Episode 32: How to protect things that aren't formal IP rights

Lisa Desjardins (Lisa): You're listening to Canadian I.P. Voices, a podcast where we talk intellectual property with a range of professionals and stakeholders across Canada and abroad. Whether you are an entrepreneur, artist, inventor or just curious, you will learn about some of the real problems and get real solutions for how trademarks, patents, copyrights and industrial designs and trade secrets work in real life.

I'm Lisa Desjardins and I'm your host.

The views and opinions expressed in this podcast are those of the individual podcasters and do not necessarily reflect the official policy or position of the Canadian Intellectual Property Office.

Are you relying on trust and faith or have you done a risk assessment and know what to do if a business relationship starts to crumble? In this episode, we're talking about the people behind your I.P. and business. Get ready for an eye-opening interview with Elizabeth Dipchand, a litigation lawyer with a passion for taking her clients through risk assessments to explore and formalize relationships, expectations and responsibilities if things go wrong. Because everything is fine—until it's not, and what will you do then?

Elizabeth, you are really, really a proponent on talking to people about what I.P. means in a practical sense. I'm so happy to have you here on our podcast. Welcome.

Elizabeth Dipchand (Elizabeth): Thank you so much. I'm extremely happy to be here. You know, we were just talking about the magic and discussion, but it's much easier to have magic happen when you're talking about something that's such a cool topic. I love this topic. I love this topic with a passion. When I went to law school and I was fortunate to summarize some great I.P. shops, I thought for sure I knew the difference about I.P. because wasn't all I.P. the same? I thought that I knew what intellectual property was and I was priming myself for a life of assisting in the acquisition of rights, thinking, okay, well, yeah, I'm going to be an I.P. agent. I'm going to be patent agent and I'm going to be a trademark agent, I'll be a lawyer and I didn't get what that meant in the context of practicing law and serving clients. I had some fantastic, fantastic mentors, during my, I call it my upbringing, in my formative years as an I.P. lawyer, and I realized that it's not just getting the rights. And it's not just about what rights you can get and all of a sudden, that's when the fun started.

Lisa: You have a litigation practice. You practice in matters in front of the federal court, the Federal Court of Appeal, Ontario Superior Court. Now, we're here to talk about some other things that we don't necessarily talk a whole lot about, and so I'm really happy to have you here to talk about other forms of I.P. You want people to make sure that they pay attention to non-registrable rights. Can you give examples, what are they?

Elizabeth: Yeah, absolutely. Well, it's so funny to talk about non-registrable rights in the context of registrable rights because we're so fixated ordinarily on registrable rights: patent rights, trademark rights, copyright, integrated circuit topography, and now more and more plant breeders' rights. The litigation piece was really important during my development, and so that was a really interesting foray into the way that registrable rights affect the business and society more as a whole, and there's no question that registerable rights have a very marked impact on society day-to-day, commercially, economically, morally, sociologically. What is less apparent and became more and more prevalent are the ones, the subsets of the intangible assets. The stuff that I can't put my hands on. I want your listeners to really kind of reflect on the difference between what that registrable right is and the unregistrable stuff, but ultimately it's still all intangible. The intangible piece matters because it became more and more clear that when you put the commercial and the economic viability of our clients' actions and activities in the context and take your lawyer hand off, the intangible assets actually matter far more and often have a far greater impact on their day-to-day than the registrables.

So why does that matter? Well, if it matters to your client, it matters to you, and if it has an impact on what they do and how they do it, it absolutely needs to be managed. There is more stuff that goes in behind on top of, integrated into the registrable rights that, while not registrable, are equally important from a commercial perspective.

Lisa: Let's roll up our sleeves here. What is that?

Elizabeth: I'll give you the example of know-how, technological know-how. The manifestation often is in the invention. But what is likely sold associated with the rights that are encompassed by that patent may not actually have much to do with the product that's actually on the market. So getting clients to kind of get their heads around that, they're like, "Well, I need to patent my invention because I'm selling my invention."

Actually, you're probably not selling your invention at all. What you're probably doing is selling some sort of embodiments, or there are some embodiments in the product that you're ultimately selling. That is the productive thing. Okay, you've got a thing and you're doing this fantastic thing, this technology. But the way that you do it may not have anything to do with what ultimately is protectable. So, the technology and the know-how that go behind it. We've got a client who makes the product, and we've got a portfolio of fairly formative inventions that are ultimately embodied in their end products. But the way that they do it and their efficiencies associated with it, that's really where the value is. The unregistrable value. All of these rights, and we talked about all these rights kind of in the abstract, they came from someone's brain, there's some human behind that. Tell me more about the humans that you have who are generating this I.P. because that is your greatest asset. The brains behind the operation, and so tell me about how you're generating this. Tell me about all of your efficiencies because, look. It seems to me that their know-how might even be out there in the world already. So how come you guys can do it so well?

And they say, "well, actually we got this one person toiling away in that office." "These new improvements that are coming out, who else is working on it?" "Oh no, it's just like that dude." I'm like, how do we know that he's going to stay with you? Let's talk about the risks associated with your intangibles, your whole universe with your intangibles. You guys get to do what you do because your organization has developed know-how and technology that is not yet out in the market but is definitely becoming more and more mainstream. And your improvements are going to keep you on the edge of the market. So how do we ensure that that is going to continue to happen?

What happens if at some point he goes to talk to another human and realizes that he could be getting paid elsewhere, likely better, for a competitor? What about that? You need to manage the human in that office. You need to ensure that what you're doing is managing the other intangibles that are not going to be registrable, that may not necessarily be something that's outside of someone's brain, and these are the challenges that you will face if you're not appropriately managing your intangibles.

That became a wider discussion of how do you manage your workforce and how do you manage your know-how and your technology? And one of the most important aspects of high technology, highly leveraged intangible assets is how do you ensure that you have control? How do you identify what you're doing? How do you acquire what you're doing? And then you've got to figure out how you manage it in a way that becomes sustainable in the sense of if you have an asset like your desk, your computers, how do you ensure that you are using it to the best advantage for your end goal, your commercial goal, unless you know what it is, can control it, you cannot make money off of it.

You cannot do things with it in order to, you know, your end goal. No client comes in to you for their end goal to be, "I want to patent." "I want to patent it because…" "I want a trademark because…" "I want to ensure that we understand what our I.P. portfolio is, because…." and that "because" is ultimately everything.

So the first question we all start with is, "What do you want?" "What do you want?" "Why are you here?" "What do you want?" And if someone says, "I want to patent," I say, "no, no, no, you don't want to patent." You may want what a patent could do for you. You may want what a trademark could do for you. But ultimately you have another goal. So let's dig into that. Because your goals are ultimately going to be the thing that drives the I.P. strategy. And the I.P. strategy is everything.

Lisa: What are the questions? What question is it that small entrepreneurs should be asking themselves—other than what do I want—to identify these "other things"?

Elizabeth: I always start with a resource inventory. What you want is often going to be dictated by what you can afford. A lot of the time, the most important asset an entrepreneur has isn't actually money. It's often their time. It's their time and attention. What can I afford is really an "okay, well, what do I have the bandwidth in order to get that will get me closer to my goal?", and taking that kind of step back to "okay, well, do I need my C.T.O. (or also known as, you know, my sister who is responsible for developing the technology) to be in a boardroom with an agent, or do I need her to be in the lab behind a computer developing the product?" Taking a good stab at "okay, well what can I afford and what can I not afford?" What are the consequences to me not doing something? How much can you afford when you don't do it now and you run into problems later? How much would it hurt if you don't take care of these things now versus later?

Quite often a client comes in and they want just this little small pinpointed box of things and they've got their lists and they've got their checklists. And I said, "okay, cool, tell me about your business." "Like, no, I just need this one thing." I said, listen, in order for me to provide you with the best service possible, I want to know about you. I want to know about your goals. I want to know about your business. I want to know where you're coming from. There is a checklist, but what I would ask is for you to step back and based on what your immediate goals are, your short-term, long-term, super long-term dreams are, then let's figure out what you need. They come in wanting something, but ultimately what they actually need could be a much broader thing. And there are times for specific service at different points in the growth of a company. So when I have a client who comes in… it's not every client has a special snowflake in that sense, right? There are some very, very strong commonalities of needs for clients who are kind of in that nascent small startup, which surprisingly is not that different from your traditional S.M.Es., 5 to 25 million dollar market cap or the 5 to 100 million dollars. It's just that they've got more resources in which to allocate to that thing.

So what are those things? Who are your people? And where is your information coming from? Is step one, and I really like to start with the human factor because the human factor more likely than not is going to be the ultimate driving foundation for anything that's innovative coming out of that client. Manage those relationships because it all comes down to relationships. What are your vendor-supplier relationships? Who are the partners that you have in your sphere? Vendors, distributors, investors, mom and pop, banks? What are the people that are just outside of your organization that really matter, that make an impact on your organization? And then your money? Where's your money coming from, how are you making it? Because those foundational bits invariably will dictate how the rest of your organization will ultimately commercialize for the long term.

So long term, and I don't mean long term in the sense of how long the organization will be around, but how long will that founder be able to move this project forward? Because not all projects can go forward. I find it so fascinating that when I started off really focusing about rights and thinking about rights and thinking about, you know, the pieces of paper with stamps and registration numbers and such, you know, fast forward almost 20 years and it's the people. It's ultimately the people that are the foundation of those rights, and those intangible rights will be so important to the long-term growth of the ventures.

Lisa: But at some point, you need to connect the dots with some paper, though, right? We have identified people. We've identified our suppliers and so on. But at some point, they need to connect the dots and nail it down. Otherwise, the genie will be out of the bottle, and it's lost. How do you protect that? Like, what's the next step now?

Elizabeth: You know, the next step is conversations. And I'm a strong, strong, strong proponent of contracts. I am not a strong proponent of handshakes. My clients know that handshakes will not cut it, but it's not the end piece of paper that's important. It's the journey to get there. The strong and hard conversations have to go on first, and those are the ones that are hotly negotiated and responses of "oh, we'll figure it out later" or "no, no, no, we don't have to worry about that, the relationship will never deteriorate." Those sort of pie in the sky thinking doesn't happen under my watch. It just doesn't happen. You have to have hard conversations. You have to have the ability to foresee when things and how things could go wrong in a period of time when things are going right.

Lisa: What conversations do go wrong then? Where do you find that they've made assumptions? What are the biggest myths now when we start to explore some of these conversations?

Elizabeth: Well, the biggest assumptions happen when the conversations don't even happen. It's fascinating. "Oh, well, they've been here for 10 years, so they're never going to leave." How about their annual evaluation? Nope, didn't have one. So the most kind of dysfunction is where there are assumptions of everything's fine because no one wants to have the hard conversations, but the best relationships are those that come out of the hard conversations. Because what's the worst that will happen is that people figure out that their expectations are not the same. But if you don't have the hard conversations to figure that out and to understand what expectations are, the best contracts that we've ever been involved with are those that are hotly contested. The hard things are really discussed, put on paper, executed, thrown into a drawer, and never to be seen again. It's not the end result of the paper that's the ultimate goal. The goal is the journey. And the goal of getting to a proper understanding that is legally enforceable is the best way that companies can mitigate when things go wrong because you could see when things went south why they went south. And you see firsthand when you work with clients long term, you can say, "hey, remember when you came to me and we thought about this thing and you said you didn't want to do it, and then you got sued? We're doing it". It's not about the technology failing. It's not about a cyber breach or a privacy breach. It's not about when things commercially go wrong. It's often about a lack of trust and a lack of a common journey where the 2 parties are misaligned from either values or expectations.

Lisa: Hmm, a lot of things to unpack here: think about what you need versus what you have, and then how do you keep it? Have that conversation with the people that you've just identified that you need… Have that conversation, agree on what the expectations are, explore that level of trust and finally, have something that you can legally enforce if, for whatever reason, something goes wrong.

Elizabeth: Yeah, that's a really good way to put that. Legally enforced and also practically enforced. And what do I mean by practically enforced? I mean that you have trust, but you have the systems in place to ensure that you've got the practical implementation to protect how you do what you do. So encrypted network, layered access, that you have controlled access to your most sensitive information. Trust plus systems, the relationship, but it's also the infrastructure that you put in place, and that is entirely informed by what those relationships are. And make no mistake, you can't go into this with the naive assumption that everybody's rolling in the same direction and nothing bad will happen. It's about setting up legal structure, practical structure, and I'm talking about infrastructure and process structure to ensure that whatever commercial endeavour the client is undertaking is protected from the risks.

The next big thing that I would tell clients, after we kind of go through their list of relationships, internal, external, what they do, how they do it, and what could go wrong: that's the risk assessment. So the risk assessment and understanding of the client's risk tolerance is really, really important. And let's be honest, most savvy entrepreneurs do have a fairly heavy and clear idea of risk register, whether or not they know that they have a risk register. A risk register is a thing that keeps you up at night. That's what a risk register is. And so whatever is keeping you up at night, that's going to be on your risk register. And that will also really dictate how your legal relationships are managed, your processes are managed, your infrastructure is managed. You can't just rely on trust. You have to have that trust plus appropriate implementation to ensure that everyone is rolling in the same direction, continues to roll in the same direction, and you're not naive about such things.

In any good relationship, a strong conversation has to be on when stuff goes south, who's responsible for what? What are you doing that's going to affect my business? What am I doing that's going to affect your business? And that is part of the expectation journey and the part of the expectation chat. And I feel like that is often one area of the allocation of liability where practitioners could really spend a little bit more time and attention on having those really strong conversations with your client. Because no one really fights when things don't go wrong, everything is fine until it's not. So what then should you be responsible for what then should they be responsible for, and what are the other inputs? Because that invariably goes to the intangible assets of the party that you're working with. It always includes development or manufacturing and product liability issues. As services implementation of, but it's a really important conversation to have.

Just to review that, to look internally what your relationships, externally what your relationships. And those are the key relationships in order to be able to do what you do. And then what is it that you actually do and what do you want to do? Are you building a widget? Are you a clothing designer? Are you a platform as a service, software as a service? And how do you do it is everything, because how you do the thing will dictate how you can continue to do the thing well and how you can protect your ability to do that thing. And then finally, what are the risks and where do you see? So if someone comes in and says, "well, we're doing this thing, but you know, we just noticed that Google just acquired about 4 other companies that kind of do what we do and they're probably going to enter in this space." Yeah, that's a pretty big risk. We're going to need to figure out number 3 and 4, what you do and how you do it to determine what kind of exposure you have, and then that will dictate the strategy. Does that mean then that we're going to take a really good hard look at what you do, ensure that your patents are sorted, and then put a for-sale sign up and ask for a good price? Or is it you think you can manage and you think you can move forward? Is this a licensed relationship that we could partner with?

Notice how I didn't get the rights yet? All of those baseline fundamental inputs; get the rights, get the protectable ones and the non-registered ones. Those non-registrable rights are still rights. They are still potentially actionable. They should be managed in the exact same way as your registerable rights need to be managed as well. Just because they may not be statutory constructs doesn't mean that it shouldn't be assets on your valuation sheet.

Lisa: Let's talk about the valuation. Because that's where we typically focus on, quite stringently, the registrable rights. But what are we talking about here?

Elizabeth: Well, it matters because when you're looking at the management of your intangibles, there has to be a direct solid bold line between your intangibles, registered and unregistrable, and I would actually put some emphasis on the unregistrable during this period of time, your due diligence, bold line to the valuation. So there's a lot of things that can be done for organizations, whether it's in the financing capacity, investment capacity, sales capacity, to have a good strong look at their intangibles, registered or otherwise, to determine whether or not they have appropriately captured the right that will lead to the value. I.P. strategy, I.P. acquisition, I.P. management is not a static point in time, it's something that has to happen all throughout the lifeline of a venture. Often boards and C-suites have a gut feeling about where they are, but when you start thinking of, "okay, well now I've got to go justify to someone else." You don't have a long-standing 20-year relationship with a supplier with no contract. You actually have a long-term auto-renewable for every 10 years that you can put on the books. Your contractual relationships are intangible assets that need to be managed just like any other registrable rights.

Lisa: Elizabeth, thank you. This has been so much to unpack, so much to learn. Thank you so much for sharing your expertise in this field. Very, very interesting.

Elizabeth: Oh, I'm glad. I mean, and it's fun, right? Like, this is the this is the really interesting stuff that you can roll up your sleeves. And when I say fun, I mean that also in a really practical way. You know, thinking about what those steps are in a very mindful methodical with the view to values and with the view to a goal, is the name of the game here.

Lisa: You've listened to Canadian I.P. Voices where we talk intellectual property. In this episode we met with Elizabeth Dipchand, an experienced I.P. lawyer who emphasizes the importance of understanding both registered and non-registered rights in the realm of I.P. In this thought-provoking discussion, Elizabeth expands on the conventional notions of I.P., such as patents, and guides us towards a deeper understanding of its multifaceted nature by highlighting the importance of also protecting relationships with employees, suppliers, know-how and to formalize the boundaries of these through well-maintained contracts and agreements.