Intellectual Property Protection in Canada

When starting a new business, one of the first things any entrepreneur should do is protect their business idea. Intellectual Property forms the basis of many new businesses, and many entrepreneurs fail to protect what makes their business unique. From the earliest stages of a business idea, even before incorporation or financing comes in, an entrepreneur is well advised to take the necessary steps to protect what will become the basis of their business, their Intellectual Property.

So, what is Intellectual Property? It is the legal right to ideas, innovations, and creations. There are many ways to implement these legal protections. Patents, Trademarks, Copyright, and Trade Secrets are the main ways in which Intellectual Property rights are protected. Each is applicable to certain situations and no one form of protection will be necessary for all businesses.

1. Patents
             In order to receive approval for a patent in Canada, the invention must be novel, useful, and non-obvious to someone skilled in the art. Patents are granted to the first to file, not the first to invent, so timing is very important. Public disclosure of the idea also starts the 12-month clock on the window that you have to file the patent, so early application is key when patent protection is available. Patent approvals can take years, and cost thousands of dollars, but if approved a patent gives you the exclusive right to make, sell, and profit from your invention for 20 years. A worthwhile investment if you have a marketable product that meets the patent requirements.
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2. Trademarks
            Trademarks are used to protect a word, symbol, or design that distinguishes the goods or services of an individual or firm from others available to customers. Trademarks protect your brand and any identifying marks associated with it. The value of product recognition cannot be overstated, so protecting what makes your brand unique is very important, especially for consumer goods and services. A registered trademark protects the mark throughout Canada, while an unregistered trademark only protects the mark in areas that the product is being marketed.   
 
3. Copyright
           A copyright protects the expression of ideas contained in original literary, artistic dramatic and musical works, including computer programs. There is no filing requirement to create the copyright and it protects the work for the life of the creator plus 50 years. The copyright protection gives the creator exclusive right to reproduce the work and any infringement on that is actionable.

4. Trade Secrets
            A trade secret is something of value to your firm that is protected through a contractual regime between those who know about the information. Restrictive covenants are used to prevent those who know about the trade secret from disclosing or using the information outside what is contractually permitted. Trade secret protection is a flexible way to protect your Intellectual Property because the contracts used can be drafted in various ways that meet the specific requirements of the situation at hand.
 
            For more information regarding Intellectual Property protections or for issues regarding who owns the Intellectual Property as the ideas arise, please contact the Business Venture Clinic so that we may assist you. 

Emerson Frostad is a 3rd year student working for the BLG Business Venture Clinic for the 2017/2018 season. 

Thinking of Incorporating?
 
Starting a new business can be both an exciting and frustrating time. It often seems difficult to get answers to what seem like simple questions. In many instances, you may not even know what questions you should be asking. For many companies, one of the first steps they take is a blind leap into incorporation. A corporation is one of the most prevalent business models but it is not well suited to every type of company at any given stage of growth. Like any business decision, deciding to incorporate should involve a careful consideration of whether it is the right decision for your company and whether it will occur at the right time.
 
Here are few issues you may want to consider:
 
Potential Tax Advantages      
Starting a new business can be an expensive proposition for founders. Founders will often be the ones providing the initial capital to get their business of the ground. Flow through taxation can be advantageous to sole proprietors and partnerships in the early stages of a company’s development. Losses can be flowed directly to the proprietor or partners and used to offset income from other sources, creating a potential to reduce the amount of personal income tax payable. While these losses from start-up expenses are also deductible using the corporate form, there is usually no immediate tax advantage because there are no gains to offset.  Founders who have income from other sources, especially those who are funding their enterprise with their own money, may want to take advantage of immediate tax savings.
 
Liability
The corporate structure can be an effective way to limit personal liability. The important question is whether your company is at a stage where there is a real potential for incurring liability in the first place. Unless you have a product or service that has been developed to the point of being marketable, you may not be in a position where reducing personal liability has a definite advantage.
 
Multiple Founders
Start-ups with multiple founders may want to consider incorporation. If they haven’t already, they should certainly consider the implications of the default structure, Partners under the Partnership Act (Alberta) RSA 2000, c. P-3.
 
Finding Investors
Business structure becomes an important issue once a start-up reaches the stage where they need outside investment. Incorporation provides a vehicle for raising investment, issuing shares. Incorporation is also an effective structure for the typical exit transactions, IPOs and acquisitions, that many start-up hope to one day achieve.
 
 For more information on the possible advantage or disadvantages of incorporation, please contact the BLG Business Venture Clinic. 

Breton Gaunt is a 3rd year student at the BLG Business Venture Clinic for the 2017/2018 year. 

Why is Securities Law Relevant to Start-up Companies?
            Securities law is relevant anytime a company finances itself. All start-up companies will need to raise money continuously in order to grow and that means that securities law must be an ongoing consideration. There are significant consequences for a company if securities law is contravened and it is paramount that the rules are understood and that legal counsel is obtained if necessary. The governing statute in Alberta is the Securities Act, RSA 2000, c S-4, but the instruments (both national and multilateral) and companion policies that accompany the statute are the most important resource for rules and procedure.
What is a security?
              A security is a financial instrument. More specifically, it is any asset that is purchased where the performance of that asset is entirely in the hands of a third party. Control is a very important consideration in determining whether a financial instrument is a security. Some common examples include shares, derivatives, bonds, debentures, and notes, but certain types of investment property may also be securities.     
The aim of securities law
          The aim of securities law is to promote investor protection, public confidence, and an effective capital market. This is achieved through disclosure, amongst other processes, in both primary and secondary markets. The primary market relates to brand new issuances of shares from a company’s treasury and adequate disclosure is achieved through a prospectus filing (unless an exemption applies). The secondary market relates to trading in previously issued securities and adequate disclosure is achieved through continuous disclosure and other reporting requirements that companies must adhere to. 
Advantages and Disadvantages to Going Public
                There are many reasons why a company may choose to go public and other reasons that militate against it. Some of the pros of going public include the ability to raise money, to provide liquidity to the initial shareholders, and to improve the exposure and prestige of the company. On the flip side, some of the cons include the time and expensive of an initial public offering (commonly known as an “IPO”), the subsequent continuous disclosure and other reporting requirements, the addition of more stakeholders, and pressure to achieve short-term results.
Filing a Prospectus or Using an Exemption
               When a company goes public, it must file a prospectus which is a document that provides all relevant information for assessing the value of the securities being offered for sale. A prospectus must provide full, true, and plain disclosure of all material facts, which are defined as any facts that would reasonably be expected to have a significant effect on the value of the securities. The prospectus must be filed with the appropriate securities commission(s) and provided to potential investors through an online filing.
              All distributions of securities must meet the prospectus requirements unless an exemption applies. Any securities that are issued through an exemption have restrictions on resale. Securities can be traded within the closed system using another exemption or publicly if a prospectus is filed. Some of the most commonly used exemptions will be discussed below. The rationale behind the exemptions is that there are specific circumstances which limit the amount of risk posed to investors and removes the need for prospectus disclosure. 
                Firstly, the private issuer exemption can be used if a company has never been a reporting issuer or merged with one. There must be restrictions on the transfer of shares (which are typically found in the company’s articles of incorporation), no more than 50 shareholders, and no distribution to the public previously. Securities can be issued under this exemption to a wide variety of individuals, so long as the distribution is not made to the public at large.
              Secondly, the accredited investor exemption encompasses a broad class of individuals. The most commonly used categories are an individual with at least $1 million in financial assets, an individual earning $200,000/year for the last two years or $300,000/year with a spouse for the last year, or an individual with $5 million in assets. The idea here is that an accredited investor is sophisticated and can absorb a loss.
               Thirdly, the friends, family, and business associates exemption can be used by reporting issuers even after 50 shareholders have been reached or a distribution to the public has been made. This exemption is similar to the private issuer exemption except that this exemption captures a broader subset of people who can become security-holders. The idea with this exemption is that these individuals have common bonds with the issuer – either through a direct connection or a close relationship with a person who has a direct connection- that minimizes risk to them.
              Finally, the employee, director, and consultant exemption is available, but participation must be voluntary. The idea with this exemption is that these individuals have knowledge of, or access to, information regarding the company which minimizes the risk they are exposed to.
Conclusion
This blog post should alert you to the fact that securities law is highly relevant to any start-up company. Once a start-up needs to raise money through a financing (which it will), securities law will be a primary consideration whether or not the company decides to go public at that time.


Natalie Holtby is a 3rd year student at the University of Calgary's Faculty of Law. She works for the BLG Business Venture Clinic for the 2017/2018 season.