The 2020-2021 Quebec Budget: New Measures to Promote Innovation!

March 13, 2020

Quebec’s Minister of Finance tabled his budget for 2020-2021, titled Your Future, your Budget¹, on March 10. Among the new measures introduced by the government, new tax incentives for innovation and the commercialization of Quebec intellectual property were announced.

The incentive deduction for the commercialization of innovations: establishing the most competitive tax rate in North America

The Quebec government is committed to promoting research and development (R&D) and accelerating the development of innovative products through a highly competitive tax environment. The incentive deduction for the commercialization of innovations (the “IDCI”) will allow businesses to benefit from a combined tax rate of 17% on eligible income.

Businesses that have an establishment in Quebec, have incurred R&D expenses there and commercialize intellectual property (“IP”) in Quebec will have their revenues from the sale or rental of goods, services and royalties from such IP taxed in Quebec at an effective rate of 2%.

IP covered by the IDCI includes software protected by copyrights, patents, certificates of supplementary protection for drugs and plant breeders’ rights.

The IDCI also replaces the deduction for innovative companies as ofJanuary 1, 2021. Companies eligible for that deduction will be eligible for the IDCI.

The synergy capital tax credit: investing in start-ups

The synergy capital tax credit is designed to encourage businesses to invest in innovative SMBs with high growth potential, more commonly known as “start-ups.”

A business corporation with a permanent establishment in Quebec that is not primarily engaged in financing or investing in businesses may receive a non-refundable tax credit equal to 30% of the value of its eligible investment, up to a maximum of $750,000 per year, for a total tax credit of $225,000 per year.

An eligible investment is an equity participation that does not result in control of an eligible SMB, which the investing corporation deals with at arm’s length.

An eligible SMB is a Canadian-controlled private corporation with a permanent establishment in Quebec, with paid-up capital of less than $15 million and gross income of less than $10 million, operating in one of the following sectors:

Green technology;
Information technology;
Life sciences;
Innovative manufacturing;
Artificial intelligence.

Corporations claiming the synergy capital tax credit will have to hold the shares of the eligible SMB for a minimum period of 5 years. Start-ups interested in obtaining the designation of eligible SMB will have to submit an application to Investissement Québec.

The investment and innovation tax credit: Modernizing SMBs

The investment and innovation tax credit (the “C3i”) is designed to encourage businesses in all sectors to invest in their modernization, particularly in digitization and the use of leading-edge technology. A credit of 10%, 15% or 20%, determined according to the economic vitality index of the area where the investments are made, will be applicable for the acquisition of:

Manufacturing and processing equipment;
Computer hardware;
Management software packages.

The C3i will apply to acquisitions made before January 1, 2025, and will be fully refundable for SMBs². Businesses with total assets and gross income of $100 million or more will also have access to this credit, although it will not be refundable.

Eligible expenses for the C3i will be amounts exceeding $5,000 for the acquisition of computer hardware or management software packages and amounts exceeding $12,500 for the acquisition of manufacturing and processing equipment.

Businesses involved in the distribution of such hardware and software packages would certainly benefit from informing their customers that the acquisition of their products is potentially eligible for the C3i.

Businesses located in resource regions and still benefiting from the tax credit to foster the acquisition of manufacturing and processing equipment introduced in 2008 will be able to choose to continue to benefit from this credit or claim the C3i.

Conclusion

Quebec’s tax landscape is full of opportunities for innovators and creators of leading-edge technology. We should also mention the enhancement of R&D tax credits that promote collaboration between private businesses and research institutions that contribute to the vitality of Quebec’s knowledge economy. If you are a company involved in R&D and IP commercialization in Quebec, the professionals of Lavery’s intellectual property and taxation teams will be able to support you throughout your projects.

Ministère des Finances, Budget 2020-2021, “Your Future, your Budget,” City of Québec, Government of Quebec
The credit repayment rate decreases linearly based on an SMB’s total assets and gross income when they exceed $50 million but are less than $100 million.

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Written by

Luc Pariseau
Partner, Lawyer
Isabelle Jomphe
Partner, Lawyer and Trademark Agent

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November 27, 2024

Announcement of U.S. tariffs: repercussions and trade strategies for Quebec businesses?

Nearly four years after the Canada-United States-Mexico Agreement (the “CUSMA” or the “Agreement”) came into force, U.S. President-elect Donald Trump announced on November 25, 2024, that he would impose 25% tariffs on all products entering the U.S. from Canada and Mexico, starting on the first day of his presidency, that is, January 20, 2025. Mr. Trump added that the tariffs would remain in effect until Canada and Mexico strengthened their border policies, which he blames for the increase in illegal immigration and the trafficking of devastating drugs in the United States. As a reminder, under the current provisions of the CUSMA, most products made in Quebec and Canada can be sold on U.S. markets without tariffs applying. And so, although we can only speculate and although Mr. Trump did not give details on this subject in his announcement, his future administration could indeed invoke a number of legislative authorities to implement such a measure. In particular, it could invoke the CUSMA’s essential security exception, which allows a party to the Agreement to apply any measure deemed necessary to protect its essential security interests, the national security exception in the Trade Expansion Act of 1962, which President Trump’s first administration used in 2018 to introduce tariffs on U.S. imports of certain steel and aluminum products, or the provisions of the National Emergencies Act. Needless to say, the announcement sent shockwaves through the political and business communities in Canada and Quebec what with the close commercial ties that the U.S. has with Canada, including with Quebec. In the first quarter of 2024 alone, Quebec’s merchandise exports to the U.S. reached CAN$21.2 billion, which accounts for nearly 74.6% of the province’s international merchandise exports and makes the U.S. Quebec’s main trading partner on the world stage. The imposition of 25% tariffs would therefore significantly affect Quebec businesses. It would make them less competitive on the U.S. market, on which they rely heavily to export their products. The measure could be particularly detrimental to the Canadian forestry industry, which is already severely affected by tariffs of nearly 15% on lumber. The U.S. economy would also be considerably affected by such protectionist tariffs. While in the short term, tariffs could benefit certain domestic manufacturers and producers, in the longer term, they are likely to harm the U.S. economy as a whole. Many U.S. manufacturers would face higher costs of inputs, and established supply chains would be disrupted, in particular in the automotive and steel industries. To continue to make profits, many U.S. companies could be forced to pass on the additional costs to their end consumers by raising the prices of their products, which would undoubtedly result in another wave of inflation. Worth mentioning also are the retaliatory measures that the Canadian government may want to implement in response to such tariffs, which could affect certain parts of the U.S. economy. Although the CUSMA provides for dispute resolution mechanisms, they are unlikely to lessen the impact of the measures that the Trump administration is considering in the short term, as a final decision under these mechanisms could take a long time to be issued. The new U.S. administration could use the announcement made on November 25 as leverage in future CUSMA renewal negotiations, the preparatory discussions for which are slated to begin next year, or in negotiations for a separate trade agreement between the U.S. and Canada that would exclude Mexico. Canadian businesses would do well to encourage their various trade associations to take steps to lobby both American decision-makers and their corporate customers in the U.S. and remind them of the harmful effects that the announced tariffs may have on American businesses. While we wait for a more detailed announcement with information concerning specific tariff exemptions in particular, we suggest that businesses choose their future trading partners with great care. In an increasingly protectionist global economic context, a strategy involving the diversification of trading partners is the best way for businesses to offset the risks associated with a particular country’s tariff policies. The Comprehensive Economic and Trade Agreement signed by Canada and the European Union in 2017, which our firm helped to negotiate, may prove to be an interesting solution in this respect. Our team of commercial law and tax professionals is available to help you find solutions to the issues arising from this announcement. With our expertise, we can assist you in your commercial negotiations and help you develop strategies to mitigate the impact that the announced tariff increase may have on your business.

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November 22, 2024

Bill C-244: unlocking the right to repair

On November 7, 2024, Bill C-244, An Act to amend the Copyright Act (diagnosis, maintenance and repair)1 received royal assent, adding a new exception to the provisions governing technological protection measures (TPM) in the Copyright Act (CA). This legislative amendment adds section 41.121 to the CA, making it legal to circumvent TPMs for product maintenance, repair and diagnosis. What it means The new section 41.121 is expected to have a limited impact on the Canadian repair market. Although repairers can now circumvent TPMs to diagnose, maintain or repair a customer’s device, it is still forbidden for repairers to use the services of a TPM circumvention specialist, and specialized circumvention equipment is still prohibited. Furthermore, the absence of a fair dealing exception in this amendment poses ongoing risks of copyright infringement for these purposes. A number of questions remain unanswered, including the scope the courts will assign to the terms “maintenance” and “repair.” Does upgrading a device with improved technology fall within the definition of maintenance, or are repairers restricted to servicing devices according to original specifications? For example, if a connected device becomes obsolete after a new security standard is adopted, would replacing its software constitute maintenance? In short, the adoption of Bill C-244 represents but a small step toward the right to repair goods, and it serves as a prime example of how reconciling property rights with intellectual property rights can be challenging. Amendments made by C-244 Section 41.121, as introduced by C-244, has three paragraphs: Diagnosis, maintenance and repair 41.121 (1) Paragraph 41.1(1)(a) does not apply to a person who circumvents a technological protection measure for the sole purpose of maintaining or repairing a product, including any related diagnosing, if the work, performer’s performance fixed in a sound recording or sound recording to which the technological protection measure controls access forms a part of the product. For greater certainty (2) For greater certainty, subsection (1) applies to a person who circumvents a technological protection measure in the circumstances referred to in that subsection for another person. Non-application (3) A person acting in the circumstances referred to in subsection (1) is not entitled to benefit from the exception under that subsection if the person does an act that constitutes an infringement of copyright. Under the new section, the protection afforded to TPMs is set aside for maintenance and repair purposes, including the related diagnosing. Subsection 41.121(2) adds that the exception also applies to a person, such as a professional repairer, who repairs a product for another person. Subsection 41.121(3) further adds that the exception applies only to situations where there is no copyright infringement; for example, copyright infringement would be a person circumventing TPMs to repair a product, but taking advantage of the situation to make an illicit copy of a computer program. Bill C-244 reintroduced certain provisions of Bill C-272,2 which had been tabled in September 2020 but abandoned after the 2021 federal election. However, unlike the original text, the amendment passed on November 7, 2024, does not allow a person to manufacture, import or distribute TPM-circumvention devices to be used to perform repairs. It is rather limited to making the act of circumvention itself legal. Origin of the problem Bill C-272 was partly introduced in response to the decision in Nintendo of America Inc. v. King,3 which had considerably dampened the TPM-containing-device repair industry. In that case, the Federal Court awarded Nintendo of America Inc. $11.7 million in statutory damages following the circumvention of its TPMs, with $20,000 awarded for each of the 585 affected games, and an additional $1 million in punitive damages. Technological Protection Measures (TPMs), also known as digital locks or digital rights management (DRM) technologies, are mechanisms used to safeguard copyrights and sensitive information in the digital domain. They regulate access to or the copying, alteration and redistribution of digital content, such as audio and video files, software and e-books. TPMs can take various forms, including access codes, passwords, encryption keys, watermarks, digital signatures, encryption methods, and integrated hardware-based protections. These measures may be embedded in the files themselves, or in the devices that read, store or distribute them. DVD encryption and video game cartridge protections are well-known examples. The World Intellectual Property Organization (WIPO) first proposed a framework for protecting TPMs in 1996, anticipating that increased internet usage might escalate copyright infringement.4 In 1999, the United States ratified the framework by passing the Digital Millennium Copyright Act (DMCA), followed by Canada’s enactment of the Copyright Modernization Act5 in 2014. This legislative amendment introduced section 41.1 and related provisions to the Copyright Act (CA), prohibiting the circumvention of TPMs. Today, TPMs are ubiquitous, appearing in cars, tractors, medical implants, printer cartridges, game consoles, and various electronic devices. The $11.7 million award to Nintendo of America Inc. pursuant to this provision had a chilling effect on the repair industry.6 In response to the Nintendo decision, Bill C-272 proposed exceptions to the prohibition on circumventing TPMs for diagnosis, maintenance, and repair activities, as specified in paragraph 41.1(1)(a) of the CA. It also included an exception for the manufacture, importation, or distribution of products designed to circumvent TPMs for these purposes, addressing the restrictions noted in paragraph 41.1(1)(c) of the CA. Harmonization with the Canada-United States-Mexico Agreement The scope of the new section 41.121 introduced by Bill C-244 was significantly narrowed to prevent conflicts with the Canada-United States-Mexico Agreement (CUSMA). Article 20.66 of CUSMA requires member countries to enforce three categories of prohibitions related to TPMs: a prohibition on offering TPM circumvention services, a prohibition on the manufacture, import, or distribution of devices intended for TPMs circumvention, and a prohibition on the act itself of circumventing TPMs. Paragraph 5 of Article 20.66 specifies certain exceptions to these prohibitions, particularly for purposes such as interoperability, encryption research (security), and government activities (most of which are addressed under sections 41.11 and following of the CA), but it does not include an exception for the repair of goods. The exception provided in section 41.121 was thus limited to the third CUSMA category which involves the prohibition on circumventing TPMs themselves, as outlined in paragraph 41.1(1)(a) of the CA. As such, the prohibitions on offering TPM circumvention services, and manufacturing, importing or distributing TPM circumvention devices, set out in paragraphs 41.1(1)(b) and 41.1(1)(c), respectively, remain unchanged, even if the purpose of circumvention is to repair a device. Introduction of ambiguous wording Legal professionals may recognize that the changes made to the definitions in section 41 present new challenges. In an attempt to clarify how the new provision’s application, the legislator has added two conflicting expressions to the definitions of “circumvent” and “technological protection measure,” which may not have been necessary. Before After Technical protection measures and information on the rights mechanism Definitions 41 The following definitions apply in this section and in sections 41.1 to 41.21. circumvent means, a) (a) in respect of a technological protection measure within the meaning of paragraph (a) of the definition technological protection measure, to descramble a scrambled work or decrypt an encrypted work or to otherwise avoid, bypass, remove, deactivate or impair the technological protection measure, unless it is done with the authority of the copyright owner; and Technical protection measures and information on the rights mechanism Definitions 41 The following definitions apply in this section and in sections 41.1 to 41.21. circumvent means, a) (a) in respect of a technological protection measure within the meaning of paragraph (a) of the definition technological protection measure, to descramble a scrambled work or computer program, or decrypt an encrypted work or computer program or to otherwise avoid, bypass, remove, deactivate or impair the technological protection measure, unless it is done with the authority of the copyright owner; and b) … b) … technological protection measure means any effective technology, device or component that, in the ordinary course of its operation, a) controls access to a work, to a performer’s performance fixed in a sound recording or to a sound recording and whose use is authorized by the copyright owner; or technological protection measure means any effective technology, device or component that, in the ordinary course of its operation, a) controls access to a work, including a computer program, to a performer’s performance fixed in a sound recording or to a sound recording and whose use is authorized by the copyright owner; b) … b) … In the first instance, the legislator specifies that definition applies to “a work or computer program,” which suggests that a computer program is not considered a work. However, the second definition uses the phrase “a work, including a computer program,” implying the opposite. These clarifications were unnecessary, since the definition of “work” already includes literary works, and section 2 of the CA expressly states that literary works include computer programs. It is unfortunate that the text was adopted in its current form despite the numerous comments on this issue during parliamentary reviews.7 Striking a balance between property rights and intellectual property rights The debates surrounding these legislative changes illustrate the inherent challenges in striking a balance between the reduction of property rights, including the right to repair goods, and the promotion of intellectual property rights. For example, the Entertainment Software Association of Canada has advocated for excluding game consoles from the new exception.8 Paul Fogolin, the association’s Vice President of Policy and Government Affairs, argued that broadly opening the right to repair goods could jeopardize the video game industry by making it almost impossible for rights holders to pursue legal action against those tampering with their protection measures.9 Charles Bernard, Lead Economist for the Canadian Automobile Dealers Association,expressed concerns about increased auto theft risks.10 Catherine Lovrics, Chair of the Copyright Policy Committee, Intellectual Property Institute of Canada, anticipated cybersecurity risks.11 Several industry stakeholders believe that making documents, software, parts, and tools available for repair could elevate the risk of cyberattacks. Industry representatives in the United States have highlighted similar risks. For instance, the Association of Equipment Manufacturerssuggests that enabling the circumvention of TPMs could compromise emission controls on equipment, potentially leading to violations of environmental laws and risks to human life.12 Others have raised concerns about product liability issues.13 According to Apple and Panasonic, today’s electronics are too complex for non-specialists to repair and, thus, broadening the right to repair could compromise consumer safety.14 Concerns about safety, security, and liability are certainly legitimate; however, it is also valid to question whether intellectual property law is the appropriate vehicle to address these issues. During review of C-244, Shannon Sereda, Director of Government Relations, Policy, and Markets for Alberta Wheat and Barley Commissions, highlighted the potential difficulties farmers face when they cannot swiftly repair their equipment. She argued that “[t]he current legislative environment in Canada supports equipment repair monopolies by allowing OEMs to prohibit the bypassing of TPMs.”15 Anthony D. Rosborough, a researcher in the Law Department of the European University Institute, corroborated this viewpoint, stating that TPMs “function principally to protect technologies, rather than works or the rights of authors.” In his view, the industry sometimes relies on copyrights for what should be more appropriately protected with patents or trade secrets.16 The relaxation of TPM rules in Canada aligns with similar measures already implemented in the United States. On October 28, the Librarian of Congress renewed a series of exceptions to section 1201 of the Digital Millennium Copyright Act (DMCA), including provisions that allow the circumvention of certain protection measures for repairs.17 These exceptions are subject to renewal every three years and have so far been renewed twice since 2018.18 Over the past few years, the United States has taken several steps to promote the right to repair goods. In May 2021, the Federal Trade Commission (FTC) filed a detailed report19 on anti-competitive practices related to the right to repair. On July 9, 2021, shortly after the report was released, the U.S. President issued an Executive Order to combat such practices and encourage the development of a third-party or owner repair market.20 Since then, multiple states have enacted laws supporting the right to repair.21 On January 8, 2023, John Deere pledged to enable independent repairers to service its equipment.22 Apple Inc., historically opposed to expanding the right to repair, shifted its stance in 2022 by launching a self-service repair program and publicly supporting California’s new right-to-repair law.23 Last year, WIPO reported that 40 states had introduced legislation in favour of the right to repair.24 Here in Canada, the adoption of Bill C-244 represents another step in establishing the right to repair goods. This measure builds on another federal bill, C-59,25 which also received assent last June and amended the Competition Act to empower courts to compel suppliers to sell diagnosis or repair tools. At the provincial level, Quebec became the first province to enact right-to-repair legislation last year. 26 In the coming months, it remains to be seen whether the new section 41.121 of the Copyright Act (CA) will unlock the repair market. For the moment, the measure strikes us as somewhat timid.27 Parliament of Canada, LEGISinfo: C-244: An Act to amend the Copyright Act (diagnosis, maintenance and repair), Parliament of Canada, online: https://www.parl.ca/legisinfo/en/bill/44-1/c-244. Parliament of Canada, LEGISinfo: C-272, An Act to amend the Copyright Act (diagnosis, maintenance and repair), Parliament of Canada, online: https://www.parl.ca/legisinfo/en/bill/43-2/c-272. Nintendo of America Inc. v. King, 2017 FC 246, [2018] 1 FCR 509. WIPO Copyright Treaty, December 20, 1996, article 11, online: https://www.wipo.int/wipolex/en/treaties/textdetails/12740. Copyright Modernization Act, S.C. 2012, c. 20, assented to on 2012-06-29, online: https://laws-lois.justice.gc.ca/eng/AnnualStatutes/2012_20/FullText.html; Canada Gazette, Vol. 146,No. 23 – November 7, 2012, SI/2012-85 Order Fixing Various Dates as the Dates on which Certain Provisions of the Act Come into Force, P.C. 2012-1392, October 25, 2012, online: https: //canadagazette.gc.ca/rp-pr/p2/2012/2012-11-07/html/si-tr85-fra.html. Graham J. Reynolds, “Of Lock-Breaking and Stock Taking - IP, Climate Change, and the Right to Repair in Canada,” in 2023 101-1 Canadian Bar Review 32, 2023 CanLIIDocs 1144, p. 54, online: https://canlii.ca/t/7n4cj. Committee on Industry and Technology, 5 December 2022, Catherine Lovrics, Open Parliament, online: https://openparliament.ca/committees/industry/44-1/49/catherine-lovrics-2/; Committee on Industry and Technology, 15 February 2023, Viviane Lapointe, Open Parliament, online: https://openparliament.ca/committees/industry/44-1/59/viviane-lapointe-5/; Committee on Industry and Technology, 15 February 2023, Andy Fillmore, Open Parliament, online: https://openparliament.ca/committees/industry/44-1/59/andy-fillmore-6/; Committee on Industry and Technology, 15 february 2023, Patrick Blanar, online: https://openparliament.ca/committees/industry/44-1/59/patrick-blanar-1/. Entertainment Software Association of Canada, Bill C-244 – An Act to amend the Copyright Act (diagnosis, maintenance and repair), online: https://www.ourcommons.ca/Content/Committee/441/INDU/Brief/BR12209146/br-external/EntertainmentSoftwareAssociationOfCanada-e.pdf. Committee on Industry and Technology, February 8, 2023, Paul Fogolin, online: https://openparliament.ca/committees/industry/44-1/57/paul-fogolin-1/. Committee on Industry and Technology, February 8, 2023, Charles Bernard, online: https://openparliament.ca/committees/industry/44-1/57/charles-bernard-1/. Industry and Technology Committee, December 5, 2022, Catherine Lovrics, online: https://openparliament.ca/committees/industry/44-1/49/catherine-lovrics-2/. Emma Fillman, “Comprehensive Right to Repair:The Fight Against Planned Obsolescence in Canada,” (2023) 32 Dalhousie J Legal Stud 123, p. 145. online https://digitalcommons.schulichlaw.dal.ca/djls/vol32/iss1/5/. Irene Calboli, “The right to repair: Recent Developments in the USA,” World Intellectual Property Organization Magazine, August 2023, online: https://www.wipo.int/wipo_magazine_digital/en/2023/article_0023.html. Emma Fillman, “Comprehensive Right to Repair:The Fight Against Planned Obsolescence in Canada,” (2023) 32 Dalhousie J Legal Stud 123, pp. 142 and following, online https://digitalcommons.schulichlaw.dal.ca/djls/vol32/iss1/5/. Committee on Industry and Technology, February 8, 2023, Shannon Sereda, online: https://openparliament.ca/committees/industry/44-1/57/shannon-sereda-1/. Committee on Industry and Technology, February 8, 2023, Anthony D. Rosborough, online: https://openparliament.ca/committees/industry/44-1/57/anthony-d-rosborough-1/. Copyright Office, Library of Congress, Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, Federal Register, October 28, 2024, online: https://www.federalregister.gov/documents/2024/10/28/2024-24563/exemption-to-prohibition-on-circumvention-of-copyright-protection-systems-for-access-control. Copyright Office, Library of Congress, Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, Federal Register, October 26, 2018, online: https://www.federalregister.gov/documents/2018/10/26/2018-23241/exemption-to-prohibition-on-circumvention-of-copyright-protection-systems-for-access-control. Federal Trade Commission, Nixing the Fix: An FTC Report to Congress on Repair Restrictions, May 2021, online: https://www.ftc.gov/system/files/documents/reports/nixing-fix-ftc-report-congress-repair-restrictions/nixing_the_fix_report_final_5521_630pm-508_002.pdf. The White House, Executive Order on Promoting Competition in the American Economy, July 9, 2021, online: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/. X, Jon Campbell, December 29, 2022, online: https://twitter.com/JonCampbellNY/status/1608327624526548993; Colorado General Assembly, Consumer Right to Repair Agricultural Equipment, April 25, 2023, online: https://leg.colorado.gov/bills/hb23-1011; Minnesota Legislature, Minnesota Session Laws, 93rd Legislature, Chapter 57 – S.F. No. 2744, online: https://www.revisor.mn.gov/laws/2023/0/Session+Law/Chapter/57/; Sidley, “California Becomes Third U.S.State to Join the Right-to-Repair Movement,” October 24, 2023, online: https://www.sidley.com/en/insights/newsupdates/2023/10/california-becomes-third-us-state-to-join-the-right-to-repair-movement. John Deere, Memorandum of Undestanding, January 8, 2023, online: https://www.fb.org/files/AFBF_John_Deere_MOU.pdf. The Verge, “Surprise:Apple now supports California’s right to repair,” August 23, 2023, online: https://www.theverge.com/2023/8/23/23843506/apple-california-right-to-repair-sb-244. Irene Calboli, “The right to repair: Recent Developments in the USA,” World Intellectual Property Organization Magazine, online: https://www.wipo.int/wipo_magazine_digital/en/2023/article_0023.html. Parliament of Canada, LEGISinfo: C-59: An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023; Parliament of Canada, online:https://www.parl.ca/legisinfo/en/bill/44-1/c-59. Québec National Assembly, Bill 29, An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods, online: https://www.assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-29-43-1.html. The author would like to thank Laura Trépanier-Champagne for her work in supporting the writing of this publication.

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September 19, 2024

Financing Quebec’s Energy Transition: Unlocking the Potential of Flow-Through Shares

Quebec has set ambitious energy transition and industrial decarbonization targets. The shift to greener practices has to be taken in a context where our energy consumption could rapidly grow under the combined effect of a number of factors, such as the reindustrialization of our economy, population growth, transport electrification and the potential for artificial intelligence to consume vast amounts of energy. Investing in the development of energy infrastructure is therefore critically important, as an abundance of energy is key to economic prosperity. The problem is that public finances are already stretched to the limit with the need to renovate our aging infrastructure, among other things. Encouraging private equity investment is thus vital, and tax incentives can be very effective in this respect. The American example In 2022, the United States passed its Inflation Reduction Act (IRA), with the goal of stimulating investment in the renewable energy sector, in particular. More specifically, the IRA altered or created a number of tax credits to encourage private investment.1 Over the past two years, US businesses have announced a total of almost US$276 billion in new investments in clean energy generation and the capturing or elimination of carbon dioxide and other forms of industrial decarbonization, an increase of 34% on the two years previous.2 The IRA is effective in that it takes the respective situations of various energy sector stakeholders into account in a creative, flexible and pragmatic way, especially where taxation is involved. Energy project promoters often have to wait many years for their projects to generate income and profits, even though the banks and other investment funds they solicit financing from can be presumed to be operating profitable businesses. The tax losses that occur in the years during which such projects are designed and built are therefore of little interest to developers, but of immediate interest to investors. And so, a tax equity market has emerged, in which businesses subject to taxes can invest in the shares of entities set up to develop such projects so as to benefit from tax credits and faster depreciation. Typically, the entity that cashes in the investment and develops the project distributes 99% of income, losses and tax credits to investors until a predetermined return is achieved. Once that return is achieved, the investor’s share of the benefits decreases, and the developer has the option of buying out the investor’s residual share. The IRA has transformed how federal clean energy tax credits are monetized, and it is now possible to buy and sell such credits without having to make a long-term investment. For businesses, this new way of doing things is an additional and attractive way to participate in the growing tax credit market.3 In 2023, the volume of the tax equity market for American projects was around US$20 to 21 billion, up about US$18 billion from the previous year.4 It appears that the trend will continue. It is estimated that the value of the current market, which is particularly attractive to banks, is set to double to US$50 billion a year by 2025.5 The equivalent of flow-through shares The Quebec and Canadian tax deductions mechanism that most closely resembles the US tax equity market is probably flow-through shares. Through these, businesses in the mining and renewable energy sectors can transfer their mining exploration expenses and other expenses—specifically designated as eligible—to investors, who can then deduct them from their own taxable incomes.6 These businesses can thus issue shares at a higher price than they would receive for common shares to finance their exploration and development operations. Investors are willing to pay a higher price in return for the tax deductions afforded by the eligible expenses incurred by the issuing businesses, which can amount to a maximum of 120% of the equity invested in the shares.7 Investors can also claim a 15% or 30% federal tax credit. However, because tax incentives cannot be transferred, our mechanism is more rigid than the American one, and it can only be applied to mineral exploration and development expenses and certain specific expenditures related to renewable energy and energy conservation projects, such as electricity generation using renewable sources like wind, solar energy and geothermal energy.8 With ambition and innovation comes the need to take action Quebec could draw inspiration from the IRA to increase the attractiveness of flow-through shares and broaden their scope of application, thereby creating a new tool to finance the energy transition. The renewable energy sector is similar to the mining sector in many respects, not least in terms of the considerable amount of capital required to build the infrastructure needed to operate a mine or energy generation facility. The flow-through share mechanism, which is well-established and popular with investors,9 could be just as successful in our energy transition context. Making such incentives easier to transfer would also drive the emergence of a market similar to the US tax equity market. A number of Québec flagship companies, such as Hydro-Québec,10 Innergex11 and Boralex,12 are also very ambitious when it comes to developing large-scale energy projects. They face major financing challenges, as do those in the industrial decarbonization and infrastructure renewal sectors. Innovation is necessary to meet these challenges and make the transition to a more sustainable, but just as prosperous, world, and to do so in good time.13 Link Rhodium Group and MIT’s Center for Energy and Environmental Policy Research (CEEPR), Clean Investment Monitor, link Brandon Hill, How to take advantage of tax credit transferability though the Inflation Reduction Act, Thomson Reuters Institute, April 16, 2024, link Allison Good, Renewables project finance to keep pace in 2024, but tax equity rule looms, S&P Global, January 12, 2024, link Lesley Hunter and Mason Vliet, The Risk Profile of Renewable Energy Tax Equity Investments, American Council on Renewable Energy, December 2023, link Link, page in French only Link Link Prospectors & Developers Association of Canada, Flow-through shares & the mineral exploration tax credit explained, link Link Link Link The authors would like to acknowledge the participation and the work done by Sophie Poirier in this publication

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August 2, 2024

Publication of the Regulation clarifying the obligations of Bill 96: Impacts on trademarks for products, advertising, and public signs and posters

The Regulation1 specifying the new obligations of Bill 962 was published in the Gazette officielle du Québec on June 26, 2024. It modifies the current Regulation respecting the language of commerce and business.3 These changes were expected considering the questions raised by the passage of Bill 96 in June 2022, which required clarification. In this bulletin, we will discuss issues related to the use of trademarks in connection with products, commercial publications, public signs and posters, and commercial advertising. Exception for recognized trademarks Good news! The Regulation reintroduces the exception for “recognized” trademarks,4 within the meaning of the Trademarks Act. Common law trademarks and trademarks registered with the Canadian Intellectual Property Office (“CIPO”) may be used without a French version, provided that no French version of the trademark appears in the Register. By regulation, the government has extended the scope of the exception to trademarks. Under Bill 96 it was to apply only to CIPO-registered trademarks. It has been extended to also cover common law trademarks. With this amendment, the government has made the rules around trademarks more consistent, whether they are used in connection with products, commercial publications or public signs and posters. It is still recommended to register your trademarks to protect your rights, but registration is no longer a condition for compliance with applicable regulations. Obligation to translate generic and descriptive terms included in trademarks The Charter of the French language5 (the “Charter”) stipulates that any inscription on a product, its container or its wrapping must be in French, and that no inscription in another language may be given greater prominence than that in French or be available on more favourable terms. The Regulation confirms that the term “product” includes its container, packaging and any accompanying documents or objects.6 The Regulation also clarifies the scope of the obligation to translate descriptions and generic terms included in trademarks: “Description” and “generic term”: A description refers to one or more words describing the characteristics of a product, while a generic term describes the nature of a product, excluding the name of the enterprise and the name of the product as sold.7 Designations of origin and distinctive names of a cultural nature are not considered a description or a generic term. In all likelihood, the reference to the “name of the product as sold” refers to the product’s main trademark. The obligation to translate generic terms or descriptions contained in the trademark would not apply to the main trademarks under which the product is sold. Thus, according to the example provided by the Quebec government, there would be no need to translate into French the descriptions or generic terms included in the main trademark BestSoap, as illustrated below. The question also arises regarding secondary trademarks, which are often used to designate a specific product within a range of products. Can we say that such a secondary trademark qualifies as a "name of the product as sold," in addition to the main trademark? Unfortunately, the guide published by the Office québécois de la langue française ("OQLF") does not provide any clarity on this matter, while the text of the Regulation appears broad enough to allow for such an argument depending on the circumstances. In our opinion, such an argument could be made in some cases, but we will need to await the position of the OQLF (or a court decision) for more certainty on this issue. The Regulation specifies that the French translation of the generic terms or descriptions included in trademarks must appear in French on the product or on a medium permanently attached to the product.8 However, it does not provide a definition of “a medium permanently attached to the product.” It will be interesting to see how practice develops in this area, and how the OQLF interprets this notion. Keep in mind the Charter’s principle that no inscription in another language should be available on more favourable terms. Companies opting for the medium option will need to ensure not only the permanence of the medium, but also its availability, under conditions that are at least as favourable. It should also be noted that the size of the French translation of generic terms and descriptions included in a trademark is not specifically addressed in the Regulation. However, the OQLF website specifies that no generic term or description in another language should take precedence over that appearing in French; the OQLF thus seems to apply the general rule contained in the Charter.9 This means that the French text must be at least equivalent in size and appearance to that in another language, so that the latter is not predominant. Transitional period: The Regulation allows a two-year grace period to give businesses time to comply with the above requirements. Until June 1, 2027, any product that does not comply with these new requirements may continue to be distributed, retailed, leased, offered for sale or lease, or otherwise offered on the market, whether in return for payment or free of charge, provided (i) it was manufactured before June 1, 2025, and (ii) no corresponding French version of the recognized trademark has been registered in the Canadian trademark register by June 26, 2024.10 Although it will still be necessary to make every effort to comply with obligations, this measure ensures that existing non-compliant products can be liquidated. Commercial publications The Regulation makes no changes to the rules governing commercial publications, such as catalogues, brochures, folders, commercial directories and other similar publications. The exception applicable to “recognized” trademarks, which had not been amended in Bill 96 or in the draft regulations, remains unchanged. Common law trademarks and trademarks registered with CIPO may be used without a French version, provided that no French version has been registered. Contrary to what had been envisaged in the draft regulations, websites and social media are not expressly named as commercial publications whose French version must be available on terms that are at least as favourable as any version in another language. To date, the interpretation adopted and applied by the OQLF and the courts is that websites and social media are considered commercial publications and must therefore follow the same rules. Nevertheless, we will remain watchful to see if the lack of explicit reference in the Regulation to websites and social media is of any significance, and if the OQLF will consider changes to its approach to these two types of communication. Advertising and public signs and posters It is well known that the Charter requires public signs and posters and commercial advertising in Quebec to be in French. They may be both in French and in another language provided that French is markedly predominant.11 The “recognized” trademark exception also applies to public signs and posters and commercial advertising. Thus, common law trademarks and CIPO-registered trademarks may be used without a French version, if there is no corresponding French version in the Canadian trademark register.12 For public signs and posters visible from outside premises, the rule of “sufficient presence” of French gives way to that of the “clear predominance” of French, when the trademark or business name is in a language other than French, in whole or in part.13 Public signage visible from outside premises includes not only the exterior of a building, but also premises inside a shopping centre.14 In such cases, a trademark or company name in a language other than French must be accompanied by a generic term, a description of the goods or services concerned, or a slogan, in French.15 This trademark or company name visible on a storefront or inside a shopping centre will be considered in the overall visual impact of the premises. For the same visual field, text written in French has much greater impact when (i) the French text occupies a space at least twice as large as that devoted to text in another language, and (ii) its legibility and permanent visibility are at least equivalent to that of text in another language.16 Finally, as concerns digital signage with alternating French and non-French text, the French text is considered to have a much greater visual impact when it is visible for at least twice as long as the non-French text.17 Note that there is no grace period for public signs and posters. Companies therefore have until June 1, 2025, to comply with the new rules. The examples below, from the Quebec government, illustrate the application of these rules: Here is a summary of the main changes to the Charter and the Regulation that will come into effect on June 1, 2025: Products (labels, containers, packaging, or any accompanying document or object) A “recognized” trademark (registered or used) may be used in a language other than French, unless a corresponding French version is on the Canadian trademark register. Any description or generic term included in a trademark must appear in French, excluding the name of the company or the name of the product as sold (and other specific exceptions); on the OQLF website, it is stated that no generic term or description in another language may take precedence over that appearing in French. The French translation of these generic terms or descriptions must appear in French on the product or on a medium permanently attached to the product. A grace period until June 1, 2027, is granted for any product that does not comply with these new requirements; such a product may continue to be distributed, retailed, leased, offered for sale or lease, or otherwise offered on the market, whether in return for payment or free of charge, provided (i) it was manufactured before June 1, 2025, and (ii) no corresponding French version of the recognized trademark has been registered in the Canadian trademark register by June 26, 2024. Commercial publications (catalogues, brochures, folders, commercial directories) No change: A “recognized” trademark within the meaning of the Trademarks Act (registered or used) may be used in a language other than French, unless a French version has been registered. It is expected that the rules governing commercial publications will apply to websites and social media, in line with the current interpretation of the OQLF and the courts. Public signs and posters A “recognized” trademark within the meaning of the Trademarks Act(registered or used) may be used in a language other than French, unless a corresponding French version is on the Canadian trademark register. In public signs and posters visible from outside premises, including inside shopping malls, when a trademark or commercial name is in a language other than French, even in part: French must be clearly predominant, taking into account the space allotted to the trademark or company name; and the trademark or company name must be accompanied by French terms, in particular a generic term, a description of the products or services, or a slogan. For the same visual space, the space allotted to French text must be at least twice as large as that devoted to text in another language, and its legibility and permanent visibility must be at least equivalent to that of text in another language. To learn more about this topic or for any questions concerning the Charter of the French language and its regulations, please contact our professionals or consult our previous publications! Regulation to amend mainly the Regulation respecting the language of commerce and business, Gazette officielle du Québec, (the "Regulation"). An Act respecting French, the official and common language of Québec, SQ, 2022, c. 14 (“Bill 96”). Regulation respecting the language of commerce and business, CQLR, c. C-11, r. 9. Regulation, supra, note 1, s. 2 (7.1) and s. 4 (25.1). Charter of the French language, CQLR, c. C-11, s. 51 Regulation, supra, note 1, s. 6 (27.1). Regulation, supra, note 1, s. 6 (27.2). Regulation, supra, note 1, s. 2 (7.1). Charter, supra, note 5, s. 51. Regulation, supra, note 1, s. 7. However, the grace period has been extended to December 31, 2025, for products covered by the new labelling standards set out in the Regulations Amending the Food and Drug Regulations (Nutrition Symbols, Other Labelling Provisions, Vitamin D and Hydrogenated Fats or Oils) (SOR/2022-168) or the Regulations Amending the Food and Drug Regulations and the Cannabis Regulations (Supplemented Foods) (SOR/2022-169). Charter, supra, note 5, s. 58. Regulation, supra, note 1, s. 4 (25.1). Charter, supra, note 5, s. 58.1 and Regulation, supra, note 1, s. 4 (s. 25.1). Regulation, supra, note 1, s. 6 (27.5). Regulation, supra, note 1, s. 6 (27.7). Regulation, supra, note 1, s. 6 (27.6). Components written in French will be presumed to meet these legibility and visibility requirements if they are permanent and are designed, lighted and situated so as to make them easy to read, both at the same time, at all times. Regulation, supra, note 1, s. 6 (27.6).

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