1. 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
Matthew Homyk, Associate Intellectual Property Group

2. CONSIDERATIONS
Structuring the Company
Legal Pitfalls to Avoid
Intellectual Property Issues
Tips About Business Plans

3. STRUCTURING THE COMPANY
Choice of Entity:
Corporation – “S” vs. “C” corporation
Limited Liability Company (LLC)
Limited Partnership or General Partnership
Sole Proprietorship

4. STRUCTURING THE COMPANY (cont’d)
Considerations:
Size/Complexity
Liability
Tax
Funding Needs
Costs (initial and ongoing)
Exit Strategy

5. STRUCTURING THE COMPANY (cont’d)
State of Organization: PA DE

6. STRUCTURING THE COMPANY (cont’d)
Capital Structure:
Classes/Series of Stock
Common, Preferred, Convertible Preferred, Convertible Debt
Warrants/Options
Balance Sheet

7. STRUCTURING THE COMPANY (cont’d)
Constituencies:
Shareholders/Stockholders or Members
Board of Directors vs. Board of Advisors
Bylaws/Operating Agreement
Advisory Boards

8. STRUCTURING THE COMPANY (cont’d)
Important Agreements:
Shareholders Operating Agreements
Employment/Consulting Agreements
License Agreements
Customer Contracts

9. FINANCING THE BUSINESS
Founder, Family and Friends
Angel Investors
Venture Funds
Valuation/Performance Measures
Loans (Bridge Loans/Bank Loans)

10. OTHER IMPORTANT CONSIDERATIONS
Insurance
Employees:
Confidentiality
Non-Compete
Non-Solicitation
Licensing Issues:
Zoning
Permits
Corporate Governance

11. LEGAL PITFALLS
Bad Advice
Unprotected IP
Sloppy Records
Wrong Structure
Personal Liability
Oral Agreements
Employment Issues

12. INTELLECTUAL PROPERTY ISSUES
Identify Your Intellectual Property Assets
Trademarks
Copyrights
Patents
Trade Secrets
Domain Names

13. 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

14. TRADEMARKS (cont’d) Examples Trademarks Service Marks Trade Names
Logos
Slogans
Domain Names
Trade Dress

15. TRADEMARKS (cont’d)
BIG MAC® is a trademark for sandwiches:

16. TRADEMARKS (cont’d)
MCDONALDS® is a service mark for restaurant services:

17. 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.

18. 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.

19. WHAT CAN BE A MARK?
Words, such as COCA-COLA®, and also symbols such as the word COCA-COLA in its distinctive script:

20. WHAT CAN BE A MARK? (cont’d)
Reg. No. 2,418,340 protects the domain name OLDNAVY.COM for computerized retail services:
OLDNAVY.COM ®

21. 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:

22. Proper use of a mark is also important to maintaining the mark.
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”

23. 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)

24. COPYRIGHTS (cont’d) Examples Software
Documentation and training manuals
Advertising materials
Models/Prototypes
Music
Websites

25. 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)

26. 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

27. There are three types of patents:
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

28. Utility Patent examples
PATENTS (cont’d)
Utility Patent examples
Compositions of matter
Devices
Methods or processes
New uses or applications
Design Patent example

29. 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.

30. 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.

31. TRADE SECRETS
Proprietary information that is the subject of reasonable efforts to preserve secrecy and has value because it is not generally known.

32. TRADE SECRETS (cont’d)
Examples
Chemical formulae (Coca-Cola®)
Customer Lists
Supplier Lists
Software/Algorithms

33. 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

34. 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

35. Oral Agreements (ownership and obligations unclear)
TYPICAL IP PROBLEMS
Oral Agreements (ownership and obligations unclear)
Ownership (vs. license)
Joint Ownership
Work for Hire
Online Agreements
Chain of Title
Inadequate Security

36. TIPS ABOUT BUSINESS PLANS
Lack of Good Executive Summary
Lingo/Buzzwords/ Incomprehensibility
Fluff About Customers, Partners and Key Contracts

37. 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

38. 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?

39. Questions?