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Ontario Passes Protecting Child Performers Act

On April 30, 2015, Ontario passed Bill 17, entitled the Protecting Child Performers Act; on May 5, 2015, Bill 17 received Royal Assent, and so, by its terms, the Act will come into force in February 2016 (nine months from Royal Assent). As set out in Section 2 of the Act, its purpose is to “promote the best interests, protection and well being of child performers”. The text of the legislation as passed can be accessed here. The Act changes in critical ways the obligations of Ontario employers of children in the entertainment industries.

Effect of the Act

The particulars are set out below, but the “big picture” summary of the Act is that it extends to all child performers in a wide range of entertainment activities the types of working condition protections which have historically been associated with the collective agreements of performers’ unions and guilds, such as ACTRA. It is impossible to avoid the minimum protections afforded by the Act, but where an employment contract, collective agreement or other statute applies directly to a matter addressed by the Act and the provision in the employment contract, collective agreement or other statute provides “a greater right or protection to a child performer, the provision in the employment contract, collective agreement or other [statute] applies” and thus “trumps” the application of the Act. In short, a child performer can contract for better protection than that provided by the Act, but cannot contract for worse protections.

Scope of Application

To begin, we need to determine the scope of the Act’s application. At its core, the Act governs the relationships between employers, parents and “child performers”. Failure by an employer to comply with the Act can result in liability under the Employment Standards Act. The following criteria must be present for the Act to apply:

  • the “child performer” must be under 18 years of age;
  • the child performer must be receiving “monetary compensation” (i.e., the Act does not apply when the child performer is not being paid, or is being compensated by means other than monetary payments); and
  • the child performer must be performing work or supplying services in the “entertainment industry”
    • “entertainment industry” means either (i) the “live entertainment industry”, which means the “performing arts industry that provides live entertainment in theatre, dance, music, opera or circus” or (ii) the “recorded entertainment industry”, which means “the industry of producing visual or audio-visual recorded entertainment that is intended to be replayed in cinemas, on the Internet, on the radio, as part of a television broadcast, or on a VCR or DVD player or a similar device, and includes the industry of producing commercials”

We can see at this point that there are some ambiguities about the precise scope of the Act’s reach – namely, it is unclear the extent to which it applies to what we might colloquially refer to as the “music industry”. From the definition of “recorded entertainment industry”, it does not appear that the Act covers the rendering of performing services where what is being produced is an audio-only sound recording – but that’s not entirely certain, since the definition does include recorded entertainment that is intended to be replayed “on the radio”. Using the example of a “boy band” made up of members under the age of 18, it seems the Act would not apply to their in-studio recording work, but would apply to their live concert performances. (The Act has some other drafting oddities – is it really necessary to refer to “VCRs”?)

General Engagement Rules

The Act imposes three different sets of obligations on employers: (1) obligations which apply to all engagements of child performers, irrespective of which aspect of the entertainment industries they are providing service sin; (2) obligations which apply only to engagements in the “recorded entertainment industry”; and (3) obligations which apply only to engagements in the “live entertainment industry”. The following obligations apply to all engagements of child performers:

  • Contracts Must be in Writing. All engagements of child performers must be pursuant to a written contract. [Section 5]
  • Pre-Contract Meeting and Ongoing Disclosure. Before entering into a contract with a child performer, an employer must meet with with the child’s parent or guardian (the child performer is entitled to be present at and participate in such meeting) and disclose the following information: (a) a general description of the role the child performer will play; (b) the location and hours of rehearsals and performances; (c) any health or safety hazards to which the child performer may be exposed during rehearsals or performances, and the precautions that will be taken to prevent injury to the child performer; (d) any special skills the child performer is expected to perform that require a level of physical proficiency or other skill superior to that of an average child; and (e) any special effects to which the child performer may be exposed. If any of the items disclosed at the pre-contract meeting change, the employer must notify the parent/guardian of the change, and the employer is prohibited from implementing any proposed change unless the parent/guardian has agreed to in writing to the change. [Section 4]
  • Script Disclosure. A copy of the portion of any script relating to the child performer’s services must be provided to the parent/guardian prior to the commencement of production.
  • Travel. If a child performer is younger than 16, the parent, guardian or “authorized chaperone” (who must be over 18 and have written authorization from the parent/guardian) must accompany the performer to and from the workplace. If a child performer is obliged to be “away from home overnight”, a parent/guardian (but not an authorized chaperone) must accompany the child “at all times”, and the employer must pay for all “daily expenses and the costs of travel and accommodation” up to maximums to be set out in the Act’s regulation. [Section 6]
  • Tutoring. An employer must “provide time in the work schedule for a child performer who is of compulsory school age to receive tutoring”. Details of the elements required in the tutoring will be set forth in the Act’s regulation. [Section 7]
  • Income Protection. Where a child performer earns more than $2,000 on a production or project, the employer must deposit 25% of the child performer’s earnings into trust (to be held until the child turns 18). Details of the trust arrangements will be set out in the Act’s regulation. The foregoing will not apply in situations where the child performer is a union member, and the union’s collective agreement requires that funds be deposited into trust. [Section 8]
  • Health and Safety Training. Employers are required to provide training for each child performer (in a manner “appropriate to the child performer’s developmental stage”) and their parent/guardian/chaperone with respect to the following matters: emergency procedures; restricted areas; safe waiting areas; the location of washrooms, make-up areas and “other areas relevant to the child performer’s work”; and “the procedure for identifying and reporting unsafe working conditions”. [Section 23]
  • Right to Refuse Work. For purposes of subsections 43(3)-(10) of the Occupational Health and Safety Act (which permits workers to refuse to work in unsafe conditions), where a child performer is under 14 years of age, their parent/guardian/chaperone is given authority to make decisions for them. [Section 24]
  • Healthy Food. When employers provide food to child performers, they must provide them with “healthy snacks and meals … as close to the child performer’s regular snack and meal times as possible”, and must ensure that any food provided “meets the child performer’s needs in respect of food allergies and special dietary requirements”. [Section 25]

Recorded Entertainment Industry

The following obligations apply to engagements of child performers in the “recorded entertainment industry”:

  • Minimum Age. No child performer who is younger than 15 days can be engaged to provide services. [Section 10]
  • Hours of Work. The Act imposes strict limitations on the number of hours that child performers can work, which are different for different age groups: performers under two years can only work a maximum of four hours a day, while those over two years can only work a maximum of eight hours in a day. Overtime is permitted only if the child performer is a union member and the child is paid overtime rates. An employer must provide at least 48 hours notice if the child performer’s start time is after 7pm. [Section 11]
  • Turnaround Time. Child performers are entitled to a minimum of 12 consecutive hours “free from work” each day and 48 consecutive hours “free from work” each week. [Section 11]
  • Limits on Time in Front of Recording Device. The Act contains very detailed limits on how much time a child performer can spend being filmed/recorded before receiving a break (and how long such break period must last), based on the age of the performer. [Section 12]
  • Parental Accompaniment. Child performers who are under 16 years of age must be accompanied in the workplace by a parent/guardian or “authorized chaperone” (who cannot be the child’s tutor or agent), who is “accessible to the child performer at all times”. [Section 14]
  • Child Performers’ Coordinator. The employer must designate one person at the workplace as a child performers’ coordinator who is “responsible for co-ordinating matters related to the welfare, safety and comfort of child performers”. If there are more than six child performers in the workplace, the coordinator cannot also be the tutor. [Section 15]

Live Entertainment Industry

The following obligations apply to engagements of child performers in the “live entertainment industry”:

  • Minimum Age. No child performer who is younger than two-and-a-half years can be engaged to provide services. [Section 17]
  • Hours of Work. The Act imposes strict limitations on the number of hours that child performers can work, which are different depending on which “phase” the services are rendered in (the “rehearsal phase” or the “performance phase”) and depending on the age of the child performer. No overtime is permitted in either phase. [Section 18]
  • Turnaround Time. Child performers are entitled to a minimum of 12 consecutive hours “free from work” each day and 36 consecutive hours “free from work” each week. [Section 18]
  • Breaks. No employer shall require or permit a child performer to work for longer than two consecutive hours without a break of at least 10 minutes. During the rehearsal phase, the employer shall give the child performer an eating period of at least 90 minutes and shall schedule eating periods so that the child performer does not work more than four consecutive hours without an eating period. [Section 19]
  • Option for Chaperone. Unlike the situation in the recorded entertainment industry (which requires parental accompaniment for performers under 16 years of age during working hours), parents/guardians of child performers older than two-and-a-half years of age in the live entertainment industry may designate a chaperone to “be available to the child performer while the child performer is at the workplace”. Thus, for child performers in the live entertainment industry there is no obligation that they be accompanied by a parent/guardian/chaperone. [Section 20]
  • Child Attendants. The employer is obliged to designate a “child attendant” who is “responsible for monitoring the child performers at the workplace while the child performers are not rehearsing or performing”. The “child attendant” must be at least 18 years of age, not otherwise employed on the production, not the child’s tutor and must possess a clean criminal (as defined in the Act’s regulations). The number of child attendants required to be engaged is determined by a formula which is based on the age of the youngest child performer: where the youngest performer is under six years of age, there must be one attendant for every six children; where the youngest performer is between six and ten years of age, there must be one attendant for every ten children; and where the youngest performer is ten years of age or older, there must be one attendant for every fifteen children. [Section 21]
  • Clean Criminal Record. Section 22 of the Act requires that “prescribed individuals” (to be defined in the Act’s regulations) who “may be required to be alone with child performers” must have a “clean criminal record” (to be defined the Act’s regulations). The Act is silent on why this requirement applies only to the live entertainment industry but not to the recorded entertainment industry.

As readers can see, the Act imposes a raft of obligations on those who engage child performers in the live and recorded entertainment industries. While there is some overlap with existing union/guild requirements, there are also new statutory obligations which go beyond what might otherwise be required under an applicable collective agreement. Those engaging child performers must therefore take the time to familiarize themselves with the Act and determine what additional steps, if any, they must take to be in compliance.

Ontario Passes Protecting Child Performers Act

I Want What She’s Getting – “Favored Nations” Clauses in Entertainment Contracts

The “favored nations” or “most favored nations” or “MFN” concept/clause, while not omnipresent in entertainment contracts, certainly gets its fair share of use. This post will explore the purpose and operation of FN and MFN (there is a (slight) difference!). (A note on spelling: Canadian usage prefers “favoured”, but in order to maximize our appearance in search results, this post will use the American spelling of “favored”.)

Background

Favored nations clauses are relatively simple to describe: they are a contractual commitment that no other relevant party will receive “better” (or more advantageous) terms from the party making the commitment. In the entertainment industries, they appear most often in three contexts: in music licensing arrangements; in film/TV/theatre actor deals; and in investment agreements (e.g., where an investor is providing funds for an entertainment project). The music licensing context provides perhaps the most straight-forward illustration of how a favored nations clause operates. Imagine a producer wants to license a song for use in their movie – to keep things simple, we will assume a single publisher owns all publishing rights in the composition and a single record company owns all rights in the sound recording. The license agreements that the producer enters into with the publisher and the record company will almost certainly contain a favored nations clause, which will look something like this (taken from an actual sync license!):

“no co-publisher of the Composition and no master recording owner of the Composition shall receive proportionately more favorable remuneration of any kind including, but not limited to, the Fee.  In the event that you pay our co-publisher and/or the master recording owner of the Composition a higher pro-rata fee than the Fee paid to us hereunder, you shall pay to us the difference between such higher pro-rata fee and that Fee paid to us”

In other words, if you’re paying the publisher $5,000, you can’t pay the record company $7,500 – or you can, but then you have to pay the publisher another $2,500 so that they get equal treatment. Of course, FN/MFN clauses can be much simpler (“on terms no less favorable than those accorded to any other [actor/investor]”) or much more complicated (as we’ll see below).

Favored nations clauses are particularly useful when dealing with relatively large groups of counterparties who are similarly situated – which is why they are employed so often in the actor and investor contexts. For example, when a producer is dealing with a group of actors each of whom have approximately equal screentime and bargaining power, or with investors who are all providing roughly the same amount of funds at the same time in order to finance a production. The favored nations clause offers the advantages of efficiency and protection from structural negotiating disadvantages such as lack of complete information and disparities in bargaining power. For the actor/investor, because they don’t have full knowledge of the deal terms that other actors/investors are obtaining in their negotiations with the producer, the favored nations clause offers the comfort of knowing they are being treated at least as good as (or no worse than) their peers. For the producer, offering a favored nations commitment means that they don’t have to maintain multiple sets of negotiations over the same terms (e.g., the definition of “net profits”), but rather can simply negotiate with the best-placed counterparty and then apply the agreed-upon term to all parties.

A Digression on Terminology

Earlier I mentioned a slight distinction between “favored nations” and “most favored nations” – though the distinction is not always drawn, it’s useful to highlight it; while the two terms can be (and often are) used interchangeably, they can also be used to contrast quite different situations. “Most favored nations” (or MFN) is best used to describe the treatment given to a particular individual – it is a form of protection accorded to a single counterparty, to assure them that no similarly-situated counterparty is getting a better deal than they are. “Favored nations” is best used to describe the treatment given to a group of people – it is a form of protection accorded to a set of counterparties. To illustrate: it is entirely possible/acceptable to have only one person on a production get the benefit of a “most favored nations”/MFN clause (e.g., your highest paid actor); it makes better sense to use “favored nations” when you’re describing everyone within a particular group (e.g., all of your actors are being given “favored nations” protection with respect to on-set perquisites). That being said, for the balance of this post and in order to avoid clunky repetition, I’ll use “favored nations” to cover both situations.

Two Kinds of Scope

When drafting favored nations clauses, “scope” is important – but scope in this context has two different connotations: scope as it relates to which terms of the contract the favored nations protection applies to, and scope as it relates to the class of peers or comparators against whom the favored nations protection will be measured. I’ll address both connotations in turn.

Scope re Terms

It is critical for the parties in a favored nations arrangement to specify which terms of the contract are affected by the favored nations protection. There will inevitably be tension here: the party benefiting from the favored nations protection will want to cast the scope of it as widely as possible, while the party granting the favored nations protection will want its scope to be as narrow as possible. Here is a partial list indicating how many potential aspects of an actor’s deal could be subject to favored nations protection:

  • the amount of the actor’s fixed fee for services
  • the timing of the payment of the actor’s fee
  • on-set perqs (e.g., size of dressing room, amenities in dressing room)
  • off-set perqs (e.g., invitations and travel to premieres)
  • travel arrangements (e.g., business class airfare vs economy class)
  • accommodations (e.g., size, location and amenities of hotel lodgings)
  • presence, thresholds and quantum of box office bonuses
  • presence, quantum and definition of “net profits”
  • participation in ancillary revenue streams (e.g., merchandising)
  • on-screen and paid ad credits (e.g., size, placement, prominence, duration, etc.)

As the foregoing should serve to illustrate, an open-ended commitment to “favored nations” protection can be the starting point for an awful lot of headaches down the road if the scope of its application is not spelled out. Similarly, saying something as generic as “compensation” or “credit” is subject to favored nations protection is a recipe for potential disputes.

Scope re Comparables

Consideration must also be given to which contracts will serve as the standard against which the favored nations commitment is measured. For example, is the actor being given favored nations protection as compared to all other actors on the project, or as compared to all other “above-the-line” participants on the project (e.g., what if the director gets a better definition of “net profits”) or some other sub-set of individuals? Producers may want to create different pools of comparatives so as to ensure that they don’t inadvertently accord benefits which should be reserved for a particular class of counterparties – maybe the actors playing the roles of the two lead characters have star wattage an order of magnitude brighter than anyone else on the project and so their treatment needs to be carved out of everyone else’s favored nations clause. Or, when dealing with investors, there are five investors in a film who are each investing $50,000, and then another three investors who are each investing $250,000 – the producer may want to accord each investor favored nations protection only vis-a-vis the other investors at their tier of investment.

Enforcement

Enforcing favored nations clauses is notoriously difficult: the same informational disadvantage which leads parties to want favored nations protection in the first place means that they have difficulty ever knowing whether their entitlement to protection has been triggered by someone getting a better deal. Contract provisions might also be subject to confidentiality obligations, meaning that counterparties are restricted from sharing the terms of their deal with each other (though the ability to share such information for “policing” purposes might be carved out of the confidentiality obligation). In cases where a collection account is used, examination of the entitlements of the various parties may reveal discrepancies which indicate a breach. In some circumstances, it may be that the only way to reveal the breach of a favored nations clause is to undertake an audit of the books and records of the production company, or via disclosure in the course of a lawsuit.

Conclusion

Whether favored nations provisions should be included in one or more contracts on a project will be a function of a variety of considerations: bargaining power, legal budget, number of counterparties, etc. The favored nations clause can be a useful device for both parties to a contract, though it comes weighted with risks – which can be ameliorated by careful drafting.

I Want What She’s Getting – “Favored Nations” Clauses in Entertainment Contracts

Ginuwine Concerns for Management Contracts

[We proudly offer a guest post authored by esteemed colleague and articling student Ben Iscoe, with an assist from yours truly. I’m proud to say that I actually knew Ginuwine’s real first name before I read this article.]

Elgin Baylor Lumpkin (the performing artist better known as “Ginuwine”) is being sued by his former manager.  For those familiar with the R&B star, one could make the (terrible) pun that he is being asked to “Pony” up dough for outstanding royalties.[1]  But how did this lawsuit come about?  It is unlikely that Ginuwine and his manager entered into their artist/manager relationship with the expectation that it would culminate in litigation.  What went wrong?  Could Ginuwine have done anything differently to avoid this costly and time consuming ordeal?

Musicians, generally speaking, are not business people; they are musicians.  Elvis, “The King”, may be one of the most iconic musicians of all time, but behind the scenes Colonel Tom Parker was managing his way (in the extreme case) to half of The King’s earnings.  Was this a good deal for the King?  The answer depends on one’s point of view.   Elvis himself said “I don’t think I’d have ever been very big if it wasn’t for [Parker]” reminding one of the adage “50% of something is better than 100% of nothing.”

So how does an artist know if they are entering into a favourable, or even equitable, manager/performer relationship?  How do future Ginuwines minimize their risk of litigation or more generally, entering into an unfair agreement?  Artists spend their time composing that addicting hook coming out of the bridge; Business 101 is likely on the backburner.

Below are general guidelines for artists when contemplating whether to enter into a management agreement.  This list is not exhaustive, but merely meant to be a helpful tool and should not be interpreted as a substitute for obtaining legal advice.

1. Defining Expectations

Almost all artists will say that they want their manager to help them grow/make a livelihood performing their art.  What does this mean?  Vague terminology is a recipe for future tension.  For instance, does the artist want to handle their own merchandise or have the manager handle this?[2]  Does the artist want to plan their own tours and just have their manager shop their album?  It is impossible to include every detail, but artists should be as specific as possible to ensure that all parties are of the same understanding.  It is better to disagree on specifics up front (when there is little or no commitment) as opposed to when the relationship is long established.

2. Duration

How long do you want the artist/manager relationship to last?  It is probably advantageous for the artist to enter into a short term contract, and then renew if the manager is delivering to the artist’s satisfaction.  However, if the artist is unknown, it is unlikely that much income will be generated in the first couple of years.  Therefore, the manager will want a longer contract as they would find it unjust (and a horrendous commercial practice) to allow another manager to reap the fruits of their labour (i.e. they spend the first couple of years helping the artist establish themselves only to have another manager start collecting 20% once the artist begins generating significant revenue).

This is an area where the artist, especially an unknown artist, will have to give the manager some slack.  Whatever the case, specify a period of time.

3. Exclusivity

Does the artist expect to be the manager’s sole client?  If so, it is important to specify.  For an unknown artist, this is an unrealistic ask.  As mentioned above, it will likely be a while until an unknown artist will start to generate significant revenue.  Asking a manager to rely on a percentage of a minimal (or perhaps non-existent) income for any period of time is unreasonable.

4. Territory

Where does the manager have connections?  Are they a mover and shaker locally, but not nationally?  Perhaps they have every domestic record exec on speed dial, but have no international connections.  In a smaller market, Canada being a prime example, artists may have interests in growing outside their national borders (i.e. in the US).  In such a situation, the artist may want to be mindful to specify what areas are covered by the management agreement?  For instance, emphasize that one manager will be the artist’s exclusive representative in Canada, but not the US.

Keep in mind, people respond to incentives.  If an artist wants to penetrate the US market and their manager will not generate any revenue from the artist’s activity there, why would the manager make any efforts south of the border?  Carving up territories should be used if the artist believes that they can establish themselves in a specified market without the manager’s assistance.  This may be accomplished by either (a) the artist’s own connections to the market; or (b) another manager who will have exclusive responsibility to that other market (i.e. the artist will have multiple managers to cover multiple markets).

5. Expenses

As mentioned above (and to be reiterated throughout), a manager is unlikely to be making much money off of the artist in the artist’s early days.  Despite this lack of revenue, the manager may need to spend money to assist the artist’s career.  If the manager is going to survey a venue, s/he will need to drive to the venue and park; who should pay for their gas and parking?  If the artist is hoping to have their manager arrange a tour, the manager will likely need to call a plethora of out of town venues; who should pay for their long distance calls?

These trivial sounding expenses may rapidly culminate in a bill the artist is ill equipped to pay.  At the start of the relationship the artist and the manager should specify what expenses the artist will cover.  It is not feasible to cover all possible scenarios, but a management agreement should attempt to cover general categories (like those identified above) to avoid future disagreements.  The artist may also consider creating caps for certain categories.  For example, in a given month, if long distance costs exceed ‘x’ dollars, then additional permission from the artist is required.  It is important to consider how much discretion or oversight the parties want built into the relationship.

Whatever your arrangement, it is crucial that any expenses require receipts.

6. Compensation

The days of Colonel Parker and managers receiving 50% are over.  Seemingly, a manager’s commission floats between 15-20% of the artist’s gross income.  This may seem significant, but in the early stages of the artists career 20% of nothing is still nothing.  This number may only lead to significant income for the manager once the artist has made it big, and there is likely a direct correlation between the rise in the manager’s income and the value the manager has added to the artist’s career.

There is no reason for a manager to receive any payments upfront.  A manager’s revenue should derive from the fruits of their labour, not an artist’s vain desire to say “I have a manager.”  Artists should be mindful of indirect attempts for managers to elicit money up front.  For example, artists should be wary of the manager who has a financial interest in the studio where (a) s/he wants the artist to record their next album; or (b) have promotional photography done.  That is not to say that these facilities should never be used, but rather that artists should be cautious to ensure that the rates at which they are being charged remain competitive with the industry norm.  If in doubt, artists may be wise to use other facilities (and see if their manager maintains their interest in representation).

Compensation should also specify for what activities the manager should collect a commission.  What about merchandise?  What if the artist begins writing with or producing for other artists?  What if the artist gets into acting?  What about the artist’s pre-existing revenue streams (e.g. endorsement deals)?  Or as in the case of Ginuwine, how should royalties be determined?

7. Option/Exiting

A management agreement will likely contain a provision that allows a manager to extend the relationship.  Such a provision is somewhat standard, but the nature of the option to extend must be clearly defined.  The option should specify (a) how often the option may be extended; and (b) for how long the relationship may be extended with each option.

Conversely, the management agreement should state how either party may exit the relationship.  The desire to exit the relationship may be difficult to visualize at the time of formation; at this time the manager and the artist should be enthusiastic about one another (if not why enter such a trusting relationship).  The terms of the agreement should address what happens when this relationship is no longer harmonious, more specifically what are each parties’ obligations when either party wants to end the relationship.

What compensation will the manager be entitled to once the artist/manager relationship has concluded?  The manager will argue that a portion of the artist’s revenue received after the artist and manager have parted ways derives from the labour of the manager (e.g. the manager secured the recording contract that continues after the conclusion of the artist/manager agreement).  Consequently, the artist and manager should consider sunset provisions.  These provisions entitle the manager to a certain declining percentage of the artist’s revenue in the years following the conclusion of the contract (e.g. 15% for the first year after the conclusion of the contract; 10% in the 2nd year; 5% in the 3rd year; and no compensation going forward).

8. Power of Attorney

Does the artist want the manager to be able to sign on their behalf, or only after checking with the artist first?  Can the manager sign on the artist’s behalf when it comes to certain contracts, but not others?  Include in any management agreement a power of attorney that clearly demonstrates under what circumstances the manager may sign on the artist’s behalf.  For logistical reasons, this type of provision may prove helpful; sending an email to a manager to give them permission to sign a document on the artist’s behalf could save valuable time and money.



[1] For those unfamiliar with the R&B Star, 1996’s “Pony” was the name of arguably Ginuwine’s most well-known single.

Ginuwine Concerns for Management Contracts

Canada’s Anti-Spam Law – New Guidance on Offering Apps, Software

Canada’s Anti-Spam Law (CASL) targets more than just email and text messages 

CASL also prohibits installing a “computer program” – including an app, widget, software, or other executable data – on a computer system (e.g. computer, device) unless the program is installed with consent and complies with disclosure requirements.  The provisions in CASL related to the installation of computer programs will come into force on January 15, 2015.

Application outside Canada

Like CASL’s email and text message provisions, the Act’s “computer program” installation provisions apply to persons outside Canada.  A person contravenes the computer program provisions if the computer system (computer, device) is located in Canada at the relevant time (or if the person is in Canada or is acting under the direction of a person in Canada).

Penalties

The maximum penalty under CASL is $10 million for a violation of the Act by a corporation.  In certain circumstances, a person may enter into an “undertaking” to avoid a Notice of Violation.  Moreover, a private right of action is available to individuals as of July 1, 2017.

CASL’s broad scope leads to fundamental questions – how does it apply?

The broad legal terms “computer program”, “computer system” “install or cause to be installed” have raised many fundamental questions with industry stakeholders.  The CRTC – the Canadian authority charged with administering this new regime – seems to have gotten the message.  The first part of the CRTC’s response to FAQ #1 in its interpretation document CASL Requirements for Installing Computer Programs is “First off, don’t panic”.

New CRTC Guidance 

The CRTC has clarified some, but not all of the questions that industry stakeholders have raised.  CRTC Guidance does clarify the following.

  • Self-installed software is not covered under CASL.  CASL does not apply to owners or authorized users who are installing software on their own computer systems – for example, personal devices such as computers, mobile devices or tablets.
  • CASL does not apply to “offline installations“, for example, where a person installs a CD or DVD that is purchased at a store.
  • Where consent is required, it may be obtained from an employee (in an employment context); from the lessee of a computer (in a lease context); or from an individual (e.g. in a family context) where that individual has the “sole use” of the computer.
  • An “update or upgrade” – which benefits from blanket consent in certain cases under CASL – is “generally a replacement of software with a newer or better version”, or a version change.
  • Grandfathering – if a program (software, app, etc.) was installed on a person’s computer system before January 15, 2015, then you have implied consent until January 15, 2018 – unless the person opts out of future updates or upgrades.

Who is liable?

CRTC staff have clarified that as between the software developer and the software vendor (the “platform”), both may be liable under CASL.  To determine liability, the CRTC proposes to examine the following factors, on a case-by-case basis:

  • was their action a necessary cause leading to the installation?
  • was their action reasonably proximate to the installation?
  • was their action sufficiently important toward the end result of causing the installation of the computer program?

CRTC and Industry Canada staff have indicated that they will be publishing additional FAQs, in response to ongoing industry stakeholder questions.

See:  fightspam.gc.ca  and consider signing up for information updates through the site.

 

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Canada’s Anti-Spam Law – New Guidance on Offering Apps, Software

Leuthold v CBC: “Industry Practice” in Interpreting Contracts

When, if ever, can “industry practice” be used in interpreting contracts? That question is of particular relevance in the entertainment industries, as each facet of those industries (such as film, TV, music, book publishing, videogames, etc.) has their own jargon, standards and conventions, some of which are, if not contradictory, at least not obviously compatible (as an example, the term “publishing” has very different connotations as between the “worlds” of music, book publishing and film). If the parties to a contract come to the contract from different “worlds”, and they have different understandings of what a term in a contract means, whose understanding should prevail?

A couple of years ago, in a post entitled Leuthold v CBC: Damages for Copyright Infringement, I noted the Federal Court decision in Leuthold v CBC (2012 FC 748). As the title of that post indicated, the post focused on how the court in that case calculated the damages payable for copyright infringement when the CBC made unauthorized use of photographs in a documentary. I wrote at the time that the “decision goes into great detail about the various negotiations and conflicting understandings of the parties – potentially interesting in their own right but of limited application beyond the bounds of these particular disputants.” I think I got that wrong, and I’d like to re-visit the case now with particular reference to the issue of industry standards. A couple of weeks ago the Federal Court of Appeal released its decision in the appeal of the matter (2014 FCA 173) (spoiler alert: the CBC won again), and in reading the decision of the appeals court, I was struck by the fact that a portion of the decision seems to turn in large part on how to handle “industry practice” when interpreting contracts.

To refresh our memories, here are the relevant facts in the case (taken from the 2012 post):

The CBC commissioned a documentary entitled As the Towers Fell, about the September 11, 2001 terrorist attacks on New York City’s World Trade Center. Four different versions of the documentary were aired multiple times on the CBC main network and on the CBC Newsworld channel (since re-branded as CBC News Network). In most of the versions which were aired, still photographs which had been taken by and which were owned by the plaintiff appeared on-screen for a total of 18 seconds. Efforts had been made by CBC employees to “clear” (i.e., obtain permission to use) the photographs in the documentary – which is where the dispute arose.  The plaintiff originally faxed a short letter indicating authorization to use the photos – but the parties disagreed on the scope of the authorization and whether any conditions attached to it.  Eventually, following further discussions between the plaintiff and various CBC representatives, a license agreement was signed by the plaintiff.  Critically, the documentary had been broadcast on a number of occasions throughout the discussion/negotiation process (including at least one broadcast which occurred before the first faxed authorization had been received from the plaintiff).  Of relevance to the plaintiff’s position, the broadcasts took place on both the CBC main network and the Newsworld channel and was broadcast in all Canadian time zones, at the applicable local time, directly by the CBC or through affiliated stations.

Thus far, here is the nub of the case: a photographer gave authorization to the CBC to make use of her photographs in a documentary – but when the CBC broadcast the documentary on its “main” network and also on the CBC”s “Newsworld” channel, they did so in a way which did not accord with the photographer’s understanding of the scope of authorization she had given. Here is the relevant language of the license agreement:

[Plaintiff] hereby grants to CBC the non-exclusive and limited right to incorporate the Stills in the Production. CBC shall have the right (but not the obligation) to broadcast the Stills on Canadian television for one broadcast on CBC’s Network & Regional TV stations. [emphasis added]

The evidence at trial indicated that the plaintiff/photographer did not know about CBC’s Newsworld channel, and did not think that her license entitled the CBC to broadcast the documentary (containing her photographs) on the Newsworld channel. The CBC, by contrast, did think that the words “CBC’s Network & Regional TV stations” included both the CBC’s “main” channel and the Newsworld channel. How to resolve this disconnect?

The trial court decided in favour of the CBC, and provided the following reasons:

  1. “when clearing rights, the CBC always included Newsworld”
  2. the plaintiff’s expert evidence (to the effect that for purposes of the CRTC’s regulatory regime, Newsworld was indeed a separate “network” from the CBC’s main channel) was irrelevant because it spoke to regulatory matters, not copyright matters
  3. “industry usage clearly favors the defendants” and “in considering what is commercially sensible, the Court cannot accept Miss Leuthold’s interpretation whereby the CBC would have agreed to terms that ran against their normal usage, that is to exclude Newsworld and affiliated stations”
  4. the contra proferentum rule of contractual interpretation (roughly, that ambiguous wording in a contract should be construed against the party that drafted it) did not apply because there was no need to apply it

Taken together, those four points really distill down to two points – we can discard 2 and 4 because they are negative arguments for not accepting the plaintiff’s position, not positive arguments for why we should accept the defendant’s position. Points 1 and 3 really boil down to something which is quite a bit different than “industry practice”: instead, 1 and 3 are effectively “the CBC normally conducts itself in a certain way, and how the CBC ‘normally’ conducts its business should be determinative when there is a dispute between CBC and another party over how to interpret the CBC’s contracts”. Really, “industry practice” in this decision meant “CBC practice” (although the court used the phrase “industry usage” in point 3, the court did not identify any producer or broadcaster other than the CBC who made use of language in a similar fashion).

The Court of Appeal affirmed the decision of the trial judge, but not because the trial judge was correct on this point: rather, the Court of Appeal declined to overturn the lower court’s conclusion because it was not a “palpable and overriding error” – rather, the trial judge’s decision, even if wrong, was “reasonably open to him” based on the evidence before him.

If we are to take the Leuthold decision at face value, then, it’s not necessarily the practice of the “industry” which can be determinative in a contract dispute, but rather the past practices of one of the contracting parties which can be determinative. In Leuthold, because the CBC was of the view that the phrase “CBC’s Network & Regional TV stations” included the CBC main network plus Newsworld, and because, in other situations, the CBC had always taken pains to “clear” materials for use on both the CBC main network and Newsworld (though it had not done so here) that was sufficient – irrespective of what the other party to the contract thought she was agreeing to and irrespective of the fact that the point was clearly an open one given the ambiguity of the contract’s wording.

So what is the importance of all of this? It means that it is much riskier to enter into short-form contracts in the entertainment industries which contain “terms of art” or terms which carry some kind of “industry accepted” meaning. It is critical that terms in contracts either be defined with specificity or, failing that, be illustrated with examples; failure to do so could mean that one party to the contract will be subject to the greater contractual interpretational “weight” accorded to the practices of the “institutional” party. Here’s an example: a film producer and a distributor enter into a distribution agreement under which the producer grants the distributor the exclusive right to distribute the producer’s file “by means of home video and the internet”. The producer thinks that means  that the producer has retained the rights to exploit the film by means of, for example, digital downloads on iTunes and by means of streaming via Netflix. The distributor thinks otherwise. Who wins in a dispute? On the basis of Leuthold, it seems that the controlling factor may be what the distributor has done in the past – has the distributor historically conducted its business such that in contracts with that wording (or similar wording!) it has exploited the films on iTunes and Netflix? That might be all that is required – it doesn’t appear that anything more than that decided the point in Leuthold.

In short: resist short-hand in contract drafting; insist on specificity when describing the scope of rights which have been granted; avoid ambiguity or assurances that “everyone knows what this means”; otherwise, contracting parties may find themselves giving up much more than they (thought they) bargained for.

Leuthold v CBC: “Industry Practice” in Interpreting Contracts