Business Venture Blog
This is where we post about business, ventures, law, and business venture law.
Anything interesting, really.
Anything interesting, really.
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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.[1] 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.[2] 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.[3] Patentable Subject Matter In Canada only “inventions” are patentable.[4] 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. [5] 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.[6] A “process” is the application of a method to a material or materials.[7] 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.[8] “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.[9] Lastly, a “composition of matter” is defined as a combination of ingredients or substances as a chemical union or physical mixture.[10] 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.[11] Improvements upon these categories of inventions are also patentable.[12] According to the Patent Act you cannot patent a scientific principle or an abstract theorem.[13] There aer a number of other excluded or contentious subject matters, including some methods of doing business,[14] methods of medical treatment or surgery,[15] or fine arts[16]. Novelty In order to be patentable an invention must be new and inventive. The definition of “invention” in the Patent Act makes “new” a requisite.[17] 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.[18] 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.[19] 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.[20] 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.[21] 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”[22] 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.[23] 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.[24] 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.[25] 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. Conclusion 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.[26] 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. References [1] Canada, Canadian Intellectual Property Office, “What is a patent?” (Ottawa: CIPO, 1 December 2015) [What is a patent?]. [2] Ibid. [3] Ibid. [4] Patent Act, RSC 1985, c P-4 [Patent Act] (The Patent Act defines patents as letters patent for an invention at s 2). [5] Ibid. [6] Progressive Games, Inc v Canada (Commissioner of Patents), [1999] FCJ No 1623 at para 16, 3 CPR (4th) 517. [7] Canada (Commissioner of Patents) v Ciba Ltd [1959] SCR 378 at 383, 18 DLR (2d) 375. [8] Canada, Canadian Intellectual Property Office, Manual of Patent Office Practice (Ottawa: CIPO, 29 October 2018) at 12.01.03 [MOPOP]. [9] Harvard College v Canada (Commissioner of Patents) 2002 SCC 76 at para 159, [2002] 4 SCR 45. [10] David Vaver, Intellectual Property Law: Copyright, Patents, Trade-Marks, 2nd ed (Toronto: Irwin Law, 2011) at 294. [11] Canada, Canadian Intellectual Property Office, “A guide to patents” (Ottawa: CIPO, 26 September 2018) [Guide to patents]. [12] Supra note 5. [13] Ibid. [14] Amazon.com Inc, Re 2011 FCA 328 at para 59-63, [2011] FCJ No 1621 [Amazon]. [15] Supra note 8, MOPOP at 12.03.02. [16] Supra note 14, Amazon at para 58. [17] Supra note 5. [18] Ibid at s 28.2(1). [19] Supra note 1, What is a patent?. [20] Supra note 5. [21] Supra note 11, Guide to patents. [22] Apotex Inc v Wellcome Foundation Ltd 2002 SCC 77 at para 69, [2002] 4 SCR 153 [Apotex]. [23] Ibid at para 70. [24] Supra note 5 at 28.3. [25] Supra note 22, Apotex at para 67. [26] Canada, Canadian Intellectual Property Office, “Standard fees for patents” (Ottawa: CIPO, 8 August 2019)
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Security Interests
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.[1] 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.[2] 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.[3] 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.[4] Generally this involves registering a financing statement. Financing statements may be registered before the security agreement is actually made.[5] 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.[6] 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.[7] 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.[8] Reasonable collection expenses can be deducted from money collected in either of these ways.[9] The secured party also has the right to seize the collateral or otherwise enforce the security agreement by any method permitted by law.[10] The law relating to contracts of sale applies to security interests created in installment purchase agreements.[11] 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. [12] 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.[13] 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.[14] 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.[15] This copy of the contract can be sent by email, fax, or mail to an address provided by the purchaser.[16] 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.[17] 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.[18] 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.[19] The court can intervene to stop any of these cancellations if they would be inequitable.[20] 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.[21] If the consumer pays off their debt early, the seller must also return a portion of all non-interest finance charges.[22] 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. References [1] PPSA s12. [2] PPSA s11. [3] S25. [4] S19. [5] S43(4). [6] S30(6)(b). [7] S50(2). [8] S57(1). [9] S57(2). [10] s58(1)(a). [11] s15. [12] Sale of Goods Act, s39. [13] Consumer Protection Act, s6(3). [14] Consumer Protection Act, s6(4). [15] Regulation, s5(1). [16] Regulation, s5(3). [17] Regulation, s6(1)(a). [18] Regulation, s6(1)(b). [19] Regulation, s6(2) and (3). [20] Regulation, s7. [21] Consumer protection act 68(2). [22] Consumer Protection act 68(3) and 68(4). CALGARY's START-UP COMMUNITY: AN OUTLINE OF SERVICES AND SUPPORT
INTRODUCTION 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.
COWORKING SPACES 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
MORE RESOURCES
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. Contractor or Employee?
Introduction 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.[1] 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.[2] Regardless, this blog will provide a brief overview of the primary common-law test used by courts, the fourfold test. Four-fold Test In Montreal v Montreal Locomotive Works Ltd et al, (“Montreal Locomotive”),[3] 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.[4] Control Test 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. Conclusion 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. References [1] Kaszuba v. Salvation Army Sheltered Workshop (1983), 83 C.L.L.C. 14,032 (Ont. Div. Ct.) [2] 671122 Onatrio Ltd v Sagaz Industries Canada Inc, 2001 SCC 59 at para 46 [Sagaz Industries]. [3] [1947] 1 DLR 161. [4] Montreal (City) v Montreal Locomotive Works Ltd (1946), [1947] 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. Mobile Food Vending: A Beginner’s Guide
Have you ever thought about operating a food truck? In the U.S. at least, the food truck industry is now generating $2 billion-plus in estimated revenue with the industry’s overall revenue having grown 300% over the last three years.[1] Though the food truck craze likely peaked a few years ago, mobile food vending may still provide budding entrepreneurs exciting opportunities to get their feet wet. Some carts and concession stands can be purchased at an attractive price point, and even food trucks, which will likely require a larger investment upfront, can be run with modest operating costs. There is also something appealing (at least to the author of this blog post) about parking your colourful truck next to the sidewalk, playing your favourite music, and dishing out your choice of delicacy to a lineup (one would hope) of eager patrons. You may also like the idea of being part of the festival scene, which largely depends on mobile food vending to keep the good people of Calgary happy and fed. If meals on wheels speaks to you like ones and zeroes probably spoke to Bill Gates, listen up; you’ll need to clear some red tape before you can get started. Food Handling Permits If your mobile food vending operation is going to require you or your staff to handle food, you will need a food handling permit. Alberta Health Services classifies mobile food vending units according to the type of food that will be handled, the manner in which said food will be handled, and the extent to which such handling presents a risk to the public. Depending on how your mobile unit is classified (types A-F), you will need to meet certain requirements, such as a minimum number of sinks or a minimum amount of fresh water that you have to have available for use at all times. Additionally, if you are not planning on preparing food in the mobile food vending unit itself, you will likely need to set up a “Base of Operations,” which would entail designating a space for food storage and preparation and then receiving approval from Alberta Health Services. Business Permits Next, you’ll need some business permits from the folks at the City of Calgary. First and foremost, anyone offering mobile food services will need to obtain a municipal business licence. The next step will depend on what kind of vending unit you plan on operating and where, exactly, you plan on parking it. If you want to operate from city streets, you’ll need to licence your mobile unit as a “full service food vehicle.” This type of licence requires a safety code inspection, which is coordinated in conjunction with a business licence fire inspection and can be scheduled by calling 311. You will also need to have a commercial vehicle licence and an insurance policy with at least $2 million of coverage in place before a full service food vehicle permit will be issued. Those wanting to park their full service food vehicle at a special event will also need an additional special event inspection (also scheduled by calling 311). If you plan on operating only from private property, or if you want to operate a pushcart outside of the downtown core, you can instead apply for a “food service – no premises” licence type. This licence will not require the building safety and fire inspections that a full service food vehicle would, although you will still need an insurance policy with at least $2 million of coverage in place before a permit will be issued. Note that this type of licence allows individuals to operate downtown between the hours of 7 am and 3 am. Some examples of food service – no premises mobile vending units include: food trucks that only operate at festivals or only sell pre-prepared foods, pushcarts outside of downtown, bicycle vendors operating on roadways that do not meet the definition of pushcart, ice cream trucks, and catering trucks. It is also important to note that operating your business on private property (regardless of how you’ve licenced your mobile vending unit) will require the property owner’s written consent. Other Considerations Regardless of which licence type you ultimately decide on, there will, of course, be fees (see the City of Calgary link provided below). You will also need to ensure that you dispose of any grey water (waste water from cleaning dishes and the like) at an approved location. Those who want to operate on Stephen Avenue Mall, Barclay Mall or Eau Claire Market will also need approval from the Downtown Association. Given that your business may feature sharp objects and open flames, you may also want to think about liability and how you will structure your business (i.e. whether to incorporate). So there you have it, the basic steps you need to get your mobile vending unit business up and running. Ultimately, one of the great things about food trucks and mobile vending units is that the municipal and provincial governments have put resources towards streamlining the licencing process. If you’re a first-time entrepreneur, that means less red tape and more time to dial in your menu, your branding, and your food trucks awesome paint job. For more information on Food Handling Permits, visit: https://www.albertahealthservices.ca/assets/wf/eph/wf-eh-mobile-food-vending-units.pdf For more information on mobile food vending in the City of Calgary, please visit: http://www.calgary.ca/PDA/pd/Pages/Business-licenses/Mobile-Food-Vendors.aspx To view the City’s fee list, visit: http://www.calgary.ca/PDA/pd/Documents/fees/business-licence-fee-schedule.pdf Aleksandar Kukolj is a member of the BLG Business Venture Clinic, and is a 3rd year student at the Faculty of Law, University of Calgary. References [1] Sam Milbrath, “12 Impressive Facts on the Food Truck Industry” (May 17, 2018) online: https://www.food.ee/blog/12-impressive-facts-on-the-food-truck-industry/. Are you sure you want to patent your software/app idea?
Why patent software-related inventions? Patenting software innovations may provide a number of advantages that copyright alone cannot. Some advantages of patenting software include:
To what extent can inventions covering software be patented? Convincing the patent office that an invention constitutes patentable subject matter continues to be a challenge, particularly for software patent applications. The Patent Act doesn’t include the terms ‘computer’ or software’; therefore, software must meet the general requirements for patentability in the Patent Act.[2] In Canada, in order to be patentable an invention must be novel, useful and unobvious. In other words, the invention must: not have been previously disclosed in the world; be functional and operative; show ingenuity; and not be obvious to someone skilled in the art.[3] Software innovations present additional challenges in convincing the Patent Office that they fall within the scope of “patentable subject matter”. Canadian courts have not had many opportunities to consider the patentability of software inventions. However, the issue of software patentability in Canada was recently examined in Canada (Attorney General) v Amazon.com Inc (2011 FCA 328, 2 FCR 459). The Federal Court of Appeal granted Amazon a patent for software that stored customer information to expedite future purchases (the “one-click” online ordering system), setting aside the Patent Offices’ rejection of the patent. In this case, the Federal Court of Appeal further explained that “patentable subject matter must be something with physical existence, or something that manifests a discernible effect or change”. Many software innovations satisfy these requirements, particularly when implemented on physical devices.[4] Following Amazon.com, the Patent Office issued new patent examination guidelines for computer-implemented inventions.[5] Specifically, the office stated that a purposive construction is needed to determine whether a computer is an essential element of the claims, thus distinguishing legitimate claims from disembodied inventions prohibited by Section 27(8) of the Patent Act. Hundreds of patents pertaining to computer-implemented inventions have been issued by the Patent Office since Amazon.com. Nonetheless, no bright-line test exists for determining whether a claim directed at software or a computer-implemented business method will be found to constitute patentable subject matter. Do you really need a patent for your software-related invention? Think twice before preparing a patent application. Your computer program, whether in source code or object code, remains protected under copyright. The major advantage of copyright protection lies in its simplicity. Copyright protection does not depend on any of the formalities, this means that it arises automatically. In contrast, a patent must be applied for, in principle, in each country in which you seek patent protection. In order to enjoy patent protection, an application for a patent shall comply with both formal and substantive requirements, and a patented invention shall be disclosed to the public. Due to these complex requirements for the grant of patents, the costs for obtaining and enforcing a patent may be costly. Unless you have important financial resources, it may be worth considering whether patenting your software-related innovation is the best way to protect your product. The possibility and feasibility of using other types of intellectual property, such as trademarks, industrial designs and trade secret protection, may also be considered.[6] Amber Blair is a member of the BLG Business Venture Clinic, and is a 2nd year student at the Faculty of Law, University of Calgary. References [1] Smart & Biggar | Fetherstonhaugh, “Obtaining Software Patents” (October 2004), online: Smart & Biggar } Fetherstonhaugh Information Sheet (PDF) <http://www.smart-biggar.ca/Assets/Software_Patents.pdf>. [2] Sean Gill & Grant W. C. Tisdall, “Patentability in Canada” (11 January 2016), online: Gowling WLG: Insights & Resources (blog) <https://gowlingwlg.com/en/insights-resources/articles/2016/patentability-in-canada/>. [3] Patent Act, RSC 1985, c P-4, s. 2, 28.2, & 28.3. [4] Cameron Gale, “Canadian Software Businesses Should Consider Patents Despite CIPO’s Misleading Messages”, (22 February 2019), online: Bereskin & Parr: Insights & Resources <https://www.lexology.com/library/detail.aspx?g=7e795fb0-a866-40d8-a777-52db6a0a6f0b>. [5] Canadian Intellectual Property Office, “Examination Practice Respecting Computer-Implemented Inventions” (8 March 2013), online: Government of Canada < https://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03627.html>. [6] World Intellectual Property Organization, “Patenting Software”, online: World Intellectual Property Office Documents <https://www.wipo.int/sme/en/documents/software_patents_fulltext.html>. A Summary of Proposed New Rules for Cryptocurrency Exchanges
Cryptocurrency exchanges, depending on how they operate and the crypto assets they make available for trading, may already be subject to securities and/or derivatives regulation. Canadian regulators are proposing new rules to govern cryptocurrency exchanges aimed to curtail the risks associated with those trading platforms. The consultation paper was published on March 14, 2019 and can be found here: https://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20190314_21-402_crypto-asset-trading-platforms.htm At the time of writing this, it’s unclear when any new regulations would come into effect. Part 3 of the Proposed Regulations: Risks Related to Platforms Any start-up considering crypto assets, as a potential avenue for financing, need to be aware of the risks associated with these Platforms.[1] These include:
The regulators are looking to have Platforms that build consumer confidence, expand business in Canada and globally, foster greater market integrity, provide clarity, and protect investors.[2] These are objectives are similar to those of traditional exchanges such as the TSX and the TSX-V. Currently there are no Platforms recognized as an exchange or otherwise authorized to operate as a marketplace or dealer in Canada.[3] The consultation paper seeks input from the fintech community, market participants, investors and other stakeholders looking at how regulatory requirements may be tailored for crypto-asset trading Platforms operating in Canada. Comments are due by May 15, 2019 and include the following areas: 5.2.1 Custody and Verification of Assets The regulations contemplate requiring that Platforms obtain SOC Type II reports as well as yet-to-be determined standards specific to crypto assets if they are seeking registration as an investment dealer and IIROC membership. Traditional custodians that hold assets for clients typically engage an independent auditor to perform an audit of the custodian's internal controls and prepare an assurance report, such as SOC 1 and SOC 2 Reports, pertaining to the design of the controls (Type I Report) and a report assessing whether such controls are operating as intended (Type II Report). There have been challenges with crypto asset custodians and Platforms obtaining SOC 2, Type II Reports, in part due to the novel nature of crypto asset custody solutions and the limited period of time that Platforms have been in operation to allow for the testing of internal controls. 5.2.2 Price Determination Platforms will be required to foster price discovery for the crypto assets they offer for trading. Where the Platform or an affiliate acts as a market maker and provides quotes, the mechanisms for determining those quotes are expected to be available to participants. When trading as a market maker against its participants, a Platform will also be required to provide participants with a fair price. 5.2.3 Market Surveillance The regulations propose that Platforms not permit dark trading or short selling activities, or extend margin to their participants. The existing types of marketplaces have different regulatory responsibilities. Exchanges are responsible for conducting market surveillance of trading activities on the exchange and enforcing market integrity rules. All of the existing equity exchanges have retained IIROC to monitor trading activity and enforce market integrity rules. Alternative trading systems, by contrast, are not permitted to conduct market surveillance or enforcement activities and are required to engage a regulation services provider (RSP). IIROC currently acts as an RSP to all equity and fixed income marketplaces. 5.2.4 Systems and Business Continuity Planning Marketplaces are currently required to:
5.2.5 Conflicts of Interest Platforms will be required to identify and manage potential conflicts of interest and will be required to disclose whether they trade against their participants, including acting as a market maker, and the associated conflicts of interest. To the extent Platforms are required to become IIROC Members, they will also be subject to requirements in the Universal Market Integrity Rules aimed at mitigating the risks associated with trading against their participants. 5.2.6 Crypto-asset Insurance Dealers are required to maintain bonding or insurance against specific risks and in specified amounts. This requirement may not address the specific operational risks of Platforms. There may be significant difficulty and costs for a Platform to obtain insurance, in part due to the limited number of crypto asset insurance providers, and the high risk of cyber-attacks. Therefore, some Platforms have indicated that they are considering limited coverage that only extends to certain crypto assets, crypto assets in "hot wallets" or "cold wallets", loss as result of hacking, or loss from insider theft. 5.2.7 Clearing and Settlement All trades executed on a marketplace are required to be reported and settled through a clearing agency. Without exemptive relief, this requirement would also apply to Platforms that are marketplaces. However, currently there are no regulated clearing agencies for crypto assets that are securities or derivatives. The regulators are considering whether an exemption from the requirement to report and settle trades through a clearing agency is appropriate. In these circumstances, Platforms will still be subject to certain requirements applicable to clearing agencies and will therefore be required to have policies, procedures and controls to address certain risks including operational, custody, liquidity, investment and credit risk. The Regulators plan to revisit such exemptions in the future, as the space continues to develop and evolve. Some Platforms may operate a non-custodial (decentralized) model where the transfer of crypto assets that are securities or derivatives occurs between the two parties of a trade on a decentralized blockchain protocol (e.g. smart contract). These types of Platforms will be required to have controls in place to address the specific technology and operational risks of the Platform. Criticism Evan Thomas, a lawyer at Osler, Hoskin & Harcourt LLP who specializes in blockchain technology warns that “the cost, time and other practical difficulties of complying with many of the regulatory requirements contemplated by the paper would effectively shut out many innovative crypto asset trading platforms from the Canadian market.”[4] Colin Patterson is a third year student at the Faculty of Law, University of Calgary, and is a JD and CPA candidate. References [1] https://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20190314_21-402_crypto-asset-trading-platforms.htm [2] https://www.osc.gov.on.ca/en/NewsEvents_nr_20190314_csa-consult-on-regulatory-framework-crypto-asset-trading-platforms.htm [3] Supra note 1 [4] https://www.theglobeandmail.com/business/article-canadian-regulators-propose-framework-to-govern-cryptocurrency/ So, You’re Ready to Incorporate You’re Business: Where to Start.
You’ve had a great idea for some time. You’ve considered it deeply. You’ve made a business plan, and now it’s time to turn your dream into a reality. But where to start? There are a variety of forms a business can take, but the corporate structure has tended to predominate for start-ups in Canada. [1] There is a good chance therefor you might settle on the corporate form for your new business. This post will not consider the pros and cons of different business structures. If you would like information that could help you choose a business structure, please contact the BLG Business Venture Clinic (the “Clinic”). [2] Incorporation, particularly in Alberta, is the subject of this writing. The purpose of this post is to shine light on resources that can help get you started and raise important considerations. Free Resources There are many free resources available online. It is important to ensure the information you find is trustworthy before relying on it to make business or legal decisions. The BLG Business Venture Clinic does not certify the correctness of the information in the resources that follow. The Government of Canada provides a “Business Start-up Checklist” which offers a wide variety of information, including direction to provincial and territorial business registration resources. [3] The business registration information is separated by province and territory. [4] This is important because a business can be incorporated in a province, a territory, or at the federal level. The Government of Alberta offers information on registry costs and categorizes registries by services offered. [5] To find a business registry that offers incorporation services in your area, registry locations can be searched by city or town. [6] Before you head to your local registry, there are a number of steps and information to gather. The Government of Alberta provides a list of steps to incorporate a business in the province. [7] They are as follows:
Considerations An entrepreneur could use the resources above, pay the NUANS report and incorporation fees and successfully incorporate a business in Alberta. The incorporation documents discussed are the legal foundation of a business and considerable thought should go into drafting their substance. For example, in the articles of incorporation or an appendix thereto, the drafter can add desired provisions. A provision in the articles can allow the board of directors to increase the number of directors by up to one third (1/3) of those elected at the last annual general meeting. [11] This increase can remain in effect until the following annual general meeting. [12] Another consideration is, “[t]he securities law regime in Canada requires that certain restrictions on the transfer of shares be included in the articles of a company if certain exemptions from prospectus and registration rules are to be available.” [13] One of these exemptions is the “private issuer” exemption which “is one of the easiest and least complicated to use in the very early stages of a growth company’s financing.” [14] Aside from the documents discussed above, a corporation should consider having by-laws ready to sign upon incorporation. The by-laws of a corporation deal with a variety of internal elements including processes, powers, and roles. Ensuring a corporation has by-laws in place from the start can avoid uncertainty and potential issues. There are boiler-plate by-laws available online, but they often are ill suited to a particular corporation. Certain boiler-plate provisions “will be removed as a condition of any future financing.” [15] They should be avoided at the outset instead of requiring amendment later. Aside from issues to avoid, the by-laws should be drafted to appropriately reflect the needs of the corporation. This means including the right provisions and the correct balance of powers. Conclusion Resources are available to incorporate a business on ones own. There are however considerations and drafting of language that may warrant the services of a lawyer. Finances are often tight during the start-up phase and it may be tempting to avoid the cost of legal fees. However, there are options that may help control costs. The BLG Business Venture Clinic is one resource that can help do just that. The Clinic offers free legal assistance, provided by law students. The assistance offered includes drafting of documents discussed in this post and the writing of memos on specific issues or questions a business might have. It is recommended that clients of the Clinic have the work reviewed by a lawyer. A review of prepared documents should however cost less than having a lawyer draft the documents themselves. Neil Thomas is a member of the BLG Business Venture Clinic, and is a 2rd year student at the Faculty of Law, University of Calgary. References [1] Bryce C. Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practices, 3rd ed (Canada: LexisNexis Canada Inc, 2018) p 58 [Tingle]. [2] University of Calgary, “We’re here to help – Contact us!” (2017), online: BLG Business Venture Clinic <thttp://www.businessventureclinic.ca/contact.html >. [3] Government of Canada, “Business Start-up Checklist” (September 28, 2018), online: Government of Canada <https://canadabusiness.ca/starting/checklists-and-guides-for-starting-a-business/business-start-up-checklist/>. [4] Ibid. [5] Government of Alberta, “Find a business registry” (2019), online: Alberta <https://www.alberta.ca/find-business-registry.aspx>. [6] Government of Alberta, “Level 2: advanced registrations” (2018), online: Alberta <http://servicealberta.ca/Find-a-business-advanced-registrations.cfm>. [7] Government of Alberta, “Alberta Corporations” (2018), online: Alberta <https://www.servicealberta.ca/712.cfm>. [8] Ibid. [9] Ibid. [10] Government of Alberta, “Incorporation forms” (2019), online: Alberta <https://www.alberta.ca/incorporation-forms.aspx>. [11] Business Corporations Act (Alberta), RSA 2000, c B-9, s 106(4). [12] Ibid. [13] Tingle Supra note 1 at p 63. [14] Tingle Ibid; Prospectus and Registration Exemptions – Consolidated Version for Periods Relating to Financial Years Beginning Before January 1, 2011, NI 45-106, s 2.4. [15] Tingle Ibid. NON-COMPETE CLAUSES
What are they? A non-compete clause is a provision designed to limit a former employee’s ability to work for a competitor or open a competing business. Non-compete provisions are sometimes included in employment contracts, but they can also form a standalone agreement. Non-compete clauses are very common, especially among start-up companies. After all, the last thing a company wants when an employee resigns or is terminated is for that employee to launch a competing business or head straight to the nearest competitor. Employees may have intimate knowledge of their former employer’s trade secrets, operations and business plans, and may have gained access over the course of their employment to valuable information relating to customers, clients, new products and marketing strategies. Are they enforceable? Despite their popularity, non-compete clauses can be difficult to enforce. From a public policy perspective, the courts want to ensure that individuals are not unfairly prevented from earning a living. This has resulted in courts frequently striking down non-compete provisions that are deemed to be “an unreasonable restraint on trade”.[1] However, there are a number of surrounding factors that courts consider in assessing the reasonableness and validity of a non-compete clause. Understanding these considerations can help employers craft effective non-compete provisions that are as minimally restrictive as possible. To design a non-compete that will protect the company and withstand a legal challenge, consider the recommendations below. Limit the scope The more limited a non-compete is with respect to duration and geographic scope, the more likely courts are to enforce it. In Kohler Canada v Porter, the provision in question restricted a manager from competing anywhere in North America for one year after termination of employment “in a line of business…in which the employee worked”. The court struck down the provision for being too broad.[2] Moreover, the geographic scope should be clearly and unambiguously defined. In Shafron v KRG Insurance Brokers (Western) Inc., the court refused to uphold a non-compete clause they deemed unenforceable due to ambiguity.[3] The contract in question sought to prevent a former employee from working anywhere in “the Metropolitan City of Vancouver”, which is not a legally recognized geographic area. As a consequence, the court held that the entire agreement was invalid. Employers should also embed in the agreement itself the rationale for the geographic and temporal scope.[4] Courts may consider such factors as the duration of the employee’s tenure, the size of the market in a geographic region, and the nature of the information to which the employee had access or how closely they worked with clients.[5] Being transparent about the factors that inform the scope of the non-compete can help a court assess whether or not it is reasonable. Further, a company may choose to tailor a non-compete clause in terms of the specific jobs its employee will be prevented from taking, or the competitors they will be prevented from joining for a period following the termination of their employment.[6] This way, the company can protect itself in the areas in which it is most vulnerable, without unduly hampering the employee’s ability to find subsequent employment. This means that non-compete clauses must be specific to the employee, having regard for the roles and competitors where that employee most poses a risk to the company. Don’t impose non-compete agreements on everyone While it may be tempting to bind every employee to a non-compete agreement, such indiscriminate application can actually weaken the protection afforded by such provisions. If every employee is required to sign a non-compete agreement regardless of how tangential their role is to the company’s main business, the courts may view this as demonstrating a company’s unreasonableness.[7] In assessing whether a non-compete clause is necessary or reasonable, courts will consider whether a departing employee had influence over clients or customers and how much damage the employee could do in the same market as the company.[8] A receptionist leaving the company likely doesn’t pose the same risk that a software engineer or salesperson does. A company’s use of non-compete agreements should reflect that. Consider a non-solicitation agreement instead A non-solicitation agreement can be used to prevent a departing employee from poaching the company’s clients, investors, suppliers and other employees. While non-solicitation agreements can also be struck down if they are too broad, they are more likely to be enforceable than are non-compete agreements. Non-solicitation agreements may be as (or more) effective as non-compete agreements at protecting a company. A salesperson leaving to join a competitor’s team can do far less damage if they are not allowed to take clients with them. Although non-solicitation clauses should be customized just as non-competes are too avoid being struck down for over breadth, there are a few good rules of thumb. First, limit them to one year or less. Second, the clause should be drafted to prevent an employee from soliciting only those individuals with whom they developed a relationship over the course of their employment. Attempting to prevent the employee from contacting anyone the company does business with has greater potential to be viewed as unreasonable, particularly in smaller markets. 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. References: [1] Bryce C. Tingle, Start-up and Growth Companies in Canada 3rd ed (LexisNexis Canada Inc., 2018), at 131. [2] Kohler Canada Co. v Porter [2002] OJ No.2418, 26 BLR (3d) 24 (Ont SCJ). [3] Shafron v KRG Insurance Brokers (Western) Inc.,2009 SCC 6, [2009] 1 SCR 157. [4] Supra, note 1 at 132. [5] Lisa Stam, “Is My Employee’s Non-Compete Agreement Enforceable?” (21 February 2018), online (blog): Employment and Human Rights Law in Canada < https://www.canadaemploymenthumanrightslaw.com/2018/02/employees-non-compete-agreement-enforceable/> [6] Supra, note 1, at 132. [7] Ibid. [8] Supra, note 5. |
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