Traps Associated With Social Media In Business Context

Picture of phone for posting with social media articleI love social media.  I will not pretend that I am as heavily involved as many of you, but I can say that I enjoy the exchanges.   Every day there is some Facebook posting by a friend that shows up on my smart phone.  This keeps me informed as to what my friends are up to, so I don’t lose touch.  I also like interesting articles and videos that my friends post on Facebook or bring to my attention through a “tweet”.  In turn, I like to reciprocate.  When I encounter something interesting, I make my friends aware of it on social media or sometimes I attach it to a text or email.  I am aware of the paramount rule, that you don’t post anything through social media that might place you in a bad light with your employer, members of your church, and persons you care about.  One of my outlets is in preparing articles (occasionally videos) that are posted on the Thompson Cooper website.  However, I avoid the possibility of copyright infringement; as I have been consulted numerous times by persons facing “cease and desist” letters with respect to content on their websites. Copyright includes the copyright owner’s exclusive right to make copies of, or publish, a work or any substantial part thereof, and, subject to some exceptions (discussed below), it is infringement of copyright to do these things without the permission of the copyright owner.  For that reason, all articles posted on our firm website are written by either myself or my partner, Michael Cooper.  All posted photos are taken by myself or I obtain permission and confirm that permission by email. Once the articles are completed, I disseminate them via social media.  The platforms I use for business are generally LinkedIn, Google plus, and Twitter.  To date I have been reserving Facebook for friends, but I am told that I should establish a business presence on Facebook.   This brings me to the point of the article.   The other day a friend emailed a wonderful video with a Xmas theme.  I loved it and did not hesitate to forward it to selected friends, although I did not post it on social media.  I was subsequently looking for an end of the year message to post on the Thompson Cooper website.  I immediately thought of that wonderful video with the Xmas theme, but then I stopped in my tracks and pulled out my copy of the Copyright Act.   Section 29 of the Copyright Act sets out exceptions to infringement.    As I review the “fair dealing” exception found in Section 29, it is for the purpose of “research, private study, education, parody or satire”; clearly not applicable.    As I review the “reproduction for private purposes” exception found in Section 29.22, can I say it is for “private purposes” if it is for my business?  I think not!   I note that even the section on “private purposes” does not apply if the copy that has come into my possession is “an infringing copy”.  In many cases, I have no idea whether the copy sent to me by friends is or is not an infringing copy.  To make matters worse, it ceases to be for “private purposes” if I share it.  What is the take away for the reader?  The advice I give to you is the advice I give to myself.  I will continue to circulate interesting articles and videos to my friends and my business contacts.  If I have concerns about possible liability, I will ensures that two conditions are met.  The first condition is that I must receive the article or video directly from the source, so I know it is not an infringing copy.  The second condition is that I must receive the article or video in circumstances under which it is reasonable to assume that I am authorized to pass it along.  By way of example, if I send an article that I have written out on social media via LinkedIn, Google plus or in a tweet; it is reasonable to infer that I have given you permission to retweet the article to your contacts. However, when a friend emails you a video from an unknown source, you are taking a small risk in forwarding it on to a handful of persons and a huge risk in posting it on your business website for all the world to see.

ANGEL INVESTORS FINANCING INNOVATION

Venture Capital photoI recently had lunch with a banker friend . He related some of his daily struggles in approving loans and summed up by indicating that his bank hired him to fund viable businesses, not “dreams”. The reality of the banking business is that a banker will only grant you a loan to launch an innovative project if you have the pre-existing financial strength to financially back the new business. After the business has being operational for two years or more, the financial performance of the business over that period will clearly indicate whether or not you have a viable business rather than just a “dream”. Persons who do not have such financial strength are forced to seek assistance from investors. The quest for investors usually starts with family members and personal acquaintances who trust and believe in you. There are some investors, referred to as “angel” investors, who invest in projects of complete strangers for fun and profit. The angel investors that I have known are relatively wealthy and have a past history of entrepreneurial success. Their angel investments are like a hobby to them. The number one criterion of the angel investor is that he or she must like you and feel he or she can work with you. If you are difficult to work with, it takes the fun out of the project and the angel investor doesn’t want or need the hassle. The number two criterion is that the angel investor must believe that the project has substantial growth potential and is not merely a “create a job” project. The ultimate object of the investment is to make some money at the end of the project. Ideally, the angel investor has contacts or knowledge that can contribute to the project and help make that happen. The number three criterion is that there must be some logical jumping off point at which the angel investor can cash in on his investment. If you have a good fit with an angel investor, you may well develop a life-long friendship. You will have to do most of the work, but at critical times the angel investor will be there to assist you. The angel investor will give you advice which will help you avoid mistakes you would otherwise have made. As he or she gets to know you, the angel investor will assess your strengths and weaknesses and get others to help cover your weak areas. The angel investor will set and expect you to meet performance milestones. Consider it tough love. It is for your own good. A controlling interest (over 50% of the venture) is not essential to the angel investor, although the angel investor can exercise a measure of control by simply withholding additional funds if he or she does not approve of the way the business is being run. If all goes well, the relationship with the angel investor ends at the planned exit position. On small projects, this is often the sale of the business, at which time you both “cash in”. On large on-going projects, you will progress to the “next stage of financing” in which a venture capitalist steps into the shoes of the angel investor and puts serious money into the business to take it to the next level. I have nothing but respect for angel investors, the ones I have worked with are special people indeed. There are a number of differences between angel investor funding and venture capital funding. Those differences will be explored in a separate article.

LAMP AWARDS 2015

Buechert photoAwards are a time to stop our hectic pace and recognize how far we have come (regardless of how far we may yet have to go). I was delighted to hear that the one of our clients, AVI Inc was nominated as a finalist for the LAMP awards (Lighting Architecture Movement Project). I attended the LAMP Awards, which were held in Vancouver on November 12, at the invitation of Matt Kennedy, the President of AVI Inc. I met the other members of the AVI team including accountant Michael Manley, photographer Darryl Bueckert, and SR&ED consultant Ken Bell. The theme of the LAMP Awards for 2015 was “Crystallize”. I urge you to see some of the marvelous entries at www.welovelamp.ca . I have attached a photo of the AVI entry. I would like to thank Darryl Bueckert for allowing me to use this photo. If you like Darryl’s work, check out his website www.darrylbueckert.com. I will post some further material on how you can purchase the products of AVI Inc and about the Crowdfunding campaign of AVI Inc at a later date. Matt Kennedy has been a great guy to work with and I look forward to continuing to work with him in future.

What IP professionals are talking about

I Convention name taghave just returned from the annual convention of the Intellectual Property Institute of Canada (IPIC).  This is two-day event with numerous educational workshops for Patent Agents, Trademark Agents and IP Lawyers.  There were plenary sessions that everyone attended and breakout sessions where the audience broke into smaller groups.  The plenary sessions included an address in which Mr. Justice George Locke of the Federal Court provided “tips for having a better relationship with your Judge”, an address by the President of the Canadian Bar Association, Janet Fuhrer, concerning the future of the profession entitled “Reimagining the Ways We Practise”, a panel of experts discussing Crowdfunding, and a panel discussing the issues and opportunities which are being created by 3D printing.  I find Crowdfunding interesting in its various forms.  You can Crowdfund through social media to solicit pre-orders for your product. You can Crowdfund by making an emotional appeal through social media to solicit donations.  Subject to legal limitations imposed by securities regulators, you can also use social media to Crowdfund by selling small equity interests in a start-up venture.  3D printing is considered a “disruptive” technology, because it has the potential to dramatically change the way we do things.  For example, currently there are numerous people employed in the transportation industry.  However, shipping costs can be avoided entirely by simply having a 3D “print shop” in your neighbourhood.  Instead of shipping a replacement part for one of your motor vehicles or household appliances, the part can be “printed” for you.  As with the current issues related to genuine and “pirate” internet sites for music and videos; there will soon be a problem with genuine and “pirate” internet sites that supply the files necessary to print out these parts.  The patent breakout sessions included: a review of key court decisions concerning “the promise of the patent” which have changed the way patents should be prepared; and a session called “Gotcha” which reviewed patent infringement remedies in Canada and the United States.  The trademark/copyright breakout sessions included: a review of changes which are coming to Trademark Law as a result of Canada having  signed a number of treaties ( Nice, Singapore and Madrid); and several sessions on dealing with copyright and trademark issues in  light of the Internet and social media.  It was explained that in this age of social media, the old approach of sending a nasty “cease and desist” letter may backfire.  An unnecessarily heavy-handed cease and desist letter may well be posted on social media and attract comment. Before one can stop it, the matter may go “viral” with the possibility of substantial negative publicity.  An example that was discussed as an alternative approach, was a dispute between the makers of a juice called “Pom Wonderful” and a television host by the name of John Oliver.  The humorous (although somewhat off colour) video can be viewed on YouTube a link for which will be provided below. Why am I relating this information to you?  I believe that by reviewing issues being discussed by IP professions today, you gain insight as to issues which will be touching our lives tomorrow.

Link to Video

Recent Case on the use of Metatags – Red Label Vacations v. 411 Travel Buys

Red Label Vacations v. 411 Travel Buys (2015 FC 19) is a recent decision of the Federal Court of Canada that clarifies trademark law as it relates to the use of metatags on websites.  A metatag is a word or small phrase that is embedded in a website but is not visible on the actual webpage(s).  When a person types a phrase into a search engine, such as Google, the search engine uses an algorithm to search the Internet for web pages containing the particular words. Metatags are merely one of the factors that affect search results.  However, generally, the greater the number of times a search term appears in metatags and in the text of the webpage itself, the greater the likelihood that a search engine will rank the website higher in the search results (page 1 of the results list as opposed to page 6, for example). Red Label is a travel business that offers online travel information services and bookings through its website redtag.ca.  Red Label has three registered trademarks: “redtag.ca”, “redtag.ca vacations” and “Shop. Compare. Payless!! Guaranteed”.   411 Travel is an online travel agency offering information to customers through its website.  Red Label uses Google Analytics to monitor traffic on its website.   When Red Label experienced a lull in web traffic, their investigation revealed that 411 Travel had been using Red Label’s registered trademarks as metatags.   As a result, some people searching for the Red Label website, instead ended up at the 411 Travel website providing the same travel services. Red Label alleged lost revenue of $760,000.  US trademark law has a doctrine of “initial interest confusion”, under which trademark confusion (and thus infringement of a registered trademark) occurs when a customer seeking a particular brand of goods or services, is drawn to a competitor’s business through the competitor’s use of the first company’s trade name or trademark to misdirect the customer’s initial interest.  The judge in the Red Label case, Justice Manson, held that the doctrine of “initial interest confusion” does not apply in Canada.  Justice Manson concluded that a search engine merely gives the consumer a choice of independent and distinct links that he or she may choose from, rather than directing a consumer to a particular competitor.  Rankings may affect the choice to be made, but nevertheless, such a choice exists.  Justice Manson declined to find that the use of metatags alone constituted “passing off” or “trademark infringement”.   Here, there was no use of any of Red Label’s trademarks or trade names on 411’s visible website. The website was clearly identified as 411 Travel Buys’ website. There was no likelihood of deception as to the source of the services provided on the 411 Travel Buys website, and the consumer was free to select the link to the Red Label website and disregard the 411 Travel Buys website.  Please drop the writer an email at dthompson@tcllp.ca if you have any comments as to whether this was a “just” result.

Financing Ventures Through Crowdfunding

A number of our clients have been asking about crowdfunding as a possible way to finance their new ventures.  Here is what we have learned.  Crowdfunding is a form of funding made possible by social media, in which a large number of people contribute small amounts toward a venture.   In order to avoid onerous securities regulations directed to public share offerings, in crowdfunding campaigns, the contributors do not obtain an ownership interest in the venture.  Each contribution is akin to a donation and typically, in exchange for a contribution, each contributor is given some form of thank you “perk”, depending on the amount of the contribution.   Most contributions in a crowdfunding campaign will be under $25 and the average contribution will likely be in the $75 range. For contributions under $10 the contributor may just receive a thank you message, for contributions of $25 the contributor may receive a key chain, and for contributions of $75 the contributor may receive a t-shirt. In addition, there are usually product discounts and early purchase incentives.   Generally, the amount contributed represents approximately 5 times the value of the perk.  Crowdfunding was initially used for “arts” funding, relating to music, theater, art, film/video, dance, etc.  Statistics released by one crowdfunding platform indicate there have been 49,000 campaigns relating to music, of which 40% reached their target goal and 84,000 campaigns relating to film/video projects, of which 24% reached their target goal.  The use of crowdfunding by small business is relatively new, with only 20,000 campaigns, of which a relatively dismal 3% reached their goal.  The reason for the low success rate is that initial campaigns were ill prepared.  Successful campaigns tend to set forth a very specific project with a targeted appeal to contributors that have personal reasons to support it.  The target should be a relatively small and reasonably attainable goal. The average campaign is conducted over a period of 35 days.  It is critical that 30% of the target be obtained within the first 3 days of the campaign (presumably through existing contacts) in order to create a “momentum” that will encourage members of the public to get on board.  There is much to do in advance of a crowdfunding campaign.   The party seeking crowdfunding should have a website, a 3 minute video that tells a compelling story, 7-9 levels of attractive perks, over 900 Facebook friends and a full-blown publicity campaign to get the word out as the launch date approaches. In order to raise just $25,000 at an average contribution of $75, will require 334 contributors of which a third will typically be Facebook friends.  There must be something about the new venture that spurs to action members of the public who were not previously aware of the venture.  Perhaps the new venture sells a safety product and the campaign is targeted toward friends and family of workers who are frequently exposed to the very danger the safety product addresses.  In summary, if the project is one that inspires the target audience to proudly wear t-shirts to demonstrate their support, crowdfunding may be suitable.  If the project is more difficult for the public to relate to, we recommend against crowdfunding, as most of us really do not need another t-shirt and, if we did, could purchase one for less than $75.

The Intellectual Property (IP) Audit

You have an idea that has potential and decide to become an internet entrepreneur.  You secure a domain name.  You hire a programmer to write the code to make your website function, a graphics firm to create a logo and a web design firm to set up the content and “look and feel” of the website.  You raise some money from investors, create a start-up corporation and approach a large corporation about “partnering”.  Initial discussions are positive, and you are told that a legal firm for the large corporation will be contacting your lawyer to make some due diligence inquiries.  The first group of questions the lawyer is going to ask relate to the domain name.  Is it owned by the start-up corporation or is it still sitting in your personal name?   It should be owned by the start-up corporation.  Did you have any searches performed in Canada and the United States in order to determine whether your use of the domain name could potentially infringe someone else’s rights?  The large corporation does not want any problems. Have you taken steps to file a Trademark in Canada and the United States to protect the domain name?   The large corporation wants protection against copycat websites.  The second group of questions the lawyer is going to ask relate to the content of the website. Do you have an agreement transferring all rights in the software code from the programmer to the start-up corporation? Do you have an agreement transferring all rights in the logo from the graphics firm to the start-up corporation?  Do you have an agreement transferring all rights in the website content from the web design firm to the start-up corporation?  Many of the contracts used by programmers, graphics firms and web design firms, make them the owners of the copyright. Moral rights prevent alteration of copyright materials without express permission from the creator.  Have “waivers” of these moral rights been obtained, so changes can be made in future?  Is there patent protection, or has this at least been explored before public disclosure deadlines preclude patent protection?   The third group of questions the lawyer is going to ask relate to employees, subcontractors, and shareholders.  Did the subcontractors sign non-disclosure agreements with non-compete provisions?  Do the employees have employment contracts with non-disclosure and non-compete provisions?  Is there a shareholder agreement in place, with termination provisions in the event of a dispute with non-compete provisions?  It all comes down to whether the Intellectual Property and Contractual provisions that the large corporation expects to see are in place.   If so, are the Intellectual Property and Contractual provisions with the correct legal entity, i.e. the start-up corporation?  Look at your own business.   Are you ready for the call?

A New Perspective on Craft Sales

Large chain stores generally do not want to create a listing for a single product. That means that an inventor seeking to sell a product through the chain store, must do so through a distributor who already is doing business with the chain. In exchange, the distributor charges 30%. The chain store will have a standard mark up, typically 50%. The chain store has high fixed expenses and need a constant turnover of inventory in order to make money. If inventory of a particular product does not turn over within a reasonable time period, the chain store will cease carrying the product. In order to ensure turnover, products must be priced to sell. This results in the chain store dictating to suppliers what the retail price must be. For example, if the chain store determines the retail price is to be $10.00, the wholesale price must be $5.00 in order to do business with the chain store. Once the distributor’s 30% is deducted from the $5.00, this leaves the inventor with $3.50 Out of the $3.50, the inventor must pay for materials and labour; the remainder (if any) the inventor retains as profit.
When products are mass produced, there are “economies of scale” that results in the per unit price being reduced. However, in the early stages of a product’s development, the product runs are typically small. There are a number of reasons for this. The first reason is that the product is still in development and changes are being made. The second reason is that most inventors have limited resources, they cannot afford to produce in mass quantities. The third reason is that it has not, as yet, been confirmed that there is a market for the product. The inventor does not want to end up with 10 boxes full of products gathering dust in the garage.
In order to survive in the early stages, the inventor must look for ways to test the market for the new product that will see the inventor receiving a higher return which will offset the higher cost of producing products in small runs. Selling the product on a website dedicated to the product is the modern answer to that dilemma. However, while the internet allows the inventor to potentially reach a global audience, products can become lost on the internet. The most effective way to interact with the buying public while retaining most of the sales proceeds is still at small venues; what are commonly referred to as farmers markets, flea markets, and craft sales. The public vote with their dollars. If they do not have an interest in your product, that will be painfully apparent and you will barely recoup the cost of your market stall. If there is a lot of activity, the public will tell you if the price is too high or it will become apparent by poor sales numbers. I hope that the foregoing will give you a new perspective. The Xmas craft sales season is upon us. If you see a new and innovative product as you wander around the craft sales, I hope you will remember this article and treat the vendor with respect. He or she may be a budding entrepreneur who is merely passing through a test market stage on the way to greater success.

What It Takes To Be Successful

I have worked for a number of persons who established new businesses and, eventually, became multi-millionaires. This gives me some insight as to what it takes to become successful. Any advice I may give in this article must be taken with a grain of salt for, although I am modestly successful, I am not in the same league as the successful clients of whom I speak. Contrary to popular opinion, hard work is not enough. My successful clients studied trends in the industries they served. They then surmised that there would be an ever increasing demand for a particular group of products or services, should that trend continue. When they guessed correctly, they rode the “wave” of that trend to success. The greater the impact of the trend on the industry, the greater the degree of success. As my client/friend, Bill, puts it “We planned carefully and I knew we were going to be successful, but I had no idea that we would be this successful”.

For Bill, the trend hit stronger than he had imagined and carried his business to heights beyond his wildest dreams. What if the trend does not materialize to the extent you imagined? Another client, Steve, built his business on a need for products and methodologies for the non-destructive testing of integrated circuits. Unfortunately, there was a downturn in the sector and his potential market dried up. Steve had to either shut down the business or refocus. He took stock of the sensor technologies he had developed for the purpose of non-destructive testing and has now refocused selling sensor technologies for the purpose of wireless equipment condition monitoring.

If you are considering establishing a new business, you will want to give yourself every opportunity to be successful. If you are interested in starting a high-tech business, or any business based on an innovative idea, I recommend that you take advantage of any available programs aimed at assisting high-tech start-ups. For example, the Accelerate Tectoria program offered by VIATeC (based in Victoria) and the SquareOne program offered by Innovation Island (based in Nanaimo). These organizations work with the B.C. Innovation Council to increase the number of successful companies that start and grow in the region. Their 6-month programs are designed to help new businesses overcome any obstacles and accelerate their go-to-market strategy. They provide access to business mentors in the community and professionals (accountants, lawyers, marketers). They have Entrepreneurs-in-Residence who have start-up experience in management positions. They provide access to a work station & workshops put on by experts on topics of interest to managers/owners of new ventures. To check out ViaTec go to viatec.ca. For more information about Accelerate Tectoria go to acceleratetectoria.com or contact Patrick Woodward (pwoodward@viatec.ca). To check out Innovation Island go to Innovationisland.ca. For more information about SquareOne go to thinkbigatsquareone.com or contact Josh Brocklebank (joshua.brocklebank@gmail.com).

When to Fight and When to Settle

I received a settlement cheque today on a patent infringement action. Although the cheque is for several thousand dollars, I estimate that the other side would have paid as much in legal fees had they chosen to fight. You can say what you like about the manner in which the other side found themselves in that position; I am of the opinion that the opposing lawyer acted with integrity in extracting his client from a difficult situation. The opposing lawyer’s client also gets full marks for accepting his lawyer’s advice and making the decision to write the cheque to end the dispute. I have another file on my desk in which the response to the infringement claim has been much different. The opposing lawyer is being as difficult as possible, hoping that my client will get discouraged and will go away. This strategy undoubtedly works in some situations where the infringement has ended anyway and further legal action to recover damages for past infringement may seem to be just not “worth it”. However, in this case, the infringement continues. Far from being discouraged, my client is irritated and becoming more determined; I have received instructions to move the litigation forward. I will first seek to have their defence struck and to obtain a summary finding of infringement. I will then seek an order for recovery of all of their profits. The other lawyer and his client appear to believe they are in a safe position, because on paper the client has been losing money. However, in calculating profits, the court takes revenues received and deducts only materials and labour. The court will not consider the fact the owner of the business has monthly payments on a bank loan, overhead costs, and draws a management salary in order to survive. I am just as often on the other end of these type of disputes. I am currently acting on behalf of Lighthouse Brewing regarding a controversy with one of their brand names. I have great respect for Michael Bierman of Lighthouse Brewing who made the tough decision early and is currently in the process of changing the brand to avoid the controversy. Making these kind of decisions early in a dispute serves to prevent a small problem from becoming a huge problem. Win or lose, it always costs money to fight.