Innovation and Entrepreneurship
Institute
Temple University, Fox School of Business
February 21, 2013
Starting A Business/Legal Issues
Presented by:
Inna Zaltsman, Associate
Business Group
IZaltsman@BlankRome.com
Matthew Homyk, Associate
Intellectual Property Group
MHomyk@BlankRome.com
CONSIDERATIONS
I.
II.
III.
IV.
Structuring the Company
Legal Pitfalls to Avoid
Intellectual Property Issues
Tips About Business Plans
2
STRUCTURING THE COMPANY
Choice of Entity:
• Corporation – “S” vs. “C” corporation
• Limited Liability Company (LLC)
• Limited Partnership or General
Partnership
• Sole Proprietorship
3
STRUCTURING THE COMPANY
(cont’d)
Considerations:
• Size/Complexity
• Liability
• Tax
• Funding Needs
• Costs (initial and ongoing)
• Exit Strategy
4
STRUCTURING THE COMPANY
(cont’d)
State of Organization:
• PA
• DE
5
STRUCTURING THE COMPANY
(cont’d)
Capital Structure:
• Classes/Series of Stock
• Common, Preferred, Convertible
Preferred, Convertible Debt
• Warrants/Options
• Balance Sheet
6
STRUCTURING THE COMPANY
(cont’d)
Constituencies:
• Shareholders/Stockholders or Members
• Board of Directors vs. Board of
Advisors
• Bylaws/Operating Agreement
• Advisory Boards
7
STRUCTURING THE COMPANY
(cont’d)
Important Agreements:
•
•
•
•
Shareholders Operating Agreements
Employment/Consulting Agreements
License Agreements
Customer Contracts
8
FINANCING THE BUSINESS
•
•
•
•
•
Founder, Family and Friends
Angel Investors
Venture Funds
Valuation/Performance Measures
Loans (Bridge Loans/Bank Loans)
9
OTHER IMPORTANT
CONSIDERATIONS
• Insurance
• Employees:
– Confidentiality
– Non-Compete
– Non-Solicitation
• Licensing Issues:
– Zoning
– Permits
• Corporate Governance
10
LEGAL PITFALLS
•
•
•
•
•
•
•
Bad Advice
Unprotected IP
Sloppy Records
Wrong Structure
Personal Liability
Oral Agreements
Employment Issues
11
INTELLECTUAL PROPERTY ISSUES
Identify Your Intellectual Property Assets
• Trademarks
• Copyrights
• Patents
• Trade Secrets
• Domain Names
12
TRADEMARKS
• Must be a distinctive indicia of
source of goods or services
• Ownership vests upon use in U.S.;
vests upon use and registration in
other countries
13
TRADEMARKS (cont’d)
• Examples
–
–
–
–
–
–
–
Trademarks
Service Marks
Trade Names
Logos
Slogans
Domain Names
Trade Dress
14
TRADEMARKS (cont’d)
• BIG MAC® is a trademark for
sandwiches:
15
TRADEMARKS (cont’d)
• MCDONALDS® is a service mark
for restaurant services:
16
THE APPLICATION PROCESS
• A federal registration is obtained
by filing an application with the
U.S. Patent and Trademark Office.
– There is a government filing fee of
$325 for each class of goods or
services protected filed electronically;
$375 for paper filing.
– The process typically takes about one
year.
17
SELECTING THE FORM OF
THE MARK
• Registration in block form provides the
broadest protection and is the easiest to
maintain – any use of the mark will
support the Affidavit of Use required to
maintain the registration.
• Registration in stylized form can be
easier to obtain, because the applicant
can rely on the distinctiveness of the
stylized format.
18
WHAT CAN BE A MARK?
• Words, such as COCA-COLA®,
and also symbols such as the word
COCA-COLA in its distinctive
script:
19
WHAT CAN BE A MARK?
(cont’d)
• Reg. No. 2,418,340 protects the
domain name OLDNAVY.COM
for computerized retail services:
OLDNAVY.COM®
20
WHAT CAN BE A MARK?
(cont’d)
• Reg. No. 925,609 protects the
colors orange, brown and yellow
as used on Reese’s peanut butter
cups:
21
PROPER USE OF THE MARK
• Proper use of a mark is also
important to maintaining the mark.
– Use marks distinctively
– Use marks consistently
– Use marks as adjectives (not nouns,
i.e. “Xerox”)
– Use helper words such as “brand”
22
COPYRIGHTS
• Protects works of authorship including
literary, dramatic, musical and artistic works
• Copyrights vests in author upon creation of
work
• Provides protection for the life of the author
plus 70 years, or if author is unknown or it
was a work made for hire, 95 years from
publication or 120 years from creation
(whichever is first)
23
COPYRIGHTS (cont’d)
• Examples
–
–
–
–
–
–
Software
Documentation and training manuals
Advertising materials
Models/Prototypes
Music
Websites
24
MARK VERSUS COPYRIGHT
• Copyright does not protect useful articles, and thus
copyright protection was denied for this bicycle rack:
• Although it is possible to claim trademark protection in
the non-functional configuration of a useful article (i.e.,
as trade dress)
25
PATENTS
• Protects new and useful inventions
• Title vests initially in inventor
• The patent “claims” outline the
boundaries of the invention – the
claims are what is protected by the
patent
26
PATENTS (cont’d)
• There are three types of patents:
– Utility patents, which protect
machines, products, methods or
processes, and compositions
– Design patents, which protect the
aesthetic appearance of products
– Plant patents, which protect plants
27
PATENTS (cont’d)
• Utility Patent examples
–
–
–
–
Compositions of matter
Devices
Methods or processes
New uses or applications
• Design Patent example
28
MARKS VERSUS PATENTS
• Utility patents protect the way
something is constructed or how it
functions, so there is little overlap with
trademarks, which must be primarily
non-functional.
• Design patents protect the appearance of
a product, which can also be a trademark
or service mark.
29
COST COMPARISON
• Government fees for:
– Copyright application = $30
– Trademark application = $325 minimum (depending
on number of classes)
– Patent application = $300 - $800 (depending on
number of claims, type of entity)
• While costs vary greatly, copyright protection
typically costs less than trademark and patent,
with patent protection generally being the most
involved and expensive.
30
TRADE SECRETS
• Proprietary information that is the
subject of reasonable efforts to
preserve secrecy and has value
because it is not generally known.
31
TRADE SECRETS (cont’d)
• Examples
– Chemical formulae (CocaCola®)
– Customer Lists
– Supplier Lists
– Software/Algorithms
32
Trade Secrets (con’t)
• “Reasonable efforts” to preserve secrecy
include:
– Limiting access to the trade secret to key employees
who have a need to know
– Requiring employees to sign a confidentiality
agreement
– Stamping the word “confidential” on the documents
and keeping them in a secure location
– Employing computer access passwords and physical
barriers
33
TRADE SECRETS (cont’d)
• Inadvertent disclosure destroys trade secret protection:
– Inadvertent trade show discussions/disclosures
– Discussions with vendors and/or competitors
– Presentations and Publications
– Confidential discussions overheard in public
environment
– Blogging, work discussions with friends, at dinner,
etc.
– Interviews with Media, Analysts, Commentators
34
TYPICAL IP PROBLEMS
• Oral Agreements (ownership
and obligations unclear)
• Ownership (vs. license)
– Joint Ownership
– Work for Hire
• Online Agreements
• Chain of Title
• Inadequate Security
35
TIPS ABOUT BUSINESS PLANS
• Lack of Good Executive Summary
• Lingo/Buzzwords/
Incomprehensibility
• Fluff About Customers, Partners and
Key Contracts
36
TIPS ABOUT BUSINESS PLANS
(cont’d)
• Wild Statements About the Market,
Market Size or Competition
• Bad Financials or Projections
• Evidence of Sloppy Records, Legal
Arrangements, Sloppy Plans,
Typos
37
TIPS ABOUT BUSINESS PLANS
(cont’d)
• Hedging Bets on Revenue Model
or Channels of Distribution or
Some Other Essential Element
• Sources and Uses Unclear. What
Do You Do? What Do You Want?
How Will You Spend It?
38
Questions?
39