Conseils juridiques pour l'expansion de votre société technologique (partie I) : ententes de technologie et propriété intellectuelle (Webinaire en anglais)

Paul: So welcome, everyone, to today's webinar. My name is Paul Armitage, partner at Gowling WLG. This webinar is the first in a series that we'll be looking at the legal issues facing scaling companies. When your company is scaling, that means adding customers, growing your business rapidly and expanding into new markets. Whether your company is going from small to medium, or medium to large, your legal strategy needs not only to keep the pace but hopefully itself contribute to and protect the growth of your business. In this webinar we'll be looking at two topics from the perspective of scaling. First, tech agreements and secondly, intellectual property or IP. Before delving into the content of the webinar I will quickly introduce today's speakers.

So as mentioned, my name is Paul Armitage. I'm a partner in Vancouver, practicing in the area of technology commercial transactions, in both the IT and life sciences sector. Joining me today are Filza Tariq. Filza is an associate in our Vancouver office. Her practice focuses on trademark clearance, constitution and portfolio management. Filza has extensive experience in protecting trademarks internationally, having worked as a trademark specialist in New Zealand for 5 years. Finally we have Roch Ripley. Rock is partner and head of our Vancouver office's intellectual property department. He focuses his patent prosecution practice on a variety of technology related areas, including AI, VRAR, Cleantech and hydrogen. Just a reminder that if you have questions while we're going through the presentation, please enter them using the Q&A button at the bottom of your screen and also the full webinar will be posted as a recording on our website in the coming days, if there are other people in your organization who might benefit from the content.

So to get people warmed up we're going to start with a polling question and the question we have chosen is, what sector do you belong to? The choices we have given are on premises software, Cloud, services, hardware, cyber security and other. Okay, so maybe we'll see what the results are. I think we're heavily represented on services side, some hardware, Cloud and a big tranche of other.

Okay, we're going to start first with tech agreements. Now when it comes to tech agreements, scaling generally means contracting in different parts of the world and therefore, having to localize your agreement for use in a foreign country, and also avoid any legal pitfalls that may come your way in doing business there. So we're going to start therefore with a question and the question is, your carefully crafted, bullet proof template agreement, will it actually work in the foreign jurisdiction? To answer that question we have to first ask a different question which is, does the foreign jurisdiction respect a valid choice of law clause? For example, with myself being in Vancouver, British Columbia, I might prefer that my agreements be governed by the law of British Columbia. Now the type of contract that you're dealing with may itself make a difference to this question. For example, under the laws of China if you're dealing with a Sino-foreign joint venture agreement under the laws of China, that agreement must be under Chinese law. However, if you're dealing with a straight intellectual property licence and one of the parties is a foreign company, the parties can choose to pick a foreign body of law. So if the answer is yes, and the foreign jurisdiction will respect your choice of law, then your life just got a whole lot easier from the localization perspective. However, to go back to my example, if I'm dealing with my law under the contract of British Columbia and I'm doing a distribution deal into India, that generally would be considered a good outcome for me to have the law under my own law. But what do I really know about how enforceable that contract is in India? We'll be looking at that in a moment. If the answer is no and the foreign jurisdiction will not respect a choice of law clause, then essentially you're back to the drawing board in terms of localizing your agreement, because it therefore must comply with the local law in all respects.

Now regardless of the choice of law, the local jurisdiction will still apply its own laws of public policy. Which generally speaking are laws that are designed to protect the country's citizens and businesses. These fall into various different categories. One example would be privacy and data protection. We have all gotten used to the dizzying array and pace of developments in the area of privacy and data protection. A few years ago we had the shift to GDPR, followed shortly after that by the California Consumer Privacy Act. Here in Canada we are on the cusp of large scale privacy reform at both the Federal and Provincial levels. Another area is consumer protection. Virtually all jurisdictions have consumer protection laws and what they govern are consumer products, that may or may not be provided to consumers. That actually can be a difference in the law, exact scope of the laws. They cover such things as mandatory warranties, rights, remedies of consumers, invalid or void business practices in the local jurisdiction. On the business side there's a concept of dealer protection laws which exist in some jurisdictions. The purpose of a dealer protection law is to protect the investment of the local distributor in the business they have built in their home country, and when I say protect, I mean protect it against the foreign supplier. Therefore the types of statutory provisions you may find in dealer protection laws deal with things such as compensation to local distributors on termination of the agreement and restrictions on termination rights. Similar to dealer protection laws are franchise laws. So regardless of how you may characterize your business relationship in your contract with your counterparty, such as a licence or distribution, a franchise law will, if it meets the test of a franchise, recharacterize that relationship as a franchise and therefore place statutory obligations on the franchiser and give certain rights to the franchisee.

Virtually all jurisdictions also have various types of mandatory warranties and remedies. A good example of this is the area of sale of goods, dealing with such things as merchantable quality, fitness for purpose, durability. The questions are, what are the mandatory warranties in the foreign jurisdiction? Can they be disclaimed? Then on top of that, if you try to disclaim them, is that itself potentially an offense under the laws of the foreign jurisdiction? Also relevant are competition and anti-trust laws, dealing with such things as the sale price maintenance, tying arrangements and things of that sort. Public policy can also come into play in the area of intellectual property. For example, in the United States post-patent term royalties are considered void as a matter of public policy, however, in Canada post-patent term royalties can be provided for as a matter of contract. Once you get past public policy there is still a myriad of local laws that you may have to be concerned about complying with. First and foremost are taxes. If there's one guarantee in life, that wherever you go there's going to be taxes that need to be paid. So the questions are, what are the local taxes? Example, sales taxes, value added taxes, profits taxes, stamp duties, whatever may exist in a local jurisdiction. Then the question is, under the local laws who is responsible to actually collect, pay and remit those taxes and can that be shifted as a matter of contract between the parties if you want to do a different arrangement? Also relevant are withholding taxes. So what those refer to is countries around the world are worried about tax seepage, in other words, foreign companies doing business in the foreign company jurisdiction but not paying taxes there. The questions that arise is, in the foreign jurisdiction what are the withholding taxes? Secondly, are there any international treaties that may reduce or eliminate those withholding taxes. Next, if there are withholding taxes who should pay for them? So the options could be the customer might have to pay for them in the form of increase in the purchase price that they're paying you for the goods that you're delivering to them, or alternatively, the supplier might have to pay the withholding taxes in which case the question for the supplier would be, can they claim in their home jurisdiction a tax credit for those withholding taxes that have been deducted from the payments in a foreign jurisdiction? 

Also relevant are various types of local regulatory laws such as import customs rules, export controls, foreign exchange investment controls. For example, can you get the money paid to you in your currency out of the foreign jurisdiction? There may be various registration requirements in the foreign jurisdiction. That could be registration of your company, of your business. It could also mean registration of the agreement. To take the example of China again, if your doing what's called a technology transfer agreement, which would include an intellectual property licence, under the laws of China that agreement must be registered with the relevant Chinese Ministry of Commerce. Also relevant are labelling laws, language laws of the packaging, documents or potentially even the contract itself.

Other areas to think about are intellectual property protection. So here the question would be, what is the IP protection available in the foreign jurisdiction over the product or service that you are supplying? For example, if you're supplying a data base or a trade secret, what is the protection in that jurisdiction of data base and trade secret rights? On top of that, what terms can you include in your contract that will improve your position in terms of protection? It's also, generally speaking, a good idea to prohibit local registration of trademarks or use of the corporate name by your partner in the foreign jurisdiction. The reason for that is because if you don't do that your local partner may acquire rights in the name and in the foreign jurisdiction. Or, if it could potentially go bankrupt, your trademarks and corporate name could become an asset to the bankruptcy and then get transferred to someone else.

Next we'll look at dispute resolution. So generally speaking when you're doing international deals it's a good idea to do international arbitration. There are a variety of different reasons for that. One of the reasons is that that will help boost the reviewer contractual choice of law and also prevent you from becoming a defendant in a law suit in a foreign court. Now if you're choosing international arbitration it is also a very often a good idea to maintain the ability to, however, to provide for injunctive relief in the local court. The reason for that is because if you want to be able to obtain an injunction that's enforceable against your foreign partner, the quickest and easiest way to do that is by going directly to a court in that jurisdiction.

So what we're going to look at now is how do you actually run an agreement localization project? This could be whether you're entering one country or it could be if you're planning on entering 20 countries around the world. The first thing you do is you identify the key areas that are needed for local legal advice based on your own business model and risks. For example, there's a very big difference between a company that has a business to business widget that they supply only to companies in non-regulated markets. That's very different from if you're providing a consumer good that involves a lot of handling of personal information. Once you've identified what your business is, and what the key areas of risk are, the next thing to do is to prepare your own summary memo of what your business is, and on top of that, what specific legal questions you think you have to ask the local counsel. The purpose of doing this is to be able to bring the local counsel into the picture as quick as possible and reduce their effort, time and of course your legal fees in providing you the needed legal advice. So it's always important to ask for short or point form answers back to your questions. You obviously don't want to receive a 20 page legal memo that requires a law degree in the foreign jurisdiction to understand, not to mention, a PhD in hermeneutics. However, even asking point form simple questions, it's always important to also ask what else do I need to know because since you're the one coming up with the questions you want to make sure that you don't miss the mark on anything that the foreign counsel considers to be very important. Once you collect back the answers from the local counsel you're then in a position to modify your agreement and, if you like, have it reviewed also from foreign counsel for enforcement issues.

We're going to change gears now a bit and look at powerful, but sometimes overlooked terms, that you can use in your tech agreements to your advantage when growing your business. The first area we're going to look at is exclusivity and there are four main variations on exclusivity. First is the exclusive relationship or contract. In an exclusive contract the parties agree to deal exclusively with each other and no one else, or in the context of intellectual property licence, it means that the licensor has transferred all of the rights in the licenced IP to the licencee, meaning the licensor itself can no longer practice the licenced IP. The opposite of exclusivity is, of course, is non-exclusivity, non-exclusive. Under non-exclusivity both parties are free to do business with other parties and licence their IP to other parties. A variation on exclusivity is what's called a sole licence. In a sole licence the licensor agrees to only create a single licencee of the intellectual property. That means that the licensor itself can continue to practice the IP but only agree to create one licencee. Then finally there's a concept of retained rights which also operate in context of exclusivity. What that refers to is either both of the parties, while notwithstanding their exclusivity, retaining certain rights outside of the relationship and that could be, for example, to a particular territory, to a particular field of use or a particular application.

Similar to exclusivity but different are non-competition clauses. So what non-competition clauses do is they prevent the other party to your agreement from competing against you, such as with other IP, or other products, or in a particular territory or market. Now when your penning a non-competition clause and you're dealing with a very small company, sometimes it's a good idea to get the covenant, not just from the company itself, but from the actual principal behind the company. The reason for that is because you don't want to have a non-competition clause that's enforceable against the company but having the important principal of the company able to circumvent the clause by not being bound by it, personally. However, when dealing with non-competition clauses it's always important to be aware of potential enforceability issues, both in your home jurisdiction and in the foreign jurisdiction. The reason for this is that in many jurisdictions, in order to be enforceable, a non-competition clause must be both reasonable in scope and duration.

Dealing next with rights of first refusal or rights of first negotiation. The basic theory of these clauses is that if you have found a company that had a useful product or IP for you on one occasion, there's a very good chance that that company will have something useful for you again in the future. What these clauses do is they enable your company to secure access continuing developments or opportunities from your valuable licensor or supplier. That could be to new technology, new IP, a new product, new territory, new application or field of use. Now when including rights of first negotiation or the rights of first refusal, the basic difference between the two of them is that the right of first refusal gives the holder the right to match a specific deal that's been offered to the other party. Whereas a right of first negotiation gives the holder the right to negotiate a deal when the time comes. For everyone, you must always keep in the back of your mind, potential enforceability issues about these clauses because generally speaking, what's called an agreement to agree, will not produce an enforceable covenant. So you may attempt to address this issue by building in processes into your agreement, dealing with how the right of first refusal or right of first negotiation will work, however, many times at the end of the day what you are allowed to is really a right to participate in future partnering of sale discussions.

So the final topic we'll look at in the area of tech agreements is access to improvements. Here we're talking about is future improvements that may be made to the IP or product that you are receiving after the date of the initial grant or transfer. From the perspective of the licencee, you're interest is to ensure that these future approvals by your licensor or supplier will be automatically included in the agreement. If they're not included you may find yourself in the uncomfortable position in a few years down the road of having to go back to your licensor to obtain rights to their future improvements, and of course, pay more money for that. Now from the perspective of the licensor or supplier, you may have an interest in obtaining access to the improvements of your counterparty. You may want this access either during the term of the agreement or upon termination of the agreement. Now, the way a licensor would typically obtain access to those licencee improvements is through what's called a grant back, which is either assignment or a licence of the improvement back to the licensor. Once again, when dealing with grant backs local, legal requirements may differ. For example, under the law of China, a developer of an improvement will be the owner of the improvement. So to take the example of where you have retained a company in China to manufacture your product, if your manufacturer develops an improvement to your product, the manufacturer will be the owner of that improvement. Now it is permissible under Chinese law to include a grant back of that improvement back to you the owner of the product, however, that must be accompanied by what's called reasonable compensation to the developer. This compensation must be new consideration. So in other words it has to be some additional payment, additional consideration to the manufacturer. It can't just be what you have already paid them to manufacturer the good. With that I will turn it over to Filza to begin the discussion of intellectual property issues.

Filza: Thanks, Paul. A trademark is a significant asset in business. It helps customers to recognize the products and services in the marketplace and, in this case, also that you have a registered and legitimate right to use them. The importance and value of the trademarks goes alongside the size and reputation of your business. So as you're looking towards international expansion it's important to ensure you have the right protection in place for your trademarks. One of the first things to consider is how your trademark has been protected in your home jurisdiction. As the trademark registrations that you have at home can often be used as a launching pad for securing corresponding rights overseas. Even a simple trademark, like the Gowling WLG that you can see in the bottom corner of our slide deck, can be protected in at least three different ways, which are shown on those bullet points. The first of these is a plain word mark, just for protecting the words 'Gowling WLG' on its own. This provides with you really broad, flexible protection because it allows the use of these words in any font, colour or stylization. But a plain word mark registration does not protect the esthetic look or feel of the trademark. So ideally you should be looking to register this in a stylized form as well. You might also want to protect non-verbal elements in your trademark separately from any verbal elements as this will allow you to combine both of these things in a variety of different ways. So say, for instance, the circle design could be on top of the Gowling WLG, or underneath it or on the other side and to protect those items separately you can kind of combine them anyway that you like. Whereas the first two, plain word mark and stylized mark registrations, wouldn't really allow you to do that. The best protection, of course, would be to register all three of these variations but depending on your particular trademark and how it's used, you might decide that one or two of these variations provides sufficient protection.

After you establish what trademarks you want to protect, and whether you have them registered at your own home jurisdiction, you need to conduct clearance searches in each country where you plan to use or register your trademark. Clearance searches are carried out on a country by country basis because trademarks are registered on a country by country basis. Clearance searches can vary in their complexity and cost, but their essential functional is to look for any prior marks on the trademark register or in the marketplace, and can prevent your use or registration in a particular country. A prior registration would leave you open to a trademark infringement proceedings and unregistered trademarks in the marketplace could lead to passing off actions or in ... ... there are trading concerns in some jurisdictions. Problems usually arise when there's an earlier mark that is identical or confusing with similar trademark and it's used on identical or related products and services. The threshold for this test can vary from one country to the next so it's really important to get advice from local lawyers in each country of interest. If clearance searches indicate that you can proceed with using or registering your trademark you can then start filing applications to register your trademark in each country of interest. At this stage, if not earlier, you want to develop this strategy for where you're going to protect your trademark. In most countries a trademark registration lasts for 10 years before it needs to be renewed. A trademark registration that's inactively used can become vulnerable to cancellation for non-use. In most countries a trademark registration can become vulnerable to cancellation if it has not been used for a period of between 3 years, and in some countries, 5 years. Cancellation proceedings usually have to be initiated at the request of a third party but there are some jurisdictions, like the United States for example, where registrants have an obligation to provide evidence of use if they want to retain their trademark registration. So if you can't provide that evidence of use of a trademark in that  jurisdiction you're rights are automatically cancelled. All of this is to say, that as a general rule of thumb, it's important to focus on securing registered trademark protection in countries where you plan to launch in the next 2 to 5 years.

Ideally you would always search before filing in each country of interest. But in some instances you might choose to file them without any prior searching. For example, if you're interested in expanding into Australia in the next 2 to 3 years and you're not completely committed to this market, you might file an application without searching first and simply wait to see what happens in the examination process. If the application achieves registration you'd be in a really good position to start proceeding with expansion in that market, and if the registration is refused or opposed, you would then know that entering the market is either not possible or it comes with serious risks.

Another important consideration to keep in mind, for your filing strategy, is how trademark rights are required in a particular country. In some countries like Canada you can acquire rights through first use and these rights can be used to challenge an application that's filed after your date of first use. But in other countries like, for example, China, priority is always given to the person that files an application to register a trademark. In these countries where rights are generated on first to file basis it makes sense to get on the register as quickly as possible, even if that means that you're filing and registering well in advance of your timeline launching in that market.

So there are two ways to file applications overseas and the next step to consider is how you want to build your trademark portfolio. You can instruct us and we can instruct local lawyers to file an application directly with a national trademark office, or you can instruct us and we can file an international trademark application using the Madrid System. The Madrid System is an international trademark filing system established by the Madrid Protocol Agreement. There have been ... for each approach so I'll briefly consider these with you on the next slide. A direct filing can provide you with the most flexibility because your application can be tailored to take advantage of local trademark laws that are occasionally out of reach of filing through the Madrid System. For example, in some countries you can protect really broad description of goods and services that would never be allowed in Canada, or you might be able to include multiple representations of a logo in one application. Again, that's not allowed everywhere. Of course, all of this flexibility comes with a cost and direct filings are usually more expensive then these under the Madrid System. This is usually because you've got two sets of lawyers on one file. Direct filings are available in every country that has a national trademarks office and where a country hasn't signed up to the Madrid protocol, or the Madrid Agreement, a direct filing is going to be your only option for trying to secure trademark registration in that country. The Madrid System, on the other hand, generally costs less because there is a centralized system for filing and maintenance of trademark rights. You only need to file a single application in one language, and once this is approved by central authorities, it is passed on to each of the countries of your choice for local examination. The resulting registrations are largely equivalent to the rights that you might acquire through conventional direct filing but the Madrid System does have some drawbacks. For example, it only includes 125 countries, and to access the System you must have an identical trademark application or registration in your own jurisdiction or in a jurisdiction where you have a real and effective commercial establishment. I understand there isn't a lot of case law in what counts as a real and effective commercial establishment but generally we tend to think of these as brick and mortar presences in a particular country. Again, that's kind similar to the Madrid System.

International applications, are by the Madrid System, are also dependent on your home application or registration for a period of 5 years. So if for some reason you're home rights become ... or they're lost this affects all of your Madrid applications. There are also some limitations around transfer of rights required by the Madrid System. So, for example, if you wanted to sell or transfer these rights the person that you're selling them to has to have some connection to the Madrid countries. Either through domicile or even through a real and effective commercial presence there.

Now once you file your applications things don't always go smoothly, especially when you're expanding into new markets. You might find that there are other people out there with trademarks that are similar to your own and these marks could be raised as objections in your applications. The usual means of overcoming a citation of other marks involves limiting the cover of your application to reduce an overlap between the trademarks, or in some instances, you might file an argument to support why your application is registrable. But as you move into new markets overseas there might be a third option available to you which you might not have come across in Canada because it's not given a lot of weight by the trademarks office here. Now this option is co-existence agreements. The circumstances of a coexistence agreement might be helpful to you is usually an apparent similarity in marks but, in fact, there are no commercial conflict between your areas of trade. In this case you might find that reaching out to the owner of the prior right, in terms of a co-existence agreement, helps you to secure a right to using registered trademark overseas. In principle, a coexistence agreement can be really simple. It could be only 2 pages that just sets out that you have a particular field of use and the other side has also a particular field of use and it provides both of you with explicit consent to use in your relevant space of fields. These agreements should also include a clause that the parties will not seek to challenge each other's use, or registration, in the specified fields and that all assignees and licencees will also be bound by these agreements moving forward. But there are some long term implications of coexistence agreements that require careful consideration before you jump into them. If you've misjudged the potential for a commercial conflict you might find that you're approach to the other side actually provokes an opposition to your application, which leads to a different problem in itself. Before you approach their side, or enter into one of these agreements, consider how a dispute regarding the compliance of that agreement with the result. What do you want the governing law to be and will each party bear its own legal costs for an agreement or for settling a dispute under the agreement? As a junior rights holder you're probably going to find that you have slightly weaker position in negotiations then the senior rights holder. So be careful and think carefully about how you're approaching these agreements. Things that you agree to today, in terms of limiting your specified field or how you plan to expand, could be something that presents a serious hindrance to your commercial interests in 15 years. Where both parties have sufficient goodwill to reach an amicable solution there might also be other options available, that are perhaps lest onerous like a simple consent agreement or licence agreement, maybe even a purchase of the conflicting mark. Be sure to consider all possibilities with a long term view and now I'll hand over to Roch.

Roch: Thank you very much. Just give it a second until I can control the screen. There we go. So I'm going to be talking about patents, in particular, but not patents sort of in the abstract. We're talking about patents in IP and agreements in the context of scaling up. So why are we talking about scaling up? Scaling up relative to what? Well the transition, generally, is from startup to scale up. Why does that transition matter for our purposes? I think it matters for a few reasons. One, you've got more people. You may have started your company with a closely knit group of friends where you intuitively act like a team, maybe without even knowing it, and you know what each other is thinking. But when you hire a bunch of new people you're not going to have the same connection with them to start. Once you hit a certain size you may never have that same connection with a very large team. So how do you efficiently manage that larger team for innovation management purposes? You're going to have more innovation. If you've been funded you'll have told your investors what your plan is for using that funding. It's probably going to include improvements to existing products and developing new products with all those new people you've hired. So how do you keep track of all those innovations your now larger team's creating? That's relevant even if you don't want to patent up. You're going to have more choice. Pre-funding, if you were faced with a bunch of options, costs may have forced your hand to make certain decisions. But post-funding, post-scale up, you may find you're able to afford more flexibility in your decision making. Which can make decision making more complex. So how do you weigh on the merits all those new factors that you now have to consider and that are now relatively more important than they were pre-funding? And impact. Post-funding you're going to be higher profile. You're probably gaining traction in the marketplace. You're hopefully taking business from competitors, and you won't be able to operate in stealth in anymore, and your competitors may look to leverage their IP portfolios against you. So how do you manage the risk that comes with that success? Those are the questions I'm going to be trying to answer now.

When it comes to managing innovation for a larger team, the ad hoc processes you have when you're a startup, in my experience, probably don't scale that well. So I think it's important to consider some kind of formalized invention disclosure and management program. What does that entail? I think it can be a good idea to consider hiring an IP manager. It doesn't have to be one person whose job is solely dedicated to managing and being responsible for your IP portfolio. You could have an existing engineer with experience or interest in IP and task that person. For example, half their time to manage the IP portfolio. You can outsource it but I find it's best for an IP manager to be fully integrated in the company. Someone who can sit in on meetings. It can be a single point of contact for outside counsel and can herd cats internally, so to speak, to get documents signed and whatnot. So while outsourcing is an option I find it's not the best option. I do prefer someone internal to the company, even if it's not a 1.0 full time equivalent. An education program for your newly expanded team to explain to them what can be patented. Often engineers, or developers, undervalue their own work and they don't think that what they're doing is potentially patentable, even if it is. You want to tell them why you're patenting so that people understand why they're going through what is additional work to generate IP like this. I'll talk about some reasons why people patent in a slide or two. How the patent process works at your company. How do employees interact with it? Do you have relevant forms and information on a corporate intranet? How long does the process take at your company? Is there some kind of reward program where employees, for example, get some kind of cash bonus or gift card or other kind of reward for participating? You'll need some kind of disclosure form that people hopefully can fill out and access relatively easily. Questions like what problem did your employee set out to solve? How did they solve it? Has there been any public disclosure, or use, or commercialization of the product or the potential invention? Is there any scheduled or impending disclosure? Because that will start legal deadlines that you will need to track. Some kind of innovation committee with stakeholders from different parts of your company to analyze all this information that's being created. The IP manager, of course, should be there and then someone from marketing with a business view or finance, someone from product design who understands the roadmap and the technical underpinnings of the innovations that you're discussing, I think would be a good representative committee.

There are also strategic considerations. None of this advice. None of the advice we give is given in a vacuum. It always varies with the business context and the environment in which you're operating. So tech, of course, is a huge category. It encompasses a huge category of companies as we saw from our first poll question. So what are the various considerations that may arise and some examples, sub-sectors. For example, if you are making a mobile app, are you bootstrapped and in an race to make it to market? And if you are, and if patenting would mean you make it to market a few months later because you've diverted limited money away from development, is that a trade-off you want to make? If you're in Cleantech, and that involves large investments in tangible equipment that gets exported to multiple markets, that is really up the patent system's bailiwick and that all points towards patenting. Are you in AI where there is a culture of publication in the industries? So to recruit good talent you may have to let them publish their research results, and if that's the case, that really takes away the legal sting from patenting because if you're going to publish anyway there's no legal downside to participating in the patent system. Different kinds of software. I've categorized it broadly as low level software, general purpose software, but if you've got low level software, like computer firmware or firmware, for example, that implements very technical processes like encryption, it can be easier to get a patent for that kind of software then for general purpose software. The software you have, is it on premises or in the Cloud? If it's on premises you'll be shipping it. Maybe your competitors will be shipping it. It may be easier to copy or detect infringement than if you've got a Cloud or SaaS implementation where everything is kept in secret. Are you in the professional services business? Where patenting may not be relevant at all. You may make money by selling your time. Perfectly noble way to make money but that may not be something that lends itself to the patent system.

I talked a couple slides ago, what's the why behind the patenting? There are lot of potential different reasons. You may want patents in a robust IP portfolio to raise a subsequent round of financing to increase your valuation. You may be primarily interested in securing freedom to operate. Just publishing your innovations so no one else can get a patent for that, in which case if all you care about is freedom to operate in publication, maybe quality isn't that important to you for a certain subset of those applications. You may be interested in joint development with potential partners, and if that's the case, you may want to document and protect the background IP you're bringing to the joint development so that your joint development partner can't claim that in fact they created it. You may also want to focus patenting on an area that compliments your joint development partner's technology. You may want to licence your technology. You may want to cross-licence it. Cross-licencing can be part of joint development. It can also be used if you are sued and you want to settle some litigation. Then you've got some more traditional aspects of patents. Deterrence, even if you don't actively enforce, your patents are published and other people who do patent searches will see them and may be deterred from operating in your space, and of course, enforcement where you threaten suit and commence a patent suit. I'd say while maybe the kind of patent utilization that gets the most press, probably in practice, one that's most infrequently used just because of cost and time. But post-funding, it may be on the table, where pre-funding isn't. Even if you don't do it, it is something that competitors will realize you are able to do post-funding, and that can influence strategy.

I mentioned an IP committee. I mentioned employees and invention disclosure forms. So presume you've got a system where you've got employees who've completed these forms, and you've got a stack of them in front of you and the committee is meeting to review them, how do you rank them all? How do you weigh these different factors that are now going to influence your decision making? One, technical merit. How technically cool is this innovation that you've got in front of you? Because to get the patent you have to prove to an examiner that your technology is inventive over what came before. If it is, of course, that tends towards patenting. If it isn't, that lowers the likelihood you'll get a patent. So it tends away. Commercial value. How important is the innovation to your business, from a revenue perspective? This can off-set technical merit. You may have n an incredibly valuable part of your business where you've got a bunch of innovations, some of which may not be that technically meritorious, but because the product is so commercially important to your business that may justify patenting regardless. Can you keep the invention a trade secret when commercialized? You've got really two ways of protecting an invention. You can either patent it, which involves publishing the invention or you can try to keep it a secret, which involves keeping it a secret. But some inventions you can't keep secret. If you are going to sell a product, can it be reversed engineered? Can someone buy it and take it apart? Including if it's a software product through decompiling. If so, then patenting may be your only option to protect it. Even if you can keep it a secret, even if someone can't reverse engineer what you've done, how long would it take for a competitor to independently recreate it? If you think you're product, or your invention, will have a lifespan of 10 years in the marketplace and your confident someone can't decompile your code and figure out how it works, but once they're inspired by seeing your product that they could recreate something substantially similar in a year or 15 months, that may lead you to decide to patent even if strictly speaking you could keep you innovation a secret. Has there been some kind of public use, or disclosure, or sale, or offer to sale, or secret sale or other commercialization that is relevant because it can either eliminate the ability to patent in certain jurisdictions? Because if you publish something before filing a patent application you may not be able to get a patent for that invention in some jurisdictions. Or are any of these events going to happen, for example, at a conference. That means you have to file an application before that event happens. I'll point out here that in this respect, America, is different than the rest of the world because American law, for historical reasons, says things like if you secretly sell or commercialize a product that can prejudice your patent rights, whereas as a general rule, elsewhere in the world whatever you do has to make your invention available to the public. So if it's done in secret, often it won't count. But in the United States it's different and that can, of course influence your strategy. You itemize your various innovations. You score them using an appropriate system. I tend to rank things using a numeric scale like 1, 4 and 9 where the delta's grow exponentially otherwise everyone gets a 7. So you itemize, you score, you compare it to your budget and you make a decision that way.

When you decide to file there is going to be a trade-off patent system between cost deferral and enforceable rights. Basically, if you want to spend more, you can get a patent often very quickly. If you want to spread out the cost, you can do that, but your enforceable rights will also be deferred. A common place to start, and I will provide examples of all these in subsequent slides as well, is a US provisional application. That's a place holder that basically secures a date whereby you tell the patent examiners this is when you invented something. So when the examiner is saying, "Hey, is this invention new?" the time they have to consider when they ask themselves that question is relative to your provisional filing date. This can defer subsequent filing costs and examination and grant costs by up to a year. There's also some flexibility, because provisionals are just a place holder and they're not examined, there is some flexibility as to a trade-off you can make between cost and quality. But keep in mind there are risks with skimping on quality up front. After a provisional, often people will do or file what's called a PCT, or patent cooperation treaty application. This does two things for you. It allows you to further defer costs by, it says another two and a half years there, it's actually another year and a half plus a year from the provisional as a total cost deferral of two and a half years. During that two and a half years you also get an initial patentability opinion which can inform your decision as to whether or not you want to make national filings based off that PCT. Because until you make national filings, you file in specific countries and you get patents granted, you actually don't have any enforceable rights. How do you decide where to actually file? Well, where are your competitors located? If they're manufacturing a product in a certain country, and you can sue and win in that country, you could take out international distribution because they can't manufacture anymore. Additionally, or alternatively, you can file where the customers are, where the sales happen and perhaps target resellers or importers. You may consider laws of local jurisdictions. For example, Germany is well known to be pretty favourable to patentees, whereas the UK can be a little tougher on them. In terms of where to file, will it be okay just to target very large markets? If you just file in the US, is that sufficient for your business, because no one else will want to compete with you if they can't have the US market? Or would you have to do the US, and Europe, and Japan, and  China or what have you? So those are the kinds of considerations you take into account.

I mentioned that I would have some examples. Here's one depicting what I just described on the past slide. You can start with a US provisional. That's the far left hand filing, PVR. That can get you a year to your PCT application. 4 months after the PCT, you get that initial patentability opinion. That's called a written opinion, which I've listed on the screen as WO. You've got 18 months of additional deferral from your PCT, for a total deferral from provisional to that list of national filings I have on the right hand side, of two and one half years. There I've shown filings in US, Canada and China that let's you basically file, put in almost any country you want, 100 plus countries there. The start to end here, cost deferral, you could be looking at easily, if you want, 4 to 5 years from your first filing to patent grant.

Here is the exact opposite. Forget anything I said about cost deferral, and pushing things out, just file everywhere you want to patent from day one. Absolutely a valid way to go. I would say relatively uncommon but certainly possible. Just to show you the flexibility the system gives you.

In terms of examples of how quickly you can get a patent, I've just gotten some allowances in the US using the expedited system they have there, in well under a year, 7 months. So contrast that with 4 to 5 years in the last slide. Lots of flexibility if you are okay with bringing some of the costs forward.

Here's another example, sort of in between. I've bypassed the PCT. You can start filing in Canada and then within a year, also instead of the PCT, just file in other jurisdictions directly.

Here is a strategy that combines a regular, non-provisional US filing with a PCT that I think is pretty popular. The reason its popular is because the US examination system is a queue based system. You file, and generally speaking unless you want to pay some money to expedite, you file and you wait for an examiner to get to your application. You're typically waiting between 12 and 18 months. So here, if you file your US application on day one, your PCT application at year one, maybe 6 months after you file your PCT you'll start arguing with the US examiner and then by the time two and a half years passes by, and you're ready for your national filings, you may very well know whether you're going to get a US patent or not. The US examiner may have found some relevant documents that you didn't find or may confirm for you that there's nothing else that's relevant out there. That they also couldn't find which can give you more certainty when making your national filings in Europe, Canada and China or whatnot. Also if you end up getting a US patent, by the time the two and a half years is up, you can leverage in this strategy that US grant to expedite examination in those other jurisdictions I've listed. So a bit of a hybrid approach here that I think is quite popular.

Everything that I've talked about right now has been about protecting your own assets, your own innovation. I mentioned at the beginning, of course, your higher profile, your higher risks. So that means that other people may be looking to enforce their IP portfolios against you. If that's the case you will worry about freedom to operate. You want to avoid other's IP rights in contrast to the discussion we just had about protecting your own. This is a freedom to operate search and analysis. It typically comprises two stages. First, we do the search and we do an initial review and cull of all the results we get back. The results being third party competitor patents. Our searchers return. They cast a wide net so we get a lot of documents, many of them end up not being relevant and we can dismiss those fairly quickly. Some of them are relevant, typically, and for those you do a detailed review. If that detailed review shows a potential problem, what do you do? You want to do something. So you can get some kind of legal opinion saying that patent is actually not a problem. Maybe a non-infringement opinion. It may be an invalidity opinion, saying that even if you infringe on the face of it, because the patent is invalid it doesn't matter. This is particularly useful in the US, because in the US they have a doctrine of willful infringement where if you're found to willfully infringe you can have triple the damages levied against you, but if you have a good opinion from an attorney saying that the patent was invalid or that you didn't infringe, that can make it much harder to get those enhanced damages against you. You may also be early enough in the design process, so you want to do the freedom to operate search early enough in the design process, where you can actually change your product design without tearing apart your assembly line. You can design around and may be you would not have been able to avoid infringement of a valid patent, but for the design around, but you find the problem early enough you can get around it. Often I find this comes up and may be a condition of subsequent rounds of financing, depending on the sophistication of the party, the sub-sector you're in and the amount of the line.

So some parting thoughts to conclude, Paul talked about how if you're scaling business you can use your agreements to your advantage when entering foreign markets. How it's important to localize and the importance of certain key terms. Filza talked about the importance of trademarks when you are entering new markets, and of being aware of competitive or prior trademark rights, and why it's important to clear and register your marks in those new markets. I talked about some of the practical problems associated with growing a patent program and the risks that comes from your higher profile and from your success. You can address that through a customized innovation management program and that may include freedom to operate searches.

With that we go to questions. We've got about 5 minutes left. I see there a couple in the chat box. Paul, do you want to moderate those?

Paul: Yes. We do have a couple of questions. The first one is regarding what's called an NNN agreement, which is an agreement that is quite often used doing business in China. The NNN stands for non-competition, non-disclosure and non-circumvention. It's kind of like a non-disclosure agreement on steroids with these additional protections built into it. It's quite a common contract that's used when dealing with Chinese companies, for example, your manufacturer. So unfortunately won't be delving into NNN agreements in this webinar. We'll have to save that one for another time and also get one of our lawyers, one of our Chinese officers, as part of the webinar.

Second question relates to whether non-competition clauses in commercial agreements get scrutinized in the same way as employment agreements. I think generally speaking that's correct. I find non-competition clause to be enforceable. It has to be reasonable and, generally speaking in terms of scope, time and geographic application.

Then we have a next question, looks like this is directed at you, Roch. For a mechanical product at what stage in development should you initiate a freedom to operate search?

Roch: I think you want some kind of prototype design. You want to be able to do a search specific enough to your product that you actually have something to analyze. But before you've made a big investment, that would represent a sum cost, if you have to change the design. For example, if you've got a fully fleshed out solid works model or 3D model of your mechanical product, but haven't actually spent the money creating the physical tooling yet, that would be good time because if you have to change the design you actually don't have to throw away tooling.

Paul: Okay. So those are the questions we have. In conclusion we would like to say thank you very much for everyone attending today. We hope you have enjoyed the session and have learned some useful things along the way. Thank you again and we will conclude the webinar and wish you a good day.