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Avoiding Intellectual Property Pitfalls When Starting a Business
Those that neglect to prioritize such action are harming their business. They should be reminded that intellectual property is the largest asset class held by businesses in both the United States and Canada. Studies have shown that 80% of the value of a typical business is tied to intellectual property. Despite this, some small business owners do not consider intellectual property protection as it relates to their business, believing it to be the domain of large corporations.
That assumption is among the largest mistakes a small business can make. Small businesses are built on intellectual property as well, perhaps more so, and opportunities to build the business’s value through intellectual property should not be missed.
While problems related to intellectual property may not surface immediately, it is better to be proactive rather than reactive with respect to intellectual property. We summarize intellectual property challenges and best practices for avoiding them below.
Get Familiar with the Law
The first step in ensuring that your business does not fall prey to common intellectual property issues is to gain a basic understanding of the intellectual property rights applicable to them and the laws that govern those rights. This includes being able to identify the types of intellectual property you have created or plan to create and any protections that are already in place in respect of that intellectual property, and understanding the processes involved inof obtaining further, greater protection for those intellectual property rights.
For example, if your business offers a product or service in commerce in association with a name, design or slogan, you may have some level of common law trademark rights, but you would be better off to apply for a trademark registration to secure exclusive rights to the trademark across Canada. This creates more value for your business because the owner of a registered trademark has an exclusive right to use the trademark in Canada by virtue of owning a registration without further need of proof–-this is unlike the case of unregistered trademarks, where owners of unregistered trademarks have to prove the existence of reputation or goodwill associated with the trademark. Similarly, it is worthwhile to understand the basics of patents, industrial designs, copyrights, trade secrets, and other forms of intellectual property that may be applicable to your business and the products and services it offers. Knowing what patent, industrial design and copyright protection entails can help you avoid unwittingly undermining your entitlement to that protection in the future. This is critical. Many businesses mistakenly plan to put their minds to intellectual property protection “later” and are disillusioned when later rolls around and they learn that protection may no longer be available to them for reasons X, Y and Z. Establishing a basic awareness and understanding of intellectual property in Canada at the outset can help your business position itself to take full advantage of its intellectual property in the future.
Aside from acquiring your own rights, you will want to avoid unlawful use, or infringement, of others’ intellectual property rights. For example, although many images, videos and texts on the Internet may not be explicitly marked as copyrighted, the absence of a copyright notice does not necessarily mean the work in question is in the public domain and free for you to use. This will be particularly relevant when creating promotional material for your business, signage, and when developing your website. Taking the time to determine which works are in the public domain, and therefore are free to use, and which works have copyright restrictions attached to them could help you avoid intellectual property problems and legal liability, and market your business with confidence. Note that ignorance of the law is no defence, and violations of intellectual property rights, whether conscious or not, can result in substantial damages awarded to the rights holder and injunctions requiring that the other party cease it infringing activity. Another example is where an inventor looking to protect their proposed invention may first consider a patentability assessment. These assessments involve a search of the prior art (patent documents and other documents) in order to identify whether there has already been disclosures by others similar to the proposed invention. Such assessments are useful because they allow the inventor to assess the probability of obtaining a patent before sinking substantial resources into developing and commercializing the proposed invention as well as incurring the cost of pursuing a patent for the proposed invention in one or more countries around the world.
Moreover, avoiding intellectual property infringement issues helps your business enjoy a good reputation in its industry as well as with your consumers and employees, and focus its efforts on continuous improvement and growth rather than on defending often costly and drawn-out legal proceedings.
Finally, familiarity with the law will help you understand the extent of your own rights, facilitating recognition of any future infringement of those rights by third parties.
Avoiding Issues with Trademarks
Intellectual property issues can also arise in respect of your business name (or trade name), trademark, logo or slogan. Although business owners often devote a significant amount of time to devising a business name, few conduct a thorough trademark search to determine whether the trade name, trademark or slogan is currently used or would be confusingly similar to one that is being used in their jurisdiction. In order to avoid trademark infringement and unnecessary expenditures, it is prudent to conduct a trademark search prior to settling on a business name, trademark, logo or slogan. Some business owners may mistakenly believe that, in view of the approval of the name that forms part of the process, having incorporated under a given business name they are entitled to any and all use of that name in commerce – this is not the case. The approval that is obtained in the process of incorporating your business only gives you permission to operate a business under that name, not to use it as a trademark – that is, as a source identifier on goods sold by your business or in the marketing or provision of services by your business.
In addition to conducting a trademark search, it is prudent to obtain a qualified opinion on your trademark’s registrability. If you hope to register your trademark at any point, you will want to be have some level of confidence regarding its eligibility for registration. What may seem like a great name for a product or business may, from a trademark perspective, be a weak mark or a mark that is not registrable. For example, most people appreciate a mark that in some clever way suggests or describes the goods or services with which it is associated. While clever, descriptive marks are not registrable and businesses are often surprised to hear that their trademark applications have been objected to on this basis. Another example is the use of words such as “BEST”, “AUTHENTIC” and “ORIGINAL” or any other words that laud the worth or importance of a good or service, as part of a mark. Generally, these words are not inherently distinctive and trademarks containing these words may not be registrable. As a best practice, an inquiry into a mark’s registrability should be made before committing to a trademark so that, in the event of an unfavourable outcome, that trademark can be reconsidered.
Another common pitfall for business owners is assuming that the business name they have settled on is protected simply because they have incorporated a company under the name in their jurisdiction or have registered it as an Internet domain. An incorporation of a name, or registration of it as a domain, does not confer trademark protection.
On the flip side, registering a business name as a trademark does not guarantee an exclusive right to a domain name with the same spelling. As such, it is prudent to secure any desired domain names, and potentially variations of those names, early on. Otherwise, you risk these domains being purchased by a third party, either in good faith or with the intention of extracting payment for their release.
Finally, a trademark registration gives you exclusive rights in the countries or regions in which you have obtained registrations. Registered trademarks cannot be used to prevent others from using your business name, trademark or slogan in countries or regions in which you are not registered. Accordingly, you should consider filing a trademark application in each country or region in which you intend to do business, ideally within six months of the filing date of the original application in your country of origin. Filing additional applications within six months entitles these applications to claim priority based on the first filed application. This means these applications will be treated as if they had been filed along with the first application. Applications filed after this date will therefore not be considered as presenting an obstacle to obtaining a registration for your mark if these applications are for confusingly similar or identical marks. In essence, you get to call “dibs” on your mark in these additional jurisdictions as of the date of filing of your first application.
Avoiding Patent Issues
When seeking a patent, innovators should also devise a strategy for monetizing their invention – in other words, they should know why they are seeking a patent or what comes next. For many patent applicants, manufacturing and selling their patented good or service on their own may not be a viable or preferable option. In this case, applicants for patents may want to consider licensing their patent rights to companies able and willing to bring their invention to market. Alternatively, applicants may want to sell their patent outright, once granted. There are advantages and disadvantages associated with each of these options, but both present the opportunity for an innovator to derive a benefit from their invention without being directly responsible for its manufacture, packaging, distribution, marketing and sale.
If this is what you are considering, you should consider using a non-disclosure agreement with those to whom you disclose your invention in order to prevent public dissemination and misappropriation by the recipient.
Whether you are going to be producing your innovation independently or collaborating with a partner, you should make sure that you do not prevent yourself from obtaining further patents in the future. Further development of your product may result in additional patent-eligible inventions as you continue improving on your original design. To protect those inventions with a patent, the improvements made to the original product must meet the novelty requirement for patentability (as well as other requirements for patentability). Explaining to others the direction in which you plan to take the invention in the future, absent a non-disclosure agreement, could conceivably result in your loss of the ability to patent the further modifications. A well-drafted non-disclosure agreement will take the potential for the invention’s development in the future into account. Such agreement will therefore protect the confidentiality of and your rights to the original invention and any developments, modifications or improvements thereof.
Finally, before practicing your invention, it is important to consider whether any component of your invention is protected by a third-party patent. This is not uncommon when inventions are improvements on existing products or processes. To avoid liability for patent infringement, ensure that you secure rights to any such patented elements. Most commonly, this will take the form of a license agreement between you/your business and the owner of the patent. Further, note that the patent office gives no consideration to whether you have the rights to practice your invention (also known as “freedom to operate”) when assessing its patentability. This means you could be granted a patent for an invention despite not being entitled to make, use or sell that invention as a result of third-party patent rights.
Avoiding Issues with Partners and Employees
In a start-up or business venture conducted by more than one person, intellectual property pitfalls tend to occur more frequently. Between attempting to accurately determine who created and owns the intellectual property, and the potential for trade secrets to be leaked by contractors or employees, it can be difficult to ensure that your business is fully protected. You should educate all of those involved about the importance of protecting and maintaining intellectual property, and the value it can bring to a business.
One of the simplest intellectual property pitfalls to prevent is the accidental leakage of confidential information through employees. Make sure that employees only have access to the information they need to perform their tasks, and that restrictions exist to prevent others from accessing valuable information. For example, someone engaged in marketing may not need unlimited access to the technical documents created and used by developers. Protecting your network with anti-malware programs and ensuring that your employees know how to avoid the introduction of viruses into the organization’s computer network is also recommended to protect trade secrets and confidential information.
Another way to avoid trouble is by determining at the outset the ownership of intellectual property between co-innovators, collaborators, employees and contractors. When outsourcing any work that could implicate intellectual property (i.e., collaborating on your innovation research with technology and design labs, or asking a contractor to take photos or write copy for your website), it is important to have contractual provisions that provide for the transfer of ownership in the work created in addition to provisions directed to confidentiality, where applicable). In some circumstances, the individual or group that has created the work may be considered to own the intellectual property rights and have only licensed them to you to use. In this case, it may be available to the rights owner to subsequently license the work to other individuals or businesses, including your competitors. Further, there may be restrictions on the use to which you may put the subject work.
It is best to agree on these provisions before any money has been paid, as there is often little leverage available after the fact to incentivize a contractor to transfer their intellectual property rights to the work with the project being over and paid for. Moreover, failure to set out such provisions in writing at all could well result in litigation, not only in respect of ownership but also the use to which the parties intended that the work be put.
Finally, there are some precautions that should be taken with your employees. Although work created by full-time employees with use of company time and resources is usually intellectual property of the company, it is better to put in place a written contract leaving no doubt as to the ownership of intellectual property rights.
Confidential information and trade secrets, which may be crucial to the profitability and success of your business, could be exposed after employees are terminated, or transition to new positions, or simply due to negligence. Including non-disclosure provisions in employment contracts will reduce the risk of trade secrets being leaked by employees, or at the very least better enable effective enforcement and policing of unlawful dissemination of confidential information that does occur.
Further, specific non-disclosure provisions or agreements may be helpful in identifying to the people who sign them what parts of the business are confidential. Including non-disclosure provisions in other documentation, such as licensing agreements and sale contracts, is also recommended to further protect your business’s trade secrets.
It is also important when dealing with third parties to maintain a record of what exactly has been disclosed to whom and when in case a dispute over misuse of confidential information arises later.
When to Register Intellectual Property
With these strategies in mind, when is the best time to apply for protection of your intellectual property? The answer is: as early as possible.
For example, in Canada and in the United States, while you are entitled to a one-year grace period for filing a patent application after the initial disclosure of your invention, filing the application right away puts you ahead of any other inventors that may file for a similar invention, as patents are awarded on a first-to-file basis (meaning the first person to file is the person entitled to the patent for that invention). Depending on your individual circumstances, you may later be able to refine and expand upon the description of your invention for up to twelve months from the original filing date, meaning you wouldn’t need to have a completely finalized design at the time of filing your application.
Patent applications in Canada, the United States and most other jurisdictions usually take at least a few years to issue to a granted patent. Filing early is therefore advisable so as to reach that issuance faster. Similarly, although trademark applications typically take a shorter time to reach registration, the process usually takes over a year and makes early filing a priority for trademarks as well.
When to Get Legal Advice
Although preparing and filing applications for patents, trademark registrations and copyright registrations on your own is an option, retaining a registered patent agent, a registered trademark agent, or an intellectual property lawyer will almost invariably produce better results. Generally, you should expect that using an experienced intellectual property professional to help you protect, monetize and maximize your intellectual property’s value will produce returns in excess of 10 times your investment. Intellectual property professionals have substantial experience prosecuting patent, trademark and copyright applications, and are well-equipped to draft applications in such a way as to make their allowance more likely and more expedient. Working with a lawyer can also help you avoid investing in applications that are unlikely to be allowed, saving you significant time, energy and money.
If you are accused of infringing someone else’s intellectual property rights, advice from an intellectual property lawyer is essential to help navigate how best to respond to or refute the claim. Similarly, if you believe that someone is using your intellectual property unlawfully, an intellectual property lawyer can advise you of your options and potential remedies.
Conclusion
Entrepreneurs should acquire at least a basic understanding of intellectual property rights as early as possible. Adequate attention to intellectual property in the early stages of a business will help you seize opportunities which will be lucrative to your business as well as avoid becoming entangled in legal conflicts which will drain time and money down the road.
Ready to discuss protecting your intellectual property? Contact us for a complimentary and confidential initial telephone appointment with a member of our team.
