Intellectual Property

You May Need Some Legal Advice—7 Reasons Why Seeking Legal Advice Now Will Benefit Your Startup in the Future

Posted by on Jun 6, 2019 in Entity Formation, Governance, Intellectual Property, Startup, Your Entity

So, you’ve decided to start a business. You may be wondering, is it really necessary to consult with an attorney right now? The answer—it all depends on the nature of your business and how much risk you are willing to take. Small legal mistakes when establishing your startup have the potential to affect your business’ success and cost you and your startup financially in the future. We understand that hiring an attorney is daunting for a new business operating on a limited budget. However, there are a few business areas for which you should consider seeking legal advice early on in the life of your startup. 7 Reasons Startups Should Seek Legal Advice Now for Future Benefit: 1. Entity Formation: There are many different legal entity forms a startup may take—a sole proprietorship, general partnership, joint venture, limited partnership, corporation, or limited liability company. Each has pros and cons and different tax implications. Picking the right form for your startup has liability, legal, tax, and financial implications. While information on entity formation is available through the U.S. Small Business Administration and other resources, an attorney can advise you on which business structure is best based on your business plan and goals, as well as your personal liability and tax expectations. 2. Structuring Ownership, Control, and Responsibilities: If your startup has more than one owner, it is recommended that your startup have certain agreements prepared that outline the relationship between the owners—such as who has what responsibilities, who has the power to make certain decisions, each owners’ financial interest in the startup, and how to handle ownership termination. These agreements often take the form of operating agreements and buy-sell agreements for LLCs, or bylaws, restricted stock purchase agreements, and shareholder agreements for corporations. Ultimately, formal owner agreements help prevent future disputes and the need to hire a lawyer to resolve such disputes. Although such agreements may not seem like a priority in the early stages of your startup, they can be key to the future stability and security of your business. Additionally, these agreements are often easier to negotiate and prepare during the honeymoon phase of your startup, rather than down the road when money and emotions are involved. 3. Conducting Business Through a Website: If your startup conducts any business online, it is going to need a Privacy Policy and a Terms of Use Agreement. A Privacy Policy is a legal statement on a website that describes how personal data collected from users and customers of the website will be used. A Terms of Use Agreement is a policy on a website that describes the terms and conditions of users’ use of the website. Beware of blindly copying policies from other websites that offer similar services to your startup—often, policies are tailored to a specific business and will not provide you with adequate protection. An attorney can produce a custom Privacy Policy and Terms of Use Agreement for your website that provides you with the specific liability protection your startup needs. 4. Regulatory Compliance: Depending on the character of your startup’s business, you may be subject to state and federal regulations. An attorney can advise you on which regulations your startup is subject to and the steps your startup must take for compliance. 5. Protecting Your Startup’s Brand: Whether you plan to grow your company on a local, national, or international scale, you will want to ensure that your startup’s brand is protected. By acquiring a trademark in your startup’s name and logo, you can prevent other companies from using your name or branding (or a confusingly similar name...

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FIELDS & FENCES: A Metaphor For Understanding Patents

Posted by on Mar 5, 2019 in Intellectual Property

One day, you are walking outside and come across a field. It is wide open and beautiful with rolling hills, trees, and ponds (and maybe even oil and diamonds). You look around, and there is no one in sight. For some reason, either no one has ever discovered this place before, or if they had, they never claimed it for themselves. So, like any entrepreneur, you want to claim it as your own. You ask yourself… How do I protect this? At this point, it is just an empty field. There is nothing to identify exactly what you are claiming or how much of it is yours. Worse yet, there is nothing to keep that pesky guy on the other side of the hill from claiming ownership. The fix? A fence. You bring a fence-building friend out to the property, and he is impressed. He agrees to build a fence for your property on two conditions. First, you have to show him and the rest of the world your discovery to prove that it is new and that no one else has claimed it before. Second, you can only keep the property fenced and others off it for a limited amount of time. Afterwards, you have to let others enjoy and use the field too. You think the tradeoff is fair and agree to his conditions. Your friend builds a fence that defines exactly what is and is not yours. Once the fence is built, your friend leaves and you are left alone to enjoy your new property. You are an expert marketer and salesman, and you make a small fortune by charging others to come and enjoy your land. Addressing the intruders… Unfortunately, the guy next door and his friends are persistent. They start trespassing on your property without paying or permission, even though you have it fenced! So, what do you do now? Your fence-building friend is gone and can’t help. And, besides, he is in the fence building business and not the trespasser removal business. It’s your property, which means that it is all up to you to (1) find the trespassers and (2) kick them out. So, you do just that, and once they’re gone, you go on making money and enjoying life in peace. After some time, your fence-building friend reminds you that you have to maintain the fence or it will come down. If you want to maintain the fence, you have to go to your friend and ask for him to do what is necessary to keep it in good shape (for a fee, of course). Otherwise, if you have lost interest in the fence, if you’re tired of extracting trespassing neighbors, or if your limited amount of time is up, no maintenance is needed and your friend will take the fence down so that others can freely enjoy the field (as was promised). Then, you are off to discover the next field… Is it time for you to build a fence? Like the field, inventions can be discovered by more than one inventor. However, only the first inventor to claim (or fence in) the invention in a patent application gets to own the rights to it. In the U.S., those fences (patents) are granted by our fence-building friend, the U.S. Patent Office (USPTO). Patents are awarded only for new discoveries by inventors. They give the inventor the exclusive right to exploit those discoveries for a limited amount of time. Like the fence, a patent defines the scope of an invention, including what it does and does not cover. A patent gives...

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FILE PATENTS NOW, Sell Later – The On-Sale Bar is Alive and Kicking!

Posted by on Jul 11, 2018 in Intellectual Property

As you have probably heard us say more than once, you need to file a patent application BEFORE you sell or offer to sell your invention. Under the America Invents Act (“AIA”), if you sell or offer to sell your invention before filing a patent application, you are not entitled to patent rights in the United States. This rule of law is commonly referred to as the “on-sale bar.” A 2017 Federal Circuit Court decision affirmed the broad scope and drastic consequences of the “on-sale bar.” In Helsinn v. Teva, the Court considered four patents relating to a drug that helps reduce the side effects of chemotherapy. Two years prior to filing any patent applications, Helsinn agreed to supply a company with the subject matter of the patents. This sale was announced in a joint press release and in SEC filings, but the exact details of the invention were not disclosed to the public. After Helsinn sued Teva for infringement of various claims of those patents, Teva argued that the patents were invalid because of the prior sale. The Supreme Court agreed and found that the press release barred patentability, despite the fact that it did not disclose the details of the invention. The Helsinn decision stands as a not-so-gentle reminder that any sale or any offer to sell an invention prior to filing a patent application is a disqualifier, even if the sale or offer to sell does not disclose the details of the invention. Bottom-line – Do not sell or offer to sell your invention before you file a patent...

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USPTO No Longer Refuses “Disparaging” Trademarks

Posted by on Jun 29, 2018 in Intellectual Property

You’ve probably heard about the trademark dispute between a group of Native Americans and the Washington Redskins. For years the validity of certain Redskins’ trademark registrations has been challenged under a federal law that prevents the registration of disparaging trademarks. In 2014, six of the Washington Redskin’s trademark registrations were cancelled by the U.S. Patent and Trademark Office (USPTO). Then came The Slants, a band of Asian musicians. The band applied to register its name as a trademark. The trademark application was refused by the USPTO for being disparaging to Asians, and the band sued to appeal the decision of the USPTO. According to the band, they chose their name to “reclaim the term and drain its denigrating force as a derogatory term for Asian persons.” They also argued that the federal law preventing the registration of disparaging trademarks violated its First Amendment freedom of speech. The U.S. Supreme Court agreed and held that the law was unconstitutional. Since the decision in favor of The Slants, the Redskins’ six previously-cancelled registrations have been revived. Bottom-line – The USPTO will no longer solely refuse a trademark registration on the basis that it is...

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Patent Rights Are Exhausted After Invention Is Sold

Posted by on Jun 14, 2018 in Intellectual Property

How far do patent rights go? Well, it often comes down to the sale of the invention. Typically, a patent holder’s patent rights in an invention extend only until the invention is sold – this is known as patent exhaustion. After a first sale, the patent rights in the invention sold are exhausted, and the purchaser is not bound by them[1]. The law, however, was unclear as to whether a patent holder could extend patent rights beyond the first sale by imposing restrictions on the subsequent use or sale of the invention by a purchaser. For two decades, lower courts held that certain restrictions could be used to retain some patent rights after the invention was sold. For example, some courts have permitted patent holders to restrict the resale or re-use of a patented invention. In 2017, the Supreme Court clarified the scope of the Exhaustion doctrine in Impression v. Lexmark. Lexmark, a toner cartridge manufacturer, sold toner cartridges at a lower price if the buyer agreed to a restriction on resale. Meanwhile remanufacturers were gathering up toner cartridges and refilling and reselling them. Impression Products, Inc., a remanufacturer operating in the US and abroad, was purchasing cartridges that had been bought with the resale restriction. So naturally, Lexmark brought suit against Impression for patent infringement. The Supreme Court held that when a patent owner sells an item, that product is no longer within the limits of the patent rights’ monopoly and instead becomes the private individual property of the purchaser. They based this decision on a common principle that sellers should not be able to impose “restraints on alienation.” Purchasers should be able to buy goods without fear that the goods are burdened by “a legal cloud on title.” Without this level of protection, purchasers would have to research all of the goods they intend to purchase to discover any burdens that patent holders may have placed on the goods. Consequently, the Court ruled that Lexmark could not impose a resale restriction on its cartridges that would allow them to sue a subsequent purchaser for patent infringement. The Impression Court determined that the Exhaustion doctrine applies to both domestic and foreign sales of patented inventions. Some have expressed concern that the foreign application of the doctrine will adversely impact the U.S. market for certain goods, such as life-saving pharmaceuticals, which are sold to foreign nations at discounted prices. Now it is possible for foreign purchasers to resell the discounted goods back into the U.S. market at a still-discounted price relative to the U.S. price while also earning a profit. Alternatively, the application of the doctrine to foreign sales may result in price increases for goods sold abroad. [1] Provided however, that the lawful owner of the patented device may maintain and repair the device, but may not reconstruct it. Bottom-line – A patent holder has no patent rights in a patented invention after the invention is sold. If you have questions about patents or other IP matters, please contact...

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Reaping Innovative Rewards With a Well-Sown NDA

Posted by on Apr 19, 2018 in Intellectual Property

Whether you are a recently forged startup or rapidly growing business venture, you likely have a strategy, technique, procedure, trade secret, or some other confidential information you hold dear to your success. The uniqueness of your innovation certainly is worthy of protecting as you work to cultivate and fertilize it with the expectation of ultimately reaping its rewards at harvest time. At some point in the lifecycle of virtually any business, however, the time will come when you want or need to share your confidential information with another party. Whether it be a customer, supplier, or consultant, chances are one or more strategic alignments with others will be deemed beneficial in order for your innovation to reach its full potential. For example, have you ever wondered about how to prevent a departing employee from poaching key design or development ideas, or how to prohibit a third party service provider from sharing your original concepts with a competitor? Confidentiality Agreements or Non-Disclosure Agreements (collectively, “NDAs”) permit you to exchange confidential information with others underneath the protection of legally binding contractual obligations that have appropriately identified your “secret recipe” and prohibited the receiving party from disclosing that information to anyone other than persons you authorize. NDAs may impose mutual restrictions on you and one or more other parties, or they can unilaterally proscribe one or more parties from disseminating your confidential information in a manner that does not comply with the NDA. While many NDA forms express similar concepts and attempt to offer the same protections, keep in mind that variations in fact and circumstance should influence how the NDA is tailored to your specific situation. Fundamentally though, any well-drafted NDA should at a minimum seek to address: The business purpose of the agreement The definition of the confidential information being shared The exclusions from this definition of confidential information The nondisclosure obligations of the receiving party The use and access restrictions of the receiving party The remedies of the disclosing party in the event of a breach The return or destruction of confidential information The non-solicitation of employees of one or both parties One startup-specific qualification should be noted here. If you are looking for potential investors in your business, careful thought should be given as to whether it makes sense to require them to sign NDAs before pitching your business. While a certain amount of due diligence is no doubt appropriate to vet investors and ensure your ideas are not stolen, practically, many investors will simply be unwilling to sign such a document. And, it would be a shame for you to expend significant time and resources to produce an NDA that is unusable. Bottom-line Every business has tangible and intangible assets to protect, and a well-drafted NDA may just be the crucial legal document your business needs to solidify the safety of what’s yours. *This blog post is brought to you by Jed...

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