Intellectual property (IP) is a key asset of most businesses, yet IP rights are often underutilized or misunderstood as a business asset. Through this guide, we aim to set out key considerations for how your business can best maximize the value of a Canadian IP portfolio.

Our guide discusses the main types of IP available in Canada, how an IP portfolio functions as a central asset to your business, and what you need to keep in mind to ensure you own and control these valuable assets. We've also set out some best practices for reviewing and analyzing your existing IP portfolio, to eliminate any potential gaps and ensure your business is best protected.

Types of IP in Canada

At its broadest definition, IP rights are an intangible asset, existing in both registered and unregistered forms. IP protects ideas and processes that are often central to your business, and protects your work from being copied by your competitors.

Canada offers the following main types of IP protection:

  • Copyright protects your business' creative and artistic expression. It is commonly found in artwork, photographs, or written materials. It can also be found in less expected areas, such as computer source code. Copyright protects against a competitor copying the creative substance of your work. Copyright exists automatically upon creation of the work and can be a registered or unregistered IP right.
  • Trademarks protect the unique 'brand name' of your business and products. Trademarks are distinctive terms, used solely to describe your product and not its more 'generic' descriptor. Trademarks protect against a competitor selling their products with a confusingly similar name to yours or passing-off their products as being connected to your business. Trademarks exist as registered or unregistered IP rights, but the scope of protection is greater when they are registered.
  • Patents protect original inventions made by your company. They apply to new, inventive, and useful products, processes, machines, or chemical compositions. Patents also protect improvements over existing inventions. Patents only exist as a registered IP right.
  • Industrial designs protect the visual features and unique appearance of your products. This could include shape, configuration, pattern, ornament, or some combination of these elements. Industrial designs are solely a protection for ornamental features of your end product, and do not protect functional aspects. Industrial designs exist only as a registered IP right.
  • Trade secrets are a form of IP that combines many of the above IP types but only exist because the information is maintained by your business in a confidential manner. Trade secrets can include specific manufacturing processes or a unique order of processing steps, recipes or ingredient mixtures, and other business operations such as customer lists or internal training manuals. Trade secrets protect the unauthorized use of confidential information (e.g., if stolen by a competitor or former employee), provided your business took appropriate steps to keep the information confidential. As they protect the misuse of your information, trade secrets are often considered 'defensive' IP rights and cannot be used to protect against infringement that is independent of your confidential information. Trade secrets exist only as an unregistered IP right.

As these descriptions show, each type of IP serves a distinct purpose. Full protection for your business and its products will therefore involve multiple types of IP, in the form of an IP portfolio.

The importance of IP to your business

It is central to your business to understand and properly utilize IP rights, in the various forms that are available. A robust IP portfolio can protect your business' key assets, combat unfair and infringing competition, and provide recognized value to your business.

You can (and should) actively engage in protecting your business' IP rights against infringement. This starts with developing an appropriate IP portfolio, and asserting those IP rights against infringing competitors where warranted. Infringement of registered IP rights (such as trademarks, patents, copyrights and industrial designs) is generally easier to assert, due to the legal provisions and presumptions offered by the registration system.

It is therefore important to ensure that your IP portfolio has the necessary registered IP rights to act against infringing competitors, so as to ensure a sphere of market exclusivity for your products. While the expense and effort of registering IP may present some strain to a company, especially in its early stages, it is always advisable to seek registration for the key components of your IP portfolio.

The ability to assert IP to protect the commercial benefits of your products gives value to your IP portfolio. An IP portfolio, like any other kind of property, is an asset that can be valued, licensed and sold to others. The greater your business' protection, and the greater market exclusivity that your IP portfolio provides your products, the higher its value.

A robust IP portfolio is therefore a key value-driver for your business, whether in the context of a valuation and financing process, or when looking to sell your business.

The benefits of a robust IP portfolio

For some businesses, such as those in idea or technology driven industries, your IP portfolio can make up most, if not nearly all, of your business' assets. In these circumstances, particularly while your business is in its early stages, the value of the IP portfolio is the key value of the business. Obtaining a robust IP portfolio that properly protects your business is therefore central to your long-term success. Making smart investments in an IP portfolio at the outset of your business' development cycle can rapidly pay off in the near term and contribute to your business' long term financial success.

When your business becomes more established, it remains crucial to continue to protect your business through a robust IP portfolio. This includes obtaining new IP where needed, as well as ensuring the ongoing maintenance of your existing IP rights. In many cases, the reason that your other assets have grown in value is due to the protection your business derives from its IP portfolio, and protecting this value is key to the continued success of your business.

Every category of IP serves a unique purpose in the context of protection for your business and its products. In fact, it is unlikely that your business, and its products, can be properly protected by a single form of IP. Focussing on one type of IP to the exclusion of others risks leaving you with gaps in your IP protection that can be exploited by your competitors.

For example, if you rely solely on trademarks to protect your major products, a competitor could sell a visually similar but differently branded imitation of your product (often called a 'dupe'), which may not infringe upon your trademark rights. Yet if your IP portfolio includes trademarks and industrial designs, your scope of protection can be greater and can combat a competitor's differently-branded dupe.

Similarly, while trade secrets are an efficient means of protecting your confidential information, such as manufacturing processes, they can only be asserted against a competitor who learned of that information unlawfully (such as a former employee who uses confidential information to start a competitive business). If a competitor develops their own process independently, including through reverse-engineering of your publicly available information, they would not be misusing your trade secrets and you would have no recourse to prevent their competition.

In contrast, if some or all of your manufacturing process is protected by a patent, you would be able to assert the patents against competitors no matter how they developed the equivalent process.

In short, there is no 'one size fits all' solution to IP protection, and your IP portfolio should be tailored to the specifics of your business. Focussing on the aspects of your business that need to be protected, and then utilizing the appropriate mix of IP, will allow you to develop a robust IP portfolio that maximizes the value of your business.

Ensuring that your IP portfolio belongs to your business

Given the importance of an IP portfolio to your business, it is essential that you have full ownership and control over your IP rights. For many types of IP, ownership is tied to who discovered, created, or developed the IP. This could be founders, employees, contractors, or anyone else who contributed to the development of the IP in question. Yet to have maximum value, steps should be taken to ensure that all IP is owned and controlled by your business, no matter who originally created or discovered it.

Fortunately, ensuring your business owns and controls your IP portfolio is relatively straightforward. Anyone working for (or with) your business should be required to assign their right, title, and interest in all newly developed IP to your business, as well as waive any moral rights in the context of copyrighted works, by way of a valid and enforceable contract.

The most common approach is to capture IP ownership is an employment contract, signed when the employee is joining a company (or, in the case of contractors, in their contractor agreement). However, subsequent agreements can be signed at any time, such as where employees or contractors change roles that now expose them to key IP. So long as a contributor is provided sufficient consideration for the IP assignment, and the IP assignment is properly drafted, the assignment of ownership rights can be properly secured.

Be aware there are particular intricacies associated with such contracts, such as the specific language to ensure assignment/wavier or the resulting consideration required, and so these are best prepared by legal counsel.

While there may be some legal provisions that allow IP ownership to be assigned to the business automatically, even in those cases there is no harm in having a written assignment contract. As such, documenting the assignment of all possible IP by all contributors to your business is the easiest and safest method of ensuring that your IP portfolio can be fully controlled by your business, and that you can evidence that ownership when needed.

Clear proof of ownership and control is key to maximizing the value of your IP portfolio. Failure to have valid IP assignments can create a significant valuation issue, in light of the uncertainty caused by a potential lack of control over your IP portfolio. This can present a setback in a valuation or sale process, and is easily avoided by ensuring you have clear ownership of all your IP rights from the outset.

An additional source of ownership and IP control issues arise through grants, funding arrangements, joint ventures, and business collaborations. For example, funding and partnership arrangements through governments, funding agencies, or universities typically include restrictions on what your business can do with the IP that is developed under that agreement. This could include restrictions on the sale or transfer of IP rights, or even a joint ownership or permanent license being granted to the partner entity.

While these restrictions are typically viewed as worthwhile in order to benefit from the available funding or partnership arrangement, they should be properly managed by tracking and understanding the obligations and limitations on your IP portfolio. In many cases, these rights are not materially detrimental to the value of your IP so long as the obligations and limitations are clearly defined.

The key is to avoid any uncertainty in the scope of your IP portfolio. Given the importance of ownership and control of your business' IP, your IP portfolio should do more than list the IP you own. A truly robust IP portfolio also readily and accurately describes how that IP is controlled by the business, together with any material restrictions on its use.

An IP portfolio with clearly defined limits attracts a higher valuation when those limitations are clear and recognized from the outset, rather than discovered during the due diligence phase of a sale or financing where a buyer or investor may push for a lower valuation due to real or potential impediments.

Best practices for maximizing the value of your IP portfolio

Given the importance of a robust IP portfolio to your business' value, it is worthwhile to engage in key review, maintenance and protection processes to ensure that you are maximizing your business' IP portfolio. This includes ensuring you have the proper scope of IP protection, that you have full control of your IP rights, and that any limitations or restrictions on the use of your IP are clearly set out. Implementing these best practices as an ongoing consideration will avoid having to first consider them in the midst of a sale or valuation (where they may cause unexpected problems and delays).

Some useful best practices to consider include:

  • Performing periodic reviews of the IP protection available for your products. The design of your product may change over time, and as a result previous IP protection may no longer be sufficient, and/or new IP protection may be available. You do not want to first discover this gap after your competitor has exploited it and captured some of your sales.

    Periodically reviewing your existing IP portfolio to ensure it fully protects your business and its key products will allow you to maximize its value.

  • Create "snapshots" of your IP portfolio for key products. If a limited number of products are the key to your business' value, any valuation or sale will likely focus on those products. By tracking the application of your IP portfolio to given products or product classes, you can get a quick picture of the key rights and limitations involved. This could be a description of the registered IP rights that cover the product, a description of any licensing or ownership limitations, and tracking of renewal and expiry deadlines.

    This "snapshot" will enable you to focus on the central elements of your IP portfolio, and streamline discussions during any valuation, sale, or collaboration.

  • Periodically auditing your IP employment provisions and practices. Employees who change positions may become exposed to new forms of IP they were not previously involved with. If this new form of IP was not contemplated in their existing employment agreement, you may not be obtaining the proper assignments and waivers for newly developed IP. Similarly, employees who are less familiar with the requirements for certain IP rights may not know the best practices for documenting their work. Anytime an employee's role substantially changes within your business it is beneficial to (i) confirm that your IP protection is not impacted by that change in role, and (ii) ensure the employee is aware of any new best practices or obligations.

    It is also worthwhile confirming you can readily locate agreements for all employees that properly assign all IP ownership rights to your business.

  • Protecting business IP with confidentiality and nondisclosure agreements. No information concerning business IP should ever be shared or disclosed unless there is a confidentiality and non-disclosure agreement in place with the receiving party (an "NDA").

    For employees and contractors, these provisions regarding confidentiality and non-disclosure of business information should generally be included in their employment or contractor agreement. For any third parties, including any potential business collaborations, service providers, suppliers, or customers, the contractual arrangements in place should always include robust provisions concerning confidentiality and nondisclosure from the outset.

  • Maintaining a consistent documentation process for IP rights. If your business has a consistent process for developing and cataloguing work associated with IP protection, future considerations and challenges can be greatly streamlined. Integrating the underlying knowledge of IP protection steps into new product development in a systematic way minimizes the risk of missing out on key IP.

    Furthermore, it mitigates against product-by-product variation in your IP protection that can lead to confusion, missed protection, and lower valuations down the line.

  • Identifying and archiving relevant documentation in an easily accessible location. IP rights can be challenged, and this often does not occur until well after the IP was developed or first used. When challenged, you may be required to locate development documents and agreements relating to the initial stages of the development process. If a significant period of time has passed, this can be a challenging and burdensome process.

    Collecting the important documents when the IP is first created, cataloguing documents such as IP assignments and NDAs on an ongoing basis, and keeping those documents archived in a secure and easily identifiable location, avoids the challenge and lost time associated with potentially having to track down that document archive once it is needed (most often on a pressing timeline).

Benefits of an IP audit

The best way to identify gaps or issues in your IP portfolio is generally to perform an IP audit. By performing a theoretical sale or challenge to your IP, and engaging in a streamlined process that mimics what would happen in such a circumstance, you can identify and correct deficiencies that may be detrimental if they were first discovered during the real thing.

IP audits can be done internally, or with the assistance of external counsel. Questions raised during an IP audit can include:

  • Do you know the specific IP that applies to your main products / the product in question?
  • Do you have full ownership and control of that IP?
  • If you don't have full ownership/control, what limitations are imposed on that IP?
  • Does that IP cover how you are currently using your products?
  • Are there gaps in IP protection directly adjacent to the current use of your products?
  • Are relevant ownership and development documents readily accessible for review?
  • What are the relevant dates for renewal and expiry of these IP rights, and what are your plans for when these IP rights expire?

As these are the types of questions that would commonly arise during a purchase of your business, or the sale/licensing/valuation of IP rights, tackling these through an audit, on your own schedule, will allow you to mitigate any issues before they actually arise. Doing so will best maximize the value of your IP portfolio.

Conclusion

In short, your business' IP portfolio represents a significant asset. But like any asset, its value is only maximized through good upkeep and proper documentation. By focussing on the development and maintenance of a robust IP portfolio, that includes a strong understanding of its restrictions or limitations and an accessible archive of underlying supporting documents, your business can position its IP portfolio at its maximum value.

Don't hesitate to reach out if we can help. Whether it's to assist in a review or audit of your IP portfolio, help develop best practices within your business, or if you just have questions on the types of IP protection available in Canada, we are happy to talk about how you can best maximize the value of your business.