Business Venture Blog
This is where we post about business, ventures, law, and business venture law.
Anything interesting, really.
Anything interesting, really.
Business Venture Blog
You have an idea. You may even have a plan. The question is how do you do turn this idea into a “real” business? There are several factors you’ll need to consider when starting a business, two of which are absolutely crucial: business structure and finance. One of the first decisions you’ll need to make is what structure your business will take. This decision will have legal and tax implications, so you must select one and operate within that structure’s guidelines. There are three common business structures in Canada:
1. Sole Proprietorship
You are the business and own 100% of it. Choosing to do business as an sole proprietor is your simplest option, and one that many small business owners prefer. The advantages of it are the freedom of full control, minimal costs, tax advantages on your personal income, and undivided earnings. However, as a sole proprietor you are also accountable for all parts of your business (including debts and losses), and creditors can claim your personal assets as well as the business if you fail to pay.
A partnership is a group of two or more who set up a business together. The benefits of starting a partnership are the inexpensiveness to set it up, shared losses and profits. However, since there’s no legal difference between you and your business you’re still liable for all business activities like a sole proprietor. Additionally, you may experience conflict with a partner that could potentially damage the business outlook.
A corporation is a separate legal entity from you and is set up formally with a number of shares divided between yourself and others, indicating ownership in the corporation. The advantage of a corporation is keeping your assets separate from the company, so if the company goes insolvent it is less likely you will be personally liable. Likewise, if you exit from the company, the corporation will live on without you. One unique aspect of the corporation is the ability to sell shares of the company to raise capital it.
Another key consideration is how to finance your business. Even if you have the greatest idea in the world and decided on the right business structure, your opportunities will be limited if you don’t have the capital necessary to get the business off the ground. Until you have a steady stream of revenue, and even after that, you will likely need to finance the business. Key assets are essential to the business, if you don’t have the money to strike when the iron is hot you may lose out on a once in a lifetime opportunity. Entrepreneurs often report that getting financing is the most challenging aspect of starting a business. There are, however, both government and private-sector sources of financing that can help you get your business off the ground. Two common forms of that financing in Canada are:
Any liability or obligation of a corporation is a debt. Debt can be short-term, such as trade credit advanced to the corporation by its employees, or long-term that actually forms part of the company’s capital structure. The benefits of debt to the company (borrower) is the ability to raise capital without selling any shares. The benefit to the creditor is that, in addition to receiving interest payments, if the company goes insolvent there is a degree of certainty over repayment of the debt.
Equity can be described as an ownership interest in an incorporated entity, represented by shares. The benefit of equity for the company selling it is the likelihood of more financing. The benefit of the entity purchasing the equity is, in addition to dividend payments, the ability to sell the shares for a higher price as the company increases in value. One significant aspect of equity vs. debt is that equity is subordinate to debt, meaning greater risk (and reward).
It is essential to understand the options for structuring and financing your business. There are legal and tax implications depending on what form your business takes and the financing it receives. For more information on choosing a business structure or financing options, it’s a good idea to consult with a qualified lawyer or accountant.
For information on how to register a business, visit: https://www.alberta.ca/register-business-name.aspx
Bradley Mills is a member of the BLG Business Venture Clinic and is a third-year law student at the Faculty of Law, University of Calgary.
 Royal Bank of Canada: Choosing a business structure, online at: <https://www.rbcroyalbank.com/business/pdf/Choosing%20Business%20Structure.pdf>
 Government of Canada: Financing your new business, online at: <https://canadabusiness.ca/starting/financing-your-new-business/>
 Bryce Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, Third Edition, LexisNexis Canada Inc. (2018).
Does your Business Use Music?
Many if not most businesses broadcast music, or otherwise use music in conjunction with their services, marketing, and products. This following blog post will introduce some of the music licensing requirements that a small business may run into.
It’s general knowledge that if a business incorporates music into an advertisement, website, or a product, they require permission from the copyright holder of the song. In these scenarios a synchronization licence would be required. Most often businesses will have to negotiate directly with the copyright holder of the song in order to receive a synchronization license. Often times, this will be a record label, or independent artist. This can prove difficult for small businesses, as they will need to determine who the copyright holder is, and will then have to attempt to contact and negotiate licensing rates with the copyright holder. This may make it nearly impossible for a small business to get a synchronisation licences for a well known song.
There exists music licencing services that act on behalf of groups of artists and rights holders. This can be a good way for small businesses to license music quickly and effectively. A Google search for, “music licensing services” will turn up many results for these sort of licencing services. However, it’s important to ensure that the chosen service is reputable.
For more information: musiccanada.com/resources/licensing/
If the reproduction of music is an essential part of your business, for example you are hoping to be the next record label or music streaming service, there will be other considerations that will not be discussed in this blog post. To learn more on this topic, a good starting point is connectmusic.ca.
For more information: connectmusic.ca
Public Performance and Broadcast
Small business owners often don’t realize that any public use of music in connection with their business requires some form of licensing, as a royalties need to be paid to the rights holders. A recent leger poll surveyed 510 small business in Canada. This poll defined small business as those with 1 to 9 employees. The poll found that 71% of respondents consider music to be an essential part of their service, yet only 11% are licensing music. This suggest that a significant portion of Canadian small businesses are infringing on copyright, and opening themselves up to possible legal action. Simply having purchased a cd, or using a music streaming service does not amount to compliance with the Copyright Act. Section 19 of the Canadian Copyright Act deals with renumeration, it applies to Canadian and non-Canadian sound recordings. It serves the purpose of mandating the proper renumeration of royalties to music rights holders.
For a business to publicly broadcasts music, or use live music to better their clients’ experience, they must ensure that they are paying a royalty to the rights holders.
The following situations provide examples of situations where a business is required to remit a royalty.
SOCAN: SOCAN represents songwriters, composer and music publishers. SOCAN sets tariffs for business, which once paid allow for the issuance of a licence. Tariff rates are set based on the purpose for which the business uses music, as well as based on an estimate of the quantity of people that will hear the music. Some business may need to pay for multiple tariffs to properly comply. For example, a café will need a licence that covers sound recordings that it plays through its stereo, and live music in the café. The licence will be based on the price of two different tariffs.
RE-SOUND: RE:SOUND acts on behalf of performing artists and recording companies. A business will need a licence from both SOCAN and RE:SOUND when broadcasting music. For live music, only a SOCAN License is required. RE-SOUND uses a tariff system similar to SOCAN to price licenses.
Entandem: Entandem is a joint venture between RE:SOUND and SOCAN. It allows Canadian business to get all broadcast and live music licenses from the same place.
Satellite Radio: Some businesses that require background music may be able to use services that pay the royalties on their behalf. Companies including SiriusXM and Stingray have business plans that can be used instead of getting a licence.
Graham Richardson is a member of the BLG Business Venture Clinic and is a second-year law student at the Faculty of Law, University of Calgary.
Sources and Further Information
Licensing Music – Who’s Who
SOCAN, Re:Sound and CONNECT – Different rights, different collectives
Copyright Act (R.S.C., 1985, c. C-42)
Copyright in Performers’ Performances, Sound Recordings and Communication Signals and Moral Rights in Performers’ Performances (continued)
Standard Form Agreements – What are they and what is often in them?
Starting a business can be daunting and require a lot of time and energy. One of the last things a start-up may want to waste time on is drafting a standard form agreement, or even an agreement at all.
A standard form agreement (“SFA”) can be either for services or widgets. The agreement is in essence a template agreement that has been drafted once with certain areas left blank, such as the effective date for example, or with alternatives that can be selected depending on the circumstances and the same agreement can be used for several different transactions. Think about how much effort would be consumed drafting a new form for every time your new start-up agreed to provide services to another company? Having an SFA can greatly reduce the amount of time and money spent on drafting.
Often, people will try draft these agreements themselves by taking clauses from templates available on the internet. One may conclude that these clauses are in every contract and they should be in yours. But those templates are not specific to your business and including several clauses from different templates may result in those clauses contradicting one another. Further, the clauses that you have included may not actually reflect your intentions and the start-up may be left vulnerable.
Depending on the nature of the start-up, an SFA can be a good starting point for negotiations. It is not uncommon for two parties wanting to enter into a contract to exchange several drafts with markups, eventually leading to the executable document. Additionally, if the other party provides you with their SFA, you will be able to contrast that against your own to determine where it is different and if it is agreeable.
Below is a discussion about several clauses that are often included in SFAs. Often these clauses can be found on templates on the internet and one may be inclined to include them without really understanding what the clauses are or how they operate.
Terms, Payment, Etc.
SFAs will often include the term of the agreement, price, payment, and penalties. An SFA provides a great starting point for any negotiations regarding the aforementioned. Including term, price, payment, and penalties provides an anchoring point if any of these are negotiated. Further, it establishes a more efficient communication of the expectations of the party providing the SFA, which can have a better result than beginning the negotiation low balling each other.
The term can be renewed automatically, can trigger the parties to negotiate at a certain date, or simply expire on a certain date. The SFA can also spell out the expectations of the parties in regard to payments, late payments, interest, and any other penalties. These provisions must be drafted carefully to ensure none of the provisions contradict one another.
Representations and Warranties
Familiar with representations and warranties? Without sufficient knowledge of what these are, a start-up may be at risk. Representations are statements of a party made before or at the time of entering into a contract that may form part of the contract if so intended, but if the representation is not part of the contract and is inaccurate, it could result in rescission of the contract. Further, depending on the nature of the representation, it could give rise to damages if it was fraudulent or negligent. Warranties can be statements within the contract, or can be implied into contracts, that are collateral to the main purpose of the contract and can give rise to damages if breached.
Templates found online may attempt to limit representations and warranties. However, if they are not specific to the start-up, attempting to limit them may be redundant or not actually place a limit on any representations and warranties. A proper understating of what representations and warranties are and how they operate will better serve the start-up. A lawyer will be able to assist the company in the drafting of these clauses.
Liability and Indemnification
A good SFA will accurately describe any limitations on liability and whether either party will indemnify the other in specific circumstances. These clauses can be difficult to draft, and the advice of a lawyer may more accurately reflect the drafting party’s intentions. Further, a well drafted clause will demonstrate to the other party what the expectations are regarding liability and it will provide a good starting point for any negotiations regarding limitations on liability, if the SFA is not “take it or leave it”. The parties can also choose to limit the penalties in certain circumstances. For example, the parties may agree that to any extent a party is liable for damages, those damages are limited to the amount paid for the services.
Indemnity clauses can also be very difficult to draft depending on the situation. Indemnify means to compensate for harm or loss which is the legal consequence of an act or forbearance on the part of one of the parties or some third person. In essence, the party indemnifying is assuming and guaranteeing to reimburse or compensate the indemnified party for any loss or harm that falls within the circumstances agreed to. The historic use of indemnity clauses has resulted in specific terminology to accurately describe which party is indemnifying the other and in what circumstances. Again, discussing indemnification clauses with a legal professional can help ensure that the clause in your SFA meets your expectations. Taking clauses from the internet could result in accidentally switching the indemnifying and indemnified parties due to the complex language that is often found in these clauses.
Force Majeure Clause
Another common clause is a “force majeure” clause. Force Majeure clauses generally operate to discharge a contracting party when “a supervening, sometimes supernatural, event” beyond the control of either party makes performing the contract impossible. Proper drafting of these clauses can outline the situations which would frustrate the contract and possibly relieve the party who is suffering from the force majeure event of their duties under the contract, or suspend them until the effects of the event are no longer causing issues. Every contract may not need to contain a force majeure clause, so you may want to discuss with a lawyer the particular situation and whether it is necessary.
One of the most devastating things that could happen to a start-up is litigation. It can be a huge drain on capital and time which could be better spent on advancing the start-up. One possible way to reduce the amount of time and money spent is to include a dispute resolution clause in the SFA. The mechanisms can include how disputes are governed, what triggers a dispute, what the process is, who will be the mediator or arbitrator, where the meetings will occur, among others. Hopefully the clause will lead to a faster resolution than the traditional court process and possibly save the business relationship from degrading to a point that is beyond repair.
Another clause that is often included in standard form agreements is a clause describing the governing law if there is a dispute. If you are dealing with parties that are located in other jurisdictions, this may be a clause you want to include in order to ensure the dispute will take place in your home jurisdiction. Further, some jurisdictions costs are assigned to the “loser” of the dispute, which is good news for the start-up if it comes out on the winning side. Additionally, some jurisdictions allow for the parties to agree to waive their rights to a jury trial which is also a benefit as they can be quicker and cheaper.
Confidentiality clauses are frequently found in SFAs. This is especially true when the sharing of sensitive or personal information is required. Several things may be overlooked in drafting these clauses such as how long they should last, what is covered under the clause, what occurs if there is a breach of the clause, etc. Compiling a clause from different templates off the internet can result in a piecemeal clause that may contradict itself, the law, or place the parties in a place with impossible obligations to fulfil.
In relation to confidentiality clauses, a clause can be drafted to place an obligation on a party using your device or software to not reverse engineer your design. Again, consult with a legal professional to ascertain how to accurately incorporate this into your standard form agreement to protect your device or software.
An SFA can be a useful tool for any start-up that needs to either buy or sell services or widgets. Although initially there are some costs associated in having an SFA drafted, there are many advantages to having a well drafted SFA. This is a small investment compared to costs of the issues that can arise from a poorly drafted SFA. The internet can be a wonderful place for information but trying to decide what clauses to copy and paste might not be the best idea when a person is unsure what the clauses mean or how they are intended to be used. The information above may shed some light on how these typical clauses are typically used and in what scenarios. When in doubt, legal advice should be sought to ensure the start-up has what it needs to achieve the desired result.
Sheldon McDonald is a member of the BLG Business Venture Clinic and is a third-year law student at the Faculty of Law, University of Calgary.
 John Yogis et al, Barron’s Canadian Law Dictionary, (Hauppuge, NY: Barron’s Educational Series, 2009) (updated as necessary) sub verbo “representations”.
 Ibid sub verbo “warranties”.
 Axa Pacific Insurance Co. v Premium Insurance Co., 2003 ABQB 426 at para 11.
 Yogis, supra note 1, sub verbo “Indemnity”.
 Atlantic Paper Stock Ltd v St. Anne-Nackawic Pulp & Paper Co.,  1 SCR 580 at 584, 10 NBR (2d) 513 (SCC).
 A trial without a jury can proceed quicker because there is less time used on selecting the jury, informing the jury of their duties, and familiarizing the jury with the law. Additionally, if more time is spent in the court room, the costs will also increase.
Protecting Directors from Civil Liability Through Indemnification
A likely question an entrepreneur may ask themselves early in their venture is “how do I protect the directors of my company?” They may (or perhaps should) think about this because in all likelihood, they will be one of, if not the only director of their business during its early phases following incorporation. Please note: this post assumes that the company in question is incorporated under the Business Corporations Act of Alberta
Indemnification refers to one party’s agreement to secure another against responsibility for their actions, or to give security for the reimbursement of a person in case of an anticipated loss. In this case, it refers to a corporation’s agreement to make a director whole, should they be subject to legal proceedings as a result of their actions in their capacity as a director of the corporation.
Generally speaking, the Business Corporations Act (the Act) allows corporations to indemnify their directors for both legal costs incurred, as well as any monetary damages that arise from a director’s conduct in relation to the business. In order to benefit from such indemnification, a director must have “acted honestly and in good faith with a view to the best interests of the corporation.”
An Alberta corporation is not permitted to indemnify its directors for their actions if they have not acted honestly and in good faith with a view to the best interests of the corporation – that is, if they have breached their fiduciary duty to the corporation. If a director has breached his or her fiduciary duties to the corporation, any indemnity the corporation has offered will be void.
The scope of conduct that may be indemnified under the Act is very broad. Section 124(1) of the Act states:
“…a corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation…against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the director or officer in respect of any civil, criminal, or administrative action or proceeding to which the director or officer is made a party by reason of being or having been a director of that corporation or body corporate…”
When Are Directors Entitled to Indemnification?
In Alberta, a director is only entitled to indemnification by the corporation for all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment in a civil context if they (i) were substantially successful in defending the claim; (ii) acted honestly and in good faith with a view to the best interest of the corporation; and (iii) is fairly and reasonably entitled to indemnity.
A corporation that does not contain indemnity provisions in its by-laws will still be liable for any loss incurred so long as these criteria are met. If indemnification provisions found in either the corporation’s by-laws, or in an agreement between the corporation and a director impose mandatory indemnification, it will of course be liable to do so.
How to Indemnify Directors
Indemnification provisions can be found within a corporation’s by-laws. If a corporation seeks to provide its directors with a wide range of protection, these provisions do not need to be particularly robust. Any attempt to predict the types of conduct or liabilities that the corporation anticipates indemnifying its directors against may simply limit its ability to protect its directors.
If the company’s bylaws do not provide indemnification provisions that are acceptable to a potential director, indemnification provisions may be included within a written agreement between the corporation and the director. This method provides the greatest flexibility as each agreement can be tailored to suit the needs of both the corporation and the individual director.
Some things that indemnification provisions should contemplate include whether the corporation is required, or simply permitted to indemnify its directors (and in which circumstances), the timing of indemnity payments, and out of court settlement. Indemnification provisions that do not require the corporation to indemnify its directors should also consider a mechanism to oblige the corporation to do so such as arbitration.
Corporations that provide the widest range of indemnity to their directors often simply state in its indemnification provisions that the corporation must indemnify the director to the greatest extent authorized under the relevant law. Where it is desirable to minimize the short-term financial impact of litigation on directors, indemnity provisions may require the corporation to advance defence costs as they are incurred. Such provisions should also contemplate whether the corporation is required to indemnify the director for out of court settlements, as opposed to simply court judgments.
What Indemnification Provisions Do Not Cover
Indemnification provisions do not cover directors’ actions when they are not made in good faith with a view to the best interests of the corporation.
In cases where a director is being sued by the corporation or its shareholders, including in derivative actions, a corporation may only indemnify a director for their legal expenses. This leaves directors exposed to liability for corporate or shareholder damages arising from their action (or inaction as the case may be). Why is this? Most derivative actions against directors include a claim for breach of fiduciary duty. If this claim is successful, and a breach has been found, a director will have been found not to have acted in good faith with a view to the best interests of the corporation, and indemnity would not be available in any event.
Hamish Gray is a member of the BLG Business Venture Clinic and is a third-year law student at the Faculty of Law, University of Calgary.
 Black’s Law Journal; 2nd ed; online, <a href="https://thelawdictionary.org/indemnify/" title="INDEMNIFY">INDEMNIFY</a>
 Business Corporations Act, RSA 2000 cB-9 s124 [the Act]
 Act supra note 2 s124(3)
The Class Struggle: Understanding Share Classes for Start-Up Companies
Deciding to incorporate is an important step in the lifecycle of your business. When incorporating, one of your key considerations will be what the share structure of the business should look like. Questions that can arise during this process include:
Who Will I Be Issuing Shares To?
Before you decide what the share structure of your business will be, you need to know who is going to be owning those shares. In a start-up company, there are three primary categories of shareholders:
Founders, employees, and investors are likely to have differing needs and wants when it comes to compensation for their respective contributions to your start-up. For this reason, corporations in Alberta (and throughout Canada) are empowered, through their articles, to establish more than one class of shares. In fact, there is no limit on the number of classes of shares that can be set out in the articles.
There are several rules respecting what rights and restrictions can be placed on shares. Two of the most important rules are:
Without multiple classes of shares, your business will likely be unable to satisfy the unique needs and wants of the founders, employees, and eventually investors.
To authorize new share classes after incorporation, your company would need to amend its articles. Amending articles involves the passage of a special resolution and, depending on the structure of your business, may not be an appealing proposition. For this reason, authorizing multiple classes of shares and setting out general terms during the incorporation process can save a start-up from costly and frustrating article amendments down the road.
What Rights Should Each Class of Shares Include?
Founder’s shares are typically the first to be issued in any new start-up. Due to the fact that Common shares traditionally include voting rights, they are a natural fit for founders who primarily desire control over the direction and decision making of the company. This first round of Common shares may also include the right to dividends as well as the right to receive remaining property of the corporation on dissolution.
Depending on the maturity of the business and relative bargaining power of the founders, the founder’s shares may also include a class of common shares that house special rights such as the right to convert into preferred shares at the same price and with the same conditions as the company’s future investors. Alternatively, founder’s shares may be “super voting” shares – granting the founders more control over the company without the corollary increase in returns.
Employee Share Ownership Plans (“ESOP”) are used to give employees an equity interest in your company. These plans are important as they incent key employees to a) think like a founder, and b) to stay employed with a business exhibiting upside potential. Traditionally, ESOPs take the form of either equity shares or stock options – both fulfilled with Common shares of the business that do not grant any special dividend or super voting rights. ESOPs can typically represent anywhere from 1 to 10% of the total outstanding shares depending on the maturity of the company.
Perhaps the most important consideration for founders establishing an ESOP is a vesting schedule. The vesting schedule determines how long your employees need to work or what performance targets they need to hit for their shares to vest. Different vesting schedules can have significant impacts on both a company’s share structure as well as employee incentives.
Early stage investments are inherently risky. It seems appropriate then, that venture capital and angel investors typically demand rights-heavy Preferred Shares. While there are many different Preferred Share rights, some of the most common include:
There are many different contributors to a start-up company. Accordingly, it makes sense to have several classes of shares that cater to each contributor’s investment needs. Founders, employees, and investors will all demand unique rights when it comes to ownership of the company’s shares.
However, authorizing your company to issue different classes of shares is an exercise best undertaken during incorporation, not after. Otherwise, you may find yourself issuing an unwieldy special resolution to amend your articles each time you bring on a new investor or wish to reward your employees with company shares.
Blair Wentworth is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary.
 ABCA 26(4)
 ABCA 26(4)(a)
 ABCA 26(4)(b)
 ABCA 6(1)(b)
 ABCA 173(1)
What are patents?
Successful business are built on innovative ideas. These ideas are protected by the government through patents. If you want to have an assured protection for your idea you may want to explore the option of patents.
A patent is a document that provide a time-limited, legally protected, exclusive right to make, use and sell an invention. They apply to newly developed technology as well as to improvements on existing products or processes defining an invention. In Canada a patent lasts for 20 years from the date it is filed and protects the inventor’s rights in Canada.
To patent an idea in Canada, you will have to file a patent application with the Canadian Intellectual Property Office. The CIPO will then determine whether your idea meets the requirements for patentability. In order to be patentable an invention must be (1) a matter that can be patented, (2) novel, (3) useful, and (4) inventive and non-obvious.
Patentable Subject Matter
In Canada only “inventions” are patentable. Inventions are defined in the Patent Act as:
[A]ny new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter. 
These five categories of invention – art, process, machine, manufacture and composition of matter – have been further defined by the Canadian Intellectual Property Office and by the courts.
“Art” has been defined broadly as a process that (a) is not a disembodied idea but has a method of practical application, (b) is a new and innovative method of applying skill or knowledge; and (c) has a result or effect that is commercially useful. A “process” is the application of a method to a material or materials. A “machine” is the mechanical and/or physical embodiment of any function or mode of operation designed to accomplish a particular effect, wherein the parts of the machine cooperate to accomplish the effect. “Manufacture” refers to “a non-living mechanistic product or process” and as being the process of making technical articles or materials by the application of physical labour or mechanical power, or the article or material made by such a process. Lastly, a “composition of matter” is defined as a combination of ingredients or substances as a chemical union or physical mixture.
Most inventions, 90% of patents in fact, are not breaking entirely new ground, but are instead improvements on existing arts, processes, machines, manufacturers and compositions of matter. Improvements upon these categories of inventions are also patentable.
According to the Patent Act you cannot patent a scientific principle or an abstract theorem. There aer a number of other excluded or contentious subject matters, including some methods of doing business, methods of medical treatment or surgery, or fine arts.
In order to be patentable an invention must be new and inventive. The definition of “invention” in the Patent Act makes “new” a requisite. In order to be “new” under the Patent Act the subject matter of a patent application: must not have been made public by the applicant (or someone who obtained their knowledge from the applicant) for more than one year before applying; must not be made public by someone independent of the applicant; and must not already be subject to an earlier patent application.
Essentially, in Canada the first applicant to file a patent is the one entitled to obtain the patent and any public disclosure of an invention before filing can prevent you from obtaining a patent. The Canadian Patents Database is searchable online and can be used for determining novelty by checking for any possible conflicts with already existing patents. It is also best to file for a patent before, or very soon after, public disclosure.
Usefulness or Utility
An invention must be “useful” according to the Patent Act. In order to be useful the invention must work or be advantageous for its designated purpose – it has to function and it has to fulfil some purpose. This usefulness must be established through demonstration or by sound prediction at the time of the patent application. Utility can be established by sound prediction when “utility can be predicted in advance of complete testing” This can be shown when (1) there is a factual basis for the prediction, (2) the inventor articulates a sound line of reasoning for the desired result to be inferred from the factual basis, and (3) there is proper disclosure of this information.
Inventiveness of Non-Obviousness
In order to be patentable, an invention not have been obvious to a person skilled in the art or science to which the invention pertains before the patent application is filed. Non-obviousness is determined in a four part test where you (1) imagine a “person skilled in the art” the patent application’s subject matter is concerned with, (2) identify the inventive concept of the claim in question, (3) identify the differences between the “state of the art” at the time and the claim, and then finally (4) decide whether the differences identified could constitute ‘steps’ to the invention claimed that would have been obvious to the “person skilled in the art” or was inventiveness required.
Generally, there is a halo of obvious solutions or improvements surrounding any old invention or problem. An invention must stretch beyond this limit in order to be inventive.
If all of these requirements are met your idea is likely to be patentable. But it’s important to keep in mind the potential downsides to patenting your invention. Patents are expensive. Filing fees alone are hundreds of dollars and you must pay maintenance fees for the entire 20 years of the patent. While small entities have a discount, these fees can easily add up. The patent application process is also complicated and can take considerable time. The Canadian Intellectual Property Office recommends you retain a registered patent agent to help with the complexities of patent law, which can be another expense difficult for a small business to swallow.
There are other protections for your ideas at law that might fit better you may want to consider before patenting, such as trademarks or copyright, some of which are protected at common law and don’t require a registration. Overall, patents are a powerful option for protecting inventions but you should first be sure that your idea qualifies and that a patent won’t be more trouble than it’s worth for your business.
Kiara Brown is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary.
 Canada, Canadian Intellectual Property Office, “What is a patent?” (Ottawa: CIPO, 1 December 2015) [What is a patent?].
 Patent Act, RSC 1985, c P-4 [Patent Act] (The Patent Act defines patents as letters patent for an invention at s 2).
 Progressive Games, Inc v Canada (Commissioner of Patents),  FCJ No 1623 at para 16, 3 CPR (4th) 517.
 Canada (Commissioner of Patents) v Ciba Ltd  SCR 378 at 383, 18 DLR (2d) 375.
 Canada, Canadian Intellectual Property Office, Manual of Patent Office Practice (Ottawa: CIPO, 29 October 2018) at 12.01.03 [MOPOP].
 Harvard College v Canada (Commissioner of Patents) 2002 SCC 76 at para 159,  4 SCR 45.
 David Vaver, Intellectual Property Law: Copyright, Patents, Trade-Marks, 2nd ed (Toronto: Irwin Law, 2011) at 294.
 Canada, Canadian Intellectual Property Office, “A guide to patents” (Ottawa: CIPO, 26 September 2018) [Guide to patents].
 Supra note 5.
 Amazon.com Inc, Re 2011 FCA 328 at para 59-63,  FCJ No 1621 [Amazon].
 Supra note 8, MOPOP at 12.03.02.
 Supra note 14, Amazon at para 58.
 Supra note 5.
 Ibid at s 28.2(1).
 Supra note 1, What is a patent?.
 Supra note 5.
 Supra note 11, Guide to patents.
 Apotex Inc v Wellcome Foundation Ltd 2002 SCC 77 at para 69,  4 SCR 153 [Apotex].
 Ibid at para 70.
 Supra note 5 at 28.3.
 Supra note 22, Apotex at para 67.
 Canada, Canadian Intellectual Property Office, “Standard fees for patents” (Ottawa: CIPO, 8 August 2019)
If you are selling consumer goods that cost a lot, say over $1000, getting customers to put up the whole purchase price at once can be a barrier to sales. If you choose to sell on installment however, you might be left unable to get your customer to continue to pay. If the customer is solvent, you can enforce compliance with the sales contract itself. However, in case of an insolvent customer, which will often be the greatest instance of problems, a security interest in the property provides you will at least get the property back. A security interest means that you maintain an element of ownership of the property until it is fully paid for. These interests in Alberta are regulated by the Alberta Personal Property Security Act, RSA 2000. This blog takes a short look at what security interests are in an installment context, and how you can use them. For more detailed advice, feel free to reach out to the clinic!
In order to create a security interest in the first place, you should write a contract that says that it creates a security interest. The security interest coming into force is called attaching. Generally, the security interest attaches when purchase price is paid and the purchaser takes possession of the goods. In order for the security agreement to properly attach, certain procedural steps have to be taken, including giving the purchaser a written copy of the contract.
To be effective in bankruptcy, security interests must be perfected prior to the bankruptcy. Registration can perfect the security, so long as the interest has been validly attached. To be perfected by registration, the security interest must have attached, and the process under the act for registration must have been completed, but those steps can have happened in any order. Generally this involves registering a financing statement. Financing statements may be registered before the security agreement is actually made. When registering, it is very important that you have the correct legal name of the debtor and the correct description of the goods. It is useful to get the birth certificate of the debtor. It is also best if there is a serial number for the exercise equipment, and that security interest is included in the registration.
In the reserve of the registration process, you must discharge the security interest once the goods have been completely paid. In the case of security interest solely in consumer goods, the security interest must be discharged not later than one month after all obligations under the security agreement have been performed, unless the registration lapses before then.
When the purchaser is in default, meaning not having paid their installment, you, the secured party, can notify the purchaser/debtor of their obligation to pay, and apply any money taken as collateral to the pay off the remaining price of the goods. Reasonable collection expenses can be deducted from money collected in either of these ways. The secured party also has the right to seize the collateral or otherwise enforce the security agreement by any method permitted by law.
The law relating to contracts of sale applies to security interests created in installment purchase agreements. In Alberta, the Sale of Goods Act regulates these kinds of sales. Under that act, and under the common law, you can sue the purchaser for the price of the goods if they do not pay.  This remedy is available to you in addition to the remedies available from your security interest. You must however, choose one or the other. You can seize the property, or you can sue for the purchase price, you cannot do both, subject to certain exceptions.
Finally, these kinds of sales, when made to a retail consumer, are regulated by the Consumer Protection Act. Under this act, consumer sales contracts cannot be harsh or unfairly one sided, and cannot be entered into if you as seller know the purchaser cannot pay. In particular for installment sales contracts, the total price of the goods must be made clear, and must be more prominent than the cost of individual installment payments. Online sales are in particular regulated by the Internet Sales Contract Regulation 81/2001. Once a customer has entered into an online sales contract, the seller must provide the customer with a written or electronic version of the contract within 15 days of the signing. This copy of the contract can be sent by email, fax, or mail to an address provided by the purchaser. If you do not provide the customer with all the information required by the regulations or give the customer an explicit opportunity to accept or reject the contract, the customer can cancel the contract up to seven days after signing it. If you do not provide the customer a copy of the contract, the customer can cancel the contract up to thirty days after signing it. Finally, if you do not deliver the goods within 30 days of the date of delivery written in the contract, or within thirty days of the signing of the contract if no delivery date is specified, then the customer can cancel the contract. The court can intervene to stop any of these cancellations if they would be inequitable.
In the case of a credit agreement for purchase, which would include the kind of installment purchase plan discussed here, the Consumer Protection Act allows a customer to pay off the complete balance of the price at any point. If the consumer pays off their debt early, the seller must also return a portion of all non-interest finance charges.
This gives you a basic idea of some of the considerations in selling consumer goods on installment in Alberta.
Matt Hammer is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary.
 PPSA s12.
 PPSA s11.
 Sale of Goods Act, s39.
 Consumer Protection Act, s6(3).
 Consumer Protection Act, s6(4).
 Regulation, s5(1).
 Regulation, s5(3).
 Regulation, s6(1)(a).
 Regulation, s6(1)(b).
 Regulation, s6(2) and (3).
 Regulation, s7.
 Consumer protection act 68(2).
 Consumer Protection act 68(3) and 68(4).
CALGARY's START-UP COMMUNITY: AN OUTLINE OF SERVICES AND SUPPORT
Calgary has many resources and opportunities to support entrepreneurs at all stages in their ventures’ development. Community supports exists for all the hurdles that growing ventures must overcome, whether your business is at the conceptual stage and you need help getting it off the ground, or your venture is growing fast and you need advice or support with bringing employees onboard, marketing your product or service, or finding the right investors. This blog post provides a non-exhaustive rundown of places and services in Calgary that can support entrepreneurs on their journey..
RESOURCES FOR STUDENTS
School provides a unique opportunity to learn theory and develop skills across a variety of disciplines, and to network and collaborate with like-minded people, in and out of the classroom. While these opportunities can help students come up with novel and creative business ideas, often a little more help is needed to take an idea from concept to reality. Many post secondary institutions in Calgary provide resources to help students get their ideas off the ground.
In addition to providing a means to keep overhead costs down and maintain flexibility in the early stages of a company’s growth, coworking spaces allow entrepreneurs to connect with one another, sharing skills, costs, connections and ideas. There are many coworking spaces across the city, forming a diverse range of entrepreneurial communities.
FOR THE LADIES
Nothing in this post quite right for you? Don’t worry, there’s more. Click here and here for more extensive lists of resources, events, spaces, meetup groups, and accelerator programs Getting to know the community is the best way to identify which spaces and programs can provide the advice, support, people or partnerships to elevate your business.
Lastly, please remember that the BLG Business Venture Clinic is always happy to help. Fill out a request form here and we will get in touch to find out how we can help.
Melanie Bowman is a member of the BLG Business Venture Clinic, and is a 2rd year student at the Faculty of Law, University of Calgary.
Contractor or Employee?
In a start-up, it is often necessary to hire workers. To avoid legal obligations to employees, entrepreneurs will often characterize these workers as independent contractors. However, defining a worker as an independent contractor does not automatically make that worker an independent contractor. Rather, whether a worker is an independent contractor or employee is determined by examining the substance of the relationship between the worker and employer. There are various common-law tests available to examine the substance of this relationship. Importantly, no particular common-law tests is determinative about the legal status of the worker. Regardless, this blog will provide a brief overview of the primary common-law test used by courts, the fourfold test.
In Montreal v Montreal Locomotive Works Ltd et al, (“Montreal Locomotive”), the House of Lords articulated the fourfold test. In summary, the fourfold test requires examining whether (1) the alleged employer is exerting control, or has the power to exert control, over the worker, (2) whether the worker owns the tools of his trade, (3) whether the worker has the chance of profit, and (4) whether the employer has the risk of loss.
Control is the right to give orders to a worker regarding where, when and how work is performed. Workers required to follow such orders are more likely to be employees. Independent contractors typically determine the hours, place and method of work for themselves.
Examples of control include the employer’s right to:
Ownership of Tools
A worker who owns and supplies the tools, materials, licenses and contacts required to perform agreed work is more likely to be conducting his own business and be considered an independent contractor. A worker who is supplied with these things by an employer is more likely to be part of the employer’s business and considered an employee.
”Tools” is a catchall term used to describe a wide variety of items and resources required to perform work, including:
Chance of Profit and Risk of Loss
Exposure to profit or loss on a work contract is indicative of an independent contractor. As a business owner, an independent contractor makes expenditures on equipment, workers, advertising, licenses, or other resources. Having contracted for a particular volume or quality of work, his return is affected by how efficiently he can meet that volume or quality.
In contrast, employees typically invest only their time in performing work. They are usually paid wages or salary and do not run a risk of loss if work is not performed efficiently. Likewise, they are typically not entitled to share in increased profits resulting from their work.
In conclusion, entrepreneurs must be careful whenever retaining a worker. Although the entrepreneur may be under the impression, they are retaining the services of an independent contractor, they may in fact have hired a new employee.
Sunny Uppal is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary.
 Kaszuba v. Salvation Army Sheltered Workshop (1983), 83 C.L.L.C. 14,032 (Ont. Div. Ct.)
 671122 Onatrio Ltd v Sagaz Industries Canada Inc, 2001 SCC 59 at para 46 [Sagaz Industries].
  1 DLR 161.
 Montreal (City) v Montreal Locomotive Works Ltd (1946),  1 DLR 161 at p 169 [Montreal Locomotive].
Huawei and Start-ups
Chinese telecoms giant, Huawei, has faced much international scrutiny in the past months due to allegations of skirting US sanctions. Its CFO, Meng, remains under house arrest in Canada awaiting extradition to the US and this has strained an already worsening relationship between Canada and China.
One allegation against Huawei in particular might be of concern to entrepreneurs; that Huawei exploits its partnerships with start-ups to steal proprietary technology. Enter Akhan Semiconductor Inc. – a US start-up developing diamond-infused smartphone glass to make screens more durable than the leading and well-known competitor, Gorilla Glass. Akhan founder, Adam Khan, hoped to license the glass to phone manufacturers.
Initially, Akhan felt very fortunate to have a behemoth like Huawei agree to partner with them. According to analysts, this partnership fit well with Huawei’s evolving business model that hopes to emerge from the traditional stigma of poor quality “Made in China” products, and to enter the premium smartphone market to become a global market leader – and using superior glass technology to those used in Apple’s iPhones or Samsung’s Galaxy line is a good way to begin cementing that image.
But any hope Akhan had for a mutually prosperous partnership with Huawei was quickly dashed when they received back a sample of their diamond glass that was initially sent to Huawei for some basic testing. According to their agreement — and per the industry standard practice – the glass sample was essentially loaned to Huawei and was to be returned in the same pristine state it was given to prevent any possible reverse engineering of intellectual property. However, the glass was returned shattered and it was suspect that impermissible tests were conducted upon it. When Akhan attempted to reach Huawei to discuss this matter, perhaps a bit unsurprisingly, Huawei officials assumed no responsibility and shifted blame. Akhan has since agreed to help the US FBI in their case against Huawei.
It is unfortunate that tech start-ups have to be so vigilant in their approach to partnering with global players like Huawei, even as they take all reasonable measures to safeguard their interests as Akhan seemed to have done. A lesson here might to not underestimate the unscrupulousness of one’s business partners.
David Kim is a member of the BLG Business Venture Clinic, and is a 2nd year student at the Faculty of Law, University of Calgary.
Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.