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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
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.
Q&A
Contact Info:
touraj@upcounsel.com
@touraj

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Startup Legal & IP (July2013 Founder Institute)

  • 1. Startup Legal & IP Touraj Parang COO, UpCounsel July 22, 2013
  • 2. 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)
  • 3. Law & Startup Lifecycle Startup Stage $ Avg Legal Fees $5K $50K $250K $1M+
  • 4. 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)
  • 5. 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
  • 6. Startup IP Overview Sources of IP Types of IP Founders Contractors Advisors Board Employees Interns Licensors Partners Users
  • 7. 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
  • 8. 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.
  • 9. 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
  • 10. 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
  • 12. 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
  • 13. 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)
  • 14. 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.
  • 15. 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
  • 16. 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.