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Startup Legal & IP (July2013 Founder Institute)
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Startup Legal & IP (July2013 Founder Institute)

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Startup Legal Issues Facing Founders. From pre-formation, to incorporation, to IP strategy. What to expect to pay in legal fees and how to save money. Tips on hiring lawyers for your business …

Startup Legal Issues Facing Founders. From pre-formation, to incorporation, to IP strategy. What to expect to pay in legal fees and how to save money. Tips on hiring lawyers for your business effectively and efficiently. Technologies mentioned: Markify, http://upcounsel.com,

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  • 1. Startup Legal & IP Touraj Parang COO, UpCounsel July 22, 2013
  • 2. Litigators v  Business / Commercial v  Employment v  IP v  Tax v  Antitrust v  Plaintiffs Attorneys Not All Lawyers Are the Same Transactional Lawyers v  General Corporate v  Employment v  Immigration v  IP —  Patent —  Trademark & Copyright —  Licensing v  Real Estate v  Tax v  M&A v  Bankruptcy v  Regulatory (by industry)
  • 3. Law & Startup Lifecycle Startup Stage $ Avg Legal Fees $5K $50K $250K $1M+
  • 4. Top “Founder” Legal Concerns —  Ownership of IP (previous work; transfer by others) —  Freedom to operate (Non-competes / NDAs, regulatory environment, blocking patents, etc) —  Entity formation (Timing, LLC vs S- vs C-Corp, Location (DE or CA, Name)) —  Capital structure (% ownership, voting rights, vesting schedules) —  Employment (contractors vs employees, visas, stock options) —  Initial funding (solicitations; accreditations, filings) —  Protection of IP (patent and TM filings; trade secrets, ToS)
  • 5. Top 7 Things that Scare Lawyers (and Investors) 1)  Having done all legal work through DIY forms 2)  Being represented by the “wrong” lawyer 3)  Ignorance of basic startup law (e.g., disclosure & fiduciary obligations, stock pricing matters) 4)  Lack of a basic IP strategy/framework 5)  Unfamiliarity with regulations in your industry (e.g., in healthcare, life sciences, financial) 6)  Ignoring threats by former employers, co- founders, contractors, users, competitors, etc. 7)  Lack of visibility into user feedback on product
  • 6. Startup IP Overview Sources of IP Types of IP Founders Contractors Advisors Board Employees Interns Licensors Partners Users
  • 7. Patents —  “First to file” (or even publish) regime since March 16 —  Filings typically start with a Provisional Application, followed within 12 months by the full application —  Expect 3 to 4 years until a patent is granted (can expedite under new rules to 1 year) —  Full “prosecution” costs typically $15-20K / patent —  Could save some money by working with Patent Agents and qualifying under USPTO small business rules
  • 8. Trademarks & Copyrights —  Putting proper notices first step to protection: © TM SM —  Trademark search & monitoring critical to avoid confusion —  Registration broadens protection —  Trademark filing costs typically $2,000 (including search); copyright filing is much less expensive —  Copyrights by default held by creator è critical to include proper language in contracts with content creators —  Could save money by using boutique firms or solo practitioners instead of bigger law firms. Also, there are free tools such as Markify for doing your search.
  • 9. Trade Secrets —  Covers intellectual property you consider confidential —  Internal organization and processes key to maintaining protection —  Key to be mindful of disclosures in investor decks, in recruiting, on website, social profiles, etc. —  NDA’s and contractual provisions very important for legal enforcement
  • 10. Popular IP Myths q  You don’t need to worry about IP until Series A q  Filing a patent is a valuation multiplier q  Getting a patent is a valuation multiplier q  You can build an IP portfolio cheaply q  Investors require exhaustive patent searches q  You don’t need to worry about trademarks if you get the domain name q  Investors will sign an NDA q  Only big companies get into IP lawsuits
  • 11. Some Harsh Realities
  • 12. IP Strategy Learnings —  Think of IP protection as a “shield”, and rely on execution as your competitive edge —  The goals of an IP Strategy are typically: 1)  Protecting your investment (time & $) against theft 2)  Defense against accusations of infringement 3)  Protecting brand/products against market confusion 4)  Providing baseline comfort to investors and partners 5)  Creating licensing revenue stream (longer term) —  Murphy’s Law also applies here; be prepared
  • 13. Finding The “Right” Lawyer —  Approach it as you approach recruiting any advisor Ø  Look for trusted referrals and references Ø  Check relevant legal area expertise Ø  Check relevant industry/startup experience Ø  Pay attention to cultural fit Ø  Consider networking and competitive dynamics —  Leverage technology Ø  LinkedIn (conduct free profile searches) Ø  UpCounsel (post legal requests for free proposals by a distributed, virtual legal workforce)
  • 14. Tips on Effective Attorney Management —  Hire the lawyer with the right fit for the task (i.e., you don’t need the world’s leading expert to do a simple incorporation) —  Do some self-learning prior to calling your attorney —  Make sure your attorney explains your options and expected cost / benefits for each option, upfront —  If you choose to hire a big law firm for corporate work, ask that they defer their fee until you raise $500K+ —  Be selective about work you give to big law firms; there are increasing alternatives.
  • 15. Founder Legal Action Items —  Recruit your legal advisors, with someone in: —  General Corporate —  Patents —  Trademarks —  Technology Transactions —  Make a list and prioritize among: —  Clean-up tasks (missing assignments, signatures, minutes) —  Maintenance tasks (forms needed, minutes, filings) —  IP Strategy Tasks (patents, trademarks, copyrights, trade secrets) —  Keep informed of hot topics in startup law þ þ þ
  • 16. Final Note This presentation is not legal advice. For evaluation of your specific situation and legal needs, contact an attorney. While UpCounsel is not a law firm or legal service provider, you can post your legal request and find startup attorneys at http://upcounsel.com.
  • 17. Q&A Contact Info: touraj@upcounsel.com @touraj