Written by Kevin Seo 
​JD Candidate 2024 | UCalgary Law

A trade secret is a type of intellectual property which derives its value from its secrecy. This can come in the form of secret technology, secret processes, secret formulas, and other confidential information not disclosed to the public.[1] Considering the immense value that can be generated from trade secrets, corporations should consider a number of key factors to safeguard proprietary information. This article will discuss the basic ins-and-outs of trade secret law in Canada.

Unlike other forms of intellectual property such as patents and copyrights, there is no Canadian legislation related to trade secrets or a formal process for trade secret registration. Instead, trade secrets are largely based on common law precedent and are protected by the courts through tort claims, breaches of contract, or breaches of confidence.[2] The one caveat is that trade secrets may be caught under the Security of Information Act, which deals with the fraudulent theft of trade secrets owned by foreign entities. [3]

For information to be considered a trade secret, the information must be confidential, and the owner of that information must have taken reasonable steps to maintain its secrecy.[4] In terms of confidentiality, this would be established if the information was only known to a select group of people and was not disclosed to the wider public.[5] Some measures which may be considered reasonable steps to maintain secrecy may include physically locking up tangible information, keeping an inventory of all intellectual property, and requiring employees to sign non-disclosure agreements prior to and following the course of employment.[6] There is also a requirement that the trade secrets must have sufficient economic value, which provides a competitive advantage or have an industrial or commercial application.[7]

One distinctive feature of trades secrets is that there is no expiry date for protection, and can survive in perpetuity, as long as the information remains a secret. This characteristic is useful, as inventors may use trade secrets as a cost-effective measure to protect their innovations with no time limitations. Furthermore, trade secret can be used to protect information which would not be protected by other forms of Intellectual property, such as consumer data, market research, and recipes.


[1] Canadian Intellectual Property Office. “Government of Canada”, (19 March 2021), online: Government of Canada, Innovation, Science and Economic Development Canada, Office of the Deputy Minister, Canadian Intellectual Property Office <https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/what-intellectual-property/what-trade-secret>
[2] “Trade secrets in Canada”, online: Heer Law <https://www.heerlaw.com/basics-trade-secrets>
[3] Security of Information Act (R.S.C., 1985, c. O-5)
[4] “Protecting your trade secrets”, online: Osler, Hoskin & Harcourt LLP <https://www.osler.com/en/resources/business-in-canada/browse-topics/intellectual-property/protecting-your-trade-secrets>
[5] Ibid.
[6] Ibid.
[7] Ibid

Written by Kevin Seo 
JD Candidate 2023 | UCalgary Law 

Industrial designs, which are also sometimes referred to as design patents, are a type of intellectual property which predominantly focuses on a product’s visual features.[1] While industrial designs are less commonly known compared to patents, copyrights or trademarks, registering industrial designs can be a great source of value for start-ups and newly formed companies. This article will discuss the basic ins-and-outs respecting the law as it applies to industrial designs.

At its core, industrial designs protect a product’s unique appearance irrespective of what it is made of, how it is made or how it works.[2] Industrial designs can be distinguished from patents as industrial designs are not concerned with whether an entirely novel good or process was created. The functional aspects of a specific product are not considered, only the visual aspects such as shapes, configurations, or patterns. [3]

Specifically, registering industrial designs afford the corporation the exclusive right to exclude others from making, selling, or importing similarly manufactured goods.[4] Industrial designs can be registered alongside copyrights and patents for more comprehensive protection of intellectual property rights. For example, a creator of a video game may be able to register the game’s storyline as copyright, while also registering the specific aesthetic quality of the computer graphics as industrial designs.

For an individual to apply to register an industrial design, they must be the proprietor of the industrial design or an agent acting on the proprietor’s behalf.[5] The proprietor is often the creator of the industrial design. The one exception is if the creator was hired for the specific purpose of the industrial design, at which point the employer would be considered the proprietor.[6]

When registering an industrial design, the first step is to file an industrial design application. The application generally includes information such a description of the industrial design, reasons for why the registration is sought, and the identity of the application’s filer.[7] The application is then reviewed by the Canadian Intellectual Property Office, otherwise referred to as the CIPO. The CIPO will determine whether the design is sufficiently novel and will either provide a notification of approval or an examiner’s report outlining objections to the application.[8] If an examiner’s report is received, the applicant has 3 months to either amend the application or provide arguments as to why the application should be accepted.[9] If the examiner determines that the application fulfills all the requirements, the industrial design will proceed to be registered. It may take up to 12 months to receive an examiner’s first report after initially filing, and a Canadian industrial design registration will last for ten years from the registration date or fifteen years from the filing date, whichever is longer. [10]


[1] Tingle, Bryce C. Start-up and Growth Companies in Canada: A guide to legal and business practice, ed (Toronto: LexisNexis, 2018).
[2] Canadian Intellectual Property Office. “Government of Canada”, (10 January 2023), online: Government of Canada, Innovation, Science and Economic Development Canada, Office of the Deputy Minister, Canadian Intellectual Property Office <https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/industrial-designs/industrial-designs-guide> .
[3] Ibid.
[4] “Industrial Design FAQ”, online: Heer Law <https://www.heerlaw.com/industrial-design-faq> .
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] Ibid.
[9] Ibid.
[10] Ibid.

Written by Parker Easter
JD Candidate 2023 | UCalgary Law
Co-Founder | ReNu Hygienics 
​

Most are familiar, many are excited, and a few are disgruntled; the great generational wealth asset transition (somewhere between $30-70 trillion!)[1] is among us and is well discussed. However, the conversations surrounding the $2 trillion worth of Canadian baby boomer business soon to enter the robust small and medium business mergers and acquisitions (“SBA”)[2] are far and few between.
 
Considering some studies report that as much as 62% of Canadian business owners plan to use the proceeds of their business exits to fund their retirement,[3] ensuring the demand-side of the market is equipped and able is critical to the macro-economic health of the country. Unfortunately, this requirement is met by overleveraged, unsecured, and unaccredited prospective buyers – Canadian youth. How overleveraged, unsecured, and unaccredited are our youth? Well, it is difficult to say but one Industry Canada report summed the problem up well:
 
“Very few studies containing empirical data are available in the literature describing youth SME financing, although significant anecdotal evidence of barriers to attaining financing can be found. Youth owned SMEs must overcome all of the same obstacles that any venture must overcome in their quest for capital. However, some of the obstacles are even more pronounced in this group as they do not have extensive career track records or significant personal assets to use as collateral. Compounding this is a strong likelihood of no personal credit history and often a large student loan debt.”[4]
 
Sufficient to say that while our youth will make up an uncertain, but surely sizeable, amount of the acquisitions needed to match the nearing supply, their barrier to bank loans generates concern. As such, this article sets out to provide insight to prospective buyers by vetting the main sources of SBA financing available to Canadians – even our youth.

​
The Landscape

Debt, equity, and seller financing are the three key forms of SBA financing. The best capital structure varies widely and will be unique to each buyer.[5]

Debt Financing for SBA

Debt Financing occurs when a person or entity borrows money for the purposes of an SBA in exchange for the promise that it will pay back the entire value borrowed (the “principle”) plus an additional interest fee. In addition to repayment terms, Debt Financing is invariably accompanied by a “down payment” and often with financial performance rules (covenants). Within Debt Financing, there are several vehicles to consider, however, for simplicity, discussed below includes just (1) Bank Financing, and (2) Government Financing.

1. Bank Financing
   
   Bank financing is the most traditional form of debt financing and involves borrowing money from a bank or other financial institutions. Banks provide a range of financing options, including lines of credit, term loans, and mortgages, among others. However, qualifying for bank financing can be challenging for small business owners, particularly those without a strong credit history or collateral – cue the youth. Where available to these high-risk borrowers, banks will often require a higher rate of interest or greater down payment, implying a greater chance of default, and often require the borrower to adhere to certain covenants.[6]
   
   To increase their chances of securing bank financing, small business owners should prepare a detailed business plan and financial statements that demonstrate their ability to repay the loan. This applies even in SBAs; while the past performance of the target will be a strong indicator of risk of default, the banks will want to see the buyer’s vision and the level of prudency they are bringing to the endeavor. They may also consider seeking the assistance of an accountant or private M&A lawyer who can help them navigate the financing process.
   
   
2. Government Financing
   
   Government financing is a form of debt financing that is backed by the government. The Canadian government offers several programs that provide loans, grants, and other types of financing to small businesses, including those involved in SBA transactions. These programs are designed to help Canadian businesses grow and create jobs, and they often have lower interest rates and more flexible repayment terms than traditional bank loans.
   
   One popular government financing program is the Canada Small Business Financing Program (CSBFP), which provides loans of up to $1 million to help small businesses acquire assets, such as equipment or real estate. The program is administered by the Small Business Financing Directorate of Industry Canada and is available to businesses that have gross annual revenues of $10 million or less.[7] While the CSBFP does not permit borrowers to use the funds to acquire shares (in a target acquisition – the ethos of this article, per say), an entrepreneur can leverage this program post-acquisition to catapult the new company in pursuit of their vision.
   
   

Bridging the Gap: Equity and Seller Financing for SBA

But where will one come up with the 20-30%[8] down payment often required to obtain the debt finance capital for a SBA? If one doesn’t have the capital themselves, they can look to (1) Equity Financing, or (2) Seller Financing to obtain the necessary finance.

1. Equity Financing
   
   While the owner and operator of a small business is often its first equity investor using their own savings, equity financing can also be leveraged for additional outside capital. Simply, it involves trading a portion of the target business for investment capital. In SBA transactions, equity financing can come from several sources including friends and family, angel investors, and even professional private equity or venture capital firms.
    
   When it comes to equity capital for SBAs, the dominant concern surrounds negotiating investor terms. These vary widely based on the deal, the investor, and the relationship between the investor and acquiror. In addition to the most obvious term up for negotiation, equity stake, investors may also be bothered to negotiate board representation, liquidation preference, anti-dilution protection, governance provisions, and even information rights.
   
   
2. Seller Financing for SBA
   
   Seller financing is a form of financing where the seller personally finances a portion of the purchase price. While there is no limit to the amount of seller financing you can ask a seller for (in fact, some less “salable” businesses may be 100% seller financed), it is often used to bridge the gap between traditional source financing obtained and the purchase price.[9]
   
   There are several potential advantages to this approach for the buyer: potentially a lower interest rate, more flexibility on the payback schedule, and, arguably most important, a seller with a vested interest in a successful transition and the continued success of the business. On the seller side, the seller may even reap tax benefits by exiting in this fashion.[10]

 
Conclusion

In conclusion, SBA financing can be a complex and challenging process, particularly for Canadian youth who face unique barriers to accessing financing. However, by understanding the landscape of available financing options, small business owners can increase their chances of securing financing and completing successful SBA transactions. Whether through government financing, bank financing, equity financing, seller financing, or a combination of each, there are many ways for small business owners to access the capital they need to grow and thrive.


[1] Joseph Coughlin, Millennials Are Banking On The Great Wealth Transfer, 4 Words Why You Shouldn’t Cash That Check Yet, Forbes (November 16, 2021), online: https://www.forbes.com/sites/josephcoughlin/2021/11/16/millennials-are-banking-on-the-great-wealth-transfer-4-words-why-you-shouldnt-cash-that-check-yet/?sh=47f9318b2dde. Note: it is unclear how much wealth is expected to be transferred throughout Canada specifically – articles on this topic often site both American and Canadian pundits but fail to clarify the scope.
[2] Succession Tsunami: Preparing for a decade of small business transitions in Canada, Canadian Federation of Independent Business (January 2023), online: https://www.cfib-fcei.ca/en/research-economic-analysis/succession-tsunami-preparing-for-a-decade-of-small-business-transitions.
[3] Are Your Clients Prepared To Sell Their Business? The Canadian Press (November 28, 2018), online: https://www.advisor.ca/tax/estate-planning/are-your-clients-prepared-to-sell-their-businesses/.
[4] Dr. Ted Heidrick, Financing SMEs in Canada, Government of Canada, online: https://www.ic.gc.ca/eic/site/061.nsf/vwapj/financingsmesincanadaphase1_e.pdf/$file/financingsmesincanadaphase1_e.pdf.
[5] Tom Venner, Introduction to Capital Structuring, Taureau Group, online: https://www.taureaugroup.com/resource-center/news-articles/capital-structuring-for-the-sale-of-your-business.
[6] James Chen, How Debt Financing Works, Examples, Costs, Pros & Cons (May 28, 2022), Investopedia.
[7] Canada Small Business Financing Program, Government of Canada, online: < https://ised-isde.canada.ca/site/canada-small-business-financing-program/en>.
[8] What is the minimum down payment to buy a business? , BDC, online: < https://www.bdc.ca/en/articles-tools/start-buy-business/buy-business/what-minimum-down-payment-to-buy-business>.
[9] Michael David, How to finance a business acquisition, Swoop Funding (December 21, 2022), online: https://swoopfunding.com/ca/blog/how-to-finance-a-business-acquisition/
[10] By exiting the company on a payment schedule instead of in a lump sum, the seller may assume a lower, or at least a spread-out, tax liability.

Authored by Claire Standring 
JD Candidate 2024 | UCalgary Law 


The serial entrepreneur, co-founder and billionaire investor Peter Thiel wrote a book in 2014 called "Zero to One". This book has earned the nickname of the Silicon Valley start-up bible, and whether it lives up to its name is… well up for you to decide after reading it.
 
Regardless, this book provides valuable insights on entrepreneurship and business, based on his experience as a successful investor and entrepreneur. One of the main themes of the book is the importance of creating something new and valuable, rather than competing in an existing market. According to Thiel, there are seven key rules for starting a successful business:
 
The first rule is to create a unique and valuable product or service. Thiel believes that true innovation comes from creating something entirely new, rather than trying to improve upon what already exists. To achieve this, entrepreneurs need to have a clear understanding of their customers' needs and preferences, and be willing to take risks in developing new products or services.
 
The second rule is to focus on a specific niche market and dominate it before expanding to other markets. Thiel argues that trying to please everyone will result in mediocrity, and that it's better to start small and build a loyal customer base before expanding. By focusing on a specific niche, entrepreneurs can better understand their customers' needs and provide tailored solutions that meet those needs.
 
The third rule is to build a strong team of like-minded individuals who share your vision and values. Thiel emphasizes the importance of hiring people who are not only talented but also aligned with the company's mission and culture. This is crucial for building a cohesive and effective team that can work together to achieve the company's goals.
 
The fourth rule is to take calculated risks and be willing to pursue unconventional paths to success. Thiel argues that successful entrepreneurs need to be comfortable with uncertainty and be willing to take risks that others are not willing to take. This requires a willingness to challenge conventional wisdom and think creatively about how to solve problems and achieve goals.
 
The fifth rule is to embrace the role of technology in shaping the future of business, and invest in research and development to stay ahead of the curve. Thiel believes that technology is the key driver of progress and innovation, and that entrepreneurs need to be aware of emerging technologies and trends in order to stay competitive. This requires a willingness to invest in R&D and explore new ideas and technologies.
 
In addition to these rules, "Zero to One" also emphasizes the importance of building a strong company culture that aligns with your values, as well as the need to constantly adapt and evolve in response to changing market conditions. By following these principles, Thiel argues that entrepreneurs can build successful businesses that have a lasting impact on the world.


Citation: Peter Thiel & Blake Masters, Zero to one: notes on startups, or how to build the future, (New York: Crown Business, 2014).

Written by Ivana Palacios
UCalgary Law | JD Candidate 2024

Deciding on whether to incorporate federally or provincially is often a question that new businesses grapple with. Depending on where you plan on conducting business there may be one additional consideration you have not though about. Will you be able to use the same name throughout Canada?

Federal incorporation allows a business to use its corporate name across Canada.[1] Provincial incorporation in Alberta only cross references names of companies incorporated in Alberta, extra-provincially in Alberta, and federally.[2] Federal name searches are therefore more rigorous than provincial name searches. A provincially incorporated corporation will therefore need to conduct a name search in each additional province in which it wishes to carry on business. There is a risk that its corporate name will be rejected in another province, requiring the use of an alternative name. 

If you plan on conducting business throughout Canada and wish to ensure you are operating under the same name everywhere, you may want to consider this advantage when deciding whether to incorporate federally or provincially.


[1] Corporations Canada, “Is incorporation right for you?” (2020), online: Government of Canada https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs06641.html .
[2] ABCA, s 12(1).