Consumer Protection Changes in Alberta
 
Late in 2017, the Alberta government passed the Consumer Protection Act, which amended the former Fair Trading Act. These pieces of legislation provide the framework for consumer protection law in Canada, and contain restrictions and rights relevant to many small businesses and consumers that they may not be aware of.
 
The Bill, passed in December 2017,  contains an updated preamble reading “all consumers have the right to be safe from unfair business practices, the right to be properly informed about products and transactions, and the right to reasonable access to redress when they have been harmed”, which is meant to reflect the additional protections to consumers throughout the document.
 
The Act establishes the right of a consumer to post negative reviews online. According to the new Act, “[a] business shall not include in a consumer transaction a provision that prohibits a consumer from publishing a review of the business or transaction.” The Section (183.1), also ensures that no action can be taken in respect of the publishing of a negative review unless it is “malicious, vexatious or harassing or otherwise made in bad faith.”
 
The bill is also relevant to those who’ve noticed mandatory arbitration clauses in the terms of any agreement they’ve entered into, such as with an internet service provider. According to the new Act, suppliers cannot enforce mandatory arbitration except in some circumstances. Those circumstances include where the consumer and supplier have agreed to arbitration after the dispute arose, or where the consumer can elect to use arbitration. So if you threaten court action on your next argument with your cell phone provider, your threat just got more credible.
 
Pet owners should also pay attention to the changes. Vets are required to disclose “all fees for the prescribed type of veterinary medicine services proposed” before the services are performed.
 
Another change to the Act, is the promise to establish a Consumer Bill of Rights, which will be the first of its kind in Canada. The new Part 8.1 of the Act creates a new series of rules targeting ticket resale bots. Under section 57.2, and secondary seller, or operator of a platform that sells tickets second hand will have to provide refunds where a ticket turns out to be counterfeit or does not work in granting admission to the event. Anyone operating a digital platform, such as Stubhub or Gametime, would therefore be subject to these rules if scammers attempt to use their platforms. This Part also outlaws any use of automated ticket purchasing software.
 
There is also a new set of rules for car dealers and repairs. This applies to consumers that are individuals or small businesses with a car fleet of five vehicles or less. Section 108.2 of the Act requires the business to provide provide a warranty in accordance with the regulations, provide an estimate of the cost of proposed work in accordance with the regulations, and prohibits vehicle repairs that are not authorized as required in the regulations. This Section is not yet inforce, but will have significant impacts on the sale and repair of vehicles once the regulations are introduced.
 
 Alex Grigg is a 3rd year JD/MBA candidate at the University of Calgary. 

Amendments to Regulatory Regime for Distributions of Securities Outside of Canada
 
         The Canadian Securities Administrators has recently adopted amendments to National Instrument 45-102 Resale of Securities and changes to Companion Policy 45-102CP to National Instrument 45-102 Resale of Securities.
 
         Provided all necessary regulatory and ministerial approvals are obtained, it is anticipated that the Amendments will come into force on June 12, 2018. As such, the following is subject to any further changes which may be implemented prior to such approval.
 
         The amendments introduce a new prospectus exemption for the resale of securities (and underlying securities) of a foreign issuer if the issuer is not a reporting issuer in any jurisdiction of Canada, and the resale is on an exchange or a market outside of Canada or to a person or company outside of Canada.
 
         A foreign issuer is an issuer that is not incorporated or organized under the laws in Canada unless certain circumstances suggest that the issuer has more than a minimal connection to Canada (i.e., the issuer has a head office in Canada or the majority of it directors or executive officers ordinarily reside in Canada).
 
         In Alberta, the new exemption in section 2.15 and the existing exemption in section 2.14 will be located in the Alberta Securities Commission Blanket Order 45-519 Prospectus Exemptions for Resale Outside Canada (ASC Blanket Order          45-519). This is a step towards providing overall consistency in the approach to cross-border trading for both primary distributions outside Canada and the resale of securities outside Canada.
 
Reason for Change
 
         This change represents a modernization of the regulatory regime for the distributions of securities outside of Canada so that it permits Canadian issuers and investors to participate competitively in the global capital markets.
 
         The policy rationale for the changes to section 2.14 and 2.15 is to provide an exemption for resales outside of Canada for the securities of an issuer with a minimal exemption to Canada.       
 
         The guiding principle for section 2.14 is that it is not necessary to restrict the resale of securities over a foreign market or to a person or company outside Canada if the issuer has a minimal connection to Canada and there is little or no likelihood of a market for the securities to develop in Canada. The purpose of the ownership conditions is to measure whether the issuer has a minimal connection to Canada.
 
         Since NI 45-102 has come into effect, securities regulation and information accessibility has changed worldwide. Canadian investors are increasingly acquiring securities of foreign issuers to participate in global market growth by investing in a more diversified global portfolio. Foreign securities are acquired either through private placements or on foreign exchanges. Many foreign issuers, without connection to Canada, are finding they have exceeded the ownership conditions, including through Canadians purchasing their securities on foreign markets. Due to this, Canadian security holders of these foreign issuers would hold the securities for an indefinite period. As such, the section 2.15 was adopted to provided an alternative to the ownership condition assessing whether an issuer has a minimal connection to Canada. Section 2.15 provides that a security holder is exempted from the prospectus requirement for the resale of securities acquired under a prospectus exemption if the resale is on an exchange, or a market, outside of Canada or to a person or company outside of Canada and if the issuer of the securities is a foreign issuer. A foreign issuer is an issuer that is not incorporated or organized under the laws of Canada.

Hussein Ghandour is a 3rd year student at the University of Calgary's Faculty of Law. 

Do Unicorns Exist?
 
            A “unicorn” is a private company with a valuation of over $1Billion. As the moniker suggests, the chance that a company will ever achieve this type of valuation is mythical (almost). Some unicorns that you may have heard of include, UBER, Airbnb and Pinterest. Only a handful of Canadian companies have achieved unicorn status. However, a recent study may have called the status of some of these companies into question. 
 
            A study from National Bureau of Economic Research (NBER) suggests that many unicorn companies may, in fact, be greatly overvalued. It is difficult to accurately valuate growth companies and the problems are compounded as the complexity of their capital structure increases. Companies relying on venture capital often have many different types of shares because of the frequency in which they raise capital.
 
            Post-money valuation is a metric that is often employed when referring to VC backed companies. Post-money is calculated after the injection of new capital by multiplying the per-share price of the most recent financing by the total number of common shares (including options and convertible shares). The problem with using post-money valuation in in VC backed companies is that not all share classes are created equal, and therefore should not be assigned the same value. The NBER study estimates that the average unicorn is overvalued by 50%. 
 
            Valuation issues aside, there are private companies that are undoubtedly worth more than $1Billion and should rightfully be called unicorns. My current favourite is Magic Leap, which had yet to release a product but has earned itself a $6Billion dollar valuation and has raised over $1.4billion in equity.

​Canadian Business Update: Energy Infrastructure  
 
Recent news in Canada’s energy infrastructure sector has given cause for concern for many. From the overhaul of the National Energy Board, the many delays facing the Trans Mountain Pipeline expansion, to the lack of a Northern Gateway or Energy East pipeline, the future of Canadian energy transport seems bleak. Add on to that the moratorium on tanker traffic in Norther B.C., and the cancellation of several massive Liquefied Natural Gas Terminal projects in B.C., and we see an even worse outlook. With Canada’s massive reserves of hydrocarbons selling at a huge discount, largely due to transportation problems, it is time for action. There are a few key areas listed below where Canada can start to take action.
Trans Mountain
            The federal government approval of the Trans Mountain Expansion happened over a year ago, and continuing legal challenges mean that the project still faces an uphill battle. Opposition from the municipal and provincial level in B.C. continues to put obstacles in the way of the expansion. Municipal by-laws and provincial freezes on bitumen importation have meant that the legal system has gotten heavily involved in the project, even after it received federal government approval. Outages on the Keystone pipeline showed how vulnerable the Canadian energy transportation system is. Producers were forced to rely on rail transportation during that outage, and expanding the Trans Mountain pipe will only help to alleviate the reliance on railway’s marginal ability to transport crude.
LNG Projects
            While a few major LNG projects in B.C. were cancelled, one still remains on the table. A joint venture between Royal Dutch Shell, PetroChina, KOGAS, and Mitsubishi, is nearing a final investment decision. The near $40 Billion project would help to get Canada’s massive natural gas reserves to the lucrative Asian markets. The proposed project in Kitimat, B.C. would mean many constructions jobs, not only for the facility, but for expanded pipeline capacity to feed it as well.
Tanker Ban Challenge
            Canada’s Bill C-48, the Oil Tanker Moratorium Act proposed to impose a crude tanker moratorium on B.C.’s norther coast. The Bill was introduced in 2017, and aims to improve Canada’s marine safety. On March 22, 2018, the Lax Kw’alaams Indian Band launched a legal challenge to the moratorium. The Law Kw’alaams are launching the claim based on Aboriginal Rights and a Title Infringement Claim. If successful, it could mean that the tanker ban would not apply to traditional Lax Kw’alaams territory creating a potential gap in the legislation and allowing tanker traffic to in fact travel through some of B.C.’s norther coast. It is an important development to keep an eye on as Canada is in need for energy transportation solutions.
Conclusion
            While Canada is becoming a leader in carbon output reduction, it has also begun to suffocate one of its most valuable resources. The task of finding solutions to Canada’s energy transportation problems that are not only efficient, but that are in line with Canada’s carbon goals will be challenging. It is important to note that the time for transportation solutions is now. As foreign investment continues to flee Canada, we are fighting against the clock to keep Canada competitive and attractive to the global markets. 

Emerson Frostad is a 3rd year student at the University of Calgary's Faculty of Law. 

What is a Memorandum Of Understanding (MOU)?

A Memorandum Of Understanding is a written document that outlines the relationship between two or more parties. The parties concerned will often define the terms of that relationship, including the parties’ responsibilities and requirements. A MOU drafted for start-up co-founders will often include the objective and purpose of the founders’ project, their managerial roles, their initial monetary contributions, and so forth.

When should start-up co-founders ask for a MOU?
An MOU should generally be entered into by co-founders during the initial steps of their venture.  Founders considering a MOU should have a general objective for their project. At that stage, a MOU is preferable over a standard shareholder agreement, for two main reasons. First, drafting a MoU is almost always cheaper and faster than drafting a shareholder agreement. Also, a MOU is generally non-binding.

MOU: Binding vs Non-Binding
Memoranda of Understanding are generally non-binding. Why? First, when a MOU is considered, the founders may not know much about one another. As the start-up grows, new matters, which weren’t considered in the MOU, will inevitably arise such as the addition of an employee, an investment by a sophisticated investor, or a material change in the business operations. A MOU, if drafted before those events, might not be flexible enough to accommodate the new situation. Hence, MOU are generally non-binding and will often include a non-binding clause, like the following:
 “This Memorandum of Understanding is not intended to create any legally binding obligations on either Founder but, rather, is intended to facilitate the Project.”
 
MOUs: Binding In Some Circumstances
If the founders of a start-up are in desperate need of a binding agreement (under the pressure of investors, to legitimize the company, to conclude a deal, etc.), they should consider a binding MoU. That memorandum of understanding should be binding, but subject to a sunset clause. That sunset clause could be the execution of a deal, the addition of an investor, etc. Once that landmark is reached, the parties should be under the obligation to negotiate and execute a final agreement, such as a shareholders’ agreement. 

Boris Degas is a 3rd year student at the University of Calgary's Faculty of Law. He is working with the BLG Business Venture Clinic for the 2017/2018 academic year. 

Who owns the designs?  The Engineering Firm or the Client?

Intellectual property law in Alberta can get complicated when it comes to the designs of a project completed by an engineering firm for a client.  When it comes to ownership of the intellectual property, ownership will be assigned from the agreement. 

The ownership of drawings and related documents refers to the ownership of the drawings themselves, and is governed by the contract between the architect or engineer and the client. The ownership of copyright, on the other hand, refers to the ownership of the expression of the idea embodied in the drawings and the right to reproduce that expression. Architects or engineers who create the copyright work retain copyright in the work unless they expressly assign it to another.  It is important to look at the language of the contract, which can be an employee agreement or a master service agreement.

Typical language in a master service agreement between an engineering firm and the client:
“…will exclusively own any and all information generated from the performance of services under this Agreement including, but not limited to, confidential information, notes, documentation, reports, programs, software, systems, methods, products, analyses, professional opinions and conclusions, inventions or improvements.”

“…assigns all rights, title and interest it may have or may acquire in the proprietary Information, unconditionally, perpetually and throughout the world, to (the Client) and will not challenge (the Client)’s claims to ownership of the proprietary information.”

Both of these clauses assign the ownership of the copyright of the designs of the project to the client.  If the original contract assigns ownership of the information or all rights and interest to the Client, then the Client has the right to use the information or sell it to a third party.

In an employee and employer situation, the ownership of the designs would depend on the employment agreement.  Here is an example of a typical clause in an employment agreement:

“Employee agrees and hereby acknowledges that all rights in any work are assigned and belong to Company. The Employee specifically acknowledges and agrees that all right, title and interest in and to the product of all work, including copyright of computer software and related work, is assigned to Company.”

“All drawings, flow diagrams, sketches, specifications, computer programs and printouts, native computer data and other records, regardless of form, prepared by Employee under the provisions of this Agreement, shall be the property of Company and may be used by Company for any purpose.”

In both of these clauses ownership of the intellectual property belongs to the Company.  If a person wants to retain ownership of their intellectual property it is important to negotiate with the employer and specifically state that ownership remains with the employee and not the company.

If you are uncertain on whether you own the rights to the intellectual property even after reviewing the original contract, it is recommended to speak with a lawyer to know your rights.

Marty Birky is 2018 joint JD/MBA candidate at the University of Calgary. Marty is working at  the BLG Business Venture Clinic for the 2017/2018 year. 

What Should an Entrepreneur Know: Common Terms in Commercial Contracts
 
            I earlier wrote a blog article on some basic contract law concepts that would be useful for an entrepreneur to know. Although you should always consult a lawyer when drafting and interpreting your contracts, an understanding of these legal concepts can assist with facilitating discussions with your lawyer and identifying the need to seek legal advice in the first place. To follow up on that brief Contract 101 session, this article will explore some common contractual terms in commercial agreements.

            The nature of contractual agreements required by a start-up varies with the life cycle of a business. In its infancy, among the first contracts a start-up enters into may be confidentiality agreements as the business navigates conversations among the founders and its early employees, and with third parties. When it comes time to raise institutionalised investment, a new company may perhaps be concerned a shareholder agreement. As the start-up grows and invites more people onboard, potential employment and consulting agreements may also require further scrutiny if the business had not earlier turned its mind toward these issues. Depending on the business plan and industry practice, a start-up may variously be entering into: a lease, a licensing agreement, a purchase and sale agreement, or a lending agreement, just to name a few. While different contracts necessitate a variety of considerations (I meant that in the general sense, not the legal consideration for those who have read my previous blog), there are some contractual terms that appear in almost all contracts.
 
Recitals / Preamble: Some contracts, usually those lengthier ones, include introductory paragraphs that describe the nature of the contract, the respective roles of the contracting parties and the context under which they have entered the contract. Recitals do not necessarily determine the parties’ rights and obligations under the contract, but they can provide a helpful interpretive tool in the event that interpretation is at issue.
 
Entire Agreement: An entire agreement clause seeks to provide greater certainty and clarity by stating that the contract represents the full and complete contractual arrangement between the contracting parties. Such clause may state that the contract supersedes all previous understandings and arrangements. Whether an entire agreement clause can fully protect against considering anything beyond the four corners of the contract remain dependent on the specific contract.
 
Governing Law: The governing law clause is critical when drafting a contract with connections to multiple places. For example, the contracting parties may be from different provinces or countries. Perhaps the contract is to be performed in a third province or country. Since these places may have significantly different laws governing contractual relationships or other subject matters relevant to the contract, it is important for contracting parties to determine at the onset which set of laws will govern the contract. This can avoid lengthy disagreements over the preliminary issue of governing law should the parties later have a contractual dispute.
 
Dispute Resolution: Having determined which set of laws will govern the contractual relationship, the parties may wish to next consider how to solve potential disputes. Some parties may choose to refer disputes to arbitration, which can often be a cost- and time-efficient manner of resolution. Others may choose to submit disputes to courts, in which case the parties may further consider whether a specific court ought to have “exclusive” or “non-exclusive” jurisdiction to hear the matter. As is the case with the governing law clause, the dispute resolution clause (whether in the form of jurisdiction or arbitration clause) is important in eliminating preliminary procedural issues.
 
Amendment / Termination: In anticipation of changing circumstances in the future, parties may provide for mechanisms of amending and terminating the contract. A common tool is to provide for amendment and termination by mutual consent (an additional qualifier may be that consent ought not be unreasonably withheld). Sometimes, a contract may provide for a party’s sole discretion to amend or terminate the contract. The contract may also provide for a specific list of events the occurrence of which may trigger termination.
 
Liquidated Damages: Parties may sometimes be able to anticipate the extent of loss in the event of a certain contractual breach and provide specifically for the amount recoverable as compensation for such breach. The enforceability of a liquidated damage clause can be a point of dispute; contracting parties should seek advice from their lawyers in understanding how this clause works.
 
            For more information on the current jurisprudence on any of these contractual terms, please contact the Business Venture Clinic. Tiffany Bennett is a third year student that worked for the BLG Business Venture Clinic for the 2017/2018 academic year. 
 

How to Sell Pot in Alberta…Legally.
 
The Prohibition is Almost Over
March 6th 2018 marks a historic day for Alberta. It was on this day that applications began to be accepted for the private retail sale of cannabis in the Province. Budding entrepreneurs have been waiting for this ever since Bill 26 received royal assent. Under the bill, Alberta rejected the arcane idea held by some provinces (Nova Scotia, New Brunswick, PEI) that the local government should be in complete control of all retail sales. With applications now open, and the release of guidelines for retail sale, the path has now become much clearer for a new breed of entrepreneur that dreams of promoting their combustible herbage on grand scale.
 
This article will provide a high-level overview of the Alberta Government’s requirements for individuals, businesses or organizations that wish to apply for a retail cannabis store licence. For more detailed information interested individuals are encouraged to refer to the Alberta Gaming and Liquor Commissions Retail cannabis store handbook found at: https://aglc.ca/cannabis/retail-cannabis-store-licences/retail-cannabis-store-handbook.
 
Reefer Madness?
Not so fast. The Alberta government has made a clear commitment to keeping cannabis out of the hands of children, limiting the illegal drug trade, while also protecting public health and safety. These commitments form the backdrop for all of the following application requirements:

• Background Checks
• Municipal Approvals
• Business Requirements
• Retail Store Requirements
• Fees

 
Background Checks
The Alberta Gaming and Liquor Commission (“AGLC”) will conduct personal and financial background checks of all applicants, associates and key employees of the applicant. Key employees include all individuals that control daily operations, have decision-making powers, and those who have the authority to hire or terminate the employment those within the business (i.e. executives, managers, owners, key holders).
 
The AGLC reserves the right to refuse, or terminate a cannabis license if the applicant, any of the applicant’s key employees, associates, or any person or entity connected to or associated with the applicant:

• Is a person who has not acted or may not act in accordance with the law, with honesty and integrity or in the public interest, having regard to the past conduct of the person
• Is a person whose background, reputation and associations may result in adverse publicity for the cannabis industry
• Has contravened the Gaming, Liquor, Cannabis Act or any Gaming, Liquor and Cannabis Regulations in the past or continues to do so.

 
 
 
Municipal Approvals & Business/Retail Requirements
The applicant will also need to ensure that they obtain municipal approval regarding zoning, land use-restrictions, while also maintaining specific business/retail requirements before the AGLC will issue a retail cannabis store license.
 
Zoning/Land Use: A retail cannabis store must not be located within 100 metres of a school, health care facility, or a parcel of land designated as school reserve.
 
Business Requirements: The business must be incorporated in Alberta or extra-provincially registered in Alberta. It must be separate from any other business and must only operate for the purpose of the retail sale of cannabis. Further, the applicant must have a signed lease or certificate of title.
 
Retail Store Requirements: The retail store must have zero visibility into the store from outside, an alarm system, secure product display, secure storage area, video surveillance system and must only purchase cannabis from the AGLC. Non-cannabis items will need AGLC approval before sale. Drive-through windows are prohibited. Further, the AGLC policy has recently been updated to state that any term, symbol or graphic normally associated with medicine, health or pharmaceuticals are prohibited in a store name or signage.
 
Fees
The following fees are due at the time of application:

• $3,000 initial deposit or background checks; additional costs may be added; the AGLC will refund the unused amount
• $400 non-refundable application fee for each store location
• $700 annual licence fee

 
Questions? Reach Out.
If you or someone you know wants to know more about the legal cannabis retail space in Alberta or elsewhere please do not hesitate to reach out to one of our students at the BLG Business Venture Clinic. We can sort through the legal mumbo gumbo with you, and answer any questions that you may have. 

James Hamilton is a 3rd year student at the University of Calgary Faculty of Law and is a caseworker at the BLG Business Venture Clinic. He leaves the U of C with an articling position at Forté Law Droit in Moncton, New Brunswick. 

Dual-Class Voting Share Structures 

Dual-class shares: what are they?
Dual -class voting share structures are on the rise in North America. In the United States, an increasing number of companies, especially in the tech sector, are adopting dual-class structures, including powerhouses such as Google, Linkedin, Facebook and Snap Inc. Despite strong pressure from “one share, one vote” activists, who argue that such arrangements undermine shareholder democracy, dual-class stock structures are on the rise: in 2015, 15% of U.S. IPOs had “weighted voting rights” while only 1% of them did in 2005.
Dual-class voting structures are distinct from the classic single-class structure, which gives each share equal voting power. Dual class voting stock structures involve two or more classes of shares – one of which has considerably more voting power than the others. For example, one class A share of Bombardier Inc., which are held exclusively by Bombardier’s controlling families, carries 10 votes, while each common share carries a single vote.

What are their advantages?
By holding on to their “supervoting” shares, the controlling shareholders have the option of “unloading” a high percentage of their shares while maintaining control of their company. For example, Mark Zuckerberg, Facebook’s CEO, sold $356.8 million worth of Facebook shares in February 2018 to fund his philanthropic efforts. Since Zuckerberg’s preferred shares have ten times the voting power of ordinary shares, he can do so without risking giving up the control over his company.

Dual class shares structures allow entrepreneurs such as Zuckerberg to execute their long-term vision without being at the mercy of investors. In 2014?, Zuckerberg acquired Instagram for $1 billion; Zuckerberg closed the deal without consulting his board of directors. Why would he? Since he owns a large majority of the shareholder votes, he is answerable only to himself. Zuckerberg's acquisition was (very) worthwhile: in March 2018, Instagram was estimated at $35 billion dollars. Dual-class voting companies enjoy other perks: they are almost totally protected against takeovers such as poison pills, and they are not at the mercy of activist hedge funds.

The downside
While dual-class voting share structures come with a number of benefits, they have raised a number of concerns. First, uneven voting structures can lead the supervoting share owners to make decisions to maintain power while disregarding the best interests of the business, undermining shareholder democracy. When Snap Inc. went public in 2017, it was heavily criticized for offering shares with zero voting rights. Also, dual-class structures can lead to the “elderly leader problem,” a situation that occurs when an elderly leader is perceived to lack the competence to hold voting control. However, this is highly unlikely in an early start-up scenario.

The current Canadian landscape
In Canada, companies with a dual-class voting share structure have posted annual returns of 12% over the past 10 years, almost twice as high as their single-class counterparts who have shown a 7% return over that timespan. While dual-class structures are criticized, and banned from certain stock exchanges, they have a proven track record and can be very beneficial for early start-ups with solid founders. Early tech start-ups should consider dual-class voting structures to be able to execute their long-term vision while avoiding constant investor pressure and hostile takeovers.
 
Boris Degas is a 3rd year law student and caseworker at the BLG Business Venture Clinic.