It is a nightmare scenario for any shop owner: a cease-and-desist letter landing in your inbox because you accidentally used a protected phrase, or a bill for damages arriving after you re-shared an image on social media.

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Independent sellers often operate in the grey areas of intellectual property, but operating without a clear understanding of the law leaves your business exposed.

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To bring clarity to these complex issues, we were joined by Ashlee Froese, a trademark lawyer, founder of Froese Law, and one of Canada's top legal minds in branding.

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Ashlee addressed the specific liabilities facing modern resale businesses. In this session, she broke down exactly when a sole proprietorship stops being enough, how to properly secure your brand assets, and the preventative steps you must take to ensure your hard work isn't derailed by a preventable legal error.

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This presentation was not recorded at the request of the presenter. There are no slides available.

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What follows is a fairly comprehensive summary of the webinar, with some additional examples. Please do not take this as specific legal advice and always consult with a lawyer yourself on situations specific to your secondhand shop. 

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The law is a business tool

Ashlee recommends entrepreneurs see the law as a business tool that can support you as you grow. 

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The law helps you to manage the risks of running your shop. 

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See the law as “part” of your business — and one that you will likely need to outsource at some point, even by hiring a lawyer for an hour or two. Consider legal one of the costs of being in business. 

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Ashlee also noted that if you want to exercise your rights in any disputes (i.e. pursue a violation of copyright or trademark), it will cost money.

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Figure out the best business structure for you

There are three main ways to operate your business:

1. Incorporation
2. Partnership
3. Sole proprietorship (most of our members fall into this category)

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What does incorporating mean?

As a lawyer, Ashlee recommends her clients to incorporate their businesses. 

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Incorporating means you are personally separated from your business. Your shop becomes a separate legal entity from yourself. 

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Incorporating protects your personal assets from risk and liability. So if your shop was incorporated and someone were to sue you, they can’t come after your home, your car, etc. Ashlee used the example of a shelter: the roof and walls are the incorporation that protects the business owner on the inside. 

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Incorporating means your shop becomes what is called a “corporation.” (This is just in name, it doesn’t mean your small business is suddenly H&M!)

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In Canada, incorporating can be done at a federal or provincial level. Ashlee prefers to incorporate federally, as provincial registration is more paperwork. In the United States, incorporating can only be done at the state level — there is no option for federal.

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If you decide to incorporate, Ashlee recommends working with a lawyer (though you can do it yourself). There are many details to be ironed out, especially if you are planning to grow your business and raise capital (funding) or give away equity (a portion of the total value of your assets). Sole proprietors aren’t allowed to give away equity in themselves, but they can give it away in their corporation as “shares.” 

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So for example, if you were to get an investor to give you $20,000 for business improvements in exchange for a “share” in your shop, you can’t do that as a sole proprietor. You’d need to be incorporated.

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There are also certain requirements of a shop owner who incorporates, including keeping proper minute books, assigning director roles and developing bylaws, and fulfilling certain government documents every year — including your taxes. If you don’t comply, the government can shut down your business.

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There is a revenue threshold where it becomes better for you tax-wise to incorporate, and Ashlee recommends consulting with an accountant to find out when that is for you. 

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Regardless, waiting to incorporate until you hit a certain tax threshold does not preclude you from being personally liable for anything that happens as you operate your business. 

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For example, say you are operating a bricks-and-mortar location and you’re not incorporated, you’re a sole proprietor — if someone slips and falls in your store, your personal assets are on the line if that person decides to sue. 

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What is a partnership?

A partnership is when two or more people work together under a written agreement. It is more like a sole proprietorship in that you are not personally protected from risks and liabilities.

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What is a sole proprietorship?

As soon as you start running your business, if you haven’t formally incorporated or formed a partnership with another person, you’re a sole proprietor. You don’t have to do anything to become a sole proprietor, you are one by default. 

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The risk of a sole proprietorship is that you are your business. So if there is a liability, you are on the hook, and so are all of your personal assets. 

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The benefit of a sole proprietorship is it’s easy to run and maintain, and if you aren’t totally sure of your long-term investment in the business, it’s not worth the trouble or expense of incorporating. 

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For more from Ashlee on business structure, check out her articles Picking the Right Business Structure for Your Startup and When Your Side Hustle Becomes Your Main Hustle: Legal Considerations for Your Startup.

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Always have a contract when working with others

At some point as your shop grows, you will need to bring on third parties. Maybe it’s a graphic designer to build you a logo, or an intern, or day-of market helper. 

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Ashlee recommends you have a written contract or agreement for every person you start working with. 

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Contracts give you something to fall back on as a shop owner. They’re evidence if there is a dispute.

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Contracts aren’t standard — they change based on how the person is going to be involved in your shop. Contracts should anticipate the problems that could arise, and fully outline how they will be resolved. 

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Ashlee says that even using basic contract templates off a website may not cover you — if there is something you have missed, it could be challenged in court and not fully protect you. An email does not constitute a contract. 

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There are many elements to a contract, and situations to consider. Here are a few of them:

• Even if you are just talking to another person about your business about the possibility of a partnership, a non-disclosure (NDA) will ensure they don’t discuss it and protect your competitive advantage, even if the partnership falls through.
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• Deliverables: Who is doing what, who is responsible for what?
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• Intellectual property: If you are collaborating with another shop and come up with an idea, who owns it?
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• Currency: If you’re dealing with someone in the U.S. but you’re in Canada, or vice versa, which dollar will any payment be made in?
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• Indemnification: If you’re using a social media agency to create graphics for you, you want them to “indemnify” you on the contract, which means responsibility is transferred off you and onto them. This is important because if they use copyrighted designs or plagiarize, responsibility would fall on them and not on you.  

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For more from Ashlee on contracts, and an overview of some of the most common contract terms, see her link Contracts 101.

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What is intellectual property protection?

Intellectual property, or IP, is a secure and formal protection for you as a creative person or innovator that gives you exclusive rights over whatever it is you’re getting the IP for. 

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IP is an asset for your business, meaning investing in protected IP can increase your profitability. IP is intangible. It’s the idea or the intellectual stuff behind whatever it is that you have created. 

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When you have IP for something in your business, it means you control how it is used. You can exclude people from using it, you can license it to be sold or used, and thus you can earn income off of it. 

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There are five types of intellectual property:

• Patents: Protects the manufacture and use of an invention. Expensive but give a long period of exclusivity. Term is usually 20 years.
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• Trademarks: Protects the branding/brand name (logos, names, slogan) behind your business. Term is renewable in 10-year increments.
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• Copyright: Protects original written, dramatic or visual works (your website copy, your images on social media, etc.). Term usually life plus an additional 50 years.
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• Industrial design: Protects shape, form, the physicality etc. of a product. Term is usually 10 years.
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• Trade secret: Protects the confidential information that gives your business a competitive advantage. Term is for the duration of the contract.

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Ashlee gave a different example in the presentation, but let’s say you were to create a hair scrunchie out of upcycled vintage materials to sell as an offshoot of your shop. 

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This scrunchie isn’t just any scrunchie though — underneath the upcycled vintage fabric you’ve sourced, it uses a specific type of elastic inside that you developed yourself. This elastic doesn’t leave a dent in the wearer’s hair. It’s the only elastic material in the world that doesn’t dent hair, even if you’ve used it for three days in a row. You would file for patent protection for that special elastic. 

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You’re branding the scrunchies as Scrunchy Vintage. That’s your trademark protection. 

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You’ve come up with an amazing tagline for the scrunchies and taken tons of brand photos. That’s all copyright protection. 

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The scrunchie is extra-special because it’s not the usual circle shape, it’s a shape that has never been used in scrunchies before — a triangle. That’s industrial design protection. 

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And finally, the sources you used to find all the vintage fabrics that cover the scrunchies, and the list of suppliers and distributors you used to acquire the fabrics, that’s trade secret protection, because you don’t want other shops being able to access that info to make their own scrunchies.

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For more from Ashlee on intellectual property, see her links The Four Types of Intellectual Property and IP Strategy: Why Does it Matter?

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Continued from above

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Branding is an asset to your shop

Branding is tied to trademark law, and businesses can use their brands to influence culture, influence customer behaviour and inspire loyalty. 

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Ashlee explained that the brand is something bigger than your business. It represents elements consumers identify with, such as customer experience, product quality, cachet, etc.

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The brand is considered a corporate asset. She referenced a stat saying that Fortune 500 companies estimate 45 to 75 per cent of their brand wealth comes from their IP rights. 

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For example, a sneaker might be a sneaker, but when the Nike logo gets added to it, it is no longer only a sneaker. Its market value goes up and its relationship with the consumer changes. 

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What you need to know about trademarks

There are two ways trademarks are used:

• Common law trademark (you are using it unofficially in the marketplace with no formal protection)
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• Registered statutory trademark (registering with the government to say you own the rights. Uses the ™ or ® symbol)

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Some reasons you may consider registering your trademark:

• Ensures formal protection of your asset
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• Increases the ultimate value of your business
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• Serves as proof of ownership
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• Guarantees exclusive use
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• Helps you to secure your name in other channels (domain name, social media)
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• Extends across the country
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• Serves as a starting point for international trademark

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Registering for a trademark can be a very long process — two to three years. It starts with filing the application, then having the application examined, at which point it can be approved or rejected. 

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If approved, it needs to go through an “advertisement” period, which means it needs to be published for a couple of months in an official capacity to allow people to oppose it. If no one does, it goes through the process of officially being registered. Along the way, if the application is rejected at various points in the process, the applicant can appeal. 

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Your trademark is only good for the country you apply in — but you can apply for protection outside of your country as well. 

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Some of the things trademarks can be issued for:

• Single words
• Groups of words
• Groups of numbers
• Slogans
• Design (with words)
• Design (without words)
• Moving images
• Colour and texture (in specific use)
• Sounds

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Ashlee gave the example of the MGM lion roar at the beginning of a movie: that sound is trademarked. That sound elicits a response from the moviegoer — when they hear it, they know it’s going to be an MGM movie even before seeing the visual cue. That ties back to branding and developing consumer affinity to your business.

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With a registered trademark, there are certain things you need to do to maintain your trademark. It’s not that you apply for it, receive it, and then be done with it. In both Canada and the U.S., trademark protection is governed by: 
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• Licensing the trademark properly
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• Using the trademark properly
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• Consistently and continuously using the trademark
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• Auditing the use
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• Renewal of the trademark
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• Using proper ownership notices
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• Avoiding “genericization” (when a brand name becomes so common it becomes a generic term, like aspirin)
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• Monitoring regularly to enforce the trademark

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While you can register for a trademark yourself, Ashlee recommends working with a lawyer because they have systems that can help you to monitor for unauthorized use of trademarks. It’s a lot to stay on top of on your own.

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While on the call, Kaitlyn at Emerald City Vintage asked about receiving a cease-and-desist letter from a U.S.-based business that shares the same name. Neither of them have a registered trademark, but the business threatened her with legal action. The business sells in the U.S. while Kaitlyn sells in Canada and the U.S. The business reached out to her several months ago but hasn’t been in contact since.

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Ashlee doesn’t give specific legal advice in a webinar, but addressed the situation generally. Sometimes a cease-and-desist letter is just bluffing. 

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She suggested first to analyze what the business’s position is and what they would get out of sending the letter. Even if they don’t have a registered trademark, they can claim common law trademark. 

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Do a cost-benefit analysis. If you think there’s a possibility they could go after you, it may be worth talking to a lawyer. The problem is you can’t predict if someone will take a demand letter further.

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Ash from Lemon’s Loot asked about whether or not a trademark should be a package deal for a name, a logo and any other assets. 

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Ashlee said that while you can’t amend trademarks that have been filed, you can file for a wordmark, and then later file separately for a logo.

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For more from Ashlee on trademarks, read her article Trademarks: An Invaluable Asset for any Consumer-Facing Company. 

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Why you should consider a social media policy

You use social media to market your shop, and therefore you are subject to the policies and rules of each social media platform. 

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Those social media platforms are also subject to federal legislation — in Canada, it’s the Competition Act, the Copyright Act, Cannabis Act, Anti-Spam Legislation, etc. 

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So as much as it may seem like there are not rules in place and anything goes on social media, there very much are rules.

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Because of that, you can assert your rights on these platforms. This means if someone has stolen your photography and is using it as their own on social media, you can exercise your rights as copyright owner — even if you don’t want financial compensation but to issue a takedown notice.

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If you have someone other than yourself managing your social media, you should have a contract to outline terms and a policy to govern use. 

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If you enter into partnership, sponsorship, become a brand ambassador or enter influencer arrangements, there should be a contract to outline terms and a policy to govern use in place for each. 

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You want a contract that outlines exactly how your partnership will be executed (who owns the social media content? Who owns contact lists? What are the posting and moderation rules, what do you need to do if a post needs to be removed, etc.).

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In addition to policies for working with other parties, consider establishing your own internal policies and guidelines for how you use social media so that you have something to fall back on — especially if a post goes viral and gets unwanted attention. That way, you have a precedent for yourself. 

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In Canada, influencer marketing is now being covered under the Competition Act, which means that it is subject to marketing and advertising laws, and there are disclosure rules and requirements that indicate you must say if a post has been sponsored or paid for. The Federal Trade Commission in the United States requires the same.

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For more from Ashlee on this topic, read her article Taking Your Business Online: What You Need to Know. 

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Email marketing and anti-spam policies

If you collect emails for your business, you are subject to comply with anti-spam law. 

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In Canada, that’s Canadian Anti-Spam Legislation (CASL). There’s also a separate and related legislation called Personal Information Protection and Electronic Documents Act (PIPEDA). In the U.S., it’s the CAN-SPAM Act. In Europe, it's the General Data Protection Regulation (GDPR). 

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In a nutshell, you must receive consent to email people and provide an unsubscribe option in all emails. There are different degrees of consent: in Canada, there is express (the best kind, it means the recipient has asked for you to email them), or implied consent (certain parameters have to be in place).

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For more from Ashlee about CASL, read her article Canada’s Anti-Spam Legislation. For a summary of CAN-SPAM, click here. 

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Have a question or comment? Let us know below!

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