Duke One Day Startup Presentation

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Basic legal issues for entrepreneurs

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  • Duke One Day Startup Presentation

    1. 1. Legal Knowledge for Entrepreneurs Glen Caplan – November 22, 2008
    2. 2. “Starting companies is like having babies – fun to conceive but hell to deliver.” ~ Anonymous
    3. 3. Overview  Corporate Formation and Capitalization  Why should I form a corporation?  How do I form a corporation?  What should I be thinking about if I am going to do so?  Intellectual Property  What is intellectual property?  How do I protect it?
    4. 4. Choice of Entity  Limited liability  Transfer of ownership  Tax issues  Governance  Continuity of existence  Capital requirements
    5. 5. Sole Proprietorships and Partnerships  Sole proprietorship  Simplest (Individual and business treated and taxed as one)  Maximum control  Unlimited personal liability  Difficult to sell; no continuity beyond life of owner  Partnerships  Pass-through taxation  Less continuity of existence  Unlimited personal liability of general partner(s)
    6. 6. Corporations and LLCs  Corporations  Limited liability for stockholders  Continuity of existence  Ease of transfer of ownership  Centralized management  Tax favored employee benefits  Easier to raise capital  Double taxation  LLCs  Limited liability for members  Pass through taxation to owners  Fewer maintenance requirements  Flexibility as to ownership and management rights  Tax issues regarding sale/exit events  Investors more comfortable with corporate form
    7. 7. Jurisdiction of Incorporation  Delaware  Most common state of incorporation (over ½ of Fortune 500)  Well established, detailed case law = Legal Certainty  Generally flexible corporate code  North Carolina  Corporate Code modeled after Delaware  Reincorporation likely as company matures
    8. 8. Charter Documents  Certificate of Incorporation  Filed with Secretary of State of the state of incorporation  Governing document  Bylaws  Sets forth rules and procedures
    9. 9. Corporate Governance in a Nutshell  Board Approval  Amendments to Charter  Fundamental transactions (Sale of assets, merger, etc.)  Appointment of Officers  Anything affecting capitalization  Material contracts  Approve compensation / arrangements with officers  Stockholder Approval  Amendments to Charter  Fundamental transactions (Sale of assets, merger, etc.)  Election of Directors (though vacancies can often be filled by Board)  Stock Incentive Plans and amendments thereto  Interested director transactions
    10. 10. Typical Capital Structure  Founders  Common stock (vesting over time)  Employees  Common stock/options (vesting over time)  Investors  Convertible preferred stock
    11. 11. Key Early Issues - Founders  Transfer of intellectual property to the company  Allocation issues  Equity ownership, responsibilities and rights  Vesting of stock  Rights of first refusal  Initial funding
    12. 12. Key Early Issues - Personnel  Employees and consultants  Importance of agreements  Equity compensation  Stock vs. options  Vesting  Stock option/incentive plan
    13. 13. What is Intellectual Property?  Intangible property rights associated with inventions and innovations  Limited to specific country/territory
    14. 14. Why Does IP Matter? “Intellectual property is the life blood of almost all life science companies. In many cases, it is the only true value a young company owns and the only thing that can protect against larger competitors. Understanding the breadth and strength of the patent estate is an important criterion for investment.” ~ Garheng Kong
    15. 15. Types of IP  Trade Secrets/Know-how  Patents  Copyrights  Trademarks
    16. 16. Trade Secrets
    17. 17. What can be a Trade Secret?  Formulas  Compilations of information  Patterns  Methods  Devices  Techniques  Programs  Processes  Project launch dates for new products  Marketing plans  Computer programs  Negotiated price lists in a contract  Customer lists
    18. 18. Not a Trade Secret
    19. 19. Maintaining Secrecy  Take affirmative steps to maintain secrecy  Mark important and sensitive documents confidential  Enter into Confidentiality Agreements  Restrict access to offices, labs, and computers (including PDA’s and laptops!)  Regularly conduct employee exit interviews (reminder of obligations; whereabouts of information)
    20. 20. Rights Conferred by a Patent  Exclude others from making, using, offering for sale, selling, or importing the claimed invention  Limited monopoly granted by the government in exchange for disclosure of invention  20 years from earliest U.S. nonprovisional filing date (i.e. patent application filing date)  Remedies  Damages  Injunction
    21. 21. Rights Not Conferred by a Patent  Patent does not give you the right to practice the invention claimed in your patent  There may be other patents that affect your freedom to operate (patentability v. freedom to operate)
    22. 22. Copyrights  Original works of authorship  Fixed in a tangible medium of expression  Perceived, reproduced or otherwise communicated  Directly or with use of a machine  Protectable for limited term
    23. 23. Types of Copyrightable Works  Text-based  Books, magazines, plays, brochures, software  Visual Works  Photographs, paintings, icons, graphics  Sound  Sound recordings, song words and music  Motion Pictures  Films, videos  Others  Mask works, blueprints, etc.
    24. 24. Not Copyrightable  Idea  Procedure  Process  System  Method of operation  Concept  Principle  Discovery (e.g. mere facts)  Lists  Names, slogans, short phrases (do not have sufficient “authorship” of “original expression”)
    25. 25. Trademarks and Service Marks  Used to identify and distinguish the goods of one person from the goods manufactured or sold by others to indicate the source of the goods  Provide the relevant consumer with information on quality of product  Establishes good will and loyalty  Prevents unfair competition or business practices
    26. 26. What can be Trademarked  Word  Logo  Sound  Color  Fragrance
    27. 27. Types of Trademarks Levels of Distinctiveness Characteristics Arbitrary or Fanciful Example: EXXON, KODAK Strong No secondary meaning required Little or no relationship to goods and services Suggestive Example: ULTRACATH Somewhat weak Secondary meaning may be required Suggests some feature of goods and services Descriptive Example: ATMVERIFY Weak Secondary meaning required Describes the goods and services Generic Example: ASPIRIN Unprotectable No TM significance Generic
    28. 28. Trademark Tips Summary  Choose arbitrary or suggestive trademarks  Consider more than just product names  Obtain full trademark searches before beginning trademark use  Register important trademarks with the US Patent and Trademark office (and internationally)  Monitor and enforce trademark rights  Use trademarks appropriately
    29. 29. Guidelines for the Start-Up Ten Ways to Avoid Losing Intellectual Property Assets 1. Maintain confidentiality  Avoid loss of trade secret rights  Preserve patent filing rights 2. Keep good records  Protects evolving knowledge base  Defense mechanism in the event of trade secret infringement or misappropriate claims  Proof of conception in first to invent filings 3. Secure consultant rights  Protect against restriction on development rights or claims for additional payments
    30. 30. Guidelines for the Start-Up Ten Ways to Avoid Losing Intellectual Property Assets 4. Consider noncompetes  Forestall inappropriate use of information retained by employees 4. Restrict incoming trade secrets  Protect against claims of misappropriation  Protects against corruption of product line 6. Analyze freedom to operate  Blocking patents  Necessary licenses
    31. 31. Guidelines for the Start-Up Ten Ways to Avoid Losing Intellectual Property Assets 7. Understand contracts and grant of rights 8. Keep sales people in check  Loss of trade secrets  On sale bars 7. Educate employees  IP policies 7. Conduct IP audits
    32. 32. Questions & (Hopefully) Answers Glen Caplan Hutchison Law Group Tel: 919.829.4303 gcaplan@hutchlaw.com Driven by Our Clients’ Success SM A

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