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Piece by Piece – 5 Legal Considerations for Startups

Introduction

Every startup needs a name, a location, a business structure, financing and at least one employee (or self-employed entrepreneur!). Each need involves different legal considerations. Here are 5 legal considerations that you should consider as a startup or a small business:

 

Trademarks

You will work hard to find a name that is unique to your business and expresses your service/product in a way that will attract customers.This name is important because it allows your business to protect its brand identity which, in turn, allows customer loyalty to build. The name(s) can be protected as a trademark. In Canada, without registering a trademark, your company will have protection as an unregistered trademark. Unregistered trademarks are only enforceable in your local region, have lessened rights and protections and may be overtaken by other companies that choose to register that trademark name. The federal agency responsible is the Trademarks Office in Gatineau, Quebec. It is prudent before launching any sort of media campaign (or investing in signs etc.) to check the Canadian Trademarks Database to make sure that the proposed trademark has not already been taken.

This includes both the text name and logo of the business.

 

Commercial Lease

Location, location, location! Unless you can operate from home (check local bylaws to ensure your use is not infringing the zoning for the area – signs, parking etc.) you will need to find a location suited to your business. This means entering into a commercial lease. Commercial leases are governed by different rules than residential leases and need to be carefully scrutinized. It is best to obtain legal assistance when reviewing the lease. Note that in a “net lease”, while base rent may be low (eg.$9 per sq. ft.), total rent charges may be quite high (eg.$28 per sq. ft.). Be sure you understand the exact costs before committing to a lease.

 

Corporation, Partnership, or Sole Proprietor?

The formal organization of your business will depend on a variety of factors: how many entrepreneurs are involved, the source(s) of your financing, your budget and your plans for the future. There is no legal requirement that the business be incorporated, and this step can be deferred until later. If more than one person is involved however, it is important to clarify your mutual rights and responsibilities and to protect the business from failure because of internal conflicts. For this purpose, a written partnership agreement is useful. Ask yourself the following questions before entering into a partnership:

  • Who owns the IP of the business?
  • How are financial responsibilities to be shared?
  • What is the authority of each person in the day to day operation of the business?
  • How are decisions to be made?
  • Are any assets owned personally?
  • What happens if the business fails? What if it is successful?

 

Loan Agreements and Guarantees

Many businesses begin with money from family, friends and personal savings.

It is important to enter into loan agreements with everyone who lends money to your business. The agreements should set out the principal, annual interest rate, and due date. This protects you, your family and your friends if the business succeeds, and if it fails. If you borrow from a financial institution, expect the need for a guarantor. Consider whether the person you will ask can actually afford to repay the loan, if your business is unable to do so.

 

Employment Contracts

If you have any employees you will have to comply with the employment legislation in your province. This will include minimum wage, hours of work, vacation, vacation pay, probation periods, termination notices etc. In addition to this, you must comply with PIPEDA for the protection of personal information of employees; tax legislation for the deduction and remittance of income taxes; and other laws with respect to pension and unemployment deductions. It is wise to invest in a good “Do-it-Yourself” employer’s accounting software package in order to get started.

 

The Future and Where It Lies

These legal considerations may sound overwhelming, but tackle each problem individually and get the professional advice you need. Once solved, your startup will have a good foundation for continued growth. Best of luck pursuing your dreams!

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Can a competitor use my trademark on their website for comparative pricing?

Moogsi / Wikipedia

Many websites use numerous brand names to compare pricing of each company’s products. Issues may arise when such ‘price-comparison’ websites are using other companies’ trademark names or designs.

How is a trademark protected?

A trademark is a registered word name or design that is legally owned by a business entity or an individual. An individual or business can register a trademark through a jurisdiction’s intellectual property office. The receipt of approval for a trademark from an intellectual property office, such as the Canadian Intellectual Property Office (CIPO), means that any other third party that tries to use the trademark by either:

(i) displaying it as its own trademark;

(ii) depreciating the value of goodwill attributed with the trademark (s. 22 of the Trademarks Act); or

(iii) providing false or misleading advertising

will be infringing upon the intellectual property of the registered trademark owner.

A website using another company’s trademark word names or design may be liable for intellectual property infringement based on the last two breaches mentioned above.

Depreciating the value of goodwill

A website using a registered trademark in a negative light may be in breach of intellectual property laws which prohibit depreciating the goodwill of a brand. A brand’s goodwill can be decreased by providing negative comparisons to detract customers away from the brand (for example, implying higher prices of a certain brand, or implying that low prices equals low quality).

In Future Shop Ltd. v. A.& B. Sound Ltd. (1994) (BCSC) both parties accused one another of misleading comparative advertising. The BC Supreme Court judge stated comparative pricing strategies that compare similarities between trademarked competition is more likely to contravene s. 22 of the Trademark Act compared to comparative advertising displaying the differences between trademarked competition.

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Walter Lim / Flickr

False and Misleading Advertising

Section 7(a) of the Trademarks Act prohibits any person from making a “false or misleading statement tending to discredit the business, goods or services of a competitor.” Furthermore, Section 52(1) of the Competition Act prohibits a party from “knowingly or recklessly make a representation to the public that is false or misleading in a material respect.” Price comparison companies that use other trademark names or designs must be careful to ensure that they are not misleading customers with respect to the information they provide on behalf of those marks.

Conclusion

Price comparison websites may be permitted to use trademark names or design of a third party company without claiming ownership of the mark, provided that they do not decrease the goodwill of the mark or provide false or misleading advertising of the mark.

To see examples of a variety of standard contracts, visit our Small Business Law Library!

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Protect Your Goodwill – Register Your Trademark!

What’s in a name?

Trademarks are the name, design, brand or logo that represent the products and services a company offers. They can be the word that customers associate with a company. If the mark is well known, it can be the major reason why consumers purchase the product or service.

 

Why you should register

When you register a trademark, you receive an exclusive right to the identified mark for use with the goods and services for which it is registered. While you may still use your mark without registering it under the Canadian Intellectual Property Office (“CIPO”), your mark will not be protected from unauthorized use. In other words, everyone is free to steal the creativity and brand recognition that has gone into the name of your mark. If your mark is protected by CIPO’s registration system, you can claim an intellectual property infringement against any individual or company that tries to use a mark that is the same or a similar to your protected trademark, for the same or similar goods or services.

 

When you should register

The sooner, the better! The best time to register is before you have built up goodwill with a name. That way, if the name you have chosen is already protected, you can choose another name. If you have already begun to gather some goodwill and a reasonable customer base in association with a mark, it is not too late, but you should register as soon as possible. This will help to protect the business you have built before someone else registers that name. It will also give you a chance to change if you discover that you are unknowingly infringing on an already protected mark. Sooner is also better than later because the registration process is quite lengthy and can take up to two years to complete.

 

The registration process

Even though trade-mark registrations are handled by trade-mark agents and/or trade-mark lawyers, it is important for you, the trade-mark holder, to understand the process of registering your trade-mark.

 

The trade-mark registration process is a team effort between the company applying for the registered mark and their agent representative (note that the company’s trade-mark lawyer is generally known as an agent representative by CIPO). The company understands the products and services it offers and the story behind its mark better than anyone else, while the agent representative understands the registration process and what the examiner of the file is looking for in an acceptable trade-mark.

 

The following are basic steps:

 

Step 1: Identify the Mark. The company will identify the mark the company would like registered. The mark will be the focus of the application.

 

Step 2: Identify the Competitors. The agent representative should complete an analysis of the competitors to determine whether they have any similar-sounding or similar-looking marks that are used in conjunction with similar goods and services.

 

Step 3: Conduct a Search on the Intellectual Property Office’s Website. CIPO’s trade-mark search database will generally have lists of marks that are registered, searched (currently in the registration process), expunged, or abandoned. It is important to conduct a thorough search in order to minimize objections by the examiner.

 

Step 4: Determine the Goods and Services. After an analysis of competitors and similar marks found in the database, the list of goods and services to be registered in association with the mark should be determined.

 

Step 5: File the Application. This is where the waiting game begins!

 

Objections

After the application has been filed, the examiner should respond to the agent representative within a 6 month period. The response may contain objections on various grounds, including: re-specifying goods and services; color claim description of a logo; or confusion with a previously applied-for or registered mark.

 

The most complex objection is the confusion objection, when the examiner finds that the applied-for mark is confusing with respect to another mark that is already registered in CIPO’s trade-mark database. This will require the agent representative to develop compelling arguments as to why the marks to be registered are not actually confusing, either with respect to the name itself, or with respect to the goods or services it is used with.

 

The following case is a surprising example of a successful defense to a confusion objection. In Mattel U.S.A., Inc. v 3894207 Canada Inc., the applied-for mark had the word BARBIE in its business name. It is arguable that most people in the world would associate the word ‘Barbie’ with the famous doll. Who doesn’t recognize a Barbie when they see one? Nevertheless, the Federal Court of Appeal held that use of the word in the name of a restaurant services business was not confusing with the appellant’s ever-so popular mark, BARBIE, used in connection with the doll. Compelling arguments by the defendant’s counsel succeeded against the retail toy giant, Mattel.

 

Conclusion:

The trade-mark registration process is lengthy and complex, but essential for the protection of  your brand recognition. Protect your goodwill, and register your trademark!

 

Take-aways:

A mark should be registered in the early stages of a company

  • A registered trade-mark will generally allow the trade-mark holder to bring intellectual property infringement claims against the ‘infringer’.
  • the registration process is a collaborative effort between the company applying for the registered trade-mark and the agent representative
  • objections by the examiner require a compelling response by the agent representative

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Registration of Your Business Outside of Your Legal Jurisdiction

To do business outside of the jurisdiction that a corporation is registered in, your corporation may need to apply for a licence for your corporation to be formed in that jurisdiction.

When a corporation should consider extra-jurisdictional registration

First, you should consider whether your corporation is “carrying on business” within a jurisdiction other than that which it is registered under. Different jurisdictions have provided different meanings to “carry on business”. However, some indicia that may suggest that a corporation should register extra-jurisdictionally are:

  • if the corporation has an office, other address, resident agent, or local telephone in this outside jurisdiction;
  • if the corporation is collecting or charging local tax;
  • if the corporation visits that jurisdiction in order to perform work that could not otherwise be completed in the home jurisdiction;
  • if the corporation has hired people to work in that jurisdiction; and
  • if the corporation’s business name is listed in a telephone directory in that jurisdiction.

  • if all or the majority of the above indicia apply to your corporation, your business will likely be considered as firmly established in that jurisdiction and may be subject to local business registration requirements and applicable local taxes. For this reason, you may be required to register extra-jurisdictionally.

Process of registering extra-jurisdictionally

The process for filing extra-jurisdictionally varies from jurisdiction to jurisdiction. However, some of the common requirements are:   

  • an application for a name approval;
  • the filing of the registration and the applicable fees;
  • receiving some type of certificate of registration confirming that the jurisdiction has been registered in the jurisdiction;
  • the appointment of a power of attorney or a local partner who is resident in the applicable jurisdiction; and
  • the establishment of a local office (possibly). 

Furthermore, once you have been registered within the new jurisdiction, it is important for you to inform yourself about how and when to charge sales taxes for the goods and services you sell and supply to your customers.

Consequences of not registering extra-jurisdictionally 

A corporation’s failure to register extra-jurisdictionally can have the following consequences:

  • the corporation will be incapable of maintaining an action, suit, or other court proceeding in that jurisdiction; or
  • the directors, officers, and registered agents may be have a monetary penalty levied against them for being found guilty of contravening the extra-jurisdictional registration requirements.

In order to avoid such consequences, it is important for corporations to give careful consideration to whether they should be registering extra-jurisdictionally.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

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Defending Your Business Name

We wrote recently about establishing a business name (See article on the importance of choosing a distinctive business name).  Once your company has started to gain some “traction” (subscribers, customers) you will turn a corner where it has it’s own brand and identity.  At that point in time you will likely want to protect that identity with a trade-mark.

Some benefits to registering a trademark in Canada include that marks registered in Canada offer all-Canada protection, and are considered by corporate registries before allowing new companies to incorporate, and also, disputes are to be settled in Federal Court, which has jurisdiction across all of Canada – so there is only one dispute resolution mechanism no matter your location in Canada.

Registration in Canada does not protect trademark rights in other countries. In order to protect a mark in another country, it is typically necessary to contact a trademark agent in that country and apply for registration. Like Canada, many other jurisdictions require some continued use to apply for or maintain registration of a trademark.

If you choose not to register a trademark, it will still be protected as an unregistered trademark under the common law.  However, unregistered marks may have lessened rights and protections, and may be enforceable only in the geographical area where the mark is being used.  Two restaurants operating 30 miles apart might both be able to use the same unregistered trademark, and consequently, an unregistered trademark cannot be enforced across Canada unless use can be shown all across the country.

 

Where to Register

The federal agency responsible for registering trade-marks in Canada is the Trade-marks Office in Gatineau,  Quebec.  Application for registration can also be performed online.

 

Costs of Registration

The basic government filing fee to register a trademark is $250 if submitted online or otherwise $300 for each trademark being sought. If the application is successful, an additional government registration fee is required for the certificate of registration.

Please note that the trade-marks office also views a word mark and a logo as a separate application.  Each has it’s own search and comparison process.  This is sensible, as the Nike “just do it” slogan and Nike swoosh can both be separately “ripped off” (or passed off to use technical language) by a person registering their new mark, so the process of researching, publishing and registering each is an independent process of the trade-marks office.

 

Timing

The process is time-consuming, so expect a delay of at least six months after initial filing before receiving a response from the trade-marks office.

Once the office responds, if there are no questions, conflicts or “technical fixes” required, the next step is to allow other registrants the opportunity to oppose its registration, by advertising the mark in the Trade-marks Journal. If there are no oppositions, then (often a year after initial registration) the application is accepted and once registration fees are filed the mark is registered.  Oppositions can be dealt with by amending the application, appealing the decision or abandoning the mark.  It is not unusual for the application process to take 24 months in total.

 

Searching the trade-marks database

It is prudent to check in the Canadian Trademarks Database on the Canadian Intellectual Property Office website to make sure that the Trademark, or a similar mark, is not already registered.

Searching the database can be accomplished by entering search terms, much like a standard search engine, and it quite simple when dealing with simple text names or phrases. Searching logos and other graphics, however, can become extremely complicated and may require the assistance of a registered trademark agent.

There are many examples of companies that have had to change their name as a result of mark infringement.   Even if you are not registering a mark, you may wish to perform a search on the database before selecting a business name, incorporating your company, or spending a lot of money printing business cards and developing marketing materials for your company.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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