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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)
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
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
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
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
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
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)
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.
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
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.