Your SR&ED and Intellectual Property Primer

EVERYTHING YOU NEED TO KNOW TO CLAIM SR&ED TAX CREDITS and

Intellectual Property Primer

Presented by Jeff Christie - Partner, Boast Capital Andrew Currier - Partner, PCK

June 4, 2015

EVERYTHING YOU NEED TO KNOW TO CLAIM SR&ED TAX CREDITS

Presented by Jeff Christie, Partner, Boast CapitalJune 4, 2015

OUTLINE

I. Overview of the SR&ED Program

II. Benefits of Claiming SR&ED

III. CRA’s Requirements

IV. Do’s and Don’ts

V. Q&A

I. OVERVIEW OF THE SR&ED PROGRAM

WHAT IS SR&ED?

APPLICABLE INDUSTRIES

QUALIFYING CRITERIA

Must meet three criteria to qualify for SR&ED:

1. Technological Challenges

2. Technological Uncertainty

3. Technical Content or Iterations

ELIGIBILITY

The CRA’s 5 questions:

1. Was there a scientific or a technological uncertainty that could not be removed by standard practice/engineering?

2. Did the effort involve formulating a hypothesis specifically aimed at reducing or eliminating the uncertainty?

Continued…

ELIGIBILITY

3. Was the adopted procedure consistent with the total discipline of the scientific method, including formulating, testing, and modifying the hypothesis?

4. Did the process result in a scientific or technological advancement?

5. Was a record of the hypothesis tested and results kept as the work progressed?

EXAMPLES

II. SR&ED BENEFITS

WHO CAN CLAIM?

SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.

SR&ED BENEFITS

Return rates for SME CCPCs:

SR&ED BENEFITS

Return rates for non-CCPCs:

III. CRA REQUIREMENTS

TECHNICAL DOCUMENTATION

CRA requires that SR&ED documentation must: Have been documented at the time the work was

completed Highlight technical obstacles or challenges Be dated

TIME TRACKING

FINANCIAL STATEMENTS

WHEN TO CLAIM?

18 Months Past Fiscal Year End Current Claim = Within 6 mo Amended Claim = Within 7 to 18 mo

TURNAROUND TIMES

From receipt of a complete claim:

CCPC Current Claim – 4 months CCPC Amended Claim – 8 months Non-CCPC Claim – 12 months

CRA REVIEWS

CRA Review ≠ Tax Audit

Multiple types of Reviews: Desktop Financial Technical & Financial First Time Claimant Advisory Service (FTCAS)

IV. THE DO’S AND DON’TS

THE DO’s

Do:

Pay yourself and staff Start time tracking and proper

documentation now Incorporate your company

THE DON’T’S

Don’t:

Underestimate the importance of documentation

Focus on the business opportunity

Leave SR&ED claims until the last minute

JEFF CHRISTIEPARTNER

403 589 2809 | [email protected]

BoastCapital.com | @BoastCapital | @ChristieLuge

© Perry + Currier Inc. 2015

Intellectual Property PrimerAndrew Currier, June 4, 2015


• Trademark

• Copyright

• Industrial Design

• Trade Secrets

• Patent

• Semiconductor Protection

Overview of IP Regimes


TRADEMARK PRODUCT ESTIMATED VALUE (2005)

Apple Computers/Software US $93.3 Billion

Google Software US $93.3 Billion

COCA-COLA Soft Drinks US $79.2 Billion

IBM Computers US $78.8 Billion

Microsoft Software US $59.5 Billion

GE Diversified US $46.9 Billion

McDonalds Fast Food US $41.9 Billion

• Intended to uniquely identify a product and/or its source.

• E.g.• Should be registered in each country where operations will be carried out

or product will be sold.• Law protects the mark as long as the mark continues to uniquely identify

the source.• Can be the most valuable asset of a company:

Trademarks


Trademarks

• Trademarks for Product Name(s), Company Name, Logos etc. can all be important assets.

• You must exercise great care when using another’s Trademark i.e. – “Works with Apple iPods and iPhones” can get you in trouble.

• Be extremely careful of “comparatives” i.e. – “is 50% faster than a Galaxy S3” can also get you into trouble.


• Grants author the exclusive right to reproduce and/or use his or her work.

• Prevents unauthorized copying.• Copying need not be complete, need only be

significant (either in quantity or quality).

• Does not prevent independent creation of similar, or even identical, work.

• Requires: • originality (very low threshold)• and fixation (must physically be

recorded/stored/fixed) for at least an instant in time.

• Copyright CANNOT be “innocently infringed”. If you had no access to another work, you cannot infringe.

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Copyright


• Copyright Can Exist in Wide Variety of Areas• Product specifications/documentation• PCB Layouts• Firmware• Drivers• Interfaces & Memory Maps• Software & APIs, e.g., Source Code, Object Code• Databases

• Copyright Does NOT Exist in Ideas Protects the expression of an idea, not the idea itself.

Note: Difficult to successfully make this argument in court.

• Copyright Does NOT Exist in “Functional” Works e.g., no copyright in the layout of the buttons on the remote for a VCR

() or in the Lotus 1-2-3 menus. Note: Also difficult to successfully make this argument in court.

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Copyright


• Copyright Protection Lasts (virtually) Forever. Typically Author’s Lifetime + 50 Years (in some cases, longer).

• Copyright Infringement Spreads Like a Virus. If you have access, or have had access, to someone else’s

copyrighted materials (code, board layout, API, etc), you are contaminated.

When you are contaminated anything you produce can be held to be a “derivative work” and one or more of the earlier authors can claim rights to it.

Access does not have to be direct, it can be implicit/inferred. Reverse Engineering and/or “clean room” operations must be

conducted VERY carefully (you should obtain legal advice before starting.)

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Copyright


• Protects the ornamentation of a product.

• Must be registered in each country for which protection is desired.

• Time limit exists within which application must be filed.

• Have been used (in the U.S.) to protect icons and fonts sets.

• Generally a weak form of protection unless particular appearance is essential to product.

Can be useful for protecting “consumables” and/or components of a system (e.g. - plug and socket)

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Industrial Design (CDA) Design Patent (US)






• Protection comes from not revealing to public (e.g. formula to Coca-Cola, locking firmware, etc ).• Opposite of patents, i.e. - “A patent is simply a secret that

everybody knows”.• Not governed by any statute – Usually Protected by

Secrecy, Restricted Access and Contract • Judge made law protects against illegitimate disclosure

or misappropriation.• Law does not prevent others from reverse engineering

product to discover secret.• Important to have operational and contractual

processes to protect (NDAs, Contractors’ Agreements, Employment and License agreements).

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Trade Secrets


Trade Secrets

• API’s, diagnostic tools and code, memory maps, operating parameters, formulas, methodologies etc. can all be valuable trade secrets.

• In many cases, the trade secret will not survive release of your product.

• When considering relying upon trade secret protection, a balancing must be performed between the value of the trade secret to you and the difficulty for a 3rd party to reverse engineer that trade secret. If it is too easy for a 3rd party to obtain the trade secret (by reverse engineering, etc.) or the trade secret is immensely valuable (and thus more extreme options – peeling of semiconductors, etc. may be justified) then trade secret protection may not, by itself, be a viable option.

• Can be combined with Copyright to provide some level of additional protection.


• The “Nuclear Weapon” of Intellectual Property.• Protects ideas and their implementation

• “Functionality” rather than Aesthetic Features.• Represents a bargain between the government and an

inventor. Inventor must disclose the invention to advance public

knowledge.• Patent comes from the Latin word for “To Lay

Open.” Government grants a time-limited monopoly as

compensation for the disclosure.• Patents are property and an asset.

Like other assets, patents can be bought, sold, encumbered, licensed, traded, etc.

• An “Insurance Policy”.

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Patents


• “IPR skills are crucial if Canadian companies are to compete internationally or else they will end up as “lambs for the slaughter” in the global marketplace.” Jim Basillie, Globe and Mail, 10 April, 2014

• “The solution to this is patent exchanges with large companies and patenting as much as we can. A future start up with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high.” Bill Gates, Microsoft Internal Staff Memo

• “Jobs’ attitude was that if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it’s a defensive tool.” Nancy Heinen, General Counsel Apple (pre 2006)

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Patents


• Gives the patentee the right to exclude others from making, using or selling the invention for up to 20 years from the filing date of the application.

• Does NOT entitle the patentee to practice the invention. Many patents are “improvement” patents that build

upon existing technology that may, itself, be patented. Apple has many patents on the iPhone, but also had to

license many 3rd party patents from Qualcomm, Nokia etc., relating to 3G and LTE communication technologies.

You might require a license to practise your own invention…

41

Patents


• Patents can be “innocently infringed.” • Independent and “original” creation of previously patented invention by 3rd party is still

infringement of the patent.

• U.S. has doctrine of willful infringement, which can lead to an award of triple damages.

• $612.5 Million settlement agreement reached between RIM and NTP after finding of willful infringement.

• $290 Million Judgment against Microsoft after finding of willful infringement of i4i patents.

• U.S. CAFC decision in Seagate establishes “objective recklessness” as threshold for willfulness.

• In many circumstances, this will be a difficult threshold for a plaintiff to meet/prove.

• A common defense against an allegation of “willfulness”• assert reliance on an opinion counsel’s advice and work indicating that you were not

infringing.

42

Patents (Infringement)


• A separate patent application must be filed in each jurisdiction in which protection is sought. Various systems exist (e.g., PCT, EPC, OAPI, etc.) In some cases, you can be found to infringe on a patent in another

jurisdiction if you have customers in that jurisdiction

• Applications must be filed within certain time limits. Disclosing the invention prior to filing the application may prevent an inventor from obtaining a patent.

• As a patent application must contain full and complete disclosure of the invention, any confidential information relating to the invention will no longer be considered confidential.

• Patents and Trade Secrets are mutually exclusive.

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Patents (Application)


Trade Secret

Conception

Invention Disclosure Form

Committee Review

Prior Art Search?

Patent ApplicationPublicationBusinessDecision

Invention Disclosure Process


• DISCLOSURE (Inventor’s Obligation)

• Title, Abstract, Background, Summary, Detailed Description and Drawings

• Combination of a Technical Document and a Legal Document

• CLAIMS (Government’s Obligation)• Archaic legalese

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PATENT SPECIFICATION = DISCLOSURE + CLAIMS

Anatomy of Patent


• To obtain a patent, the invention must Contain Statutory Subject-Matter; Be New (Novelty); Be Non-Obvious (Inventive); and Be Useful (Functional).

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Patent Requirements


• To be patentable, an invention must be “new” and “non-obvious”• To be new

The exact same invention must not be known, published, offered for sale, or otherwise publicly available anywhere in the world (“prior art”).

• To be non-obvious A “person of ordinary skill” must have exercised an “inventive step” or

“ingenuity” over the “prior art” to arrive at the claimed invention. E.g., Pencils are known; erasers are known. Is it “obvious” to glue the

eraser on the end of the pencil? Recent U.S. Supreme Court decision makes it easier to find an

invention obvious especially if it is a combination of prior art. “A person of ordinary skill is also a person of ordinary creativity, NOT an

automaton.” “A combination of familiar elements according to known methods is likely

to be obvious when it does no more than yield predictable results”

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Patent Requirements: Novelty and Obviousness


• These requirements go to the “heart” of the bargain Generally, monopolies are considered to be

detrimental to a free market. If the invention was already available or obvious

then granting a monopoly is not a good bargain. If the invention is new and inventive then

granting a monopoly may be justified in order to encourage innovation.

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Patent Requirements: Novelty and Obviousness


• To be patentable, an invention must be an “art”, “process”, “manufacture”, “composition of matter”, or an improvement thereof.

• Most countries limit patent protection to technological, functional devices and methods. (e.g., machines, pharmaceuticals, electrical equipment, computers, and ... software).

• In the U.S., for a claimed process (such as a software method) to be eligible for patent, it must be implemented with a particular machine or transform an article from one state or thing to another (the U.S. Supreme Court has held that this is not the only test, but it is the one being applied).

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Patent Requirements: Subject Matter


SOFTWARE AND BUSINESS METHOD PATENTS• A recurring area of controversy is whether “software” and “business

methods” are patentable.• Tension is that “machines” are patentable, but “abstract theorems” are

not.• A subset of the tension of distinguishing between pure science vs. applied

science.• “Software” per se is often viewed as a mere abstract theorem and

therefore not patentable.• “Hardware” is typically viewed as a “machine”.• “Software” is generally treated as patentable provided the patent is

drafted in the context of hardware on which it is executed.• “Business methods” can often be expressed through software, so there

are openings to draft business methods as software executing on hardware in order to bring them within the scope of patentable subject matter.

• Examples...

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• Business methods that incorporate technical features are generally eligible for patentability, whereas business methods that broadly encompass mere abstract financial concepts are not

• Laws of U.S., Canada and Europe in relation to business method patents are generally converging

• Recent U.S. Supreme Court case invalidated the business method patent at issue in that case, but left the door open for inventions that are not solely directed to an abstract idea

• Although generally considered a negative period for business methods patents, the pendulum with regard to business methods has swung several times over the last 40 years in favour and against business method patents

• Even during negative pendulum swings, financial service institutions continue to file and pending patent applications are consistently used as a business tool


U.S. Filing

International (PCT) Filing

Canadian Filing

Publication of Application

12 Months

12 Months

30 Months from U.S. Filing

18 Months

Patent Filing


File Application

Request Examination

PrepareResponse

Examiner’sReport

Patent Issued Appeal?

Final RejectionOffice Action

Patent Prosecution (Each Country)


Business Criteria to Evaluate Patentability of Technology


Business Criteria to Evaluate Patentability of Technology


• Many countries have enacted Semiconductor Protection legislation to prevent “peeling” and copying of chip designs.

• While the legislation prohibits “copying”, it does not prohibit reverse engineering so it may be of limited use.

• While initial interest was high, by the time the legislation had been enacted the issue seemed to be moot and few applications have been registered.

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Semiconductor Protection


Patent Copyright Trade-Mark Industrial Designs Confidential Information/Trade Secret

Type of protection

exclusive right, privilege and liberty of making, constructing and using the invention and selling it to others to be used

the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever

the exclusive right to the use throughout Canada of the trade-mark in respect of specific wares or services

the exclusive right to make, import, sell, rent, offer or expose for sale or rent, any article in respect of which the design is registered

Misuse of information or trade secret

Scope of protection

Broad - protects the invention as claimed, not just the particular embodiment described in the patent specification

Narrow - protects only the work or any substantial part thereof

Varies - depends on the context Narrow - protects the design or a design not differing substantially therefrom

Narrow - protects only the specific information or trade secret

Term of protection

20 years from filing Life of Author + 50 years or 75 years from creation of work

Indefinite, as long as the mark is in use

10 years from registration date Indefinite, as long as secrecy can be maintained

Source of protection

Statute Statute Statute and common law Statute Statute and common law

Qualification(s) for protection

Must file an application with CIPO that complies with the terms of the Patent Act, including proper subject matter, novelty, inventiveness, and utility

Copyright attaches to every work automatically upon creation, but registration provides additional benefits

Common law rights are territorially limited, although filing an application with CIPO for a trade-mark that distinguishes goods or services from competitors and is not confusing may result in a registration that extends protection across Canada

Must file an application with CIPO that complies with the terms of the Industrial Design Act, including proper subject matter, originality and novelty

Must be kept secret and disclosed only in confidence

Maintenance provisions

Annual maintenance fees None 15 year renewal fees, if registered A single maintenance fee due at 5 years

None

Independent creation defence?

No, unless prior inventor was first to file or disclosed prior to the claim date so as to anticipate

Yes No No Yes

Comparison of Different Types of IP


Cited by the Supreme Court of Canada. See Teva Canada Ltd. v. Pfizer Canada Inc http://bit.ly/1gUGgsg

Regular Updates at PCKReporter.com

http://bit.ly/1gUGgsg


Our Expertise

Andrew Currier, [email protected]

Andrew is a recognized leader in the Canadian intellectual property field. Andrew is co-author (with Stephen Perry) of Canadian Patent Law (LexisNexis 2012, 2nd Edition, 2014), the first comprehensive text on the subject by a practitioner in over 30 years. Justice Roger Hughes, in his introduction to the book describes it as, “…a thoroughly scholastic work dealing with many areas of patent law and prosecution in Canada” which is “useful, indeed essential, reading for anyone involved in or interested in any aspect of Canadian patent law and prosecution.”

Andrew’s contribution to the practice includes his experience as a lawyer at one of Canada’s most respected law firms, practical business experience gained as general counsel and vice-president of a TSX-listed company, and as a lecturer and adjunct profession in intellectual property law at the University of Western Ontario and guest lecturer in trademarks at the University of Toronto. Andrew has also been actively involved in several trademark enforcement proceedings. Over the past several years, Andrew spearheaded the transition of PCK from a paper-driven practice to its current status as a largely paperless, database driven practice that enjoys huge efficiencies and service quality improvements derived from automated processes and workflows. EDUCATIONBachelor of Laws, University of Western OntarioBachelor of Science, Electrical Engineering, Kettering University

MEMBERBarrister and Solicitor, Law Society of Upper CanadaProfessional Engineer, Professional Engineers of OntarioIntellectual Property Institute of Canada (IPIC)American Intellectual Property Law Association (AIPLA)Institute of Electrical and Electronic Engineers (IEEE)Intellectual Property Owner’s Association Fédération Internationale des Conseils en Propriété Industrielle (FICPI)


Our Expertise

Stephen Perry, P. [email protected]

Stephen has practiced in the field of Intellectual Property since 1985, with a focus on developing and managing international portfolios for Canadian technology companies. These portfolios cover a broad range of innovations in the fields of telecommunications, electronics, software, display technology, and medical imaging. Stephen is co-author (with Andrew Currier) of Canadian Patent Law (Butterworths, 2012, 2nd Edition, 2014).

A prolific author and speaker, Stephen has published an extensive series of articles on patent and industrial design issues, and writes the Industrial Design chapter in Canadian Forms & Precedents – Commercial Transactions (Butterworths). He lectures frequently on software patents and industrial design issues, traveling regularly to international conferences and seminars.

EDUCATION Bachelor of Science, Electrical Engineering, Queen’s University

AWARDS J. Edward Maybee Memorial Award, Intellectual Property Institute of Canada, for the highest overall standing in the Canadian Patent Agents Qualifying Examination, 1985

MEMBER Intellectual Property Institute of Canada (IPIC) American Intellectual Property Law Association (AIPLA) Fédération Internationale des Conseils en Propriété Industrielle (FICPI) Professional Engineers of OntarioInstitute of Electrical and Electronics Engineers


Our Expertise

Ryan is a registered Canadian and US patent agent experienced in software, communications, mechanical, electromechanical, thermodynamic, and energy technologies. Ryan has over a decade of patent experience, which includes a wide variety of work for many multinational companies. His experience ranges from helping startups obtain cost-effective patent protection to managing a multi-million dollar patent portfolio for one of Canada’s flagship high-tech companies. In the past, Ryan worked for four years based in Asia obtaining US patent protection for some of the world’s most successful electronics manufacturers. More recently, Ryan obtained patents and conducted product-clearance and patent-validity analyses for an Ontario-based manufacturer of injection molding technology. Ryan obtained his B. Sc. in mechanical engineering from the University of Alberta in 1997. Prior to becoming a patent agent, he worked for five years as an engineer.

EDUCATIONBachelor of Science, Mechanical Engineering, University of Alberta

AWARDSCSME Glatz Memorial Award 1997Dean’s Research Award, University of Alberta

MEMBERIntellectual Property Institute of Canada, Affiliate member (IPIC)

Ryan Smith, B. Sc. (Eng.)Patent [email protected]


Our Expertise

Robert StrattonPatent [email protected]

Bob Stratton has been working in the patent and intellectual property fields since 1989 and qualified as a patent agent in 1991. Bob spent the first twelve years of his career at two Bay Street law firms where he acted for a variety of domestic and foreign technology companies. Bob finished his time with the second law firm as partner and head of its Toronto Intellectual Property group.

Bob then started down a varied career path, with time spent as in-house counsel at a start up telecommunications equipment company; a consumer electronics company; a mobile computer manufacturer; and as president of his own patent firm.

Bob has a degree in Electrical Engineering, with a minor in Computer Engineering, and is experienced in developing and managing intellectual property relating to a variety of technical fields, including computer hardware and software, automotive systems, consumer electronics, telecommunications, water treatment systems, electrical motor control systems, semiconductor technologies, and others.

Bob has extensive experience in preparing and managing the legal aspects of clean room reverse engineering efforts and copyright issues relating to software and computer systems. Bob has also assisted in the sale and other monetization of patent portfolios.


Your SR&ED and Intellectual Property Primer

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