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Presented by: Inna Zaltsman, Associate Business Group Matthew Homyk, Associate Intellectual Property Group

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Presentation on theme: "Presented by: Inna Zaltsman, Associate Business Group Matthew Homyk, Associate Intellectual Property Group"— Presentation transcript:

1 Presented by: Inna Zaltsman, Associate Business Group Matthew Homyk, Associate Intellectual Property Group Innovation and Entrepreneurship Institute February 21, 2013 Starting A Business/Legal Issues Temple University, Fox School of Business

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

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

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

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

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

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

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

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

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

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

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

13 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 14 TRADEMARKS (cont’d) Examples –Trademarks –Service Marks –Trade Names –Logos –Slogans –Domain Names –Trade Dress

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

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

17 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 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: 19

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 ® 20

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: 21

22 22 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 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 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) 25

26 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 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

28 28 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. 29

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. 30

31 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 32

33 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 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 35 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 36 TIPS ABOUT BUSINESS PLANS Lack of Good Executive Summary Lingo/Buzzwords/ Incomprehensibility Fluff About Customers, Partners and Key Contracts

37 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 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 39 Questions?

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