by the human operators. For this reason, the systems that incorporate such methods will give rise to new legal challenges for lawyers. Scholars have been studying this issue for more than a decade now2, but have failed to provide definitive answers. Such questions are at the forefront of current legal debates. In a much-publicized case before the U.S. Supreme Court on gerrymandering3, machine learning was mentioned as a source of concern by the dissenting opinion. This is not surprising given that the lower courts were presented with evidence on Markov chain Monte Carlo algorithms4, which share this characteristic of not providing the human operator with a detailed explanation of how each data entered affects the results. In some jurisdictions, for example the United States, a technology user may be able to ward off requests for disclosure of the technology’s algorithms and the details on the machine-learning process by arguing that they are protected as trade secrets of the vendor of that technology5. Even then, it might still be necessary to disclose at least some information, such as the results of the machine-learning process for various situations to demonstrate its reliability and adequacy. Even such a defence may not be available in other jurisdictions. For example, in France, the Constitutional Council recently held that a public administration may rely on algorithmic processes in making decisions only if it is able to disclose, in detail and in an intelligible format, the way in which this algorithmic process makes its decisions6. From a computer-science standpoint, it is difficult to reconcile such requirements with the notion of hidden layers. More importantly, there might be cases in which a person may wish to disclose how they made a decision based on a machine-learning technology, in order to show that they acted properly. For instance, some professionals, such as in the field of health care, could be required to explain how they made a decision assisted by machine learning in order to avoid professional liability. A recent decision of the Court of Queen’s Bench of Alberta7 concerning the professional liability of physicians shows how such evidence can be complex. In that case, one of the factors involved in assessing the physicians’ liability was the fetal weight, and the different formulas that could have been used in determining it. The court made the following statement : “[…] the requisite expertise would concern the development of the algorithms used in the machine-based calculations of the composite birth weight as reflecting empirical research respecting actual birth weights and the variables or factors used to calculate composite birth weights. No individual or combination of individuals with such expertise testified. I draw no conclusions respecting the February ultrasound report calculations turning on different formulas and different weight estimates based on different formulas.” For developers and users of machine-learning technologies, it is therefore important at least to document the information used to train the algorithm, how the system was set up, and the reasoning followed in choosing the various technological methods used for the machine learning. Computer scientists who have developed applications for use in specific fields may wish to work closely with experts in those fields to ensure that the data used to train the algorithm is adequate and the resulting algorithm is reliable. In some cases, it may even be necessary to develop additional technologies to track the information traveling through the neural network and probe those hidden layers8. Things to remember The risks associated with the use of a system incorporating automatic learning must be assessed from the design stage. It is recommended to consult a lawyer at that time to properly guide the project. Where possible, technological choices should be directed towards robust approaches with results that are as stable as possible. It is important to document these technological choices and the information used when developing automatic learning algorithms. Contracts between technology developers and users must clearly allocate risks between the parties.   See, in particular: Rina Dechter (1986). Learning while searching in constraint-satisfaction problems. University of California, Computer Science Department, Cognitive Systems Laboratory, 1986.; LeCun, Yann; Bengio, Yoshua; Hinton, Geoffrey (2015). "Deep learning". Nature. 521 (7553): 436–444. For example: Matthias, Andreas. "The responsibility gap: Ascribing responsibility for the actions of learning automata." Ethics and information technology 6.3 (2004): 175-183; Singh, Jatinder, et al. "Responsibility & machine learning: Part of a process." Available at SSRN 2860048 (2016); Molnar, Petra, and Lex Gill. "Bots at the Gate: A Human Rights Analysis of Automated Decision-Making in Canada’s Immigration and Refugee System." (2018). Rucho v. Common Cause, No. 18-422, 588 U.S. ___ (2019). 279 F.Supp.3d 587 (2018). Houston Fed. of teachers v. Houston Independent, 251 F.Supp.3d 1168 (2017); Brennan Ctr. for Justice at New York Univ. Sch. of law v. New York City Police Dept. 2017 NY Slip Op 32716(U) (NY Supreme Court). Decision no. 2018-765 DC dated June 12, 2018 (Loi relative à la protection des données personnelles). DD v. Wong Estate, 2019 ABQB 171. For example: Graves, Alex, Greg Wayne, and Ivo Danihelka. Neural Turing Machines. arXiv:1410.5401, [cs.NE], 2014.

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  • Autonomous Air Vehicles : Are they at the gates of our cities?

    For many years now, we have been discussing the arrival of autonomous vehicles on Quebec roads. Thus, in April 2018, the government amended the Highway Safety Code1 to adapt it to the particularities of these new vehicles However, the automotive sector is not the only one being transformed by automation: the aeronautics industry is also undergoing profound changes, particularly with the introduction of autonomous air transport technologies in urban travel. Terminology There are many terms used in the autonomous air transport industry, including “autonomous flying car”, “unmanned air vehicle” and even “autonomous air taxi”. For its part, the International Civil Aviation Organization (ICAO) has proposed some terms that have been included in various official documents, including certain legislation2. These terms are as follows: Unmanned air vehicle: A power driven aircraft, other than a model aircraft that is designed to fly without a human operator on board; Unmanned air system: An unmanned aircraft and all of the associated support equipment, control station, data links, telemetry, communications and navigation equipment; Remote piloted aircraft system: A partially autonomous remotely piloted aircraft; Model aircraft (also called “drone”): A small aircraft, the total weight of which does not exceed 35 kg that is not designed to carry persons. As for Canadian legislation, it uses specific vocabulary and defines a remotely piloted aircraft system as a “a set of configurable elements consisting of a remotely piloted aircraft, its control station, the command and control links and any other system elements required during flight operation”, whereas a remotely piloted aircraft is defined as “a navigable aircraft, other than a balloon, rocket or kite, that is operated by a pilot who is not on board3”. Legislative Framework In accordance with Article 8 of the Convention on International Civil Aviation4, it is prohibited for unmanned aircraft to fly over the territory of a State without first obtaining the authorization of the State in question. In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” In Canada, the standards governing civil aviation are found in the Aeronautics Act5 and its regulations. According to subsection 901.32 of the Canadian Aviation Regulations ((the “CARs”), “[n]o pilot shall operate an autonomous remotely piloted aircraft system or any other remotely piloted aircraft system for which they are unable to take immediate control of the aircraft6.” Since the 2017 amendment of the CARs, it is now permitted to fly four (4) categories of aircraft ranging from “very small unmanned aircraft” to “larger unmanned aircraft7”, subject to certain legislative requirements: The use of unmanned aircraft weighing between 250 g and 25 kg is permitted upon passing a knowledge test or obtaining a pilot permit, if applicable8; To fly unmanned aircraft over 25 kg to transport passengers, it is mandatory to obtain an air operator certificate9. Ongoing projects Many projects developing unmanned aircraft are underway. The most high-profile and advanced projects are those of automotive, aeronautics and technology giants, including Airbus’s Vahana, Boeing’s NeXt program, Toyota’s SkyDrive and the Google-backed Kitty Hawk Cora10. The most advanced project appears to be UberAIR. In addition to actively working on developing such a vehicle with many partners like Bell and Thales Group, Uber’s project stands out by also focusing on all the marketing aspects thereof. The program is slated for launch in three cities as early as 202311. These cities are expected to host a test fleet of approximately fifty aircraft connecting five “skyports” in each city12. Challenges Despite the fact that technology seems to be advancing rapidly, many obstacles still remain to truly implement this means of transport in our cities, in particular the issue of the noise that these aircraft generate and the issues relative to their certification, costs and profitability, safety linked to their urban use, social acceptability and the establishment of the infrastructure necessary to operate them. In the event of an accident of an autonomous aerial vehicle, we can foresee that the manufacturers of such vehicles could be held liable, as could the subcontractors that are involved in manufacturing them, such as piloting software and flight computer manufacturers. We could therefore potentially be faced with complex litigation cases. Conclusion A study predicts that there will be about 15,000 air taxis by 2035 and that this industry will be worth more than $32 billion at that time13. In the context of climate change, sustainable transportation and in order to bear urban sprawl, these vehicles offer an interesting transit alternative that may very well change our daily habits. The flying car is finally at our doorsteps!   Highway Safety Code, CQLR, c C-24.2. Government of Canada, Office of the Privacy Commissioner of Canada, Drones in Canada, March 2013, at pp. 4-5 Canadian Aviation Regulations, SOR/96-433, s. 101.01. International Civil Aviation Organization (ICAO), Convention on International Civil Aviation (“Chicago Convention”), 7 December 1944, (1994) 15 U.N.T.S. 295. Aeronautics Act, RSC 1985, c. A-2. Canadian Aviation Regulations, SOR/96-433, s. 901.32. Government of Canada, Canada Gazette, Regulations Amending the Canadian Aviation Regulations (Unmanned Aircraft Systems) - Regulatory Impact Analysis Statement, July 15, 2017. Canadian Aviation Regulations, SOR/96-433, s. 901.64 et seq. Canadian Aviation Regulations, SOR/96-433, s. 700.01.1 et seq. Engineers Journal, The 13 engineers leading the way to flying car, May 29, 2018 Dallas, Los Angeles, and another city yet to be announced. Uber Elevate, Fast-Forwarding to a Future of On-Demand Urban Air Transportation, October 27, 2016, Porsche Consulting, “The Future of Vertical Mobility – Sizing the market for passenger, inspection, and goods services until 2035.” 2018

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  • New Compensation Method: Employee Benefit Trust Replacing Stock Option Plans

    Nowadays, many employers are seeking out forms of compensation that will help motivate and retain key employees. More and more, employers are opting for one of a variety of company stock ownership profit-sharing plans to reach this objective. Employers who wish to implement this type of structure must ensure that the one they choose most adequately meets their objectives. In this context, employee benefit trusts make it possible to reach objectives that are common to many employers while providing tax treatment that is often much more beneficial to employees. Type of Profit-Sharing Plan With this type of profit-sharing plan, employers must set up a trust and designate employees as beneficiaries. Subsequently, the trust subscribes for or purchases shares of the company. The trustees of the trust (usually the shareholders of the company) then hold these shares acquired for the employees. The deed of trust must include the terms that govern the holding of the shares by the trustees. For instance, it is important to determine which employees will be the beneficiaries of the trust, at which point(s) in time and under which conditions the shares will be designated to the employees, and under which circumstances the company would be able to repurchase the shares. Once the trust is set up, any new employee designated as such by the company may become a beneficiary of the trust. More Flexibility for Employers Employee benefit trusts provide employers with many benefits. First and foremost, employers have more control with an employee benefit trust than with an employee stock option plan (ESOP). Contrary to an ESOP, with an employee benefit trust, employees do not personally hold the company’s shares. Rather, the trustees are the ones holding said shares. As such, employees do not need to attend shareholders’ meetings or have access to the company’s financial information. Furthermore, the fact that the company’s shares are not personally held by the employees prevents problems should a misunderstanding arise with a profit-sharing employee. Furthermore, since the employees are not immediately shareholders of the company, the moment where the employees have to be part of the shareholders’ agreement of the company is postponed to a later date. This type of plan also gives employers much more flexibility in terms of selecting the employees who will become shareholders. If the deed of trust is drafted judiciously, there is no need to finalize the selection of employees who will become shareholders at the time that the trust is set up. Thus, the trust may continue to hold the shares of the company until such time as the employees who will become shareholders are chosen and the necessary conditions for the allotment of shares are met. It is therefore possible to postpone said selection until the sale of the company. In this case, the chosen employees may avail themselves of their capital gains deduction and therefore benefit from tax treatment that is much more advantageous than, say, a bonus at the time of sale. In addition, an employee benefit trust eliminates a common ESOP issue, which is having to frequently determine the fair market value (FMV) of the company’s shares. With an ESOP, the determination of the FMV of the shares underlying the options must be made every time ESOPs are granted in order to ensure that employees receive favourable tax treatment. As ESOPs are usually granted to many shareholders at various points in time over a number of years, the FMV of the company’s shares must be determined repeatedly. An employee benefit trust eliminates the need for this exercise, as the company’s FMV will only have to be established when the shares are acquired by the trust. Benefits for Employees Not only is an employee benefit trust beneficial to employers, but it also provides certain benefits to employees. Just like all other stock ownership profit-sharing plans, employee benefit trusts allow employees to benefit from the company’s future increases in value. Although employees are not shareholders of the company from the time that the trust is set up, they will benefit from all of the capital gain accrued on the participating shares that will be allocated to them by the trust. Moreover, for the purposes of certain provisions of the Income Tax Act (ITA), if a share in trust is held by a trustee, whether absolutely, conditionally or contingently, for an employee, the employee is deemed to have acquired the security at the time the trust began to so hold it. This presumption, set out in subsection 7(2) of the ITA, allows for the beginning of the computation of the two-year period following the owning of the shares, which is relevant for the employees’ eligibility to the capital gains deduction as well as to the deduction in computing the taxable income provided for in paragraph 110(1)(d.1) of the ITA. An employee benefit trust therefore makes certain tax benefits, such as the capital gains deduction, more accessible to employees. Lastly, an employee benefit trust provides a tax benefit to employees in cases in which the shares of the profit-sharing plan have decreased in value since they were issued. In the event that the trust disposes of the securities to the company and that the amount paid by the company to acquire, repurchase or cancel said securities does not exceed the amount that it had previously been paid, employees may deduct an amount to offset the taxed benefit, in accordance with subsection 7(1) of the ITA. Through this tax treatment, employees avoid losing capital at the time of the disposition of the securities to the company, a loss of capital that would remain unusable until employees achieve a capital gain. This scenario may occur, in particular, when an ESOP is implemented. Although an employee benefit trust provides many benefits to employees, this type of profit-sharing plan is more complex than traditional profit-sharing plans. Thus, in situations in which employers wish to share profits with a single employee, it may be appropriate to consider another type of profit-sharing plan. Out team in Taxation and Labour and Employment are ready to advise you and to assist you in implementing them.

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  • Duty of Loyalty and Non-competition: What are your Rights and Duties to Protect your Interests?

    During Major Symposium in Montréal held on June 4, our colleagues Michel Desrosiers and Ariane Villemaire discussed the employees’ duty of loyalty under the Civil Code of Québec. In their presentation, they discussed the case of Xit Télécom Inc. and Madysta Constructions Ltée v. Beaumier et al.1 on the scope of injunction orders that the Superior Court recently issued pursuant to the legal duty of loyalty (article 2088 of the Civil Code of Québec). On June 5, 2019, the Court of Appeal upheld these orders, prohibiting two former employees from doing business with their former employer’s customers and becoming the owners of a business in competition with their former employer. Background Two key employees, a vice-president of engineering and a head of business development (the “Defendants”), prepared for almost 12 months the launch of a business that would compete with their current employer, while they were employed by the latter. While still employed, the Defendants solicited their employer’s customers, suppliers and employees in order to persuade them to join their new business project. They also made disparaging comments to customers and employees about their employer and its CEO. Finally, they attempted to illegally appropriate business opportunities they had learned about during their employment. Once the situation was discovered, the employer quickly dismissed the Defendants and took steps to obtain safeguard and injunction orders against them. The debate On the sole basis of the legal obligation of loyalty (article 2088 C.C.Q.), rather than under restrictive clauses provided for in the employment contract, the Superior Court granted the employer interim injunction and safeguard orders in December 2018 and January 2019. In March 2019, the Superior Court issued interlocutory injunction orders for a maximum period of nine months, prohibiting the Defendants from: Using confidential information; Soliciting customers, subcontractors and employees; Doing business with customers appearing on a list filed under seal; Investing, partnering in or otherwise becoming the owner of a business in competition with that of the employer. The Superior Court, in its reasons, noted that: [TRANSLATION] [26] The Court cannot see how it could, at this time, allow the defendants to conduct business with customers to whom they made disparaging comments about the plaintiffs, without thereby giving them free rein to unfairly compete with their former employer. For the past year, until December 20, 2018, said customers who would “solicit” the services of the defendants have been receiving negative messages about the plaintiffs. Allowing the defendants to supposedly respond to the requests of said customers would amount to allowing them to reap the benefits of their unfair competition. This cannot be allowed. (Our emphasis) The Court of Appeal2 agreed with the arguments raised by Carl Lessard and Ariane Villemaire, members of our Labour and Employment Law group. It dismissed the appeal and concluded that the orders were consistent with the principles already recognized by the Court of Appeal3 : [TRANSLATION] [7] Indeed, although in principle the duty of loyalty provided for in article 2088 CCQ must not be interpreted as preventing an employee from competing with his or her former employer, the fact remains that jurisprudence tends to prohibit conduct such as that alleged against the appellants in this case, including slander tactics, benefiting from privileged relationships with customers, and active solicitation of customers during the period of employment. (Our emphasis) The Court of Appeal also concluded that the Superior Court’s decision was reasonable in setting the duration of the prohibitions at nine months given the particular facts of the case. What it means This decision is of great practical interest because it emphasizes that article 2088 of the C.C.Q. prohibits unfair competition with a former employer. Orders may thus be issued on the basis of this provision to protect the rights of employers when such unfair competition takes place during employment despite the absence of valid restrictive clauses. However, this decision also confirms the general principle that the duty of loyalty does not prohibit legal competition with a former employer in the absence of a non-competition clause. Thus, employers should continue to protect their legitimate interests by including non-competition, non-solicitation and confidentiality clauses in employment contracts when the circumstances so require. Our Labour and Employment Law group is available to assist you in drafting, analyzing and defending the means available to employers to protect their rights and business activities.   2019 QCCS 1446 Beaumier c. XIT Télécom inc. , 2019 QCCA 1000 Citing Concentré scientifiques Bélisle inc. c. Lyrco Nutrition inc., 2007 QCCA 676

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  • Conclusion of the Supervac 2000 saga: Dismissal is part of the inherent risks of a workplace

    The Administrative Labour Tribunal (“ALT”) has ruled on the merits of the Supervac 20001 case, putting an end to the saga dealing with interpreting the part of section 326 of the Act respecting Industrial Accidents and Occupational Diseases (“AIAOD”) that concerns applications for transfer of costs by reason of undue burden. With its decision, the ALT establishes that dismissal, like resignation or retirement, constitutes a risk inherent to an employer’s activities. Consequently, dismissal cannot create an unjust situation and the employer cannot claim to be “unduly burdened” by a dismissal resulting from the exercise of its management rights, even if it has the effect of terminating an authorized and available temporary assignment. Details of the decision In this case, the employer had filed an application for the transfer of costs of benefits for an employment injury under paragraph 2 of section 326 of the AIAOD. It alleged that the resumption of income replacement benefits, after the worker’s temporary assignment ended as a result of his dismissal for insubordination, constituted a situation beyond its control that unduly burdened it. The ALT’s interpretations of the term “unduly” and the notion of “inherent risk” were inspired by the landmark decision in Ministère des Transports2, although it relates to applications for transfer of costs following an industrial accident attributable to a third party. After analysis, the ALT concluded that even if an employer does not control a worker’s actions and cannot foresee them all, dismissing an employee because of behaviour issues is a management decision that does not possess the [translation] “extraordinary, unusual, rare or exceptional” character required by jurisprudence. Dismissal, like resignation or retirement, is part of labour relations and therefore an “inherent risk” to an enterprise. The interruption of the temporary assignment ultimately results from the employer’s decision to dismiss the worker. Although it had serious financial consequences for the employer, the decision to dismiss the worker cannot be considered to be an injustice. The ALT points out that the temporary assignment resulted from the injured worker’s right to rehabilitation. Even though the employer may financially benefit from the temporary assignment, it is not one of its rights. The ALT therefore concluded that the employer was not unduly burdened within the meaning of section 326 of the AIAOD, and its application for transfer of costs was dismissed. What it means In the past, many employers had successfully obtained cost transfers in connection with temporary assignments terminated as a result of dismissal for disciplinary reasons. These decisions were based in particular on the unpredictability of a worker’s behaviour, which is beyond the employer’s control. The ALT’s decision on the merits of the Supervac 2000 case will certainly put an end to the granting of cost transfers based on this argument. This decision will in particular need to be taken into account when dismissing or considering dismissing a worker on temporary assignment. However, it is still possible for an employer to allege other grounds of undue burden, such as intercurrent diseases. Our Labour and Employment Law team is available to provide you with advice and solutions in your analysis of cost sharing files.   2019 QCTAT 2540. 2008 QCCLP 1795.

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