Blakes Technology
                          Seminar Series

                 Online Consumer Protection

                          Tuesday, September 18, 2007

Presented by Marie-Hélène Constantin
           Consumer Protection
           Regulation in Canada
• Federal and provincial regulation

• Federal jurisdiction:

   –   trade and commerce
   –   banks and banking
   –   bills of exchange
   –   interest
   –   weight and measures
   –   bankruptcy and insolvency
   –   criminal matters
        Federal vs. Provincial
• Provincial jurisdiction:

  – property and civil rights

  – imposition of fine, penalty or imprisonment
    for enforcing any law of the Province
Examples of Federal Regulation
• anti-competitive practices and restraint of
  trade activities
• price-fixing
• misleading advertising
• food and drug safety and health regulation
• packaging and labelling of consumer
Quebec Consumer Protection
In Quebec, several statutes deal with consumer
 – The Civil Code of Quebec (e.g. rules of interpretation, restriction
   on external clauses);
 – The Consumer Protection Act (“CPA”) (general provisions,
   provisions dealing with specific types of agreements and rules
   on prohibited practices);
 – Various specific legislation (for example for the financial product

These statues include provisions related to contractual
terms (e.g. warranties, applicable law), contractual
interpretation, labeling and advertising.
     Definition of “Consumer”
• Who is a “consumer”?

 According to the Quebec CPA, a
 “consumer” is a natural person, except a
 merchant who obtains goods or services
 for the purposes of his business.
  Example: The contract of sale
• Article 1716 C.C.Q (legal warranties for all
  contracts of sale):
    “The seller is bound to deliver the property and to
    warrant the ownership and quality of the property.
    These warranties exist of right whether or not they are
    stipulated in the contract of sale.”
• Additional warranties are granted by law in
  consumer agreements.
     Consumer Warranties in Sales
       Contract under the CPA
• Goods must be fit for the purposes for which goods of that kind are
ordinarily used;
• Goods must be durable in normal use for a reasonable length of time,
having regard to their price, the terms of the contract and the conditions
of their use;
• If goods are of a nature that requires maintenance, replacement parts
and repair service must be available for a reasonable time (unless the
consumer is notified in writing before entering into the contract);
• Goods must conform to the description of them in the contract,
statements or advertisements (written or verbal);
These warranties do not prevent the merchant or manufacturer from
offering a more advantageous warranty to the consumer (subject to
specific requirements).
     Examples of Consumer Rights
      under the CPA and C.C.Q.
Specific prohibitions:
•    stipulation that a merchant is liberated from the consequences of
     his own act or of the act of his representative;
•    stipulation whereby a merchant reserves the right to decide that
     the consumer has breached an obligation, or that a fact or
     circumstance has occurred;
•    stipulation requiring the consumer, upon non-performance, to pay
     costs ( other than interest);
•    stipulation that the contract governed by a law other than that of
     Canada or Quebec;
•    (under the C.C.Q) an external clause is null if, at the time of
     formation of the contract, it was not brought to the attention of the
     consumer, unless the other party proves that the consumer
     otherwise knew of it.
 The Dell decision (Supreme Court
    of Canada, July 13, 2007 )
Deschamps J. (for the majority): No application of 3149 C.C.Q.
(jurisdiction of Quebec courts) due only to an arbitration clause:

• The rules found in the “International Jurisdiction” Title of the C.C.Q
only apply to situations with a relevant foreign element.

• An arbitration clause is not in itself a foreign element warranting the
application of the rules of Quebec private international law.

• Since the facts triggering the application of the arbitration clause
occurred before the coming into force of s. 11.1 of the Consumer
Protection Act (which prohibits any stipulation that obliges a consumer
to refer a dispute to arbitration), that provision does not apply to the
facts of this case.
                 The Dell Decision
•   In this case, the arbitration clause could be accessed by means of a

•   The S.C.C. held that the clause was not an external clause within
    the meaning of art. 1435 C.C.Q. and was valid.

•   According to the S.C.C, to determine whether clauses on the
    Internet are external clauses, it is necessary to consider a rule that
    implied by art. 1435 C.C.Q.: the precondition of accessibility.

•   A clause that requires operations of such complexity that its text is
    not reasonably accessible cannot be regarded as an integral part of
    the contract.
 Online Consumer Agreements
Additional legal provisions must be taken into account
when dealing with online consumer agreements:
    – Act respecting the legal framework for information
      technology (R.S.Q. 2001, c. C-1.1):
       • Electronic agreements have same legal value as paper
         documents, except as provided by law.

    – Quebec Consumer Protection Act (current
       • Certain agreements with consumers must be in paper form;
       • Provisions dealing with remote-parties agreements.
     Recent Amendments to the
An Act to amend the Consumer Protection Act and the Act
respecting the payment of certain debts, S.Q. 2006, c. 56
(previously known as “Bill 48”):

• For example, a new Section 11.1 prohibits stipulation requiring a
consumer to refer a dispute to arbitration (particularly if it deprives the
consumer access to class action procedures). This new Section 11.1
does not have retrospective effect (Dell Computer Corporation v. Union
des consommateurs; Muroff v. Rogers Wireless Inc., both by the
Supreme Court of Canada, July 13, 2007).

• Important amendments deal with “distance contracts”.
Amendments to CPA re: “Distance
• Not yet in force:
   – These provisions will come into force on the date(s) to
     be set by the Government but no later than December
     15, 2007.
• Based on the Internet Sales Harmonization
  Template endorsed by Federal and provincial
  governments in 2001 (6 provinces have enacted
  legislation so far).
          Distance Contracts
• The provisions on “distance contracts” will apply
  to contracts entered into without the merchant
  and the consumer being in one another’s
  presence and preceded by an offer by the
  merchant to enter into such a contract.

• The merchant will be deemed to have made an
  offer to enter into a distance contract if its
  proposal comprises all the essential elements of
  the intended contract.
                Distance Contracts -
•   Before entering into the contract, the merchant must disclose certain
    information to the consumer, e.g.:
     – the merchant’s name and any other name under which it carries on business;
     – its address;
     – its phone number and, if available, its fax number and e-mail address;
     – a detailed description of the goods or services;
     – an itemized list of prices;
     – a description of possible additional charges payable to a third party;
     – the total amount payable under the contract;
     – the terms of payment;
     – the currency;
     – the date on which (or time within which) the merchant’s principal obligation must
       be performed;
     – the mode of delivery, place and carrier;
     – any applicable cancellation, return, exchange or refund conditions;
     – any other restrictions applicable to the contract.
       Disclosure & Delivery
• Disclosure must be
  – clear
  – comprehensible
  – prominent

• Delivery must be
  – in a form which can be easily retained and
    printed by the consumer.
              Distance Contracts
Opportunity to accept or decline
• The merchant must provide the consumer with an express
  opportunity to accept or decline the proposal and to correct any
Form and content
• The contract must be in writing (not necessarily in paper form).
• The contract must include the consumer’s name and address and
   the date the contract is entered into.
• The contract will be deemed entered into at the address of the
• The merchant must send a copy of the contract to the consumer
  within fifteen (15) days after the contract is entered into.
• The contract must be sent in a manner that ensures that the
  consumer may easily retain it and print it.
  Distance contracts - Cancellation
The consumer may cancel the contract:
• within 7 days after receiving a copy, in certain
  circumstances (e.g. lack of disclosure).
• within 30 days of the contract if it does not receive a
  copy as provided by the legislation.
• at any time before performance of the merchant’s
  principal obligation if this obligation is not performed
  within 30 days after the date specified in the contract (or
  a later date agreed to in writing) or, if no time limit is
  specified, within 30 days after the contract is entered
• additional cancellation provisions also apply to specific
  type of contracts (travel, lodging, restaurants, events).
 Consequences of Cancellation
• Cancellation will occur by way of notice by the

• The consumer has the right to be reimbursed .

• Accessory contracts are terminated.

• If the merchant does not reimburse, the consumer may
  request a chargeback, in writing, from the credit card
                         Other Remedies
“272. If the merchant or the manufacturer fails to fulfil an obligation imposed on him by this Act, by
the regulations or by a voluntary undertaking made under section 314 or whose application has been
extended by an order under section 315.1, the consumer may demand, as the case may be, subject
to the other recourses provided by this Act,

(a) the specific performance of the obligation;

(b) the authorization to execute it at the merchant's or manufacturer's expense;

(c) that his obligations be reduced;

(d) that the contract be rescinded;

(e) that the contract be set aside; or

(f) that the contract be annulled,

without prejudice to his claim in damages, in all cases. He may also claim punitive damages.”

A corporation is also liable to a fine of $1,000 to $40,000 (lower fines apply to individuals).
                  IT Issues
         in a Transactional Context

               Montréal, September 18, 2007

Presented by Hélène Deschamps-Marquis
1. Introduction
• Due Diligence
    – Protection
    – Chain of title
• Transaction
    – Representations and warranties
    – Ancillary contracts

2. Due Diligence
• Copyright
    –Validity / Originality
• Patent (US / Can)
• Trademark (US / Can)

                     Chain of title
•   Development
    – Choice of applicable jurisdiction
    a) Employees
       •   Transfer contract, confidentiality and waiver of moral
       •   Legal protection
           – Subsection 13(3) of the Copyright Act
       •   Moral rights

                  Chain of title
    b) Subcontracting
      •   Canada / USA
      •   In writing (13(4) of the Copyright Act)
      •   Joint copyright
      •   Employment contract / collective agreement

                  Chain of title

    • Assignment / Licence
      – In writing
      – Under subsection 14(1) of the Copyright
        Act, rights on work revert back to the
        author 25 years after death of the author
      – Moral rights: section 14.1 of the
        Copyright Act

                  Chain of title
• Open Source Code
    – GPL Licence
    – Strategies
      • Renegotiation
      • Separate sale
      • Charge for services but not for software

3. Transaction
     Purchase of assets / shares
 • Representations and warranties:
     – Definition and list of intellectual property
       held by the Seller
     – Definition and list of intellectual property
       used by the Seller
     – Property of IP held
     – Registration and maintenance of IP held
     – Right to use IP and transaction must not
       restrict that right

          Sale of assets / shares
     – List of contracts attached as schedules
     – No obligation to pay royalties
     – IP used must not violate third-party IP
     – Third parties must not violate IP used
     – Software distributed in object code form only and
       protection of source code
     – No open source code
     – No virus in software
     – Protection through confidentiality agreement

          Sale of assets / shares
• When to obtain the source code?
     – Maintenance
     – Purchase of a territory or sector
• Software developed jointly with another

               Related Contracts:
• Source code escrow
     –   Agent
     –   Hypothec
     –   Transition / maintenance service
     –   Licence (bankruptcy)

              Related Contracts:
• Licensing contract
     – Description of right to use
        • Maintenance?
           – 1st/2nd level
           – Response time
           – Resolution time
        • Perpetual
• Hosting contract
     – Availability
     – Response time (computation)

4. Conclusion

     Hélène Deschamps-Marquis
    Blake, Cassels & Graydon LLP
            (514) 982-4042

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