Startup Legal Issues Facing Founders. From pre-formation, to incorporation, to IP strategy. What to expect to pay in legal fees and how to save money. Tips on hiring lawyers for your business effectively and efficiently. Technologies mentioned: Markify, http://upcounsel.com,

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

11. Some Harsh Realities

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
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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.

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