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IP protection for the young Canadian tech company: An unofficial guide

Data Recovery Article: Silicon Valley North – December 15, 2003

By Peter Caulfield

One of the symptoms of the “new economy” in Canada is the ever-increasing amount of knowledge intellectual property (IP) that is being created, sold and used.

Like other assets with a commercial value, IP needs to be protected in order for owners and investors to maximize their return from it.

Erecting a strong and secure fence around its IP, however, is a low priority for many start-up and early-stage tech companies; they’re often more concerned about getting financing or finding reference clients. That’s unfortunate, because IP protection is a solid investment that will repay the wise tech entrepreneur many times over.

Vancouver lawyer Gary Dunn says any tech company, whether it has deep pockets or not, needs to have an IP strategy. “What you choose to focus your energies and your budget on protecting depends on where you believe the main value of your business resides, “ says Dunn.

“If it ‘s in your company’s relationship with your customers, then focus on having strong licensing agreements. If it’s your relationship with your resellers, be sure you have solid contracts for them to sign. And if it’s in your product or technology, you need to protect it with trademarks, copyright or patents.”

Including trademarks, copyright and patents, there are five ways to legally protect IP in Canada, according to the Canadian Intellectual Property Office.

They are:

  • Industrial designs: the visual features of shape, configuration, pattern or ornament (or any combination of these features), applied to a finished article of manufacture;
  • Integrated circuit topographies: the three-dimensional configuration of electronic circuits embodied in integrated circuit products or layout designs;
  • Trademark: a word, symbol, design or combination of these, used to distinguish the wares or services of one person or organization from those of others in the marketplace;
  • Patents: which cover new inventions or any new and useful improvement of an invention that already exists; and * Copyrights: which protect literary, artistic, dramatic or musical works, including computer software.

Tom O’Flaherty, an independent director of several technology companies on Vancouver Island and on BC’s Lower Mainland, says tech entrepreneurs who are thinking about pitching potential investors for money need to have their IP ideas thought out before arranging a meeting.

O’Flaherty says tech entrepreneurs should be prepared to answer questions such as: Tell me a bit about your IP. What are the key components? How much of your IP do you own, and how much do you license from others? Regarding the part that you own, who are the people who worked in it? Are, or were they, employees or contractors? For each of these, show me the employment letters or contracts. For IP that has been licensed from other companies, show me the agreements.

O’Flaherty says canny investors are on the lookout for the following danger signs when they interview entrepreneurs seeking money:

  • No written agreements in place;
  • Contracts hurriedly put in place, possibly pre-dated (“Very flaky,” says O’Flaherty) just before seeking investment. The work may have been carried out without an agreement in place;
  • Poorly-worded contracts that may not stand up under pressure; * Incomplete agreements. [“He said he’d give me one-half of the company if I got the prototype working. It’s working now. I still don’t have my stock, and I have a copy of the software. The company is one-half mine.”] “Debatable,” says O’Flaherty.

Whether and how a company protects its IP can affect how it markets and brands itself and its products.

“We deal with a broad range of clients who face the tough decision of whether or not to trademark. For our larger national or international clients, trademarking is a requirement, not an option,” says Marcie Sayiner, managing partner of Vancouver-based In Context Marketing and Public Relations.

“However, for our smaller clients, the decision is not so cut and dry. There are other considerations, such as the legal costs and the time involved.”

Sayiner’s client, Michael Grabham, president and CEO of Seattle, WA-based Executive Wireless Inc., trademarked the names “Wireless Realty” and “Wireless Realty, It´s about time” in both Canada and the US, because his company operates in both countries.

Grabham says Executive Wireless’s marketing campaign couldn’t have been undertaken without trademarks.

“We prominently display and market our brand Wireless Realty,” he explains. “We know that we have done all the legal and necessary things so we are not knowingly infringing on anyone.”

In addition to using the law, a tech company can use proprietary technology to protect its IP.

Markham, Ont.-based CBL Data Recovery recovers data remotely from crashed systems for clients all over the world. CEO Bill Margeson says his company’s IP is its software. He believes the most effective way for his business to protect its IP is to be constantly updating its software.

“There’s no such thing as surefire IP protection,” reckons Margeson. “Competitors catch up fast. Any new development advantage will last for only about six months at most. It’s develop or die.”

In addition to protecting its IP from competitors, Toronto-based PricewaterhouseCoopers tax partner and Canadian e-business leader, Marc Milgrom, says tech companies need to protect it from the taxman.

“Some countries in the world are more favourable than others from a taxation point of view,” he says. “By placing the ownership of its IP in one of those jurisdictions, owners and investors can get a much better return.”

Milgrom advises that technology entrepreneurs need to think long-term when considering in which tax jurisdiction to locate their companies. “There’s a window of opportunity, not too early, not too late, after you’ve developed your product and business model but before you’ve grown very big.

“The timing of the window is different for every company. The more revenues your company is generating, the more important these issues are, because the potential tax savings are greater,” he adds.