US$237 Settlement by Boeing Directors Further to Boeing 737 MAX Safety Issues

The media reported this weekend that directors of the Boeing corporation just settled a lawsuit by shareholders, in connection with the massive problems of the Boeing 737 MAX, a debacle that included planes literally falling from the sky.

As we were reminding everyone recently, sitting on a board of directors isn’t all cocktails and schmoozing, it’s also real important work that can entail very real liability. In the case at hand, the liability at issue resulted in a settlement of US$237M which, to say the least, isn’t pocket change.  This is a good example of the reality that, yes, being a director entails exposure to eventual lawsuits, including by shareholders who may be impacted by bad decisions by the corporation’s board.

Here, the shareholders sued, based on the alleged directors’ failure, in their fiduciary responsibility, to adequately monitor safety issues of with the new model (then) being developed by Boeing. According to the shareholders’ claim before the courts, the lack of discussions and monitoring of safety issues by the board amounted to negligence. For example, the shareholders demonstrated that the Boeing board has created no specific committee to monitor safety issues which, in turn, allowed the corporation’s adoption of “unsafe business practices”.

This case also serves as a good reminder that, generally speaking, any potential director would do well to make sure he/she will be covered by adequate E&O insurance, before accepting to sit on the board of any corporation. Of course, it goes without saying that the coverage of those policies should be adapted to each case, being understood, for example, that acting on the board of a local business that runs restaurants does not entail the same level of risk and exposure as sitting on the board of a multinational aerospace company.

Yup, the reality is that being a director may have you sued down the line. Expect it, plan for it, including by taking your role seriously and making sure that the minutes and resolutions do reflect discussions and the work done by the board, over time. You never know when that evidence may come-in handy, to avoid liability. Failing that, decent E&O insurance coverage may be your best ally, make sure it is in place.

The Federal Court Imports Copyright Infringement by Inducement into Canadian Law

The Federal Court recently provided us with an interesting copyright decision, in Bell Canada v. L3D Distributing Inc. (2021 FC 832), a case that dealt with devices called set-top boxes (“STB”) used to stream content on TVs. In that case, a group of Canadian companies was sued by content owners and licensees, to stop these defendants from continuing to market and sell their STB devices in Canada, and ideally also obtain some compensation based on infringement of copyrights.

To make a long story short, in 2016 the group of plaintiffs that included Bell and Videotron sued some Canadian businesses marketing STBs in Canada, based on fact that such devices were largely being used by purchasers to infringe copyrights as to pirated TV shows and movies. The plaintiffs basically argued that availability of STBs made it too easy for Canadian consumers, allowing them to find, download and watch pirated content on their TVs. Indeed, thanks to these devices and instructions provided by the defendants at issue, Canadians could too easily get round the usual predictions against availability of pirated content -hence the proceedings filed before the Federal court.

We should mention that the defendants at issue not only marketed STBs in Canada but did so by promotion and information that made it clear that the typical function and use of these devices was essentially to obtain access to pirated content. In short, there was nothing subtle about the fact that activities of the defendants relied heavily on benefiting from allowing consumers to infringe copyrights on pirated content placed online by third parties. Looking at the promotional and other materials produced by defendants, it was clear that the main use of the devices at issue was to secure access to pirated content, particularly once purchasers installed a third-party add-on recommended by the defendants to enable pirating.

The federal court started by concluding that the defendants had in fact infringed copyrights over thousands of series and movies, by essentially making them available by telecommunications to Canadians. For the court, lack of actual copying, uploading or downloading may be disregarded in a blatant case such as this, as the defendants basically made content available through their devices and activities. Even though the defendant did not actually do any of the specific acts reserved to copyright owners by the Canadian act, the court held that the defendants’ activities related to STBs basically amounted to making pirated content available, a conclusion which many now question, including it seems to go beyond the actual provisions of the Copyright Act.

Interestingly, the Federal court here also went as far as holding that these defendants infringed copyrights not only directly (by making pirated content available, as described above), but also by merely encouraging, or rather inducing, Canadian users who purchased STBs to seek, download and watch pirated content placed online by third-parties. This is new law for Canada, as the Canadian Copyright Act does not contain any provision dealing expressly with inducement as a basis for finding infringement, contrary to the Patent Act, for example. For the court, the fact that Canadian common law generally provides for inducement as a basis for liability justifies importing that legal concept into copyright law, notwithstanding the absence of such a concept in our piece of copyright legislation.

Based on these findings of infringement, the court granted injunctive relief (of course) and awarded the plaintiffs 31 million dollars in statutory damages, along with some punitive damages, for good measure. Ouch.

I should mention that, not too surprisingly, the decision at issue was the result of ex parte proceedings and was a default judgment. One may express doubts as to whether the result would have been the same had the defendants actually participated and made submissions.

At any rate, I guess we’ll just have to see whether Canadian jurisprudence does really continue to import here the concept of infringement by inducement in copyright matters.

Harley-Davidson Manages to Stop Sales of a (Trademark) Infringing Bike Built With Some of its Genuine Parts

The Canadian Federal Court recently handed us an interesting decision, in H-D U.S.A. c. Varzari (2021 FC 620), in which it enjoined an individual (and his business) from continuing to offer a sort of Harley inspired motorcycle, built using a custom frame and genuine Harley-Davidson parts.

Though the above sounds a little outrageous, the story is of course a little more complicated than that and, NO, we’re not dealing with the owners of the Harley-Davidson trademarks nuking the harmless personal project of a biking enthusiast. Instead, the case deals with an individual who visibly really likes H-D bikes and who decided not only to build his own version of that type of motorcycle, but also started selling it, under a name referring expressly to Harley-Davidson, in addition to using a logo clearly copied from one of HARLEY’s, in addition to using the iconic orange color for the frame, and opting to HARLEY-DAVIDSON parts and, maybe, claiming he did so a little too enthusiastically in his promotional materials.

The bike at issue was initially offered as the “Harley Davidson Willie G Edition”, a name which the defendant changed upon being contacted by HARLEY to “The ‘H’ Edition”. To give  you an idea of what we’re dealing with, here is a picture of the bike at issue, including the copycat shield logo and the orange color reminiscent of Harley’s iconic color:

So as to set the stage as to where this is headed, I should mention HARLEY owns Canadian trademark registrations as to several logos, including the following, in connection with motorcycles and various types of parts and accessories:

Not surprisingly, the court finds several instances of infringement here, and enjoins the defendant from continuing with his sale of the motorcycle model at issue. Given that the court concludes that orange for bikes qualifies as a common law trademark, coupled with the issue of the logo itself, infringement seems easy to justify in such a case but isn’t all that interesting.

However, what IS worth mentioning is the treatment by the Federal Court in this case of the issue of the inclusion (in the “The ‘H’ Edition” bike) of genuine HARLEY-DAVIDSON parts, in addition to a custom frame that the enthusiast designed and presumably had built to imitate a Harley-type bike. According to the judgement at issue, inclusion of such genuine parts, along with repeatedly claiming the parts of this bike came from HARLEY, contributed to the giving the average person an overall impression that the whole motorcycle may have been produced by or for HARLEY, or at the very least under its authority.

For the court, the fact that the defendant conspicuously included genuine HARLEY parts that were of course visible in the end-product, contributed to giving an overall impression to the average buyer that the whole machine was a HARLEY-DAVIDSON, even though that specific name and mark did not appear on the cycle itself.

If you look at the picture above, it seems the bike may have been offered without any markings showing any original brand or name, perhaps leaving potential buyers to draw a conclusion as to the origin of the bike by seeing a H-D-like shield on the frame along with the orange color, as well as various HARLEY marks imprinted on (genuine) components like handlebars, foot pegs, etc. Indeed, looking at the resulting product, the Federal Court judge had little difficulty agreeing that an average consumer would more than likely conclude that this bike came from HARLEY-DAVIDSON, including because of the display and use of several of HARLEY’s mark on the machine and its components. Though the court rejected the suggestion that the shape of the frame itself was a problem, having found a likelihood of confusion with several registered and unregistered marks of HARLEY, it made sense to award an injunction as well as damages against the infringer.

Though the court stopped well short of saying that including genuine HARLEY parts was a problem in the general sense, it did state that, in this particular case, the presence of those genuine (branded) components WAS part of the reason for the probable confusion. Looking at the overall resulting bike, one would be naturally lead to the conclusion that this bike had something to do with HARLEY, above and beyond just supplying parts, hence the infringements.

Notwithstanding the foregoing, however, after reading the decision, I don’t think anyone should read into it any major change of Canadian trademark law in general, or that relating to trademark rights exhaustion in particular. As has always been the case, anyone may continue to resell branded goods without the need to normally worry about looking over your shoulder, so to speak. At law, generally, it remains that reusing of reselling branded products, even to make something new is NOT a problem. It is the case in the U.S. and in Canada, and that rule isn’t going anywhere.

What’s new here, I think, is a willingness by a court to read into the (re)use of numerous genuine (branded) parts, as components for a new thing, an attempt at creating an overall impression that the whole thing (i.e. the bike) was produce by or under the authority of the original trademark owner. Is this likely if a single branded component has been used? Likely not. Is this likely if the resulting product is itself adequately (clearly) branded with a non-infringing mark? Probably not. Is this likely if a resulting product is showing a patchwork of third-party marks on components? Definitely not. etc.

So, though the result of this case seems interesting, I don’t think we should read too much into it. The theory of trademark rights exhaustion is alive and well in Canada. Rest assured.