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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 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.
