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![AI in business: how to manage the risks?](DATA/CTA/1_en.jpg?v=2023-05-01_02:52:53PM)
AI in business: how to manage the risks?
What effect chat technology (ChatGPT, Bard and others) will have on businesses and workplaces.
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Tax opportunities under the Indian Act
Although it is not often well-understood in business and tax circles, the Indian Act (the “Act”), coupled with federal and provincial tax laws, provides several tax planning opportunities for Indigenous taxpayers. These laws provide various tax exemptions for people who qualify as “Indians” under the Act, as well as for “bands” and other “councils.” These terms are defined in the Act and require case-by-case analysis, but essentially they refer to people of Indigenous origin who have at least one family member who is registered or entitled to be registered as an Indian within the meaning of the Act. The criteria for a tax exemption In particular, those who qualify can benefit from a tax exemption when income is earned on a “reserve.” There are several criteria to be met, and although the Canada Revenue Agency (“CRA”) has issued guidelines on the subject, their application remains a question of fact that varies depending on the particular circumstances applicable to each taxpayer. In general, the CRA requires that income earned by an “Indian” within the meaning of the Act be sufficiently connected to a reserve to be exempt. This is the case when, for example, income-generating services are performed entirely or almost entirely within the territory of a reserve, when the employer and the employee reside on a reserve, or when income is derived from non-commercial activities carried out by a band. Business income can also be tax-exempt, but the criteria for being considered connected to a reserve are stricter, since generally only income-generating activities situated on a reserve will be tax-exempt. However, it is still possible to organize the affairs of a taxpayer and their corporate entities to ensure that these criteria are met, or to highlight certain connecting factors. Such planning, if done properly, is entirely legitimate and can result in significant tax savings. In a recent interpretation (CRA Views 2022-0932231I7), the CRA illustrated this principle by considering employment income related to an off-reserve airport to be exempt, even if none of the guidelines are followed, in cases where such an airport is necessary to supply a reserve that has no other means of transportation and delivery. This interpretation shows that the connection between an income and a reserve is not established solely by the physical presence of the income-generating business, and that several other arguments, sometimes more subtle, can be used to support the connection between an income and a reserve. A few nuances to consider However, care must be taken when a company is incorporated by someone who qualifies as an “Indian.” A company with its head office on a reserve cannot qualify as “Indian” within the meaning of the Act. Its income therefore cannot be tax-exempt, and will be taxed according to the usual rules. Despite this, certain plans can ease the tax burden on these companies and on shareholders who qualify as “Indians” under the Act, such as paying wages and bonuses to an employee shareholder. But it’s essential to carefully analyze the various pitfalls and risks that such planning entails. Furthermore, certain exemptions exist for companies formed by bands, but the eligibility criteria are strict and require a thorough analysis of the proposed structure. In addition to the income tax exemption, “Indians” within the meaning of the Act and certain entities mandated by bands may benefit from a tax exemption when they purchase goods on a reserve or have goods delivered to them on a reserve. Different exceptions and nuances apply. However, companies headquartered on a reserve are not exempt from their tax collection obligations and may be required to register for the GST/QST. To help you understand these rules and ensure optimal tax planning, we invite you to consult our tax team. We look forward to working with you on your business projects.
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Can artificial intelligence be designated as an inventor in a patent application?
Artificial intelligence (“AI”) is becoming increasingly sophisticated, and the fact that this human invention can now generate its own inventions opens the door to new ways of conceptualizing the notion of “inventor” in patent law. In a recent ruling, the Supreme Court of the United Kingdom (“UK Supreme Court”) however found that an artificial intelligence system cannot be the author of an invention within the meaning of the applicable regulations under which patents are granted. This position is consistent with that of several courts around the world that have already ruled on the issue. But what of Canada, where the courts have yet to address the matter? In this bulletin, we will take a look at the decisions handed down by the UK Supreme Court and its counterparts in other countries before considering Canada’s position on the issue. In Thaler (Appellant) v Comptroller-General of Patents, Designs and Trade Mark,1 the UK Supreme Court ruled that “an inventor must be a person”. Summary of the decision In 2018, Dr. Stephen Thaler filed patent applications for two inventions described as having been generated by an autonomous AI system. The machine in question, DABUS, was therefore designated as the inventor in the applications. Dr. Thaler claimed that, as the owner of DABUS, he was entitled to file patent applications for inventions generated by his machine. That being so, he alleged that he was not required to name a natural person as the inventor. Both the High Court of Justice and the Court of Appeal dismissed Dr. Thaler’s appeal from the decision of the Intellectual Property Office of the United Kingdom not to proceed with the patent applications, in particular because the designated inventor was not valid under the Patents Act 1977. The UK Supreme Court, the country’s final court of appeal, also dismissed Dr. Thaler’s appeal. In a unanimous decision, it concluded that the law is clear in that “an inventor within the meaning of the 1977 Act must be a natural person, and DABUS is not a person at all, let alone a natural person: it is a machine”.2 Although there was no doubt that DABUS had created the inventions in question, that did not mean that the courts could extend the notion of inventor, as defined by law, to include machines. An ongoing trend The UK Supreme Court is not the first to reject Dr. Thaler’s arguments. The United States,3 the European Union4 and Australia5 have adopted similar positions, concluding that only a natural person can qualify as an inventor within the meaning of the legislation applicable in their respective jurisdictions. The UK ruling is part of the Artificial Inventor Project’s cross-border attempt to ensure that the DABUS machine—and AI in general—is recognized as a generative tool capable of generating patent rights for the benefit of AI system owners. To date, only South Africa has issued a patent to Dr. Thaler, naming DABUS as the inventor.6 This country is the exception that proves the rule. It should however be noted that the Companies and Intellectual Property Commission of South Africa does not review applications on their merits. As such, no reason was given for considering AI as the inventor. More recently, in February of this year, the United States Patent and Trademark Office issued a guidance on AI-assisted inventions. The guidance confirms the judicial position and states in particular that “a natural person must have significantly contributed to each claim in a patent application or patent”.7 What about Canada? In 2020, Dr. Thaler also filed a Canadian patent application for inventions generated by DABUS.8 The Canadian Intellectual Property Office (“CIPO”) issued a notice of non-compliance in 2021, establishing its initial position as follows: Because for this application the inventor is a machine and it does not appear possible for a machine to have rights under Canadian law or to transfer those rights to a human, it does not appear this application is compliant with the Patent Act and Rules.9 However, CIPO specified that it was open to receiving the applicant’s arguments on the issue, as follows: Responsive to the compliance notice, the applicant may attempt to comply by submitting a statement on behalf of the Artificial Intelligence (AI) machine and identify, in said statement, himself as the legal representative of the machine.10 To date, CIPO has issued no notice of abandonment and the application remains active. Its status in Canada is therefore unclear. It will be interesting to see whether Dr. Thaler will try to sway the Canadian courts to rule in his favour after many failed attempts in other jurisdictions around the world, and most recently in the UK Supreme Court. At first glance, the Patent Act11 (the “Act”) does not prevent an AI system from being recognized as the inventor of a patentable invention. In fact, the term “inventor” is not defined in the Act. Furthermore, nowhere is it stated that an applicant must be a “person,” nor is there any indication to that effect in the provisions governing the granting of patents. The Patent Rules12 offer no clarification in that regard either. The requirement implied by the clear use of the term “person” in the wording of the relevant sections of the law is important: It was a key consideration that the UK Supreme Court analyzed in Thaler. Case law on the subject is still ambiguous. According to the Supreme Court of Canada, given that the inventor is the person who took part in conceiving the invention, the question to ask is “[W]ho is responsible for the inventive concept?”13 That said, however, we note that the conclusion reached was that a legal person—as opposed to a natural person—cannot be considered an inventor.14 The fact is that the Canadian courts have never had to rule on the specific issue of recognizing AI as an inventor, and until such time as the courts render a decision or the government takes a stance on the matter, the issue will remain unresolved. Conclusion Given that Canadian law is not clear on whether AI can be recognized as an inventor, now would be a good time for Canadian authorities to clarify the issue. As the UK Supreme Court has suggested, the place of AI in patent law is a current societal issue, one that the legislator will ultimately have to settle.15 As such, it is only a matter of time before the Act is amended or CIPO issues a directive. Moreover, in addition to having to decide whether AI legally qualifies as an inventor, Canadian authorities will have to determine whether a person can be granted rights to an invention that was actually created by AI. The question as to whether an AI system owner can hold a patent on an invention generated by their machine was raised in Thaler. Once again, unlike the UK’s patent act,16 our Patent Act does not close the door to such a possibility. Canadian legislation contains no comprehensive list of the categories of persons to whom a patent may be granted, for instance. If we were to rewrite the laws governing intellectual property, given that the main purpose such laws is to encourage innovation and creativity, perhaps a better approach would be to allow AI system owners to hold patent rights rather than recognizing the AI as an inventor. Patent rights are granted on the basis of an implicit understanding: A high level of protection is provided in exchange for sufficient disclosure to enable a person skilled in the art to reproduce an invention. This ensures that society benefits from such inventions and that inventors are rewarded. Needless to say, arguing that machines need such an incentive is difficult. Designating AI as an inventor and granting it rights in that respect is therefore at odds with the very purpose of patent protection. That said, an AI system owner who has invested time and energy in designing their system could be justified in claiming such protection for the inventions that it generates. In such a case and given the current state of the law, the legislator would likely have to intervene. Would this proposed change spur innovation in the field of generative AI? We are collectively investing a huge amount of “human” resources in developing increasingly powerful AI systems. Will there come a time when we can no longer consider that human resources were involved in making AI-generated technologies? Should it come to that, giving preference to AI system owners could become counterproductive. In any event, for the time being, a sensible approach would be to emphasize the role that humans play in AI-assisted inventions, making persons the inventors rather than AI. As concerns inventions conceived entirely by an AI system, trade secret protection may be a more suitable solution. The professionals on our intellectual property team are at your disposal to assist you with patent registration and provide you with a clearer understanding of the issues involved. [2023] UKSC 49 [Thaler]. Ibid., para. 56. See the decision of the United States Court of Appeals for the Federal Circuit in Thaler v Vidal, 43 F. 4th 1207 (2022), application for appeal to the Supreme Court of the United States dismissed. See the decision of the Boards of Appeal of the European Patent Office in J 0008/20 (Designation of inventor/DABUS) (2021), request to refer questions to the Enlarged Board of Appeal denied. See the decision of the Full Court of the Federal Court of Australia in Commissioner of Patents v Thaler, [2022] FCAFC 62, application for special leave to appeal to the High Court of Australia denied. ZA 2021/03242. Federal Register: Inventorship Guidance for AI-Assisted Inventions. CA 3137161. Notice from CIPO dated February 11, 2022, in Canadian patent application 3137161. Ibid. R.S.C., 1985, c. P-4. SOR/2019-251. Apotex Inc. v. Wellcome Foundation Ltd., 2002 SCC 77 at paras. 96–97. Sarnoff Corp. v. Canada (Attorney General), 2008 FC 712, para. 9. Thaler, paras. 48–49, 79. Ibid., para. 79.
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Finance and M&A: Lexpert Recognizes Four Partners as Leading Lawyers in Canada
On April 17, 2024, Lexpert recognized the expertise of four of our partners in its 2024 Lexpert Special Edition: Finance and M&A. Josianne Beaudry, Étienne Brassard, Jean-Sébastien Desroches and Édith Jacques now rank among Canada's leaders in the financial sector and in M&A. Josianne Beaudry’s practice is primarily focused on securities law, investment funds and mining law. She also advises financial sector participants on the application of regulations relating to securities and corporate governance. Josianne assists clients carrying out public and private financings, corporate reorganizations, as well as mergers and acquisitions. She also helps publicly traded companies maintain their reporting issuer status. Étienne Brassard practices business law, more specifically corporate financing, mergers and acquisitions and corporate law. In his practice, he advises local and international businesses in relation to all forms of private financing, from traditional or convertible debt to equity investments. He has thus developed extensive expertise in setting up complex financing structures, in both operational and transactional contexts. Jean-Sébastien Desroches practices business law and focuses primarily on mergers and acquisitions, infrastructure, renewable energy and project development as well as strategic partnerships. He has had the opportunity to steer several major transactions, complex legal operations, cross-border transactions, reorganizations, and investments. Édith Jacques is a partner in Montréal's Business law group. She specializes in mergers and acquisitions, commercial law, as well as international law and acts as business and strategic consultant to mid- and large-size companies.
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Two new members join Lavery’s ranks
Lavery is delighted to welcome Kathryn Cahill and Christian Chidiac to its Business Law group. Kathryn CahillKathryn is a member of our Business Law group and practices primarily in areas related to financing.She has distinguished herself in a number of ways throughout her university studies. Kathryn is a two-time recipient of the University of Ottawa Merit Scholarship for academic excellence. In March 2022, she had the opportunity to take part in the 49th Gale Cup Moot competition. "I decided to start my career as a lawyer at Lavery mainly because of the value the firm places on mutual support and collaboration, as well as its focus on supporting young lawyers in their professional development." Christian ChidiacChristian Chidiac is a lawyer in the Business Law group of the Montréal office and practices primarily in commercial and transactional law. Before joining Lavery, Christian worked as a Foreign Service Officer at Global Affairs Canada, the department of the Government of Canada that to manages Canada's diplomatic and consular relations. In this position, he worked in the division dealing with bilateral relations between Canada and Western Europe. Christian also worked as a legal counsel for an international manufacturing company. Through these work experiences, he developed a perspective focused on clients' specific issues and needs, as well as a sensitivity to international issues. "It was the aspiration to return to the practice of law that motivated me to return to a private practice, and it was the quality of the cases and professionals, the work environment and the relationships with my colleagues that convinced me to make a return to Lavery."
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Bernard Larocque appointed a Judge of the Superior Court of Québec
We were very pleased to learn of the announcement of the Minister of Justice confirming the appointment of Bernard Larocque as a Judge of the Superior Court of Québec for the district of Montréal. The Superior Court of Québec is an ordinary court of law in Quebec hearing all disputes that a formal provision of law has not assigned to the jurisdiction of another court. The Superior Court plays a key role in Quebec's justice system. Bernard Larocque joined the firm in 1998 as a member of the litigation group and became a partner in 2003. His practice focused mainly on civil litigation, including defamation, insurance law, class actions, professional liability and administrative disputes. He has frequently appeared before the courts, including the Supreme Court of Canada and the Court of Appeal of Quebec.?His excellence and reputation as a litigator earned him the title of Fellow by the prestigious American College of Trial Lawyers in March 2020. Bernard has also always been active in the community and has been deeply involved with the Justice Pro Bono Board of Directors for over twenty years, which he has chaired since 2020. "Bernard will be serving on the bench with several of his former colleagues and friends from the firm. He embodies Lavery's values, driven by excellence, diligence, a deep sense of duty and a desire to give back to society. These are all qualities that will carry him through this next important chapter in his legal career," concludes Anik Trudel, CEO at Lavery.
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Lavery, Ranked Number One in Quebec by The Canadian Lawyer
Once again, Lavery is ranked number one in Canadian Lawyer magazine's list of the Top 10 Quebec Regional Law Firms. Lavery stands as the benchmark in Quebec when it comes to delivering legal services, according to the many private practice and in-house lawyers who responded to this Canada-wide survey. The firm's professionals stood out among their peers for their analytical minds, business savvy, and solution-oriented approach. This distinction highlights the excellent services and deep expertise that our firm has built its reputation on. Additionally, Lavery's presence in the province's four main business centres reflects our commitment to serving businesses of all sizes that contribute to Quebec's economic development. This recognition is a testament to our ability to adapt to the serious challenges that our clients have faced over the past two years. It shows that we are continuing to distinguish ourselves by offering 360° legal services that meet the expectations and requirements of key players in the Quebec economy. For more information on the survey results, please visit the Canadian Lawyer website:The Top 10 Law Firms in Quebec | Canadian Lawyer (canadianlawyermag.com) About LaveryLavery is the leading independent law firm in Québec. Its more than 200 professionals, based in Montréal, Québec City, Sherbrooke and Trois-Rivières, work every day to offer a full range of legal services to organizations doing business in Québec. Recognized by the most prestigious legal directories, Lavery professionals are at the heart of what is happening in the business world and are actively involved in their communities. The firm's expertise is frequently sought after by numerous national and international partners to provide support in cases under Québec jurisdiction.
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