Avoiding litigation: Intellectual property (IP) infringement―patent, trademark and copyright
All companies create intellectual property, whether they are aware of it or not. This is not to say that all companies retain or even protect their IP.
Intellectual property infringement
Intentional and unintentional intellectual property (IP) infringement commonly occurs at a venture’s startup stage.
Make certain to examine what types of intellectual property your company will use, rely on and even create. This will enable you to assess your risk of intentional and unintentional infringement and gauge the likelihood of detection and resulting litigation.
Intentional infringement can occur when new ventures, starved for cash, cannot afford proper research, opinions, licenses and IP applications (patent and trademark).
Also, many start-ups intentionally model themselves after the dominant product or service in the marketplace – opening them to IP infringement. Willful blindness (that is, not investigating when you should) is also widespread and can be considered intentional.
Unintentional infringement often transpires because of the complexities of certain industries and the speed at which applications for new patents and trademarks take place.
Demand letter vs. litigation in IP infringement
A demand letter is not a legal proceeding—it is simply a commercial letter that usually asks you to cease and desist from whatever it is you are doing that is allegedly infringing.
The letter sometimes demands money as a penalty or a licensing agreement. A demand letter is inexpensive for the sending party to prepare and usually succeeds in stopping the infringing behaviour. It is analogous to a warning shot.
Litigation is commenced by filing a Statement of Claim in court and then personally serving a copy on the defendant.
If you are being sued, it is likely because your activity has significantly harmed the plaintiff (or has the potential to do so). Remember that harm is not always financial; it can include reputation, increased competition (patents = monopoly) and confusion in the marketplace.
Litigation is expensive and time consuming for both the plaintiff and defendant. As a result, litigation favours the well-established company and not the start-up. Consequently, it makes sense for start-ups to avoid getting sued.
High-risk activities that might result in litigation
Patent infringement of a mechanical invention
This form of infringement is easy to detect and the plaintiff is entitled to, among other things, an accounting of any profits you make or damages you cause.
Patent infringement of a pharmaceutical
This form of infringement is not easy to detect but the dominant players in this market are large and constantly litigating
Trademark infringement of a registered mark owned by a large corporation
Avoid giving your product or service a name similar to that of a registered mark if they co-inhabit the same category of ware or service (for example, making a cola beverage and calling it Koka-Kola or 7-Down). Trademark infringement lawsuits made up 34% (the highest percentage of all categories) of federal court cases in 2010.
Copyright infringement of a well-known work
In this instance, the rights are managed by a large corporation or collective rights society. Do your best to avoid using unlicensed graphics or proprietary fonts in apps you develop for resale. Copyright infringement lawsuits made up 16.8% (the second-highest percentage of all categories) of federal court cases in 2010.
Use of confidential information obtained from a competitor
Hiring, or simply being, an ex-employee of a company can be considered infringement. Leaving one business to start a directly competing company is risky.
Defamatory statements about your competitor or their wares or services
The Trade-marks Act states in section 7(a) that no person shall “make a false or misleading statement tending to discredit the business, wares or services of a competitor.”
The most effective method of reducing your chances of being sued is proper research. Search the Internet, patent, trademark and copyright databases for similar products or services.
Note: The content in this article is for purposes of general information only. It is not legal advice.
Federal Court. (2006, October 30.) Retrieved May 3, 2011, from http://cas-ncr-nter03.cas-satj.gc.ca/portal/page/portal/fc_cf_en/Index.
IPPractice.ca. (n.d.). Retrieved May 3, 2011, from http://www.ippractice.ca/.
Canadian Legal Information Institute. (2008, January 31.) Trade-marks Act, R.S.C. 1985, c. T-13. Retrieved May 3, 2011, from http://www.canlii.org/en/ca/laws/stat/rsc-1985-c-t-13/latest/rsc-1985-c-t-13.html.
Canadian Legal Information Institute. (2005, May 14.) Patent Act, R.S.C. 1985, c. P-4. Retrieved May 3, 2011, from http://www.canlii.org/en/ca/laws/stat/rsc-1985-c-p-4/latest/rsc-1985-c-p-4.html.