Angel Investor Event

Picture of Mayor HelpsIn Victoria, we love to criticize our local politicians from our safe seats on the sidelines with respect to everything from bridge replacement to sewage treatment.  A common complaint is that they don’t “do” anything.  I thought I would take some time to comment on an Angel Investor event entitled “A Capital Mission” that took place February 17 – 19.  This is an example of local politicians trying to make things happen for the local economy by showcasing our tech community to both local investors and investors from elsewhere in Canada and the United States. The event began the evening of Wednesday February 17 with a welcome reception at which Mayor Lisa Helps assumed the role of gracious host, first by giving a welcoming address and then by inviting Amrik Virk, BC Minister of Technology, Innovation and Citizens’ Services, and United States Consul General Lynne Platt to add their comments.  Tim Catlin of Change.org, one of the U.S. based organizations that has invested locally, indicated that with our existing infrastructure and the comparatively low Canadian dollar, Victoria is a very attractive place for a U.S. citizen to invest.  There followed a “pitch night” with the following entrepreneurs making pitches to secure capital for their ventures. LlamaZoo produces software that provides anatomy training for veterinarian students.   Cooler Heads produces auto-deploying head and face flash fire protection.  OrangeDox produces a software that adds greater functionality to Dropbox.  Craftt Technology produces a beer keg tracking system for craft brewers.  Social Nature promotes peer to peer marketing.  Chatter High is a web platform to allow junior high and high school students to explore post-secondary career options in an entertaining way.  Industrial Plankton produces low cost algae bioreactors for aquaculture. Vertical Organic Garden produces space-efficient vertical hydroponic systems for  in-home use. Plurilock produces biometric security systems that monitor keyboard dynamics. Island Circus Place is seeking to start a circus school.  On Thursday, February 18, the Angel Investors were organized in groups and taken on tours that included a number of technology incubators and co-working spaces.    In the morning on Friday, February 19, an Investor Education Workshop was held with a presentation by Josh Maher, the author of Startup Wealth: How the Best Angel Investors Make Money in Startups.  The assembled Angel Investor were then invited to spend Friday afternoon, at the Discover Tectoria trade show with over 70 exhibits located at the Crystal Gardens.  This three day event will have some modest benefits short term, but may lead to some tremendous advances long term.  Congratulations to all who had a role in making this event happen including: Mayor Lisa Helps, Victoria City Council, University of Victoria, ViaTec, Tourism Victoria, the Downtown Victoria Business Association, the Capital investment Network and the Urban Development Institute.

News From Canadian Internet Registration Authority (CIRA)

On Monday February 22, 2016 local members of CIRA were invited to a meeting for an update on the activities of CIRA.  We were advised that CIRA is dealing with a number of problems.  A first problem is a shortage of IP addresses.  Internet Protocol Version 4 (IPV4), one of the core protocols of the Internet, uses 32-bit addresses which limits the address space to about 4.3 billion addresses.  There is currently a move to Internet Protocol Version 6 (IPV6).   With IPV6 the platform has been increased to128-bit addresses. This will provide enough IP addresses for the foreseeable future.  However, one cannot move seamlessly from IPV4 to IPV6, as the technologies do not talk to each other.  IPV4 will be supported for a number of years to allow users to switch over to IPV6 and then IPV4 will be discontinued.  Of 2.4 million .ca websites, only 40,000 have been built on the IPV6 platform to date.  There are websites still being set up using IPV4.  If you are working with websites, it is important that IPV6 be used, as IPV4 will be obsolete in a number of years.  The transition to IPV6 will be slow, as IPV6 is not compatible with some hardware.  There is, of course, a reluctance to spend the money to upgrade hardware, until the date for discontinuing IPV4 is drawing near. The incentive for switching to IPV6 is that it reduces network access bottlenecks that currently are experienced.  A second problem relates to routing. The Canadian internet uses many United States based internet exchange points.  This results in most Canadian internet traffic being routed through the United States.  There was a discussion regarding further developing more Canadian peer to peer shortcuts so that Canadian internet traffic can be more autonomous.   A third problem relates to domain name system security.  There are individuals who make their living by “highjacking” domain names.  They change domain name system authorization information and then redirect internet traffic.  To avoid having your domain name “highjacked” CIRA has provision for “locks” to secure your information.  There is a configuration test you can perform at the CIRA website to determine whether your information has been “locked” [dntests.CIRA.ca].   Security can also be upgraded by using “anycast” as opposed to “unicast” systems.  There are digital signatures that can be used for authentication.  There is a configuration test you can perform at the CIRA website to check to see whether  digital signature authentication (DNSSEC) is enabled [performance.CIRA.ca].https://cira.ca/soi

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.

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

Taking Preventive Measures

Photo of Door LockWe have seen it many times before. A businessman or businesswoman attends our office outraged that another business is blatantly copying their product. They want action taken and want it taken now. Copyright protection has no time limitation. If we can claim copyright protection on the product, we can take immediate action. However, design protection and patent protection each have a time limitation. If an application for design protection or patent protection has not been filed within 12 months of the first public disclosure of the product, it is no longer possible to obtain design protection or patent protection. Sadly, we must sometimes advise the businessman or businesswoman that they missed their deadline (sometimes by several years) and have no recourse. We cannot over emphasize the importance of taking early action to protect your product. Unfortunately, due to time limitations, a decision must sometimes be made before it is clear whether or not your product has significant commercial potential. Equally important is the name of the business and the name of the product or service. The law recognizes “common law” Trademark rights, if a competitor is using a similar Trademark in a geographical area in which you have worked hard to establish a reputation for your business. However, you cannot rely upon a “common law” Trademark if the use by another business is not in a geographical area in which your business operates and has an established reputation. We were recently consulted by a client who received a “cease and desist” letter from a legal firm. A person, who was aware of our client, took the concept to a different city a few years ago and started using very similar Trademarks. To make matters worse, they subsequently filed and obtained Federal Trademark Registrations. The legal firm is now demanding our client change the name of their service business and Trademarks used in association with the service. In order to deal with this threat, the client is going to have to ask the Federal Court to invalidate the Federal Trademark Registration on the basis that it would never have been granted by the Trademarks Office had the facts been known. Unlike other types of property, such as real estate and automobiles, it is possible to lose control of “Intellectual Property” assets. The title of this article is “taking preventative measures”. The intended message is to caution you to take steps to protect your Intellectual Property assets as soon as you realize that you have created something of value that others may wish to take and use for their own purposes.

Protecting Video Games

IMGP1188There are certain steps that one should automatically take to protect a video game.  Early in the development process, the proposed name for the game should be protected by filing a Trademark application in Canada. In Canada, a Trademark can be applied for based upon proposed use and  the applicant is given an initial period of 3 years within which to launch.   There is a 6 month foreign filing period for Trademarks.  Prior to the end of that 6 month period, one should apply for United States Trademark protection claiming priority from the Canadian Trademark application .  Claiming priority from the Canadian Trademark application allows you to reach back to your Canadian filing date and also enables you to slow the U.S. Trademark process down so you don’t have to pay extension fees or lose the Trademark if your launch date is delayed.  As soon as there is a working copy of the game, copyright protection should be applied for in Canada, as copyright registration simplifies proving ownership.     Registering copyright in Canada is a simple process that involves filling out an online form.  Most clients do not automatically file for copyright protection in the United States, as the United States requires that a copy of the object code be filed with the Library of Congress.  Prior to launch of the video game, unique features should be reviewed to determine whether they are sufficiently important to be considered for patent protection.  If you have a unique feature that gives you an edge, patent protection can keep competitors from imitating that aspect of your video game.  If you want to see what the video game industry is doing, look at recently issued patents. U.S. Patent 9,095,776 issued August 4, 2015 entitled “Video game extremity control and object interaction” discloses a skateboarding video game in which a skateboarder can grab a skateboard to do a grab trick and change position on the skateboard to do other tricks.  U.S. Patent 9,089,778 issued July 28, 2015 entitled “Video game with expedited combat” recites a methodology for determining whether a combatant dies after a single hit or a greater number of hits by setting forth a scheme of “spending” parameters and “recovery units”.  U.S. Patent 9,079,097 issued July 14, 2015 entitled “Video game with replaceable tiles having selectable physics”, describes a tile game in which tiles are moveable to fill spaces.  The “selectable physics” for the tiles relates to specified direction of movement and speed of movement, and under  certain playing conditions, the “selectable physics” of the tiles change.  U.S. Patent 9,072,974 issued July 7, 2015 entitled “Game play changes to a video game based upon social network polls”,  protects a concept in which a social network of players can influence game play.  U.S. Patent 9,039,532 issued May 26, 2015 entitled “Interactive video game with toys having functionality unlocked through game play”; the title accurately describes the focus of this patent.

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.

Big Changes to Canada’s Trademark System

Significant changes are coming to Canada’s trademark system. Amendments to the Federal Act that governs trademarks in Canada, including the registry system, are expected to come into effect in late 2015 or early 2016. Many of the changes will be positive, but the changes also a pose threat to Canadian trademark owners.

Among other things, the amendments will enable Canada to accede to some international trademark treaties, including the Madrid Protocol and the Nice Agreement (“Nice” being the city in France).

Currently, a Canadian business wishing to obtain trademark protection outside Canada, must file a separate trademark application for each country of interest, which is costly and time consuming. Once the Madrid Protocol has been implemented, a Canadian business that has a registration or pending application in Canada, will be able to obtain an “international registration” that may be extended, at any time, to any of the more than 90 Madrid Protocol countries. US businesses have enjoyed this privilege for over a decade.

However, the Madrid Protocol will also work in reverse; it will make it easier for a foreign trademark owner to obtain a Canadian trademark registration, which may adversely affect Canadian businesses. If, a trademark that is the subject of a Madrid Protocol application is confusing with a previously registered or applied-for mark, then the registration or application will automatically be an impediment to the Madrid Protocol application. However, if the Canadian business has not bothered to apply to register its mark, then the Canadian business would have to take positive steps against the Madrid Protocol application or resulting registration, which may be costly.

The Nice Agreement establishes a classification system for goods (35 classes) and services (11 classes). Currently, a Canadian trademark applicant pays only a single Government fee, no matter how many different types of wares and services are listed in the application. Although it hasn’t been confirmed, it is widely assumed that once the Nice classification system has been implemented in Canada, at least some Government trademark fees will be charged on a per-class basis, as this is how fees are charged in other jurisdictions that have adopted the Nice classification system (including the US). Thus, the charges for Canadian trademark applications covering wares and/or services that fall into multiple classes, are likely to increase.

Another significant change is the removal of the “use” requirement. Until now, Canada’s trademark registry system been based on the idea that registration serves primarily to confirm trademark rights that arise through actual use of a mark in commerce. Under the current Act, a Canadian trademark applicant must affirm that there has been use of the mark with the applied-for wares and/or services, before the mark will proceed to registration.

The removal of the use requirement will benefit Canadian businesses having a legitimate intention to use their applied-for marks, but who experience delays in commencing such use. However, the removal of the use requirement also creates the possibility of trademark squatting, that is, the registering of marks solely for the purpose of selling them.

In light of these upcoming changes, it would be prudent for Canadian trademark owners to give serious consideration to either establishing, or shoring up, their position on the Trademark Register.

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?