Startup Legal & IP Touraj Parang

COO, UpCounsel July 22, 2013

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)

Law & Startup Lifecycle

Startup Stage

$ Avg Legal Fees

$5K

$50K

$250K

$1M+

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

Startup IP Overview Sources of IP Types of IP

Founders Contractors Advisors Board Employees Interns Licensors Partners Users

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

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.

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

Some Harsh Realities

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

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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.

Q&A

Contact Info:

touraj@upcounsel.com

@touraj