As a companion piece to my colleague Tara Amiri's recent article on the subject of corporate legal considerations for tech entrepreneurs, in this article we touch on five key considerations that tech companies should consider particular to the field of intellectual property law.

1. IP comes in many different forms

Intellectual property rights recognized under Canadian laws come in many different forms, both registered and unregistered.  Some forms of intellectual property rights, such as patents, need to be registered in order to be enforced.  Other forms of intellectual property rights, such as trademarks and copyright, do not need to be registered in order to be enforced, but registration affords some advantages that can assist with enforcement. 

Confidential information and trade secrets, which are considered a form of intellectual property, cannot be registered as there is no federal legislation conferring protection on confidential information.  They are instead enforced by a combination of common law and contractual rights enforceable through the courts and a patchwork of provincial statutes such as the B.C. Privacy Act that provide some limited protection for particular types of confidential information.

The source code of computer software, for example, is generally considered to be covered by both copyright and confidential information, in circumstances where it is kept confidential by the owner.  An appropriate IP management strategy considers the different kinds of protection available in the particular circumstances of an entrepreneur's business, and how best to leverage IP to create and maintain value.

2. Even though you paid for it, you may not own it

When it comes to intellectual property, possession is not necessarily nine tenths of the law.  Entrepreneurs commonly assume that if they contract with and pay an outside party to develop work product, they must also own the intellectual property rights embodied in the work product.  Not necessarily so.  As a general principle, a contractor will retain the intellectual property rights embodied in work product, absent a written assignment to the contrary. 

Thus, Canadian copyright law provides that the first owner of copyright is the author of the work and Canadian patent law provides that the first owner of an invention is the inventor thereof.  Even if the contractor was paid for its work, unless there is a written assignment in place assigning the copyright and patent rights from the contractor to the entrepreneur, the contractor may retain ownership of copyright and patent rights in the work product, and may be free to use the IP rights therein to provide services for others.  This could cause problems years down the line in the context of enforcement, licensing, and transactions involving key IP assets, if the entrepreneur mistakenly assumes that it owns all relevant IP rights in its products.

To avoid any doubt regarding ownership, entrepreneurs should obtain written assignments from all contractors, at an early stage.

3. A business name registration does not preclude a trademark complaint

Coming up with the right name is tough.  It should be memorable, suited to your business, and distinctive of you.  Entrepreneurs often assume that if their preferred business or corporate name is approved for registration on the provincial or federal corporate database, they must be free to use the name.  Unfortunately, that is not always the case. 

A business or corporate name registration means only that the chosen name meets the minimum requirements of name registration federally or in the relevant province, as applicable.  While the corporate registries federally and in each province give some consideration to trademarks registered in the names of others (i.e., they will in some cases refuse a proposed business or corporate name if it is identical to a registered trademark), the corporate registries do not conduct a fulsome analysis of whether the proposed business or corporate name is confusingly similar to a registered trademark.  Corporate registries also do not consider common law trademark rights, and so a business or corporate name could be approved by a corporate registry even though the mark as used is confusingly similar or even identical to an unregistered trademark used by a competitor.

To address this risk, entrepreneurs should have fulsome availability searches done to ensure that there are no registered or common law trademarks that may be in conflict with their proposed business or corporate name.

4. "Open source" does not mean free of risk

"Open source" software refers to software with source code that anyone can inspect, modify, and enhance.  In general, open source licenses grant users and developers permission to use open source software for many different purposes, and some of them allow users and developers to use open source software to do anything they want.  Open source software licenses are popular with entrepreneurs in many industries, because they are fast, easy to use, encourage collaboration, and, best of all, they are free.

But the terms of different open source licenses vary widely, and impose different obligations in terms of their downstream impacts on licensing and IP protection.  Some open source licenses (including so-called "copyleft" licenses) stipulate that anyone who releases a modified open source program must also release the source code for the modified program. And, some open source licenses stipulate that anyone who alters and shares a program must also share that program's source code without charging a licensing fee.  And in the case of some open source licenses, including the Apache 2.0 license, there is an express grant of a patent license in licensed software if the developer qualifies as a "Contributor" to the licensed software.

Before making use of open source software, entrepreneurs should carefully consider the terms of associated open source software licenses and how the license terms may affect their business plans and IP strategies in future.

5.  IP is a shifting landscape

In many ways, Canada's IP laws are well-established.  The basic framework of Canada's IP laws has remained generally consistent for many years.   But, in other ways, much can change in a relatively short period of time.

In June 2019, the Canadian Trademarks Act underwent significant alterations, with changes including the elimination of the requirement to declare use of a trademark in order to obtain a registration, the adoption of the Madrid Protocol in Canada, and the addition of new grounds of trademark objection, opposition, and expungement.  The changes have significantly impacted trademark practice in Canada.  Earlier this year, the Canadian Patent Rules were amended to make significant changes to the manner in which patent applications are prosecuted in Canada.  And just a few months ago, the Federal Court of Canada released its decision in Choueifaty v. Canada, which has fundamentally altered Canadian Patent Office practice with respect to software patents and computer-implemented inventions.

Earlier this year, the signature of the USMCA by Canada, the United States, and Mexico promised more significant forthcoming changes to Canada's IP laws, including copyright term extension, additional powers for customs officials to seize and destroy infringing good, and new civil and criminal remedies for the misappropriation of trade secrets.  Legislation to implement these new treaty obligations is still forthcoming.

As such, the IP strategies of Canadian entrepreneurs need to be flexible and adaptive, to respond to changes in Canada's IP laws and the application thereof to their unique circumstances.

Top 5 takeaways:

  1. There are many kinds of protectable and enforceable IP rights in Canada, both registered and unregistered.  There may be many different kinds of IP protection available, and different strategies for creating and maintaining value, in the particular circumstances of an entrepreneur's business. 
  2. As a general principle, contractors own the IP rights in work product that they generate, even when compensated for the work product itself.  An assignment in writing is necessary to obtain ownership of copyright and patent rights in applicable work product.
  3. Business or corporate name registration does not necessarily mean freedom to use the name.  A trademark availability opinion can confirm that you will not offend the trademark rights of another party.
  4. Open source software licenses are attractive, but some of them carry risks from an IP perspective, in terms of granting unrestricted patent licenses and releasing modified source code and modified programs without charging licensing fees.
  5. Canadian IP law is a relatively complex and shifting landscape, where significant changes occur regularly.  Entrepreneurs should have flexible and adaptive IP strategies to account for these changes.

Read Tara Amiri’s: Top 5 legal considerations every tech entrepreneur should know »