The Canadian Bar Insurance Association
Intellectual Property

Protecting a small business' most valuable asset - IP

Just like locking the doors when leaving the office at the end of the day, there are some safeguards small business owners should consider to protect their company’s intellectual property, and its value, says Toronto lawyer John Simpson of Shift Law.

“Trade names, customer lists, website content, software, etc. are valuable assets to protect and monetize – like inventory or equipment, but often more valuable,” Simpson recently told an Enterprise Toronto seminar held at City Hall, noting all small businesses owners own IP.

Simpson outlined a number of ways in which small businesses encounter or ought to engage with IP, from creating it (e.g. choosing a name), securing ownership of IP (e.g. through assignments from employees or founders), managing it (e.g. through registration or non-disclosure practices) and monetizing it (e.g. by licensing or selling it or using it as security for loans).

Small businesses must also be prepared to enforce their IP rights against others and at the same time take steps to avoid infringing others’ IP rights. “Because IP is harder to recognize than a tangible asset like a computer, it’s easier to steal without knowing it, which of course works both ways,” says Simpson.

He cautions that small businesses need to think about IP early on before it’s too late, when issues can become much more costly to resolve.

For instance, he says, trade-mark registration is something every small business should consider right at the outset.

“While registering a trade-mark is not necessary to acquire exclusive rights in a given territory over time, registration allows you right from the get go to prevent others from using similar trade marks with similar products anywhere in Canada,” he says.

Perhaps more importantly, Simpson adds, “It ensures that someone else won’t register a similar trade-mark and then assert exclusive rights against you, forcing you to change your name or else spend tens of thousands of dollars in litigation defending your prior rights.”

Whether you register a trade-mark or not, Simpson suggests that it is always a good idea to register your business name as a domain name with the various generic top-level domains (such as .ca, .com, .biz, and .net) and social media (e.g. @ThisIsMyTradeMark on Twitter) to the extent possible.

He notes that there are several important IP issues that small businesses must think about when hiring employees, contractors or consultants and when deciding on what basis to hire them. For instance, where employees or contractors will be creating IP for the business, such as websites or software, contractual terms may be needed to assign rights in the IP that they create to the company – “before they start and sometimes after they create it,” he says.

Simpson suggests that small businesses should ask themselves how much employees or contractors need to know about the business to do their job.

“Do not share more about how the business works, or what is ‘under the hood,’ than is necessary – especially with non-employees who may have no obligations of good faith,” he cautions. Also, businesses should use Non-Disclosure Agreements that clearly identify what is considered confidential, he says, “both to ensure that everyone knows what is off-limits and also to help with enforcement if necessary.”

Small businesses should always be aware of what IP employees or contractors are bringing to the job and ensure that they have the rights to use and disclose that IP, such as photographs used by a third party website developer. In fact, when people leave, especially founders and partners, it is critical to ensure that all IP remains with the company.

Simpson also stresses the importance of tracking and documenting the IP that the company generates, acquires and uses over time, especially for small businesses that may be looking for investors or purchasers down the road.

“You want to avoid a situation where you’re about to sell the company and suddenly it’s discovered that copyright in some valuable software is owned by a contractor who left five years ago and can’t be found,” he says.

To that end, Simpson recommends conducting an IP audit from time to time to ensure that all rights are properly secured.

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