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  • E-commerce: Protecting Your Work

    As distribution channels with a global reach, websites are a powerful tool for doing business, and during the pandemic, they even play a critical role. A website consists of a set of webpages accessible from an address hosted on a server through the internet or an intranet. A website is a collection of various elements protected by intellectual property laws. We will focus on the following: Copyright It protects an original work (i.e., the author’s own creative work), insofar as it involves the exercise of skill and judgment. This exclusive right allows the owner to produce or reproduce the work in any material form, to perform, represent or publish it, and to exercise other exclusive rights. A website may include the following works: the content of screen page, graphic designs, animation, texts, still and animated images, sounds, databases (which comprise a collection of works, data or other independent elements), software, as for example the ones relating to the creation, operation and launch of the website, computer programs, photographs, cartoons, videos. Ownership of Copyright Copyright is the author’s property, unless the author (i) has assigned his or her right, or (ii) has created the work in the course of his or her employment, in which case the copyright belongs to the employer. It is important to identify the various copyright owners of the works appearing on a website. If a company mandates an external firm to develop a website (website developer), the company will not immediately own the copyright to the website. A development contract entered into with a website developer will usually include a provision regarding the ownership of copyright. It is often provided that the assignment of intellectual property rights to the client who has commissioned a website will take place after payment for said website has been made in full. This poses a problem when the website developer does not complete the website or when a dispute arises over the course of the mandate. Stock Photos Generally speaking, websites that offer photographs do not transfer the copyright of the photographs to the users. They grant a licence to use (a right to use) for a limited time and for a specific purpose. The conditions of these licences must therefore be read carefully. Assignment of Rights An assignment must be in writing in order to transfer the copyright to the company that commissioned the website. Moral Rights Moral rights allow the author or performer (even if he or she is not the copyright owner) to: Claim authorship of the work; Claim respect for the integrity of the work (to protect the work against distortion, mutilation or modification or to prevent use that prejudice the honour or reputation of the author or performer or if the work is associated with a product or service without the consent of the author or performer). Recognition of Copyright in Other Countries Given that Canada is a party to the Berne Convention, copyright owned by a Canadian national, such as a company incorporated in Canada or a Canadian citizen, is recognized in other countries members of the Convention , and said copyright need not be registered in those other countries to acquire rights. In Canada, copyright registration is not mandatory, but it does give rise to a presumption of law that it is advisable to register, at the very least, for works that are important to the business, in order to more effectively  act against  infringement. Copyright infringement is the reproduction of an entire protected work or any substantial part of it without permission. In the same manner that website contents owned by the copyright owner may not be copied without permission, one must ensure that he or she does not import or publish on his or her website any work protected by copyright without first obtaining permission. Domain Name Some domain names are protected by trademark laws, and some are not. This depends on the nature of the domain name and the use made of it. Merely registering a domain name does not create a right that could prohibit the use of a conflicting domain name or trademark. Using a distinctive domain name could confer upon its owner the right to oppose the subsequent use by third parties of a confusing domain name, trademark or trade name. Effective domain name arbitration mechanisms exist for .com and for .ca in the event of misappropriation of a conflicting domain name. Trademark A website owner using a trademark on his or her website in order to identify his or her products or services should protect said trademark by registration. Without listing all the benefits of registering a trademark, suffice it to say that registering one’s rights is significantly less costly than trying to recover said rights once they have been appropriated by a third party. The trademark owner may oppose any confusing third party’s trademark, trade name or domain name (the test of confusion takes into account various factors) if his or her rights precede those of the other. In the case of unauthorized appropriation of a third party’s logo or figurative mark, the owner may, in many cases, not only invoke trademark infringement but also copyright infringement. Right to One’s Image and Privacy The Civil Code of Québec provides that every person is the holder of personality rights, such as the right to life, the right to the inviolability and integrity of his person, and the right to the respect of his name, reputation and privacy. Similar provisions exist in other legislation, such as the Quebec Charter of Human Rights and Freedoms and the Canadian Charter of Rights and Freedoms. The law is similar in other Canadian provinces, and comparable legislation exists in various countries around the world. Thus, as a general rule, a website owner may not: (i) Publish, for example, a photograph or image of a person without that person’s consent. This rule must be weighed against the rule relating to public interest in the right to freedom of expression and the right to information; (ii) Damage a person’s reputation; (iii) Imply or suggest that a person endorses a product or service without that person’s consent. The Civil Code of Québec further provides that the use of a person’s correspondence, manuscripts or other documents without his or her consent constitutes an invasion of his or her privacy. Trade Secret Various components of a website may be protected by trade secret if a confidentiality agreement was signed and the information remains secret. This could be the case with the website coding.   Many people have preconceived ideas about intellectual property in the world of e-commerce. Often, they wrongly assume that since they commissioned their website, they own its intellectual property rights or that they can post a photo of a product copied from another website without authorization because they sell the product. Although it is easy, fast and free to access, a website is governed by a legal framework regarding intellectual property, with which website operators must comply. We did not cover the wide array of rights that are involved in a website in just a few lines. For example, for some websites, there may be patent and industrial design issues to deal with. All these legal considerations are not self-evident. Several rules must be followed to avoid engaging in illegal practices, to avoid the unpleasant surprise of discovering that you do not own the intellectual property rights to parts or all of the website, and to avoid facing threats of legal action for violating the rights of third parties. Furthermore, all the work invested in the creation and operation of the website may not provide any additional value to your company if the intellectual property rights have been neglected, even though in many cases it is a significant asset to the company. It is important to become familiar with these rules, protect your rights and resolve legal pitfalls-ideally before launching a website. If the issue of intellectual property rights is only addressed after launching the website, there may still be time to seek protection or to attempt to overcome legal problems.  Whether the website is already online or is about to be launched, an audit should be carried out to determine the situation and, if necessary, obtain protection, sign contracts and find solutions to problems that could lead to illegal or disadvantageous situations.

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  • E-commerce: Your Obligations regarding Consumer Protection and Competition Matters

    Before selling your products and services online, you will need to determine the form and content of your contract, and ensure that you comply with the provisions of the Consumer Protection Act (the “CPA”). The CPA applies to any contract between a consumer and a merchant entered into in Quebec, including online contracts of sale, which are known as “distance contracts.” Rules applicable to contracts entered into on the internet Form Contracts concluded on the internet must be in writing and must contain the name and address of the merchant, as well as the date of the transaction. In addition, certain information must be provided to consumers before a contract is concluded, in particular: information identifying your business; a detailed description of the goods or services you are selling, including their characteristics and technical specifications; the price of each item or the terms of payment; all the applicable fees, whether required by law or charged by the merchant; the delivery date or the date on which the service will be provided; and other details regarding delivery, cancellation policies and any other applicable restrictions or conditions. This mandatory information must be presented prominently and in a comprehensible manner, and be expressly brought to the consumer’s attention. This could be done through a web page containing said information, which must appear on the screen before the consumer pays for the items in the shopping cart. It is good practice to ensure that the information is easy to print or save in PDF format. Acceptance Before the contract is entered into, the merchant must provide the consumer with an express opportunity to accept or decline the offer and to correct any errors. Copy The merchant must provide the consumer with a copy of the contract within 15 days after the contract is entered into, in a manner that ensures that the consumer may easily retain it and print it. Delivery A consumer may cancel a contract if the goods are not received (or the service is not performed) within 30 days after the date specified in the contract or within 30 days after the contract is entered into in the case of a contract that does not specify a delivery date. Note that goods for which delivery was attempted on the agreed date will be considered delivered. Cancellation The CPA allows consumers to cancel the contract in a number of cases, in particular when the merchant does not comply with the provisions set out above. Each merchant is free to establish a cancellation policy and set its conditions, so long as these are in accordance with laws of public order. The consumer must be informed of said policy before entering into the contract, which must include the cancellation policy. Warranties Legal warranty The Consumer Protection Act provides for a legal warranty that automatically applies to a good, whether purchased in store or remotely. Under said legal warranty, goods must be fit for the purposes for which goods of the kind are ordinarily used, durable for a reasonable length of time, having regard to their price, the terms of the contract and the conditions of their use. Goods must also match their description under the contract. Finally, a consumer is also entitled to a recourse against the merchant should there be a latent defect in the good. Additional warranty A merchant may offer consumers an additional online warranty, provided that said warranty complies with the relevant provisions of the CPA. Application and exceptions It is noteworthy that the aforementioned rules are the consumer protection rules which generally apply to the sale of goods and services, but they may not apply in certain instances, such as in the case of contracts for the sale of goods which are likely to deteriorate rapidly, such as food. One must be mindful that the Consumer Protection Act contains exceptions or provisions that are specific to certain commercial sectors. Different laws and regulations may also apply to certain types of goods and services that are sold. Competition law issues The CPA contains competition-related obligations that are specific to Quebec. All merchants in Quebec must also comply with the provisions of the Canadian Competition Act. The purpose of the Competition Act is to (i) maintain and encourage competition between businesses in Canada, (ii) provide consumers with competitive prices and product choices, and (iii) to protect consumers from fraudulent or prohibited practices. Prohibited business practices Misleading price display Under the CPA, when you advertise the price of a product or service, you are required to advertise an “all-inclusive” price, which includes all amounts that the consumer will have to pay for the product or service. The all-inclusive price should be more prominent than the sums of which it consists. Taxes (GST/QST), among other things, may be excluded from the advertised price, but must be added at the time of payment. Price-related representations and price display are also subject to specific rules under the Competition Act. False or misleading representations Advertising that contains false or misleading representations, or fails to mention an important fact is prohibited under the CPA. The Competition Act prohibits the making of materially false or misleading representations to the public. The provisions of the Competition Act dealing with false and misleading representations apply to a number of cases, including the following: Performance representations not based on adequate and proper tests: The making of representations to the public about the performance, efficacy or longevity of a product, which is not based on an adequate and proper test, is prohibited. Untrue or unauthorized use of tests and testimonials: The unauthorized use of product performance tests and testimonials (e.g., scientific tests, consumer testimonials, etc.) is prohibited. Needless to say, these cannot be distorted. Misleading warranties: Giving a consumer a warranty containing materially misleading representations that could influence the consumer’s decision to purchase goods or services is prohibited. The overall impression conveyed by a representation and the literal meaning of said representation is used to determine whether the warranty is misleading. Misleading promotional contests: Certain information related to the holding of promotional contests must be disclosed to the public. In addition, the sending of any documentation that would mislead the recipient into believing that he or she has won a prize or other benefit is prohibited. It is noteworthy that in Quebec, there are specific rules related to promotional contests. Other prohibited practices The Competition Act aims to prevent abuse of a dominant position and therefore provides stricter standards that apply to businesses holding a dominant position in a market. Conspiracy provisions aim to prevent a business from unduly reducing competition or unreasonably increasing the price of a product. This law also prohibits the refusal to sell a product, insofar as a business has no right to harm a customer by refusing to supply it sufficiently under normal market conditions. Finally, vertical restraints, that is, practices such as exclusive dealing, tied selling and market restriction, are prohibited, as they generally impose conditions that restrict the freedom of consumers. The CPA prohibits making use of commercial advertising directed at persons under thirteen years of age. Penalties Both the Consumer Protection Act and the Competition Act provide for penalties for prohibited practices. Judges can order punitive damages for certain violations of the CPA. Under the Competition Act, certain acts are considered criminal if a person does them knowingly or recklessly, regardless of the consequences they may have on the public.

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  • E-commerce: Some Laws and Rules You Should Be Aware of

    Various ways of doing e-commerce E-commerce can take different forms. For the purposes of this article, we will refer to e-commerce where the contract of sale or of supply of services is concluded by electronic means, E-commerce will be said to be “direct” when the product or service is delivered electronically, such as in the online conclusion of a contract for a subscription to an online-only publication, and “indirect” when the item sold is tangible or the service is rendered otherwise than online. E-commerce can be conducted entirely online or in a hybrid manner, where the vendor operates both online and through brick-and-mortar stores. It is considered “closed” when it is between a relatively small number of participants who already have a contractual or professional relationship with each other. It can be conducted between a business and a consumer, in which case it is called “B2C,” or between a business and another business and is then known as “B2B.” E-commerce poses particular challenges for businesses and if these challenges are not properly addressed, they are likely to expose the business to additional liability. This means that e-commerce can be particularly risky for novice businesses that start to do carry out business electronically, without adequate preparation. For example, a merchant who transacts electronically will necessarily have to take direct possession of some of its customers’ personal data, such as their names, addresses and credit card numbers, or have an e-commerce service provider take indirect possession of it. The use of such personal data is subject to the provisions of privacy laws, and, given that the data is of great value to potential thieves or fraudsters, it must be protected. A merchant may also be the victim of fraudulent orders or payments made with stolen credit cards numbers. To better control its risks, a novice in e-commerce may be better off doing business with established e-commerce service providers such as Shopify, BigCommerce, Squarespace or GoDaddy, which have set up robust infrastructures for their customers. A corporation should nonetheless do its homework before choosing an e-commerce service provider. It should, for example, inquire about the terms and conditions of the service agreement to be entered into with the chosen provider, and, in particular, about the services offered (including how returns and chargebacks are handled), how the service provider protects its customers in the event of data theft or fraud, what fees are charged, and so forth. In all cases, whether or not a corporation does business with an e-commerce service provider, it should ensure that the information kept on its own servers and computers is limited to what is absolutely necessary. Likewise, once a transaction is completed, it should avoid, as far as possible, keeping personal data belonging to its customers, such as their names, addresses and credit card numbers. Moreover, a corporation that decides to engage in e-commerce must be aware of certain specific legal aspects relating first, to the particularities of e-commerce itself and second, to the fact that its customers may be located anywhere in the world. For the purposes of this article, we will focus on the rules generally applicable to all types of e-commerce. A future article will deal with the specific rules provided in the Consumer Protection Act (Quebec). Consumption tax The majority of governments impose a consumption tax on goods (and sometimes services) sold within their jurisdiction. Applicable consumption tax laws generally provide that businesses with a presence in a jurisdiction must collect applicable taxes and remit them to the competent tax authorities. For a corporation that is otherwise not present in a jurisdiction, the mere fact of selling goods in that jurisdiction is generally not sufficient to require registering with its tax authorities and collecting and remitting applicable taxes. However, the definition of what constitutes a sufficient presence to require business registration and the collection and remittance of consumption taxes varies from one jurisdiction to another. A corporation wanting to sell its goods and services electronically must therefore ensure that it is aware of the applicable consumption tax rules in the main jurisdictions where it will sell these goods or provide these services. Licences and permits Although it is generally not necessary for a manufacturer or seller to obtain a license, permit or other governmental authorization for the vast majority of goods typically sold online, they  may be required before certain products, in particular medical or pharmaceutical products, can be sold online or otherwise, domestically or internationally. It is also important to note that a licence, permit or other authorization may not be required to sell goods in a jurisdiction while the sale of the same goods in another may require such license, permit or other authorization. Thus, if a merchant wants to sell its product in a jurisdiction where a permit, licence or other authorization is required, it will be required to obtain it before proceeding with any sales. In addition, in some territories, the sale of certain goods must necessarily be done through a State monopoly. For instance, such restrictions are still the norm in Canada for the sale of alcoholic beverages. For example, a resident of Ontario may not order alcoholic beverages directly online from a producer in another province and have them delivered to Ontario, which prevents a small-scale producer of alcoholic beverages in Quebec from selling its products online to Ontario customers, for delivery in Ontario. Shipping Not all goods can be shipped in the same way. Some must be specially packaged, and some may even not be shipped by regular means, such as Canada Post and major courier companies. For example, Canada Post requires that fish, game, meat, fruit, vegetables or other perishable products be properly prepared and meet certain other applicable requirements for mailing. Other products, such as objects classified as hazardous materials, may simply not be shipped by mail. To ship these products, it will be necessary to deal with a specialized courier service. Finally, Canadian laws prohibit the export of certain goods or require special permits for their export. In addition, merchants must ensure that the laws of the destination jurisdiction allow the goods shipped to be imported into that jurisdiction. Indeed, all countries either prohibit the import of certain goods into their jurisdiction or require the importer to obtain a permit or licence issued by their government. Age restrictions Under applicable laws and regulations, certain goods may only be sold to persons who have reached a certain age or may not be sold to children. These restrictions vary from jurisdiction to jurisdiction. For instance, in Quebec, one must be 18 years old to legally buy alcohol, while elsewhere in Canada the age is 19 and in the United States, 21. Merchants wishing to sell alcoholic beverages online must take these restrictions into account. The same applies to the sale of any other goods that are subject to age restrictions. PCI DSS compliance In 2006, the main credit card issuers, American Express, Discover Financial Services, JCB International, MasterCard and Visa formed the PCI Security Standards Council to standardize the rules and standards applicable to payments made with their credit cards. The council adopted a set of rules called “Payment Card Industry Data Security Standard,” better known by its acronym, PCI DSS. All merchants wishing to accept credit card payments, including direct online payments, must adhere to these rules. Any merchant, regardless of its size, wishing to process credit card payments on its website must also be PCI DSS compliant, unless it is doing business through a compliant payment service provider. The PCI DSS include the following 12 compliance requirements, which are grouped into six categories called “control objectives.” The following table, taken from the document entitled “Payment Card Industry (PCI) — Data Security Standard — Requirements and Security Assessment Procedures”1, provides a summary of these requirements.   Control objectives PCI DSS conditions Build and Maintain a Secure Network and Systems 1. Install and maintain a firewall configuration to protect cardholder data 2. Do not use vendor-supplied defaults for system passwords and other security parameters Protect Cardholder Data 3. Protect stored cardholder data 4. Encrypt transmission of cardholder data over open, public networks Maintain a Vulnerability Management Program 5. Protect all systems against malware and regularly update anti-virus software or programs 6. Develop and maintain secure systems and applications Implement Strong Access Control Measures 7. Restrict access to cardholder data by business need to know 8. Identify and authenticate access to system components 9. Restrict physical access to cardholder data Regularly Monitor and Test Networks 10. Track and monitor all access to network resources and cardholder data 11. Regularly test security systems and processes Maintain an Information Security Policy 12. Maintain a policy that addresses information security for all personnel   Although the PCI DSS are mandatory, only Visa and MasterCard require merchants and service providers that accept their cards to comply with these standards. However, a non-compliant corporation will nevertheless be held fully liable if fraud associated with theft of cardholder data occurs. In addition, should a security breach occur, all exposed merchants that are not PCI DSS compliant will be fined. It is up to merchants and service providers to achieve, demonstrate and maintain compliance through annual validations. Merchants may use the services of specialized service providers to help them comply with PCI DSS standards. Useful tools to ensure compliance are also available online for these purposes2. Should a merchant not wish to go through the PCI DSS compliance process, it may always use the services of a PCI DSS compliant payment service provider3.   PCI Security Standards Council, Payment Card Industry (PCI) Data Security Standard Requirements and Security Assessment Procedures (Version 3.2.1, May 2018), online (PDF): Official website of the PCI Security Standards Council These can be found through a search using the keywords “PCI DSS compliance” or “PCI DSS conformity.” These can be found through a search using the keywords “PCI DSS Payment Gateway.”

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  • The 2020-2021 Quebec Budget: New Measures to Promote Innovation!

    Quebec’s Minister of Finance tabled his budget for 2020-2021, titled Your Future, your Budget1, on March 10. Among the new measures introduced by the government, new tax incentives for innovation and the commercialization of Quebec intellectual property were announced. The incentive deduction for the commercialization of innovations: establishing the most competitive tax rate in North America The Quebec government is committed to promoting research and development (R&D) and accelerating the development of innovative products through a highly competitive tax environment. The incentive deduction for the commercialization of innovations (the “IDCI”) will allow businesses to benefit from a combined tax rate of 17% on eligible income. Businesses that have an establishment in Quebec, have incurred R&D expenses there and commercialize intellectual property (“IP”) in Quebec will have their revenues from the sale or rental of goods, services and royalties from such IP taxed in Quebec at an effective rate of 2%. IP covered by the IDCI includes software protected by copyrights, patents, certificates of supplementary protection for drugs and plant breeders’ rights. The IDCI also replaces the deduction for innovative companies as ofJanuary 1, 2021. Companies eligible for that deduction will be eligible for the IDCI. The synergy capital tax credit: investing in start-ups The synergy capital tax credit is designed to encourage businesses to invest in innovative SMBs with high growth potential, more commonly known as “start-ups.” A business corporation with a permanent establishment in Quebec that is not primarily engaged in financing or investing in businesses may receive a non-refundable tax credit equal to 30% of the value of its eligible investment, up to a maximum of $750,000 per year, for a total tax credit of $225,000 per year. An eligible investment is an equity participation that does not result in control of an eligible SMB, which the investing corporation deals with at arm’s length. An eligible SMB is a Canadian-controlled private corporation with a permanent establishment in Quebec, with paid-up capital of less than $15 million and gross income of less than $10 million, operating in one of the following sectors: Green technology; Information technology; Life sciences; Innovative manufacturing; Artificial intelligence. Corporations claiming the synergy capital tax credit will have to hold the shares of the eligible SMB for a minimum period of 5 years. Start-ups interested in obtaining the designation of eligible SMB will have to submit an application to Investissement Québec. The investment and innovation tax credit: Modernizing SMBs The investment and innovation tax credit (the “C3i”) is designed to encourage businesses in all sectors to invest in their modernization, particularly in digitization and the use of leading-edge technology. A credit of 10%, 15% or 20%, determined according to the economic vitality index of the area where the investments are made, will be applicable for the acquisition of: Manufacturing and processing equipment; Computer hardware; Management software packages. The C3i will apply to acquisitions made before January 1, 2025, and will be fully refundable for SMBs2. Businesses with total assets and gross income of $100 million or more will also have access to this credit, although it will not be refundable. Eligible expenses for the C3i will be amounts exceeding $5,000 for the acquisition of computer hardware or management software packages and amounts exceeding $12,500 for the acquisition of manufacturing and processing equipment. Businesses involved in the distribution of such hardware and software packages would certainly benefit from informing their customers that the acquisition of their products is potentially eligible for the C3i. Businesses located in resource regions and still benefiting from the tax credit to foster the acquisition of manufacturing and processing equipment introduced in 2008 will be able to choose to continue to benefit from this credit or claim the C3i. Conclusion Quebec’s tax landscape is full of opportunities for innovators and creators of leading-edge technology. We should also mention the enhancement of R&D tax credits that promote collaboration between private businesses and research institutions that contribute to the vitality of Quebec’s knowledge economy. If you are a company involved in R&D and IP commercialization in Quebec, the professionals of Lavery’s intellectual property and taxation teams will be able to support you throughout your projects.   Ministère des Finances, Budget 2020-2021, “Your Future, your Budget,” City of Québec, Government of Quebec The credit repayment rate decreases linearly based on an SMB’s total assets and gross income when they exceed $50 million but are less than $100 million.

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  • Intellectual Property and Artificial Intelligence

    Although artificial intelligence has been evolving constantly in the past few years, the law sometimes has difficulty keeping pace with such developments. Intellectual property issues are especially important: businesses investing in these technologies must be sure that they can take full advantage of the commercial benefits that such technologies provide. This newsletter provides an overview of the various forms of intellectual property that are applicable to artificial intelligence. The initial instinct of many entrepreneurs would be to patent their artificial intelligence processes. However, although in some instances such a course of action would be an effective method of protection, obtaining a patent is not necessarily the most appropriate form of protection for artificial intelligence or software technologies generally. Since the major Supreme Court of the United States decision in Alice Corp. v. CLS Bank International1, it is now acknowledged that applying abstract concepts in the IT environment will not suffice to transform such concepts into patentable items. For instance, in light of that decision, a patent that had been issued for an expert system (which is a form of artificial intelligence) was subsequently invalidated by a U.S. court.2 In Canada, case law has yet to deal specifically with artificial intelligence systems. However, the main principles laid down by the Federal Court of Appeal in Schlumberger Canada Ltd. v. Canada (Commissioner of Patents)3 are still relevant to the topic. In that case, it was decided that a method of collecting, recording and analyzing data using a computer programmed on the basis of a mathematical formula was not patentable. However, in a more recent ruling, the same Court held that a data-processing technique may be patentable if it “[…] is not the whole invention but only one of a number of essential elements in a novel combination.”4 The unpatentability of an artificial intelligence algorithm in isolation is therefore to be expected. In Europe, according to Article 52 of the 1973 European Patent Convention, computer programs are not patentable. Thus the underlying programming of an artificial intelligence system would not be patentable under this legal system. Copyright is perhaps the most obvious form of intellectual property for artificial intelligence. Source codes have long been recognized as “works” within the meaning of the Canadian Copyright Act and in similar legislation in most other countries. Some jurisdictions have even enacted laws specifically aimed at software protection.5 On this issue, an earlier Supreme Court of Canada ruling in Apple Computer, Inc. v. Mackintosh Computers Ltd6 is of some interest: In that case, the Court held that computer programs embedded in ROM (read only memory) chips are works protected by copyright. A similar conclusion was reached earlier by a US Court.7 These decisions are meaningful with respect to artificial intelligence systems because they extend copyright protection not only to the codes programmed in complex languages or on advanced artificial intelligence platforms but also to the resulting object code, even on electronic media such as ROM chips. Copyright however does not protect ideas or the general principles of a particular code; it only protects the expression of those ideas or principles. In addition to copyright, the protection afforded by trade secrets should not be underestimated. More specifically, in the field of computer science, it is rare for customers to have access to the full source code. Furthermore, in artificial intelligence, source codes are usually quite complex, and it is precisely such technological complexity that contributes to its protection.8 This approach is particularly appealing for businesses providing software as a remote service. In these cases, users only have access to an interface, never to the source code or the compiled code. Therefore, it is almost impossible to reverse engineer such technology. However, when an artificial intelligence system is protected only by the concept of trade secret, there is always the risk that a leak originating with one or more employees will allow competitors to learn the source code, its structure or its particularities. It would be nearly impossible to prevent a source code from circulating online after such a leak. Companies may attempt to bolster the protection of their trade secrets with confidentiality agreements, but unfortunately this is insufficient where employees act in bad faith or in the case of industrial espionage. It would therefore be wise to implement knowledge-splitting measures within a company, so that only a restricted number of employees have access to all the critical information. Incidentally, it would be strategic for an artificial intelligence provider to make sure that its customers highlight its trademark, like the “Intel Inside” cooperative marketing strategy, to promote its system with potential customers. In the case of artificial intelligence systems sold commercially, it is also important to consider intellectual property in the learning outcomes of the systems resulting from its use. This raises the issue of ownership. Does a database generated by an artificial intelligence system developed by a software supplier while being used by one of its customers belong to the supplier or to this customer? Often, the contract between the parties will govern the situation. However a business may legitimately wish to retain the intellectual property in the databases generated by its internal use of the software, specifically where it provides it with its operational data or where it “trains” the artificial intelligence system through interaction with its employees. The desire to maintain the confidentiality of databases resulting from the use of artificial intelligence would suggest that they are assimilable to trade secrets. However, whether such databases are considered works in copyright law would be determined on a case-by-case basis. The court would also have to determine if the databases are the product of the exercise of the skill and judgment of one or more authors, as required by Canadian jurisprudence order to constitute “works”.9 Although situations where employees “train” an artificial intelligence system are more readily assimilable to an exercise of skill and judgment, cases where databases are constituted autonomously by a system could escape copyright protection “No copyright can subsist in […] data. The copyright must exist in the compilations analysis thereof”.10 In addition to the issues raised above, is the more prospective issue of the inventions created by artificial intelligence systems. So far, such systems have been used to identify research areas with opportunities for innovation. For example, data mining systems are already used to analyze patent texts, ascertain emerging fields of research, and even find “available” conceptual areas for potential patents.11 Artificial intelligence systems may be used in coming years to mechanically draft patent applications including patent claims covering potentially novel inventions.12 Can artificial intelligence have intellectual property rights, for instance, with respect to patents or copyrights? This is highly doubtful given that current legislation attributes rights to inventors and creators who must be natural persons, at least in Canada and the United States.13 The question then arises, would the intellectual property of the invention be granted to the designers of the artificial intelligence system? Our view is that at present the law is inappropriate in this regard because historically, in the area of patents, intellectual property was granted to the inventive person, and in the area of copyright, to the person who exercised skill and judgment. We also query whether a patent would be invalidated or a work enter the public domain on the ground that a substantial portion is generated by artificial intelligence (which is not the case in this newsletter!). Until that time, lawyers should familiarize themselves with the underlying concepts of artificial intelligence, and conversely, IT professionals should familiarize themselves with the concepts of intellectual property. For entrepreneurs who design or use artificial intelligence systems, constant consideration of intellectual property issues is essential to protect their achievements. Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal particularities, particularly the various branches and applications of artificial intelligence that will rapidly appear in all businesses and industries.   573 U.S._, 134 S. Ct. 2347 (2014). Vehicle Intelligence and Safety v. Mercedes-Benz, 78 F. Supp.3d 884 (2015), maintenue en appel Federal Circuit. No. 2015-1411 (U.S.). [1982] 1 C.F. 845 (C.A.F.). Canada (Procureur général) v., inc., [2012] 2 RCF 459, 2011 CAF 328. For example, in Brazil: Lei do Software No. 9.609 du 19 février, 1998; en Europe : Directive 2009/24/CE concernant la protection juridique des programmes d’ordinateur. [1990] 2 RCS 209, 1990 CanLII 119 (CSC). Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983) (U.S.). Keisner, A., Raffo, J., & Wunsch-Vincent, S. (2015). Breakthrough technologies-Robotics, innovation and intellectual property (No. 30). World Intellectual Property Organization- Economics and Statistics Division. CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 CSC 13, [2004] 1 RCS 339. See, for example: : Geophysical Service Incorporated v. Canada-Nova-Scotia Offshore Petroleum Board, 2014 CF 450. See, for example: : Lee, S., Yoon, B., & Park, Y. (2009). An approach to discovering new technology opportunities: Keyword-based patent map approach. Technovation, 29(6), 481-497; Abbas, A., Zhang, L., & Khan, S. U. (2014). A literature review on the state-of-theart in patent analysis. World Patent Information, 37, 3-13. Hattenbach, B., & Glucoft, J. (2015). Patents in an Era of Infinite Monkeys and Artificial Intelligence. Stan. Tech. L. Rev., 19, 32. Supra, note 7.

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  • “Like our Facebook page and you could win a tablet computer” - are you following the rules?

    Promotional contests are among the advertising activities favoured by businesses. In the age of social media, they are increasingly frequent and popular — “Win a trip down South!”, “Fantastic stroller to be won among everyone who likes our Facebook page!”. However, not everyone is aware of all the rules applicable to contests of this kind. It is important to know that in Canada and Québec a number of laws govern promotional contests. It is crucial that the rules for such contests be drafted in accordance with legislative requirements in order to minimize the risks of legal action and bad publicity. Legislation applicable throughout Canada “No purchase necessary” Under the Criminal Code, one may not require of a consumer that he or she purchases a product or service, or pay any other valuable consideration, to be entitled to participate in a promotional contest. The organizer of a contest must therefore include the statement “no purchase necessary” in the rules, and provide for another manner of participating, for example by way of a hand-written letter sent to the contest organizer. It is crucial to abide by the duties set forth in the Criminal Code, as offences are punishable by fine and even imprisonment. Skill-testing question The Criminal Code also provides that winners may not be determined by mere chance. It is in order to comply with this requirement that it has become common practice for organizers of promotional contests to require of a participant that he or she correctly answers a mathematical skill-testing question. Mandatory disclosures The Competition Act also contains provisions applicable to Canadian promotional contests aimed at ensuring fair competition. It is crucial that the contents of a promotional contest’s rules meet the requirements of the Act, for instance by disclosing the number and approximate value of the prizes, the regional distribution of the prizes, the type of skill-testing question required, details concerning the chances of winning, the date the contest closes, and any fact within the knowledge of the contest organizers that affects materially the chances of winning. Furthermore, when announcing your promotional contest (over the radio, on social media, at a product’s point-of-purchase, etc.), you must also disclose the specific items mentioned above. Penalties Note that a breach of the rules on adequate and fair disclosure in connection with the organization of a promotional contest can result in an order being issued against you, compelling you to comply with the applicable legal requirements, to issue a corrective notice and/or to pay an administrative monetary penalty of up to, for the first order, $750,000 in the case of an individual, or $10,000,000 in the case of a corporation. Legislation applicable in Québec In Québec, in addition to the legislation applicable throughout Canada, the Act respecting lotteries, publicity contests and amusement machines (the “Publicity Contests Act”) and the Rules respecting publicity contests provide for the application of a specific legal regime to most promotional contests (publicity contests) in the province. Contests in which the value of prizes exceeds $100 If you organize a promotional contest in which the total value of the prizes exceeds $100, you must conform to the requirements set out in the Rules respecting publicity contests. Many items must imperatively be included in the text of the contest rules and advertisements, some of which are identical to those required by the Competition Act. Moreover, before the publicity contest is launched, you must pay the duties owed to the Régie des alcools, des courses et des jeux (the Liquor, Racing and Gaming Board) (the “Board”). The amount of such duties is based on the total value of the prizes and the place of residence of the participants. You must also send to the Board a notice of the holding of a publicity contest within a time limit which will vary based on the total value of the prizes offered. Contests in which the value of prizes exceeds $2,000 If you organize a contest in which the total value of the prizes exceeds $2,000, several other rules apply, including the obligation to file with the Board the contest rules and the text of any advertisements within the prescribed time limits. You may also be compelled in certain cases to furnish security. You will also have to communicate with the Board if you want to change or cancel a contest after it has been launched. Note that the naming of a prize winner does not result in a release from the duties owed to the Board. For one thing, a written report must be filed with the Board within 60 days following the date on which the prize winner is named. Furthermore, certain documents enabling the Board to verify whether the contest has been properly carried on must be kept for 120 days following the date on which a winner is named. Contests directed at children One thing not to forget is that the Consumer Protection Act prohibits all advertising directed at children under 13 years of age, which includes publicity contests. French version Under the Charter of the French Language, the rules and the items required to be disclosed in the advertisements concerning the contest must be published in French, including in connection with publicity contests held exclusively on-line. Rules applicable to social media You are considering organizing a contest on Facebook, Instagram or Twitter? Note that many rules govern contests on these platforms and that these rules can be amended at any time. Hence the importance, before every contest launch, of reviewing the applicable rules, since certain social media platforms may unilaterally decide to shut down your business’s page if you do not comply with them. Conclusion The regime applicable to persons organizing promotional contests in Québec is particularly restrictive. Contest organizers are well advised, as a matter of precaution, to include provisions to protect themselves, in addition to all the items required by law. The running of promotional contests involves a great many pitfalls, which your legal advisor will help you successfully avoid.

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  • When artificial intelligence is discriminatory

    Artificial intelligence has undergone significant developments in the last few years, particularly in respect of what is now known as deep learning.1 This method is the extension of the neural networks which have been used for a few years for machine learning. Deep learning, as any other form of machine learning, requires that the artificial intelligence system be placed before various situations in order to react to situations which are similar to previous experiences. In the context of business, artificial intelligence systems are used, among other things, to serve the needs of customers, either directly or by supporting employees interventions. The quality of the services that the business provides is therefore increasingly dependent on the quality of these artificial intelligence systems. However, one must not make the mistake of assuming that such a computer system will automatically perform its tasks flawlessly and in compliance with the values of the business or its customers. For instance, researchers at the Carnegie Mellon University recently demonstrated that a system for presenting targeted advertising to Internet users systematically offered less well-paid positions to women than to men.2In other words, this system behaved in what could be called a sexist way. Although the researchers could not pinpoint the origin of the problem, they were of the view that it was probably a case of loss of control by the advertising placement services supplier over its automated system and they noted the inherent risks of large-scale artificial intelligence systems. Various artificial intelligence systems have had similar failures in the past, demonstrating racist behaviour, even to the point of forcing an operator to suspend access to its system.3 In this respect, the European Union passed in April 2016 a regulation pertaining to the processing of personal information which, except in some specific cases, prohibits automated decisions based on some personal data, including the “racial or ethnic origin, political opinions, religious or philosophical beliefs, or trade union membership, and the processing of genetic data, biometric data for the purpose of uniquely identifying a natural person, data concerning health or data concerning a natural person’s sex life or sexual orientation […]”.4 Some researchers wonder about the application of this regulation, particularly as discrimination appears in an incidental manner, without the operator of the artificial intelligence system intending it.5 In Québec, it is reasonable to believe that a business which would use an artificial intelligence system that would act in a discriminatory manner within the meaning of the Charter of Human Rights and Freedoms would be exposed to legal action even in the absence of a specific regulation such as that of the European Union. Indeed, the person responsible for an item of property such as an artificial intelligence system could incur liability in respect of the harm or damage caused by the autonomous action of such item of property. Furthermore, the failure to having put in place reasonable measures to avoid discrimination would most probably be taken into account in the legal analysis of such a situation. Accordingly, special vigilance is required when the operation of an artificial intelligence system relies on data already accumulated within the business, data from third parties (particularly what is often referred to as big data), or when the data will be fed to the artificial intelligence system by employees of the business or its users during the course of a “learning” period. All these data sources, which incidentally are subject to obligations under privacy laws, may be biased at various degrees. The effects of biased sampling are neither new nor are they restricted to the respect of human rights. It is a phenomenon which is well-known by statisticians. During the WW II, the U.S. Navy asked a mathematician named Abraham Wald to provide them with statistics on the parts of bomber planes which had been most hit for the purpose of determining what areas of these planes should be reinforced. Wald demonstrated that the data on the planes returning from missions was biased, as it did not take into account the planes that were taken down during these missions. The areas damaged on the returning planes did not need to be reinforced, rather the places which were not hit were the one that had to be. In the context of the operation of a business, an artificial intelligence system to which biased data is fed may thus make erroneous decisions – with disastrous consequences for the business on a human, economic and operation point of view. For instance, if an artificial intelligence system undergoes learning sessions conducted by employees of the business, their behaviour will undoubtedly be reflected in the system’s own subsequent behaviour. This may be apparent in the judgments made by the artificial intelligence system in respect of customer requests, but also directly in its capacity to adequately solve the technical problems submitted to it. Therefore, there is the risk of perpetuating the problematic behaviour of some employees. Researchers of the Machine Intelligence Research Institute have proposed various approaches to minimize the risks and make the machine learning of artificial intelligence systems consistent with its operator’s interests.6 According to these researchers, it would certainly be appropriate to adopt a prudent approach as to the objectives imposed on such systems in order to avoid them providing extreme or undesirable solutions. Moreover, it would be important to establish informed supervision procedures, through which the operator may ascertain that the artificial intelligence system performs, as a whole, in a manner consistent with expectations. From the foregoing, it must be noted that a business wishing to integrate an artificial intelligence system in its operations must take very seriously the implementation phase, during which the system will “learn” what is expected of it. It will be important to have in-depth discussions with the supplier on the operation and performance of his technology and to express as clearly as possible in a contract the expectations of the business as to the system to be implemented. The implementation of the artificial intelligence system in the business must be carefully planned and such implementation must be assigned to trustworthy employees and consultants who possess a high level of competence with respect to the relevant tasks. As to the supplier of the artificial intelligence system, it must be ensured that the data provided to him is not biased, inaccurate or otherwise defective, in such a way that the objectives set out in the contract as to the expected performance of the system may reasonably be reached, thus minimizing the risk of litigation arising from discriminatory or otherwise objectionable behaviour of the artificial intelligence system. Not only such litigation can be expensive, it could also harm the reputation of both the supplier and its customer. LeCun, Y., Bengio, Y., & Hinton, G. (2015). Deep learning. Nature, 521(7553), 436-444. Datta, A., Sen, S., & Zick, Y. (2016, May). Algorithmic transparency via quantitative input influence: Theory and experiments with learning systems. In Security and Privacy (SP), 2016 IEEE Symposium on (pp. 598-617). IEEE; Datta, A., Tschantz, M. C., & Datta, A. (2015). Also see: Automated experiments on ad privacy settings. Proceedings on Privacy Enhancing Technologies, 2015(1), 92-112. Reese, H. (2016). Top 10 AI failures of 2016. The case of Tay, Microsoft’s system, has been much discussed in the media. Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). Goodman, B., & Flaxman, S. (2016, June). EU regulations on algorithmic decision-making and a “right to explanation”. In ICML Workshop on Human Interpretability in Machine Learning (WHI 2016). Taylor, J., Yudkowsky, E., LaVictoire, P., & Critch, A. (2016). Alignment for advanced machine learning systems . Technical Report 20161, MIRI.

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  • Artificial intelligence and its legal challenges

    Is there a greater challenge than to write a legal article on an emerging technology that does not exist yet in its absolute form? Artificial intelligence, through a broad spectrum of branches and applications, will impact corporate and business integrity, corporate governance, distribution of financial products and services, intellectual property rights, privacy and data protection, employment, civil and contractual liability, and a significant number of other legal fields. What is artificial intelligence? Artificial intelligence is “the science and engineering of making intelligence machines, especially intelligent computer programs”.1 Essentially, artificial intelligence technologies aim to allow machines to mimic “cognitive” functions of humans, such as learning and problem solving, in order for them to conduct tasks that are normally performed by humans. In practice, the functions of artificial intelligence are achieved by accessing and analyzing massive data (also known as “big data”) via certain algorithms. As set forth in a report published by McKinsey & Company in 2013 on disruptive technologies, “[i]mportant technologies can come in any field or emerge from any scientific discipline, but they share four characteristics: high rate of technological change, broad potential scope of impact, large economic value that could be affected, and substantial potential for disruptive economic impact”.2 Despite the interesting debate over the impact of artificial intelligence on humanity,3 the development of artificial intelligence has been on an accelerated path in recent years and we witnessed some major breakthroughs. In March 2016, Google’s computer program AlphaGo beat a world champion Go player, Lee Sedol, by 4 to 1 in the ancient Chinese board game. The breakthroughs reignited the world’s interest in artificial intelligence. Technology giants like Google and Microsoft, to name a few, have increased their investments in the research and development of artificial intelligence. This article will discuss some of the applications of artificial intelligence from a legal perspective and certain areas of law that will need to adapt - or be adapted - to the complex challenges brought by current and new developments in artificial intelligence. Legal challenges Artificial intelligence and its potential impacts have been compared to those of the Industrial Revolution, a form of transition to new manufacturing processes using new systems and innovative applications and machines. Health care L’intelligence artificielle est certes promise à un bel avenir dans le Artificial intelligence certainly has a great future in the health care industry. Applications of artificial intelligence with abilities to analyze massive data can make such applications a powerful tool to predict drug performance and help patients find the right drug or dosage that matches with their situation. For example, IBM’s Watson Health program “is able to understand and extract key information by looking through millions of pages of scientific medical literature and then visualize relationships between drugs and other potential diseases”.4 Some features of artificial intelligence can also help to verify if the patient has taken his or her pills through an application on smartphones, which captures and analyzes evidence of medication ingestion. In addition to privacy and data protection concerns, the potential legal challenges faced by artificial intelligence applications in the health care industry will include civil and contractual liabilities. If a patient follows the recommendation made by an artificial intelligence system and it turns out to be the wrong recommendation, who will be held responsible? It also raises legitimate complex legal questions, combined with technological concerns, as to the reliability of artificial intelligence programs and software and how employees will deal with such applications in their day-to-day tasks. Customer services A number of computer programs have been created to make conversation with people via audio or text messages. Companies use such programs for their customer services or for entertainment purposes, for example in messaging platforms like Facebook, Messenger and Snapchat. Although such programs are not necessarily pure applications of artificial intelligence, some of their features, actual or in development, could be considered as artificial intelligence. When such computer programs are used to enter into formal contracts (e.g., placing orders, confirming consent, etc.), it is important to make sure the applicable terms and conditions are communicated to the individual at the end of the line or that a proper disclaimer is duly disclosed. Contract enforcement questions will inevitably be raised as a result of the use of such programs and systems. Financial industry and fintech In recent years, many research and development activities have been carried out in the robotic, computer and tech fields in relation to financial services and the fintech industry. The applications of artificial intelligence in the financial industry will vary from a broad spectrum of branches and programs, including analyzing customers’ investing behaviours or analyzing big data to improve investment strategies and the use of derivatives. Legal challenges associated with artificial intelligence’s applications in the financial industry could be related, for example, to the consequences of malfunctioning algorithms. The constant relationship between human interventions and artificial intelligence systems, for example, in a stock trading platform, will have to be carefully set up to avoid, or at least confine, certain legal risks. Autonomous vehicles Autonomous vehicles are also known as “self-driving cars”, although the vehicles currently permitted to be on public roads are not completely autonomous. In June 2011, the state of Nevada became the first jurisdiction in the world to allow autonomous vehicles to operate on public roads. According to Nevada law, an autonomous vehicle is a motor vehicle that is “enabled with artificial intelligence and technology that allows the vehicle to carry out all the mechanical operations of driving without the active control or continuous monitoring of a natural person”.5 Canada has not adopted any law to legalize autonomous cars yet. Among the significant legal challenges facing autonomous cars, we note the issues of liability and insurance. When a car drives itself and an accident happens, who should be responsible? (For additional discussion of this subject under Québec law, refer to the Need to Know newsletter, “Autonomous vehicles in Québec: unanswered questions” by Léonie Gagné and Élizabeth Martin-Chartrand.) We also note that interesting arguments will be raised respecting autonomous cars carrying on commercial activities in the transportation industry such as shipping and delivery of commercial goods. Liability regimes The fundamental nature of artificial intelligence technology is itself a challenge to contractual and extra-contractual liabilities. When a machine makes or pretends to make autonomous decisions based on the available data provided by its users and additional data autonomously acquired from its own environment and applications, its performance and the end-results could be unpredictable. In this context, Book Five of the Civil Code of Québec (CCQ) on obligations brings highly interesting and challenging legal questions in view of anticipated artificial intelligence developments: Article 1457 of the CCQ states that: Every person has a duty to abide by the rules of conduct incumbent on him, according to the circumstances, usage or law, so as not to cause injury to another. Where he is endowed with reason and fails in this duty, he is liable for any injury he causes to another by such fault and is bound to make reparation for the injury, whether it be bodily, moral or material in nature. He is also bound, in certain cases, to make reparation for injury caused to another by the act, omission or fault of another person or by the act of things in his custody. Article 1458 of the CCQ further provides that: Every person has a duty to honour his contractual undertakings. Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them. Article 1465 of the CCQ states that: The custodian of a thing is bound to make reparation for injury resulting from the autonomous act of the thing, unless he proves that he is not at fault. The issues of foreseeable damages or direct damages, depending on the liability regime, and of the “autonomous act of the thing” will inescapably raise interesting debates in the context of artificial intelligence applications in the near future. In which circumstances the makers or suppliers of artificial intelligence applications, the end-users and the other parties benefiting from such applications could be held liable – or not – in connection with the results produced by artificial intelligence applications and the use of such results? Here again, the link between human interventions - or the absence of human interventions - with artificial intelligence systems in the global chain of services, products and outcomes provided to a person will play an important role in the determination of such liability. Among the questions that remain unanswered, could autonomous systems using artificial intelligence applications be “personally” held liable at some point? And how are we going to deal with potential legal loopholes endangering the rights and obligations of all parties interacting with artificial intelligence? In January 2017, the Committee on Legal Affairs of European Union (“EU Committee”) submitted a motion to the European Parliament which calls for legislation on issues relating to the rising of robotics. In the recommendations of the EU Committee, liability law reform is raised as one of the crucial issues. It is recommended that “the future legislative instrument should provide for the application of strict liability as a rule, thus requiring only proof that damage has occurred and the establishment of a causal link between the harmful behavior of a robot and the damage suffered by an injured party”.6 The EU Committee also suggests that the European Parliament considers implementing a mandatory insurance scheme and/or a compensation fund to ensure the compensation of the victims. What is next on the artificial intelligence front? While scientists are developing artificial intelligence at a speed faster than ever in many different fields and sciences, some areas of the law may need to be adapted to deal with associated challenges. It is crucial to be aware of the legal risks and to make informed decisions when considering the development and use of artificial intelligence. Artificial intelligence will have to learn to listen, to appreciate and understand concepts and ideas, sometimes without any predefined opinions or beacons, and be trained to anticipate, just like human beings (even if some could argue that listening and understanding remain difficult tasks for humans themselves). And at some point in time, artificial intelligence developments will get their momentum when two or more artificial intelligence applications are combined to create a superior or ultimate artificial intelligence system. The big question is, who will initiate such clever combination first, humans or the artificial intelligence applications themselves? John McCarthy, What is artificial intelligence?, Stanford University. Disruptive technologies: Advances that will transform life, business, and the global economy, McKinsey Global Institute, May 2013. Alex Hern, Stephen Hawking: AI will be “either best or worst thing” for humanity, theguardian. Engene Borukhovich, How will artificial intelligence change healthcare?, World Economic Forum. Nevada Administrative Code Chapter 482A-Autonomous Vehicles, NAC 482A.010. Committee on Legal Affairs, Draft report with recommendations to the Commission on Civil Law Rules on Robotics, article 27. (2015/2103 (INL))

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  • Artificial intelligence: contractual obligations beyond the buzzwords

    Can computers learn and reason? If so, what are the limitations of the tasks that they can be given? These questions have been the subject of countless debate as far back as 1937, when Alan Turing published his work on computable numbers1. Many researchers have devoted themselves to developing methods that would allow computers to interact more easily with human beings and integrate processes used to learn from the situations encountered. Generally speaking, the aim was to have computers think and react like a human being would. In the early 1960s, Marvin Minsky, a noted MIT researcher, outlined what he regarded as the steps along the path to artificial intelligence2. The power of the latest computers and the capacity to store phenomenal amounts of information now allow for artificial intelligence to be integrated in business and daily life, using processes known as “machine learning”, “data mining” or “deep learning”, the last of which has undergone rapid development in recent years3. The use of artificial intelligence in business raises many legal issues that are of crucial importance when companies enter into contracts respecting the sale or purchase of artificial intelligence products and services. From a contractual perspective, it is important to properly frame the obligations and expectations of each party. For suppliers of artificial intelligence products, a major issue is their liability in the event of product malfunctions. For example, could the designers of an artificial intelligence system used as an aid in making medical decisions be held liable, directly or indirectly, for a medical mistake resulting from erroneous information or suggestions given by the system? It may be appropriate to ensure that such contracts expressly require that the professionals using such systems maintain control over the results, regardless of the context in which the system is operating, be it medical, engineering or business management. In return, companies wishing to use such products must clearly frame their targeted objectives. This includes not only a stated performance objective for the artificial intelligence system, but also a definition of what would constitute product failure and the legal consequences thereof. For example, in a contract for the use of artificial intelligence in production management, is the objective to improve performance or reduce specific problems? And what happens if the desired results are not achieved? Another major issue is the intellectual property of the data integrated and generated by a particular artificial intelligence product. Many artificial intelligence systems require the use of a large volume of the company’s data for such systems to acquire the necessary learning “experience”. However, who owns that data and who owns the results what the artificial intelligence system has learned? For example, for an artificial intelligence system to become effective, a company would have to supply an enormous quantity of data and invest considerable human and financial resources to guide its learning. Does the supplier of the artificial intelligence system acquire any rights to such data? Can it use what its artificial intelligence system learned in one firm to benefit its other clients? In extreme cases, this would mean that the experience acquired by a system in a particular company would benefit its competitors. Where the artificial intelligence system is used in applications targeting consumers or company employees, the issues related to confidentiality of the data used by the artificial intelligence system and protection of the privacy of such persons should not be overlooked. The above are some of the contractual issues that must be considered and addressed to prevent problems from arising. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries. Turing, A. M. (1937). On computable numbers, with an application to the Entscheidungsproblem. Proceedings of the London mathematical society, 2(1), 230-265. Minsky, M. (1961). Steps toward artificial intelligence. Proceedings of the IRE, 49(1), 8-30. See: LeCun, Y., Bengio, Y., & Hinton, G. (2015). Deep learning. Nature, 521(7553), 436-444.

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” ( mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • Drone operators, do you know the rules?

    Drones, also known as “UAVs” (for Unmanned Aerial Vehicles) have become more popular in Quebec over the past few years. From the surveillance of quarries and gravel pits, industrial sites, pipelines, farmland, open air mines and construction sites to package delivery, the collecting of aerial images to promote municipalities, film-making and property sales, there are countless uses for drones. However, it should be kept in mind that the use of drones is regulated by the federal government, and certain uses are subject to special rules that may include obtaining a special flight operations certificate (“SFOC”). Legislative and regulatory framework The use of drones is governed by the Aeronautics Act1, and in particular the Canadian Aviation Regulations2. The applicable rules differ depending on whether the drone constitutes an “unmanned air vehicle” or a “model aircraft” within the meaning of the Regulations. The difference between these types of aircraft depends on how much they weigh (more or less than 35 kg) and the proposed use (whether recreational or non-recreational). A “model aircraft” is an aircraft weighing up to 35 kg that is used for recreational purposes and that is not designed to carry persons or other living creatures3. An “unmanned air vehicle” is a power-driven aircraft, other than a model aircraft, that is designed to fly without a human operator on board4. In other words, an unmanned air vehicle is a drone that weighs over 35 kg, or one that weighs less than 35 kg if it is used for nonrecreational purposes. Unmanned air vehicles: SFOC required unless exempted Section 602.41 of the Regulations5 prohibits the operation of an unmanned air vehicle in flight except in accordance with an SFOC or an air operator certificate6. Section 603.66 of the Regulations also prohibits the use of an unmanned air vehicle unless the terms of an SFOC issued by the Minister are complied with. An SFOC is issued by the Minister pursuant to section 603.67 of the Regulations. The applicant must demonstrate the ability to conduct the proposed flight operation in accordance with the Special Flight Operations Standards7, which also indicate the form and manner of submitting an application. In theory, an SFOC is therefore required to use an unmanned air vehicle. However, the Act8 allows the Minister or a Department of Transport official authorized for such purpose to exempt, on any terms and conditions that may be specified, any person, aeronautical product, aerodrome, facility or service, or any class of persons, aeronautical products, aerodromes, facilities or services, from the application of Regulations. Two exemptions are currently available for individuals operating unmanned air vehicles for non-recreational purposes. The first exemption covers the use of drones with a take-off weight of more than 2 kg but less than 25 kg, subject to compliance with several conditions, including the following: General conditions: have at least $100,000 of civil liability insurance and at least $100,000 of insurance covering the operation of a UAV, not operate a UAV within eight hours after consuming an alcoholic beverage, not operate a UAV if the pilot is likely to suffer from fatigue making him unfit to properly perform his duties, make operational and emergency equipment available to the flight crew, etc. Flight conditions: be able to see the UAV directly, not fly the UAV at an altitude of more than 300 feet, not fly in Class G airspace9, only operate the UAV from a single control station, not conduct a take-off if the UAV has frost, ice or snow on its critical surfaces, not operate a UAV over a built-up area or open-air assembly of persons, maintain unassisted visual contact with the UAV to be aware of its position and able to visually scan the airspace in which it is being used in order to identify and avoid air traffic or objects, etc. Conditions related to the crew (pilot): have successfully completed a ground training program for pilots and be trained on the UAV system and qualified for the area and type of flight, etc. The second exemption applies to drones weighing less than 2 kg that are used for non-recreational purposes, which involve similar conditions to the first exemption, although they are fewer in number. If these conditions are not met, an SFOC must be obtained, just as for the use of drones weighing more than 35 kg for recreational purposes. Model aircraft: safety first The use of a “model aircraft” (a drone weighing less than 35 kg used for recreational purposes) does not require a specific permit. However, such an aircraft must be flown safely. Section 602.45 of the Regulations prohibits any person from flying a model aircraft into a cloud or in a manner that is or is likely to be hazardous to aviation safety. In the absence of a definition in the Regulations of what constitutes the “safe” use of a model aircraft, Transport Canada has published a circular to inform operators of model aircraft and unmanned air vehicles of the general guidelines and safety practices. In the circular, Transport Canada recommends for example that certain safety considerations be followed, such as not using a drone: within 9 km of an aerodrome (ex. an airport); within 150 m of people, animals, buildings, structures or vehicles; in populated areas or over a crowd, such as during sporting events, concerts, festivals or fireworks; near moving vehicles, highways, bridges, busy streets or any other place where drivers could be endangered or distracted; in restricted airspace (over military bases, prisons or forest fire areas), etc.10 Penalties for not following the rules A person operating a flight without an SFOC when one is required is liable to a fine of up to $5,000 for an individual and $25,000 for a corporation, and a person who fails to comply with the conditions of an SFOC is liable to a fine of up to $3,000 for an individual and $15,000 for a corporation11. The Criminal Code12 also creates an offence for the unsafe operation of an aircraft that endangers the safety of other aircrafts,13 which could lead to a fine or imprisonment for life. Compliance with the Regulations does not release the drone operator from complying with applicable provincial (and municipal)14 or federal15 regulations. In conclusion, note that an SFOC is required in the following cases: The aircraft weighs more than 35 kg, regardless of the proposed use; The aircraft weighs less than 35 kg and the proposed use is nonrecreational. Where an aircraft weighing less than 25 kg is used for non-recreational purposes, the operator may be exempt from the requirement of obtaining an SFOC provided he meets several conditions. If the operator cannot comply with the conditions to be met for any of the applicable exemptions, he will have no choice but to apply for an SFOC. Lastly, no permit is required to use a drone weighing 35 kg or less for recreational purposes, although the drone must be operated safely. Since the current exemptions will expire on December 21, 2016, the rules could change. Aeronautics Act, R.S.C. 1985, c. A-2 (the “Act”). Aviation is considered by the courts to be a matter of national importance and it therefore falls under the federal government’s jurisdiction to make laws for the peace, order and good government of Canada; see in this regard Johannesson v. Municipality of West St. Paul, [1952] 1 S.C.R. 292; Air Canada v. Ontario (Liquor Control Board), [1997] 2 SCR 581; Quebec (Attorney General) v. Canadian Owners and Pilots Association [2010] 2 SCR 536. Canadian Aviation Regulations, 1996, SOR/96-433 (Can. Gaz. II) (the “Regulations”). Supra, footnote 2. S. 101.01 of the Regulations. Supra, footnote 2. We will not discuss this type of certificate, which applies to commercial air service operators. Special Flight Operations Standards, in the “General Operating and Flight Rules Standards”, Part VI, Standard 623 of the Regulations. Supra, footnote 1. Section 601.02 (1) of the Regulations states that “Class G” is uncontrolled airspace. General Safety Practices, in “Model Aircraft and Unmanned Air Vehicle Systems”, 2014, Advisory Circular (AC) No. 600-002. Section 103.08 (1) and (2). R.S.C. 1986, c. C-46. For example, section 77 of the Criminal Code, supra, footnote 12. For example, section 85 of the Municipal Powers Act, CQLR, c. C-47.1 (which allows municipalities to adopt a by-law to ensure peace, order, good government and the general welfare of its citizens) could give municipalities the authority to regulate drones. Would such a regulation be constitutional? According to the jurisprudence, the federal government’s jurisdiction over aviation is exclusive, which means, according to the doctrine of interjurisdictional immunity, that a province would not have the authority to regulate or prohibit the use of drones. However, if the effect of a valid provincial statute (adopted in accordance with a matter of provincial jurisdiction) is to govern the use of drones, the question is whether the courts would apply the doctrine of federal paramountcy, allowing the provincial legislation to apply concurrently in the absence of an actual conflict. See, among other things, the Canadian Charter of Rights and Freedoms, S.C. 1982, c. 11 (U.K.); the Criminal Code, R.S.C. 1986, c. C-46.; the Environment Quality Act, CQLR 1978, c. Q-2; the Privacy Act, R.S.C. 1985, c. P-21; the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5; the Radiocommunication Act, R.S.C. 1985, c. R-2; the Transportation of Dangerous Goods Act, S.C. 1992, c. 34 and the National Parks of Canada Aircraft Access Regulations, 1997, SOR/97-150 (Can. Gaz. II).

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  • Your Contracts: a Systematic and Disciplined Approach is Called for

    Every day, and several times a day, we enter into contracts without knowing it or without considering and controlling their effects. This newsletter provides a brief and non-exhaustive summary to help you better understand, prepare for and monitor your contractual environment. Do you know that? a contract is a meeting of minds that may be expressed and entered into in different ways (written, verbal, e-mail, filling of orders, etc.); a contract may be amended or rights abandoned by actions, words or subsequent writings, or by failing to take action in a timely manner; the law governing the interpretation and performance of a contract is determined based on various factors and circumstances if the parties do not choose what law applies; the imperative provisions of certain statutes may take precedence over certain contractual clauses; the suppletive provisions of certain statutes may complete a contract which is silent with respect to matters covered by the suppletive provisions; the laws are not the same from one jurisdiction to another and some contractual clauses may be valid and enforceable under the laws of one state but not under the laws of another state; the courts are not bound by the designation, description or name given to a contract by the parties and will examine the true nature of the relationship and transactions between the parties; under the Civil Code of Québec (articles 6, 7 and 1375), the entering into and performance of contracts must be carried on in good faith; the Supreme Court of Canada also recognized a duty of honest performance in common law1;1 ; in Quebec law, good faith is not limited to the absence of malice, vindictiveness or bad faith; in Quebec law, the legality of a right does not necessarily mean that it is being exercised legitimately (the answer to the following question determines whether it is being exercised legitimately: “Would a reasonable person placed in the same circumstances act that way?”); under the Civil Code of Québec (article 1434), a contract binds the parties “not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law”; under the Civil Code of Québec (article 1425), “the common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract”; however, when the meaning of the words used, placed in the context of entering into and performing a contract is clear, the courts will not intervene; under the Civil Code of Québec (article 1435), “an external clause referred to in a contract is binding on the parties”; an external clause is one that is found in another document, such as the general conditions found on a website; also under the Civil Code of Québec (article 1428), a contract must be interpreted in a way that gives a clause “a meaning that gives it some effect rather than one that gives it no effect”; and a contract with a consumer is subject to specific rules, both as to its substance and its form. Examples of case law interpretations The case law provides us with several examples of the courts’ interventions and interpretations. Here are a few: in a service contract, unless he has unequivocally waived his termination right, a client is entitled to terminate the contract unilaterally and without cause before the expiry of the stated term, as provided under article 2125 of the Civil Code of Québec2; in a franchising or distribution contract, even in the absence of a territorial or geographical exclusivity clause or a non-competition clause, unfair competition by the franchisor will not be tolerated by the court3; the right to unilaterally terminate a contract may be set aside or be made subject to conditions by the courts if the particular exercise of the right constitutes a breach of the duty of loyalty or is abusive4; a unilateral amending clause is valid to the extent that it contains objective criteria and limits which do not depend upon the exclusive control of the beneficiary5; even where a party’s termination right (for example, upon 60 days’ prior notice) is set out in a contract with an indefinite term, a notice of termination that is longer than that provided for in the contract could be required by the court if the contract has been in effect for several years6; the common error of the parties to a contract may be corrected by them by mutual consent and the court may intervene to ascertain the legitimacy and necessity of the amendments made by the parties7. Practical advice before you enter into a contract Before entering into a contract, it is important to: verify the identity, capacity and solvency of the other party; understand the environment, goals and business expectations of both parties; avoid statements, or concealing or omitting facts, which could lead the other party into error regarding your abilities or aspects of your property, products or services; understand and define the nature and features of the property, products or services, the rights to use them, etc. (specifications); specify and understand the laws governing the contract and the legal framework which will apply (mandatory and suppletive provisions); be informed about the relationships and experiences involving the other party in general (other contracts, performance quality, disputes) and the purpose of the contract in particular (letter of intent, written communications, etc.); be aware of the relative strengths, time constraints and alternative solutions (e.g. withholding the financial consideration, the nonavailability of property, services or products, etc.); be prepared for the risks of failure to perform or insolvency of the other party and plan the steps which could be taken to reduce its adverse effects, through both contractual rights and practical means; clarify all the main elements of the contract to be drawn up, i.e. prepare a document, ideally working with the other party, in the form of a term sheet or checklist; choose the form, type of contract (letter, short contract, long contract, contract of adhesion or negotiated contract) and the language of the contract; provide for a dispute settlement procedure, but be wary of arbitration clauses conferring on one or several arbitrators the power to make business decisions or conferring upon persons who do not have legal training the authority to interpret contractual clauses; determine what will be the internal review and approval procedure for each party. Practical advice for drafting and negotiating contracts In drafting and negotiating contracts, it is advisable to: adopt a balanced, legitimate and reasonable approach; use simple language, readily understandable by persons who do not have legal training; beware of models which were negotiated under different circumstances; be consistent in the use of words and expressions and include definitions; avoid being overly complicated, but be precise enough; set out the common business goals and those which are specific to each party and state the context (in recitals), if they might be relevant in the case of a dispute; clearly provide for what will happen in the event of a default and at the end of the contract; describe how disputes will be dealt with and how any price, product and service adjustments will be made; if you are the client, favour the progressive payments approach and if you are the supplier, provide for payment guarantees; state how and by whom the contract may be amended and who can bind you; protect your intellectual property and the confidentiality of your information; define the exclusivities, non-competition restrictions and territorial or business sector protections required from each party. Advice regarding the performance and monitoring of contracts It is important to: not begin to provide products or services or to transfer property without having come to an agreement on the terms and conditions of the contract; not let deadlines expire and, therefore, to keep a schedule indicating which deadlines are coming up; not involuntarily waive rights; not amend the contract before those in authority have given their explicit approval; for instance, beware of purchase orders that modify the contract; document any failure to perform by either party; quickly determine what you intend to do if the other party is in default, quickly notify the other party about the default noted and, if there are discussions, clearly inform the other party in writing that they are being held under reserve of, and do not constitute any waiver of, your rights; avoid letting any ambiguity continue if it is not in your favour; designate a person in charge in your company to coordinate and monitor the performance of the contract; if you are the purchaser, check the compliance with the contract of any service, property or product provided by the other party immediately upon receipt and avoid signing any receipt or bill of lading which states in print that the property or product is in good condition; if you are the supplier, require that the property or product be examined and the purchaser acknowledge satisfaction quickly, or create a presumption of acceptance. Conclusion In summary, clarity, transparency, a mutual understanding of the goals and expectations of each party, good faith and the use of a systematic and disciplined approach should be favored. Bhasin v. Hrynew [2014] 3 S.C.R. 494. Centre régional de récupération C.S. inc. v. Service d’enlèvement de rebuts Laidlaw (Canada) Ltd., J.E. 96-1048 (C.A.); Société canadienne des postes c. Morel, 2004 CanLII 21187 (QCCA); Services Matrec inc. v. CFH Sécurité inc., 2014 QCCA 221. Provigo Distribution inc. v. Supermarché A.R.G. inc., [1998] R.J.Q. 47 (C.A.). E. & S. Salsberg inc. v. Dylex Ltd., [1992] R.J.Q. 2445 (C.A.); Mabe Canada inc. (Camco inc.) c. 2849-9937 Québec inc., 2008 QCCA 847. Laflamme c. Bell Mobilité, 2014 QCCS 525. Bertrand Équipements inc. v. Kubota Canada Ltée, REJB 2002-32020 (S.C.). Québec (Agence du revenu) v. Services Environnementaux AES inc. [2013] 3 S.C.R. 838.

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