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 effectively and efficiently. Technologies mentioned: Markify, http://upcounsel.com,

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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 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.

NDAs and contractual provisions very important for legal enforcement

Popular IP Myths q You dont 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 dont 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)

Murphys Law also applies here; be prepared

Finding The Right Lawyer Approach it as you approach recruiting any advisor Look for trusted referrals and references Check relevant legal area expertise Check relevant industry/startup experience Pay attention to cultural fit Consider networking and competitive dynamics

Leverage technology LinkedIn (conduct free profile searches) 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 dont need the worlds 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

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