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 Capital
June 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

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?
1. 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?
3. Did the process result in a scientific or
technological advancement?
3. Was a record of the hypothesis tested and
results kept as the work progressed?

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:

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

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)

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

Your SR&ED and Intellectual Property Primer

JEFF CHRISTIE
PARTNER
403 589 2809 | jchristie@boastcapital.com
BoastCapital.com | @BoastCapital | @ChristieLuge

© Perry + Currier Inc. 2015
Intellectual Property Primer
Andrew Currier, June 4, 2015

28
• Trademark
• Copyright
• Industrial Design
• Trade Secrets
• Patent
• Semiconductor Protection
Overview of IP Regimes

29
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

30
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.
31
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.
32
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.)
33
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)
34
Industrial Design (CDA)
Design Patent (US)

35
Design Patent (US)

36
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).
37
Trade Secrets

38
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”.
39
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)
40
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.
43
Patents (Application)

44
Trade Secret
Conception
Invention Disclosure Form
Committee Review
Prior Art Search?
Patent ApplicationPublication
Business
Decision
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
45
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).
46
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”
47
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.
48
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).
49
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...
50

51
•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

52
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

53
File Application
Request Examination
Prepare
Response
Examiner’s
Report
Patent Issued Appeal?
Final RejectionOffice Action
Patent Prosecution (Each Country)

54
Business Criteria to Evaluate Patentability
of Technology

55
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.
56
Semiconductor Protection

57
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

58
Cited by the Supreme Court of Canada. See Teva
Canada Ltd. v. Pfizer Canada Inc
http://bit.ly/1gUGgsg
Regular Updates at PCKReporter.com

59
Our Expertise
Andrew Currier, P.Eng.
Shareholder
currier@pckip.com
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.
EDUCATION
Bachelor of Laws, University of Western Ontario
Bachelor of Science, Electrical Engineering, Kettering University
MEMBER
Barrister and Solicitor, Law Society of Upper Canada
Professional Engineer, Professional Engineers of Ontario
Intellectual 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)

60
Our Expertise
Stephen Perry, P. Eng.
Shareholder
perry@pckip.com
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 Ontario
Institute of Electrical and Electronics Engineers

61
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.
EDUCATION
Bachelor of Science, Mechanical Engineering, University of Alberta
AWARDS
CSME Glatz Memorial Award 1997
Dean’s Research Award, University of Alberta
MEMBER
Intellectual Property Institute of Canada, Affiliate member (IPIC)
Ryan Smith, B. Sc. (Eng.)
Patent Agent
smith@pckip.com

62
Our Expertise
Robert Stratton
Patent Agent
stratton@pckip.com
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.

63

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