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?

Trademark Protection ( A Simplified Explanation)

The two most common grounds for rejecting a Trademark is “confusion” with a Trademark of a competitor or “descriptiveness”. When a Trademark Examiner indicates the Trademark is “descriptive”, he or she is taking the position that the word or words should be available for competitors to use. The accompanying video will provide a simplified explanation to persons selecting a Trademark or considering protecting a Trademark that they have started using.

Here is a transcript of the video

Most people realize that you can’t pick a trademark that is too close to the trademark used by a competitor.  That can be easily checked because you can search them in the online trademark databases and find out what competitors have already protected.  You can also search online with respect to other businesses’ websites, etc. that are using similar trademarks.  When you search, you may find that there is a number of identical trademarks out there.  The reason you will find that is that people can have identical trademarks – the same trademarks – as long as they are not in competing businesses.  So, if somebody has a trademark for shoes, that won’t necessarily compete with a trademark for a restaurant.  What some people don’t realize is the Trade-marks Office goes beyond that and tries to prevent anybody from obtaining a trademark that they deem as being “descriptive”.  When they reject a trademark as being “descriptive”, they are trying to protect those words, so they are available for other people to use.  So, if you try to trademark “Black Shoes” and you are in the shoe business, you are going to have a problem, because Shoes are your product, and Black is simply a colour that shoes are available in.  So, when you are picking a trademark, look out for conflict with competitors and beware of descriptiveness issues that could result in rejection.  And that’s Trademark Law, simplified.

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.

Information of interest to All Owners of Canadian Trademarks

In light of some significant amendments to the Canadian Trade-marks Act that were passed into law on 19 June, owners of Canadian trademark registrations may wish to promptly renew their registrations. The recent amendments have reduced both the initial term available from new applications, and the renewal terms for existing registrations, from fifteen years to ten years. However, the amendments are not yet in force and are not expected to come into force for at least a couple of months. As a result, there is a time window (of uncertain duration), in which it is still possible to obtain a fifteen year renewal. Obtaining an extra five years in the renewal term may not be the only benefit to be derived from renewing before the amendments come into force. It is possible that the official renewal fees will also increase for some registrations. The change to the renewal term is merely an incidental part of the recent amendments to the Trade-marks Act. The amendments are primarily directed to enabling Canada to accede to some multilateral treaties relating to trademarks, one of which is known as the Nice Agreement. The Nice Agreement provides for an international class system for wares and services (currently comprising 34 classes of wares and 11 classes of services). Countries that have adopted the international class system generally calculate official fees (e.g., application filing fees, extension fees, renewal fees etc.) on a per-class basis. By contrast, until now, Canada’s official fees have been calculated on a per trademark basis; that is, the official fees have been the same no matter how many different types of wares and/or services are listed in an application or registration. It is clear that Canada intends to implement the international class system, but we do not yet have any information on when and how the class system will be implemented (other than a provision in the amendments making the Registrar of Trademarks the final arbiter in the assignment of classes). It seems reasonably likely that Canada will switch to a per-class basis for calculating official fees as part of the implementation of the international class system. Thus, once the international class system has been implemented, the official renewal fees for registrations that the Trade-marks Office deems to cover more than one class of wares and/or services, may be higher than they would have been under the current basis for calculating official fees. To be clear, a Canadian trademark registration may be renewed at any time prior to the end of then-current term. Thus, even a recently obtained registration may be renewed.

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 For more information about Accelerate Tectoria go to or contact Patrick Woodward ( To check out Innovation Island go to For more information about SquareOne go to or contact Josh Brocklebank (

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.

Using the name of your surname as a Trademark

Section 12(1)(a) of the Trademarks Act prohibits Trademarks that are “primarily merely the name or the surname of an individual who is living or has died within the proceeding 30 years. These provisions are discussed in the accompanying video.

Transcript of above video
For persons who are considering using their last name as a trademark, there are a few things you should know. The first thing you should know is the Trade-marks Act has a provision under Section 12 (1) (a), that says “a word that is primarily merely the name or surname of an individual is not protectable by way of trademark”. That stops people with a last name like mine (Thompson) from obtaining trademark protection. Now there are some people who have names like “Singer” or “Bird” and those also have dictionary definitions, and because of that they are outside those rules, but most of us are the “Thompsons” of this world, and they can’t get protection. It is interesting to know that there is no prohibition against obtaining trademark protection for first names. So, my first name is “Doug”. I could get protection for “Doug’s [whatever]” for a trademark. In addition, I could register my full name. So my full name is “Douglas B. Thompson” and I could register that if I chose to do so. Now, for those of you who are looking around and saying “What is this guy talking about?”- you can see all sorts of exceptions; for example, “McDonald’s Restaurants”. There is a section in the Trade-marks Act again (Section 12 (2)) which basically indicates that when your trademark has become well known enough, you can become an exception to the rule. The problem is when you start out, you are not well known – it takes years, often decades, in order to build up the trademark sufficiently that you will meet the tests. If you were able to obtain trademark protection for your last name, don’t think you can go and use that trademark against other people with the same last name. There is a provision in the Trade-marks Act under Section 20 which indicates the registration of the trademark does not prevent a person from making any bona fide use of his or her personal name as a trade name. So, that gives you a few points to go on with respect to the use of your name as a trademark, and you should keep those in mind when choosing your trademark.

Border Enforcement of IP Rights by Customs Officers

Businesses can obtain assistance from the United States government to prevent the importation of counterfeit goods into the United States (19 CFR 133).  On March 1, 2013 first reading was given to a proposed Canadian law (Bill C-56) which would give Canadian businesses a similar right to obtain assistance from the Canadian government to prevent importation of counterfeit goods into Canada.  The proposed law sets forth a procedure for Canadian businesses to follow and protects government officials from liability for steps that they may take in intercepting shipments and holding them for a period of time.  This law is long overdue and I hope for speedy passage.

Division of Trademark With Long Lists of Products

Canadian Trademark law is based upon the principle of use.  Under current law, a business is unable to secure Registration of a Trademark unless the Trademark has been used with the good or services listed in the Trademark Application.  Where Trademark Application have a long list of goods or services, the Trademark Registration is often delayed for years while the business gets around to demonstrating use of the Trademark with all of the goods or services on the long list.  On March 1, 2013 first reading was given to a proposed Canadian law (Bill C-56) which will allow a business to complete their Trademark Registration for those goods and services which have used and still pursue the remaining goods and services in a “divisional” Trademark Application that can claim the original filing date to maintain their priority.

Proposed Use For Organizations Setting Standards

There is a class of Trademarks in Canada known as “Certification” Trademarks. They differ from normal Trademarks, in that the owner does not directly sell any product or service. Certification marks indicate that the quality of goods or services made by others meet specified standards. For example “Senior Friendly” could be obtained as a Certification Mark by a seniors organization who wishes to set standards for businesses to meet regarding conducting business with elderly persons. For example “Green Shores” could be obtained as a Certification Mark by an environmental organization wishing to set standards for proposed shoreline development. At this time, most Canadian Trademarks can be filed based upon “Proposed Use”, Certification Trademarks cannot. On March 1, 2013 first reading was given to a proposed Canadian law (Bill C-56) which will allow Certification Trademarks to be filed based upon “proposed use”. This will simplify the process for any service organization seeking to establish standards for businesses.