©Copyright 2015 Dickinson Wright PLLC. ©Copyright 2015 Dickinson Wright LLP. Expand in the USA – Agents and distribution partners: What does it take to up your game? Tuesday (2:30-3:20 PM) June 16, 2015

The Talent Marla Kott, CEO, Imprint Plus Tom Greenwood, President, Factum Partners Paul Fransway, Member, Dickinson Wright PLLC

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The “Inter-Mestic Relationship” Provides New Markets – International Complimentary vs. Competitive AND Geographic Proximity Business friendly climates in Canada & US; particularly Canada Well-established rules of the game

Similar but not the Same

Similar But Not the Same Federal / Provincial Relations Inter-state differences (East/West of the Mississippi; North/South of the Mason-Dixon; Texas) Intra-state differences Role of bureacrats / regulatory officers Cultural elements

A Few Words About NAFTA The North American Free Trade Agreement is a regional trade agreement between Canada, the US, and Mexico. “Free Trade” in Goods and Services between the Member Countries through the reduction of tariffs and elimination of NTBs Facilitates Direct and Indirect Investment into the countries Protections for fair and non-discriminatory treatment Dispute resolution mechanism – private investor v. governments THE NAFTA ESSENTIALLY GUARANTEES THAT YOU WILL BE TREATED JUST LIKE A DOMESTIC COMPANY – FREE TRADE DOES NOT MEAN “TAX FREE” TRADE

Part II. Before the Border

1. Intellectual Property

TradeMarks & ip Trademarks, Trade Secrets, Copyrights, and Patents need protection in US – Canada use/registration/filing is not protection in USA. Outside the USA, most countries follow a “first to file” patent rule. The USA does now too.

Changes to Canada’s IP Regime Bill C-31 – Actual Use no longer required for TM. 3 yrs. of non-use to petition for expungement – Renewal term reduced from 15 to 10 years. – Colors, figurative elements, holograms, moving images, sounds, scents, tastes, and textures. – Number of other measures for Madrid Protocol and Nice Agreement

Emerging IP Issues Bill C-56 “Combating Counterfeit Products Act” – Empowers Canada Border Services Agency (“CBSA”) officials to proactively target, detain and examine counterfeit goods at the Canadian border (whether imported into Canada or exported from Canada). – IP Rights Holder may issue a “request for assistance” for CBSA to detain goods that are believed to be counterfeit.

2. DISTRIBUTION CHANNELS

Universal Considerations Appointment – Territory – Exclusive / Non exclusive – Products – Licenses and sublicenses if any Term – Renewal / ROFR / ROFN

Universal Considerations Payments – Definition of duties – Time for payment – Tax responsibilities – Audit rights Warranties Obligations

Universal Considerations IP obligations Quality assurance Indemnities – IP indemnity – Product indemnity – Limitations Termination / End of relationship issues Dispute resolution

Sales Agents PROS (if carefully structured) Comparatively little risk of falling under franchise laws. Paid on commission Sales agents are independent contractors – No need to comply with employment related laws Limited liability for acts of sales agents Control over the sales terms since sales made directly with customer

Sales Agents CONS (or not carefully structured) Many U.S. states have statutes which requires a state by state treatment Laws require prompt payment of commissions due Some state laws restrict termination timing (e.g., Minnesota) Some sales representative laws do not require written agreements

Distributor Agreements PROS (if carefully structured) No franchise regulation More manageable, single relationships Distributor knowledge of local environment Distributors responsible for local legal compliance Title passing to distributor / risk of loss Lower capital expenditure

Distributor Agreements CONS (or not carefully structured) Loss of control More difficult to restrict competitive products Lower margins State statutes regulating termination Trademark dilution

License PROS (if carefully structured) No franchise regulation More manageable, single relationships Can be simple contract administration Licensee responsible for local legal compliance Lower capital expenditure – may just be royalty income Risk of development on licensee

License CONS (if not carefully structured) Loss of control More difficult to restrict competitive products Lower return associated with Trademark dilution

Franchise – The Wildcard Possible overlap with all other distribution methods – Lack of care with distribution / license / joint venture agreement Only requires 3 things – Trademark license / defacto license – Marketing support / community of interest – Payment of a fee

Franchise – The Wildcard Effects of being deemed a franchise – Extensive disclosure and registration scheme – Termination rights restricted – Lawsuit potential for failing to comply – including officers of business

3. Export Contract

Export Contract Custom agreement or standard forms? Remember, you should not blindly us Canada forms for US – need to look at state laws (CA) Domestic forms need review for international use (e.g., UN Convention on Contracts for the International Sale of Goods) Terms requiring special attention (CUBA)

4. Taxes

5. Shipping and Customs

Shipping and Customs Delivery at your place or mine? Clearly define responsibility for arranging shipping, clearing customs, paying duties and so on ICC Incoterms are very useful in clearly allocating responsibility between buyer and seller Competent FF/CB or get trained.

6. Product Standards and Regulatory

Red Flags Consumer Product Safety Improvement Act Bioterrorism Act (food and beverage importers) Registration with U.S. FDA Product approvals Food Safety Modernization Act Bill C-49 Price Transparency Act

7. Getting Paid

8. Bricks and Mortar

Structuring Issues Tax vs. Liability Concerns (usually blended) No Concept of LLC in Canada – ULC ULC proper company in Canada but check the box in US Issue is no liability protection – so need a blocker company, usually a US LP. Issues arise with foreign subs and manage North American operations through US.

Part iii: AT THE BORDER

1. Your People

Canada-US Labor Mobility The Strongest Indicator of Success in Moving Your People Into Canada Is the Degree to Which You Incoporate Cross-Border Considerations into the Entirety of Your Operations... IN ADVANCE OF ARRIVING AT THE BORDER

NEXT STEPS Again, the days of relying on “slipping through the cracks” are over. NAFTA provides a workable labor mobility framework that can be utilized by companies; each company’s responsibility to align protocols with NAFTA Yet, NAFTA is 20 years old. Time for an update such as Trusted/Known Employer Program (TEP/KEP)

Beyond the Border

BtB and RCC The Canada-US Beyond the Border Agreement and Action Plan (BTB) The Canada-US Regulatory Cooperation Council (RCC) Game Changers in Canada-US Test Case for other Global Trade Negotiations

RCC Regulatory Cooperation Council (RCC) – Examining a permanent framework b/t Canada and the US Shared Funding / Inspections Administrative Procedures Act Funding for OMB/OIRA – Intersection with TPP and TTIP

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