Using U.S.

Precedent Technology Agreements in Canada

Issues to Watch For
By David Takenaka and Paige Backman1

Canadian counsel working for U.S. companies, or a subsidiary of a U.S. parent company,
are often required to make use of U.S.-based commercial precedents for purposes of
carrying on business in Canada. The purpose of this article is to highlight, at a very high
level, some of the issues that need to be considered by Canadian counsel prior to using a
U.S.-based licensing agreement in Canada.

Waiver of Implied Warranties and Conditions

It is standard practice in U.S.-based technology agreements for the vendor to disclaim

certain implied warranties imposed by the Uniform Commercial Code. In Ontario,
however, the Sale of Goods Act (Ontario) imposes not only certain implied warranties,
but also certain implied conditions in connection with a sale of goods. As such, while
Canadian practice is similar to the practice observed in the U.S. in relation to the waiver
of implied warranties, Canadian counsel will have to ensure that the warranty disclaimer
contained in its licensing agreements also disclaims the implied conditions imposed by
such Sale of Goods Act legislation. In addition, the specific wording of the implied
warranties and conditions needs to be reviewed and likely tweaked. For example, in the
U.S., an implied warranty of merchantability is imposed, while Ontarios Sale of Goods
Act imposes an implied condition of merchantable quality. If the transactions
contemplated by the technology agreement are international in nature (as they often are),
it is common to consider and address the provisions of the United Nations Convention on
Contracts for the International Sale of Goods.

Ownership Rights

Contrary to the laws of the United States, Canadian copyright law does not recognize the
concept of a Work Made for Hire, a concept often contained in U.S.-based agreements.
In a software scenario, generally-speaking, the author of the computer program is the first
owner of copyright in the program. If the author is employed for the purpose of creating
software, then the employer is the first owner of copyright in the software.

It is important to note, however, that in a situation where a copyrighted work is being

created by a contractor for a company or other person, the contractor, as author, will be
the owner of the work. This is the case, unless the contractor has entered into a written
assignment of such copyright in favour of the customer. In Canada, not only do
businesses have to ensure the copyright has been properly assigned to them, but they also
have to account for the legal issue raised by the Canadian concept of moral rights.
While it is outside the scope of this particular article to go into detail about what moral

1
Both David Takenaka and Paige Backman are partners at Aird & Berlis LLP, and members of Aird &
Berlis LLPs Technology Law Group.
rights are and why businesses need to be concerned about them, the bottom line is that,
for those copyrighted works created in Canada, in addition to entering in to a written
assignment of such copyrighted work in favour of the business, it is also standard and
recommended legal practice, to have such a written assignment accompanied by an
express waiver by the contractor of such contractors moral rights in the work.

As a brief aside, it may be interesting to note that, for those companies who contract with
governments in Canada, if a Canadian-based corporation has been retained by Her
Majesty or any government department to prepare a work, it is imperative from the
corporations perspective that the agreement between the corporation and Her Majesty
specifically address ownership of the work because the Copyright Act (Canada) provides
that, absent such a provision, copyright in the work will belong to Her Majesty.

Payment Provisions

U.S.-based agreements often provide for interest on overdue payment being payable
based on a monthly calculation. When Canadianizing the payment section in a U.S.-
based agreement, aside from ensuring that the Canadian entity can appropriately price the
goods and/or services in Canadian currency (as opposed to U.S. dollars), the Canadian
corporation will also want to ensure that it has complied with the provisions of the
Interest Act (Canada) which requires that any interest rate (such as an interest rate on
overdue payments) be prescribed as an annual rate of interest, as opposed to a monthly
rate. If this is requirement is not met, no interest exceeding a prescribed rate per annum
will be payable by the customer.

Language Requirements

Quebecs Charter of the French Language governs the language requirements applicable
in that province. Generally speaking, contracts with consumers and standard-form or
adhesion contracts must be available in French, unless the parties specifically agree that
the contract may be in English. With this in mind, Canadian counsel needs to consider
this issue and determine whether U.S. forms of agreement must be translated into French
or whether wording is to be added to the English form of agreement to address these
language requirements.

Privacy

Canada and certain of its provinces have enacted privacy legislation which governs a
corporations (or any persons) collection, use and disclosure of personal information.
As such, in any instance where information that can identify an individual may be shared,
accessed or otherwise disclosed between the parties (for instance, often times in
consulting agreements and outsourcing agreements personal information held by one
party may be accessed by the other party), the confidentiality provisions of the U.S. form
of agreement will often require revision to deal with the requirements imposed by the
various pieces of Canadian federal and provincial privacy legislation.
Import/Export Law Controls

U.S-based commercial agreements traditionally contain provisions which prohibit

customers from exporting software or other goods in contravention of United States
export control laws. Canada has its own export control legislation which are not always
consistent with U.S. law, and must be considered when determining the appropriate
export restrictions to be adhered to by a Canadian-based corporation.

Miscellaneous

The following are some other quirky and miscellaneous issues which Canadian counsel
should note when Canadianizing U.S.-based technology agreements. In Canada, the
word license is used as a verb and the word licence is used as a noun. In the U.S.,
license is used generally as both a verb and the noun. In Canada, instead of referring to
attorneys fees being payable by a party under a commercial agreement as is typical in
U.S. based agreements, it is more appropriate in Canada to refer to legal fees being
payable. Canadas trade-mark legislation refers to trade-marks, as opposed to
trademarks which is the term used in U.S.-based agreements,. As well, Canadian law
does not recognize the U.S. concept of service marks. In Canada, temporary
restraining orders are not granted. Instead, interim or interlocutory injunctions are
sought.

Conclusions

While the foregoing provides a high level review of certain drafting issues which arise
when implementing a U.S-based form of technology agreements in Canada, these are
only the tip of the iceberg. Canadian counsel will also have to consider other substantive
issues (such as those arising under the Competition Act (Canada), Consumer Protection
Act (Ontario) and bankruptcy and insolvency legislation) when determining appropriate
changes which must be made to U.S.-form agreements. While it is often cost-effective
and efficient to begin with previously approved U.S.-based agreements in Canada, there
are certain substantive differences between the laws of Canada and the U.S. which need
to be addressed prior to using such contract forms in Canada.