Associate Business Group IZaltsmanBlankRomecom Matthew Homyk Associate Intellectual Property Group MHomykBlankRomecom Innovation and Entrepreneurship Institute February 21 2013 Starting A BusinessLegal Issues ID: 710341
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Presented by:
Inna Zaltsman, AssociateBusiness GroupIZaltsman@BlankRome.comMatthew Homyk, AssociateIntellectual Property GroupMHomyk@BlankRome.com
Innovation and Entrepreneurship Institute
February 21, 2013Starting A Business/Legal Issues
Temple University, Fox School of BusinessSlide2
2CONSIDERATIONS
Structuring the CompanyLegal Pitfalls to AvoidIntellectual Property Issues Tips About Business PlansSlide3
3STRUCTURING THE COMPANY
Choice of Entity:Corporation – “S” vs. “C” corporationLimited Liability Company (LLC)Limited Partnership or General Partnership Sole ProprietorshipSlide4
4STRUCTURING THE COMPANY (cont’d)
Considerations:Size/ComplexityLiabilityTaxFunding NeedsCosts (initial and ongoing)Exit StrategySlide5
5STRUCTURING THE COMPANY (cont’d)
State of Organization:PADESlide6
6STRUCTURING THE COMPANY (cont’d)Capital Structure:
Classes/Series of StockCommon, Preferred, Convertible Preferred, Convertible DebtWarrants/OptionsBalance SheetSlide7
7STRUCTURING THE COMPANY (cont’d)
Constituencies:Shareholders/Stockholders or MembersBoard of Directors vs. Board of AdvisorsBylaws/Operating AgreementAdvisory BoardsSlide8
8STRUCTURING THE COMPANY (cont’d)
Important Agreements:Shareholders Operating AgreementsEmployment/Consulting AgreementsLicense AgreementsCustomer ContractsSlide9
9FINANCING THE BUSINESS
Founder, Family and FriendsAngel InvestorsVenture FundsValuation/Performance MeasuresLoans (Bridge Loans/Bank Loans)Slide10
10OTHER IMPORTANT CONSIDERATIONS
InsuranceEmployees:ConfidentialityNon-CompeteNon-SolicitationLicensing Issues:ZoningPermitsCorporate GovernanceSlide11
11LEGAL PITFALLS Bad Advice
Unprotected IPSloppy RecordsWrong StructurePersonal LiabilityOral AgreementsEmployment IssuesSlide12
12INTELLECTUAL PROPERTY ISSUES
Identify Your Intellectual Property AssetsTrademarksCopyrightsPatentsTrade SecretsDomain NamesSlide13
13TRADEMARKSMust be a distinctive indicia of source of goods or services
Ownership vests upon use in U.S.; vests upon use and registration in other countriesSlide14
14TRADEMARKS (cont’d)Examples
TrademarksService MarksTrade NamesLogosSlogansDomain NamesTrade DressSlide15
TRADEMARKS (cont’d)15BIG MAC
® is a trademark for sandwiches:Slide16
TRADEMARKS (cont’d)MCDONALDS® is a service mark for restaurant services:
16Slide17
17THE APPLICATION PROCESS
A federal registration is obtained by filing an application with the U.S. Patent and Trademark Office.There is a government filing fee of $325 for each class of goods or services protected filed electronically; $375 for paper filing.The process typically takes about one year.Slide18
18SELECTING THE FORM OF THE MARK
Registration in block form provides the broadest protection and is the easiest to maintain – any use of the mark will support the Affidavit of Use required to maintain the registration.Registration in stylized form can be easier to obtain, because the applicant can rely on the distinctiveness of the stylized format.Slide19
WHAT CAN BE A MARK?Words, such as COCA-COLA®, and also symbols such as the word COCA-COLA in its distinctive script:
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WHAT CAN BE A MARK? (cont’d)Reg. No. 2,418,340 protects the domain name OLDNAVY.COM for computerized retail services:
OLDNAVY.COM ®20Slide21
WHAT CAN BE A MARK? (cont’d)Reg. No. 925,609 protects the colors orange, brown and yellow as used on Reese’s peanut butter cups:
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22PROPER USE OF THE MARK
Proper use of a mark is also important to maintaining the mark.Use marks distinctivelyUse marks consistentlyUse marks as adjectives (not nouns, i.e. “Xerox”)Use helper words such as “brand”Slide23
23COPYRIGHTS
Protects works of authorship including literary, dramatic, musical and artistic worksCopyrights vests in author upon creation of workProvides protection for the life of the author plus 70 years, or if author is unknown or it was a work made for hire, 95 years from publication or 120 years from creation (whichever is first)Slide24
24COPYRIGHTS (cont’d)
ExamplesSoftwareDocumentation and training manualsAdvertising materialsModels/PrototypesMusicWebsitesSlide25
MARK VERSUS COPYRIGHTCopyright does not protect useful articles, and thus copyright protection was denied for this bicycle rack:
Although it is possible to claim trademark protection in the non-functional configuration of a useful article (i.e., as trade dress)25Slide26
26PATENTSProtects new and useful inventions
Title vests initially in inventorThe patent “claims” outline the boundaries of the invention – the claims are what is protected by the patentSlide27
PATENTS (cont’d)There are three types of patents:Utility patents, which protect machines, products, methods or processes, and compositionsDesign
patents, which protect the aesthetic appearance of productsPlant patents, which protect plants27Slide28
28PATENTS (cont’d)Utility Patent examples
Compositions of matterDevicesMethods or processesNew uses or applicationsDesign Patent exampleSlide29
MARKS VERSUS PATENTSUtility patents protect the way something is constructed or how it functions, so there is little overlap with trademarks, which must be primarily non-functional.Design patents protect the appearance of a product, which can also be a trademark or service mark.
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COST COMPARISONGovernment fees for:Copyright application = $30Trademark application = $325 minimum (depending on number of classes)Patent application = $300 - $800 (depending on number of claims, type of entity)
While costs vary greatly, copyright protection typically costs less than trademark and patent, with patent protection generally being the most involved and expensive.30Slide31
31TRADE SECRETSProprietary information that is the subject of reasonable efforts to preserve secrecy and has value because it is not generally known.Slide32
TRADE SECRETS (cont’d)ExamplesChemical formulae (Coca-Cola®)Customer Lists
Supplier ListsSoftware/Algorithms32Slide33
33Trade Secrets (con’t)
“Reasonable efforts” to preserve secrecy include:Limiting access to the trade secret to key employees who have a need to knowRequiring employees to sign a confidentiality agreementStamping the word “confidential” on the documents and keeping them in a secure locationEmploying computer access passwords and physical barriersSlide34
34TRADE SECRETS (cont’d)
Inadvertent disclosure destroys trade secret protection:Inadvertent trade show discussions/disclosuresDiscussions with vendors and/or competitorsPresentations and PublicationsConfidential discussions overheard in public environmentBlogging, work discussions with friends, at dinner, etc. Interviews with Media, Analysts, CommentatorsSlide35
35TYPICAL IP PROBLEMS
Oral Agreements (ownership and obligations unclear)Ownership (vs. license)Joint OwnershipWork for HireOnline AgreementsChain of TitleInadequate SecuritySlide36
36TIPS ABOUT BUSINESS PLANS
Lack of Good Executive SummaryLingo/Buzzwords/IncomprehensibilityFluff About Customers, Partners and Key ContractsSlide37
37TIPS ABOUT BUSINESS PLANS (cont’d)Wild Statements About the Market, Market Size or Competition
Bad Financials or ProjectionsEvidence of Sloppy Records, Legal Arrangements, Sloppy Plans, TyposSlide38
38TIPS ABOUT BUSINESS PLANS (cont’d)Hedging Bets on Revenue Model or Channels of Distribution or Some Other Essential Element
Sources and Uses Unclear. What Do You Do? What Do You Want? How Will You Spend It?Slide39
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Questions?