Startups

Sep 1, 2022

Why Do Startups Incorporate In Delaware?

Reasons Why Tech Startups Incorporate in Delaware:

  • Establishing a US Presence. Some international ventures and non US residents prefer a Delaware Corporation to establish a US presence and have access to US resources, including US venture capital. US VC investors typically set standardized procedures for their investment activities and often require Delaware corporations for their investment targets (see more on this below). Note that you do not have to be a US resident to form a Delaware corporation. Read about this here: Can a Non US Resident Form a Delaware C Corporation? 
  • Delaware has the Court of Chancery, which is a special court that is dedicated to hearing corporate disputes. The state has a huge database of judicial precedent for corporate matters that are in the form of written opinions. The Court has no juries, business law is abundant, and judges are appointed on merit, not through elections. The corporation law that has been formed in Delaware is well known and often viewed as favorable to owners. Many corporate lawyers are familiar with the precedence set by Delaware corporate laws and courts in other states often look to well-established Delaware opinions for guidance.
  • Delaware laws tend to be pro-management and offer protection for board members from derivative lawsuits (lawsuits initiated by stockholders on behalf of the corporation). Under Delaware law, a stockholder must meet a series of prerequisites in order to satisfy the eligibility requirements in bringing the derivative action at all.
  • Delaware has several classes of stock and Delaware law gives preferred stock investors of a corporation certain voting rights and control over the corporation. Even though other states may also have different classes of stock, many VCs insist on the Delaware corporate form and will even require you to convert your current entity to a Delaware C corporation before they are willing to invest. This conversion (i.e. from a California corporation to a Delaware corporation) or re-incorporation will result in additional legal costs and may trigger tax consequences. It is important to do your research in advance in order to determine the proper state of incorporation at the outset, in light of your long-term fundraising goals.
  • Many companies that go public are typically formed in Delaware due to the flexibility and certainty of the laws.
  • Delaware permits a single-member board of directors, whereas California requires that the number of directors equal the number of shareholders up to three.
  • At a funding round, the California Secretary of State must review and approve filings before they are effective. Delaware, on the other hand, is not a review state, thus accelerating the funding process.
  • Delaware formations have become a staple among San Francisco and Silicon Valley law firms for accelerated growth tech companies. Standardization of corporate entities, founder stock purchase agreements, and investor terms in the tech industry has driven down the cost of formation and time for preparation of legal documents. In fact, a few of the larger law firms make some documents available to founders for free on their firm websites, though it is the responsibility of founders to then make the proper government filings on their own. Lloyd & Mousilli offers an automated Delaware filing option at a very competitive rate for founders.

In determining whether you should form your company in your home state or in another state, consider your long-term goals. It may be a good idea to gage the preference of your target investors so that you don’t end up creating more complications for yourself by embarking on a more creative, non-traditional approach. As always, if you have any doubts at all, make sure you consult with your Lloyd & Mousilli team of experts.

Sep 1, 2022

When Should You Incorporate Your Startup?

As soon as you’re ready to materialize your idea and take the next steps in forming a team, building the idea or developing the application, entering into contracts, seeking investor funding, issuing stock options to your employees, advertising, or making a sale, you should consider incorporation. Some non-US residents also choose to incorporate in the United States to satisfy investor visa requirements or attract US investors.

Many accelerated growth companies choose to incorporate in Delaware at the earliest stages of their ventures. Read this short article to learn more: Why do Startups Incorporate in Delaware?

In short, incorporation is one of the EARLIEST steps that a founder should take in launching a startup venture. Note that a stock corporation (C Corporation) may not be the best choice for your specific goals and, if you have any doubts, you should consult an experienced startup lawyer.

 

Some good reasons for WHY founders should incorporate and do it EARLY:

Incorporation provides protection against personal liability.

Early on in a venture, founders tend to enter into agreements with co-founders, investors, developers, employees, and independent contractors. When you form a corporation, your corporation takes on the risk of these contracts so that you don’t have to. Reducing your business risk will be significantly more attractive to investors. A properly formed corporation provides directors and officers with indemnification against claims from third parties. In a sole proprietorship, by way of example, any personal debt or liability of an owner will allow the creditors to pursue the business, even if there are no ties between the owner and the business itself. A corporate director or officer’s personal finances will not, in many cases, be affected by any third party claims and any personal claims against a director or officer will not be imputed to the corporation. Also, by incorporating, you will ensure that the company will continue without disruption if you depart or suddenly die. There are limitations to this, which a lawyer can explain to you in more detail, based on prior case law and a review of your formation documents.

Protection against other founders and minority shareholders.

Incorporation allows you to freely transfer your shares, pursuant to state law and any restrictions in your stock purchase agreement. If permitted, you may be able to freely transfer your shares without the prior written consent of all the other shareholders. Most startups place restrictions on this transferability to protect the corporation and shareholders from certain share transfers by other shareholders. This right of first refusal is one type of restriction, where the corporation has a priority right to repurchase the departing founder’s shares in certain circumstances.

Investors will require you to incorporate prior to investing in your startup.

Investors at every stage of your startup, from angels to venture capitalists, will invest in your company in exchange for some corporate interest (usually stock or the option to buy it at a discounted rate later on). Although you are an integral part of your company, any investor is most interested in their return on investment in your company. To this end, and for other legal and tax reasons, any investor funds you receive should NOT be deposited in or co-mingled with your personal funds. You will need to incorporate or set up another form of legal entity so that you can open a bank account in the company’s name and proceed to receive investments and maintain the corporation’s financial statements.

Your corporation should own your venture’s intellectual property.

When you, your team, and your contractors continue to turn your idea into reality, whether its an iPhone app or an e-commerce site, you are taking the first steps in building your company’s intellectual property (IP) portfolio. Your IP will include things like patents, copyrights, trademarks, and trade secrets. Your company’s IP is what investors, partners, acquirers, other team members, and your users will perceive as valuable. The value in your company’s IP is often what will increase the company’s valuation as a whole. If you invest in IP protection and a strategy for building a solid IP portfolio, then your company’s valuation will also increase accordingly. If you develop your IP prior to incorporation without taking the necessary steps to assign the IP to the corporation, then the company may not end up owning the IP in full, which may result in a break in the chain of title. This will negatively affect future investments, partnerships, and acquisitions at the due diligence stages. Remember to consider seeking protection for your IP in the company’s name as early as possible so that the chain of IP rights and title are not broken.

Build credibility in your venture.

Corporations are able to use certain designations such as “Inc.” or “Corp.” as a suffix to their names, which may increase your credibility to investors, partners, and users of your products or services, particularly at the earliest stages.

Sep 1, 2022

What’s the Difference Between a C-Corp, S-Corp, and LLC?

Incorporating a business is the process of forming of a new entity that is recognized as a separate “person” under the law. At the very early stages of your business, you will be asked to decide which is the right business entity to form. Often this is overwhelming for founders and first time business folks. The three types of entities discussed in this article (C corporation, S corporation, and LLC) all partially shield the individual owners from certain types of personal liability. They each have varying benefits regarding fundraising and stock option grants, different tax implications, and provide your company with greater credibility among investors, clients, and customers.

Some Legal Implications of Incorporating:

  • Partial protection against personal liability: A corporation or limited liability company (LLC) partially shields individuals (stockholders, directors and officers) from business liabilities such as loans, accounts payable, and legal judgments. We use the word “partially” because some courts have decided against completely shielding individual owners from personal liability, depending on their behavior and knowledge of the matter. On the other hand, the assets of the corporation or LLC may be protected if an individual is involved in a personal lawsuit or bankruptcy.
  • Transferable ownership: Owners of a corporation or LLC may easily transfer ownership interests to others, depending on specific state requirements and their own company agreements or bylaws.
  • Conversion: Depending on the rules of the applicable state statutes, one type of a business entity may be converted to another (for example, an LLC to corporation) and may even be converted to another state (i.e. from California to Delaware). Read a short Lloyd & Mousilli article on conversion if you’re considering starting with an LLC: LLC Now, Corporation Later?
  • Taxation: Corporations are typically taxed at a lower rate than individuals. Corporations may also own shares in other corporations and resulting corporate dividends can be partially tax-free. If you have any doubts or want to explore tax questions, you should speak with a tax advisor. Our firm does not provide tax advice.
  • Duration: Either an LLC or a corporation may continue indefinitely and beyond the lifetime of its owners.
  • Raising capital: A corporation may raise funds by issuance of convertible debts and sale of stock. An LLC may raise funds by issuing membership interests.
  • Employee incentives: A corporation may issue incentive stock options to employees as a form of compensation for their work and tenure. A similar structure may be created for an LLC, but it is typically more complicated and more expensive to manage and setup.
  • Credit rating: A corporation acquires its own credit rating unassociated with the owner’s personal credit rating, even though the owner may be asked to provide some collateral or personal guarantee at times, especially early on after formation.

C Corporations

A C corporation is the standard corporation structure. An S corporation is a corporation that has elected special tax status with the IRS. Both of these corporate entity statuses share the following:

  • They have shareholders, directors and officers.
  • Both are required to follow the same internal and external corporate formalities and obligations, such as adopting bylaws, issuing stock, holding shareholder meetings, filing annual reports, and paying annual taxes and fees as required by state law.
  • Articles of Incorporation are the same for both C and S corporations.
  • Both C corporation and S corporation ownership is transferred by the selling of shares.

The advantages of C corporations are:

  • Investors typically prefer this form of corporate structure when investing in accelerated growth tech companies due to multiple classes of stock available to C corporations, especially preferred stock. Preferred stock provides preferred returns and further protective provisions.  
  • C corporations are also a more favorable setup for employee compensation. A company creating incentive (via stock options) to attract and keep talented employees often prefer C corporation status. C corporations may allow employees to defer tax status on the equity compensation until they sell that initial stock by offering incentive stock option plans, variations of which are possible, but more complicated, in an LLC. Tax-free and tax-deductible benefits are also available to employees in a C corporation (again, check with your accountant on all tax matters).
  • C corporations allow the owners to take advantage of certain provisions in the tax code with respect to exclusion of a certain amount of capital gains and the deduction of certain losses. However, please check with your accountant with respect to these benefits.
  • Non-US citizens or and non-residents are permitted to be shareholders / founders of a C corporation.
  • Since ownership is unrestricted, C corporations are often the best choice for large companies that are or plan to be publicly traded.

The disadvantage of a C corporation is double taxation:

  • FIRST at the corporate level on the corporation’s net income.
  • SECOND to the shareholders when the profits are distributed, if corporate income is distributed to business owners as dividends.

When a corporation is originally chartered by the state, it exists as a C Corporation. It will remain a C corporation unless the company wishes to elect S corporation status.

S Corporations

The main difference between a C corporation and an S corporation is the taxation structure. S corporations only pay one level of taxation: at the shareholder level. To choose S corporation status, a tax lawyer or accountant may assist with filing IRS Form 2553 and ensuring all S corporation guidelines are met. Since S corporation election is not required at the time of incorporation as a C corporation, a company may wish to momentarily hold off on S corporation election in order to consult with an accountant or tax lawyer.

Startup companies will choose an S corporation if the founders wish the benefit of a flow through tax treatment. In other words, a founder can include business losses on their personal tax returns as deductions, which may be particularly attractive during the early stages of a company. A startup can elect S corporation status before the financing stage and revoke S corporation status at the time of a financing. However, S corporation status prevents a startup from having entity (other corporations or LLCs) or non-US citizen/resident stockholders.

The disadvantages of S corporations, unlike C corporations, are:

  • Limited ownership to 100 shareholders, who cannot be non-resident aliens, nor can S corporations be owned by other corporations.
  • An S corporation cannot have multiple classes of stock.
  • S corporations are not allowed to conduct certain types of business. Banks and insurance companies are not eligible for S corporation status.
  • S corporations are less flexible than C corporations for employee fringe benefits.
  • S corporations must report employee taxable compensation.

Limited Liability Companies – LLC

A limited liability company (LLC) blends elements of partnerships and corporate structures. An LLC is an unincorporated association that protects the liability of a company.

Startup companies often avoid LLCs because most technology startups seek to grant options to employees and consultants, and it’s very difficult to get professional investors interested in investing in an LLC. LLCs provide no standard or easy way to grant such options. A startup may convert from LLC status to a C corporation but, depending on the state, there may be statutory limitations or additional requirements in doing so. Consultancy and bootstrapped businesses, on the other hand, are often the best choices for LLC status.

Benefits of LLCs:

  • Flexible management structure. Unlike corporations, LLCs are not required to comply with a formal management structure.
  • Like the C corporation, LLCs have no ownership restrictions and members of an LLC may be non-US citizens and non-resident aliens.
  • Flexible tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation. Using default tax classification, profits are taxed personally at the member level, not at the LLC level.
  • LLCs can be set up with just one natural person (in some states) and thus partially separates the liability of a company from that member.
  • LLCs can offer membership interests in the LLC to employees.

Disadvantages of LLCs:

  • Investors may be wary of the LLC structure and prefer the traditional corporate structure of a C corporation or S corporation. This can make raising capital difficult for LLCs.
  • Many states levy a franchise tax on LLCs, which is essentially the fee to pay for the privilege of the LLC status.
  • Renewal fees may also be higher than a C corporation or S corporation.
  • LLCs are not considered corporations for the purposes of civil procedure. Instead, LLCs are treated as partnerships by the courts. This affects diversity jurisdiction. Thus, if a member of an LLC is a citizen of the same state as a member of the opposing party, the LLC may not remove to federal court under jurisdiction (whereas the corporation can).
  • The equity compensation process for employees is not straightforward and standard incentive stock options employed by C corporations are not typically available.

You should consult with the Lloyd & Mousilli team if you have any doubts at all about the appropriate entity type for your business.

Sep 1, 2022

What is a Registered Agent?

Other nuances, which we’ve covered about Delaware that you should know about are the Delaware Franchise Taxes and Annual Reports. We describe the steps required with forming and maintaining your company in the startup checklists that are generated for you when you incorporate in Delaware or purchase Delaware Post Incorporation Documents.

What are the benefits of having a registered agent?

  • In exchange for an annual fee, your registered agent will forward important paperwork to you so that you can keep your company in good standing with the state. State government send all official documents (such as franchise tax notices and annual reporting forms) to your registered agent who, in turn, forwards those documents to you with notice of next steps you should take.
  • It’s difficult for a business entity to keep track of all legislative changes and reporting due dates for one or multiple jurisdictions (considering the state that your startup is formed may be different from the state in which your startup is headquartered). Your registered agent will make sure that you receive important notices so that you can respond on time. There may be penalties associated with not maintaining a registered agent and some states will go so far as revoking a company’s corporate status and assessing additional penalty fees on the company. Make sure you pay your registered agent fees when they are due and respond to their notices on time!

Can I act as my own registered agent?

You can (but only if you qualify as a registered agent under Delaware General Corporation law under these limited circumstances)! Some states permit you to act as your own registered agent but Delaware requires you to list a registered agent at the time you form your company. The agent must typically be a legal resident of the state in question and obtain authorization from the state to act as an agent. Note that the annual fees for a registered agent are fairly nominal (approximately $50-$300) in light of the great benefits of helping keep your company in good standing with the state.

Most states offer free access to their databases, where a company’s registered agent address is available to the public. In states that permit you to be your own registered agent, your listed address will, likewise, be visible and available to the public.

You can always change your registered agent to another party at any time during the life of your company with the filing of relevant state forms and payment of state fees. You may also be required to make an amendment to your articles of incorporation in some states, such as Delaware.

Sep 1, 2022

Understanding the Term Sheet

Introduction

People often compare the founder and investor relationship to a marriage- both parties have high expectations going in and expect it to last forever (or, admittedly less romantic, at least a long-ish term). The term sheet is the prenuptial agreement in the marriage analogy- with similar benefits of setting expectations for the relationship and establishing a defined process if the parties need to part ways.  

Specifically, a term sheet is a document that provides a skeleton outline of the terms an investor and an entrepreneur’s company use to reach agreement on a financial investment in the company. Generally, the term sheet includes provisions related to funding, corporate governance, and liquidation events.  

Negotiating a term sheet is one of the most critical parts of the equity investment process; it defines the expectations between the investors and company, and can make the ensure alignment on the more difficult issues that may arise over the course of the relationship.

In this article, we’ll discuss some of the issues that commonly arise from the entrepreneur’s objectives, the investor’s objectives, and how to best ensure alignment between the competing interests. 

Valuation

Often the most negotiated provision, valuation of the company is where the parties to a term sheet negotiation usually start. It is critical to get the valuation correct from the start, as it helps determine what portion of the company the founder retains and many other terms are ultimately dependent on it. 

Valuation has many competing calculation methods that are subject to fierce debate, often depending on the stage of the company, development of any underlying technology, paying customers, users acquired, and other metrics specific to the industry and business model. 

Once a valuation is established, the respective objectives of the entrepreneur and the investor have to be considered and are discussed further in the next sections. 

Entrepreneur Goals

As a founder, your motives and goals are typically the following:

  • Raise as much capital as possible to reach the key value-adding business or financial milestones for your company without giving up too much ownership prize upon your exit.
  • Ensure that, in agreeing to provide downside protection to investors, you have not given up too much of the upside potential. This can be accomplished by: 
  • avoiding participating in liquidation preferences that provide investors a guaranteed return of their capital plus dividends and that portion of the remaining proceeds equal to their ownership position, and 
  • capping the participation so that when the investor has reached two to three times their initial investment, the participation feature disappears.
  • Give up as little management control as possible over the company’s actions and general direction of strategy.
  • Protect your personal position if the board decides that the founders are not performing and/or their services are no longer required to continue the business.

Investor Goals

When negotiating a term sheet as a founder, consider the investor’s motives and goals:

  • Maintain participation rights to guarantee an investor the right to invest in future funding rounds. It helps investors maintain pro-rata ownership as additional investors come in and they choose to invest in any subsequent round.
  • Stay informed of company details through information rights. These provisions detail what information an investor receives from the company and how often. 
  • Maximize the proceeds upon the investor’s exit from the company by purchasing convertible preferred shares in exchange for their investment.
  • Protect their investment if the company performs poorly through legal provisions that allow them to gain a larger percentage of exit proceeds than would be determined by looking solely at their ownership percentage.
  • Retain veto rights over certain corporate actions by the company’s board or executive team that could affect their ultimate ownership position.
  • Maintain the ability to force the board and management to sell the company after the investors have been involved for a long time.
  • Ensure that the founders and key members of the management team are locked into staying with the company- at least as long as they are performing and adding value to the venture. This makes sense since the investors have often invested in the venture in large part because of their belief in the team.

Ensure Goal Alignment

Investors can use different methods and tools to make sure that the interests of founders and key management are aligned with the investors’ goals for the corporation:

  • Reward the founder and key executives for value creation with a bigger piece of the pie upon completion of key milestones—via the founders’ shares and employee stock option plan (ESOP).
  • Use key vetoes and tag-along rights to make sure that the founders and key executives do not sell the company before the investors believe that sufficient value has been created and they are ready to sell. Tag along rights prevent a founder or other voting group from selling shares to a third party without including all of the holders of the Series A shares. 
  • Include a vesting schedule for the ESOP and initial founders’ shares to tie in the key people for the right amount of time.
  • Include non-compete agreements and intellectual property (IP) assignment agreements to make sure that the full energy of the founders and management team is fully committed to building a successful venture.

Summary

Throughout the negotiation process, each side rarely achieves all of their objectives. If there is limited capital, then the investor will have the upper hand with the company. If there are competitive term sheets on the table, then the entrepreneur will win important negotiation points from the investors.

Hopefully, you have developed an appreciation for the competing interests and objectives of both parties to the term sheet negotiations. 

We stand ready to review your business needs and help you achieve your business objectives in consultation with your lawyer at Lloyd & Mousilli.

References 

Considering the importance of investment into the growth of your company, the following are suggested references for your review:

  • Cardis, J., et al. (2001). Venture Capital: The Definitive Guide for Entrepreneurs, Investors, and Practitioners
  • Berkery, D. (2008). Raising Venture Capital for the Serious Entrepreneur. 
  • Houston, T., Johnson, A., & Smith, E. (2006, September 15). Technology Startups: A Practical Legal Guide for Founders, Executives and Investors


Sep 1, 2022

Understanding the USPTO Trademark Timeline and Examination Process

In this article, we have provided all the steps involved,from filing to declaration of Trademark.

Step 1. Application Filed:

This step takes about 3 months. Lloyd & Mousilli filesthe application on your behalf based on your use of trademark in commerce. Thefiled application is assigned with a Serial Number. This number should alwaysbe referenced when communicating with the USPTO.

Once filed, you can check the status of any applicationthroughout the entire process by entering the application serial number at http://tsdr.uspto.gov/or by callingthe trademark status line at 571-272-5400 or you can wait for the updates fromus, we will update you on a regular basis.

Step 2. USPTO reviews application: 

Once the minimum requirements are met, the application is assigned to an examining attorney. The examining attorney conducts a review of the application to determine whether federal law permits registration. Filing fee(s) will not be refunded, even if the application is later refused registration on legal grounds. This process takes about 1 month before moving onto step 3b.

Step 3a. USPTO publishes mark: 

If no refusals or additional requirements are identified, the examining attorney approves the mark for publication in the Official Gazette (OG). The OG, a weekly online publication, gives notice to the public that the USPTO plans to issue a registration. Approximately 1 month after approval, the mark will publish in the OG for a 30-day opposition period. Any party who believes it would be harmed by the registration may file an objection (opposition) within that 30-day period with the Trademark Trial and Appeal Board. No further action is taken until the opposition is resolved. Approximately 3 months go to step 8.

Step 3b. USPTOissues letter (Office action): 

If refusals or requirements must still be satisfied, the examining attorney assigned to the application issues a letter (Office action) stating the refusals/requirements. Within 6 months of the issuance date of the Office action, applicant must submit a response that addresses each refusal and requirement. Within 6 months go to step 4a or step 4b.

Step 4a. Applicanttimely responds: 

In order to avoid abandonment of theapplication, applicant must submit a timely response addressing each refusaland/or requirement stated in the Office action. With Lloyd & Mousilli,there is no reason for the application to be abandoned.

The examining attorney will then review the submitted response to determine if all refusals and/or requirements have been satisfied. Approximately 1 to 2 months go to step 5a or step 5b.

Step 4b. Applicantdoes not respond and application abandons: 

If the applicant does not respond within 6 months from the date theOffice action was issued, the application is abandoned. The term “abandoned”means that the application process has ended and the trademark will notregister. Filing fees are NOT refunded when applications abandon.

Abandoned applications are “dead,” since they are no longer pending orunder consideration for approval. To continue the application process, theapplicant must file a petition to revive the application within 2 months of theabandonment date. If more than 2 months after the abandonment date, thepetition will be denied as untimely and the applicant must file a newapplication with the appropriate fee(s).

To make sure this will not happen, Lloyd & Mousilli offers thisservice to our customers.

Step 5a. USPTOpublishes mark: 

If the applicant's response overcomes the refusals and/or satisfies allrequirements, the examining attorney approves the mark for publication inthe Official Gazette (OG).The OG, a weekly online publication, gives notice to the public that the USPTOplans to issue a registration.

Approximately 1 month after approval, the mark will publish in the OGfor a 30-day opposition period. Any party who believes it would be harmed bythe registration may file an objection (opposition) within that 30-day periodwith the Trademark Trial and Appeal Board.

No further action is taken until the opposition is resolved. Approximately 3 months go to step 8.

Step 5b. USPTOissues final letter (Office action): 

If the applicant's response fails to overcome the refusals and/or satisfy the outstanding requirements, the examining attorney will issue a “Final” refusal letter (Office action). The Office action makes “final” any remaining refusals or requirements. An applicant may respond to a final office action by a) overcoming the refusals and complying with the requirements or b) appealing to the Trademark Trial and Appeal Board. Within 6 months go to step 6a or step 6b.

Step 6a. Applicanttimely responds and/or files appeal: 

To avoid abandonment of the application, the applicant must submit atimely response addressing each refusal and/or requirement stated in the“Final” refusal letter (Office action).

Alternatively, or in addition to the response, the applicant may alsosubmit a Notice of Appeal to the Trademark Trial and Appeal Board (TTAB). Theexamining attorney will review the submitted response to determine if allrefusals and/or requirements have been satisfied.

If the applicant's response fails to overcome the refusals and/orsatisfy the outstanding requirements, the application will be abandoned unlessthe applicant has filed a Notice of Appeal, in which case the application isforwarded to the TTAB.

The term “abandoned” means that the application process has ended and the trademark will not register. Filing fees are not refunded when applications abandon. Abandoned applications are “dead,” since they are no longer pending or under consideration for approval. Approximately 1 to 2 months go to step 7a or step 7b.

Step 6b. Applicantdoes not respond and application abandons: 

If the applicant does not respond within 6 months from the date theOffice action was issued and the applicant has not filed a Notice of Appeal tothe Trademark Trial and Appeal Board, the application is abandoned.

The term “abandoned” means that the application process has ended andthe trademark will not register. Filing fees are not refunded when applicationsabandon.

Abandoned applications are “dead,” since they are no longer pending orunder consideration for approval. To continue the application process, theapplicant must file a petition to revive the application within 2 months of theabandonment date, with the appropriate fee.

If more than 2 months after the abandonment date, the petition will bedenied as untimely and the applicant must file a new application with theappropriate fee(s).

Step 7a. USPTOpublishes mark: 

If the applicant's response overcomes the refusals and/or satisfies allrequirements of the “Final” refusal letter (Office action), the examiningattorney approves the mark for publication in the Official Gazette (OG). The OG, a weekly online publication,gives notice to public that USPTO plans to issue a registration.

Approximately 1 month after approval, the mark will publish in the OG for a 30-day opposition period. Any party who believes it would be harmed by the registration may file an objection (opposition) within that 30-day period with the Trademark Trial and Appeal Board. No further action is taken until the opposition is resolved. Approximately 3 months go to step 8.

Step 7b. Applicant'sappeal sent to TTAB: 

If the applicant's response does not overcome the refusals and/orsatisfy all of the requirements and the applicant has filed a Notice of Appealwith the Trademark Trial and Appeal Board (TTAB), the appeal will be forwardedto the TTAB. Information about the TTAB can be found at www.uspto.gov.

Step 8. Markregisters: 

Within approximately 3 months after the mark published in the Official Gazette, if no opposition wasfiled, then the USPTO issues a registration. If an opposition was filed but itwas unsuccessful, the registration issues when the Trademark Trial and AppealBoard dismisses the opposition.

After a registration issues, to keep the registration “alive” the registrant must file specific maintenance documents. Between 5 to 6 years go to step 9 and every 10 years go to step 10.

Step 9. Registrationowner files Section 8 declaration: 

Before the end of the 6-year period after the registration date, orwithin the six-month grace period after the expiration of the sixth year, theregistration owner must file a Declaration of Use or Excusable Nonuse underSection 8. Failure to file this declaration will result in the cancellation ofthe registration.

Step 10.Registration owner files Section 8 declaration/Section 9 renewal: 

Within one year before the end of every 10-year period after theregistration date, or within the six-month grace period thereafter, theregistration owner must file a Combined Declaration of Use or ExcusableNonuse/Application for Renewal under Sections 8 & 9. Failure to make theserequired filings will result in cancellation and/or expiration of theregistration.

Sep 1, 2022

Trademarks

What is a service mark?

A trademark is essentially a brand name. It’s a word, phrase, symbol, and/or design that distinguishes the source of goods of one party from another. A service mark is any word, name, symbol, device, or any combination, used (or intended to be used) in commerce to identify and distinguish the services of one provider from the services provided by others, and to indicate the source of the services.

At what point should a company register a trademark?

It depends on a myriad of factors, but a lot of businesses will trademark and incorporate simultaneously. It’s advisable to trademark at least your name and logo in order to prevent others from ripping off your company and be provided a legal recourse if this ever happens.

Is my trademark protected even if I don’t register it with the USPTO?

Although common law trademark rights exist, it takes a lot more time and effort to prove your rights. Also, common law rights only extend to the geographic area your business is in, rather than being protected throughout the entire country if you register it with the USPTO.

When does the USPTO deny trademark applications?

Applications are routinely rejected based on the “likelihood of confusion” standard. According to the USPTO, “likelihood of confusion exists between trademarks when the marks are so similar and the goods and/or services for which they are used are so related that consumers would mistakenly believe they come from the same source. Each application is decided on its own facts, and no strict mechanical test exists for determining the likelihood of confusion.” As you can see, there is no bright-line rule to follow. That’s why utilizing an attorney experienced with the USPTO makes sense.

How long does it take to register a trademark?

The total time for an application to be processed may be anywhere from almost a year to several years, depending on the basis for filing, and the legal issues which can take place during the examination of the application. For an in-depth discussion of the time frame, read Understanding the USPTO Trademark Timeline and Examination Process.

Sep 1, 2022

Trademark vs Copyright - Understanding the Different Protections of Intellectual Property

We will discuss the different types of objects that can be protected, with specific examples, and highlight the contrasts between trademarks and copyrights

Trademark

One of the essential functions of a trademark is to allow a consumer to identify a particular source for a product or service. The same way when you see the Golden Arches as you're driving down a highway, you know that you can expect a particular meal that includes hamburgers.

Trademarks protect “source identifiers” of goods and services, this includes:

  • Names of companies (Apple, Google, Amazon)
  • Names of product lines (MacBook, iPhone, Camry, Jeep Wrangler)
  • Names of distinctive individual products (Oreos, Nike)
  • Names of book, movie, and other creative media series (Seinfeld,
  • Game of Thrones, Harry Potter, Star Wars
  • Non-functional forms of products (Wax seal on Maker’s Mark whiskey, sprig of mint on a Mint Mojito at Philz Coffee)
  • Logos of all kinds (swoosh mark for Nike, mermaid for Starbucks, three stripes for Adidas)
  • Slogans of all kinds (Just Do It, Think Different)

Trademarks do not protect:

  • The content, story, writing, and plot of books, movies, and other creative media
  • Designs
  • Special methods by which goods are manufactured or services are provided
  • The unique function of inventions

Trademark rights come in two basic varieties, common law rights, and rights stemming from a trademark registration. Common law rights come from simply using the word or words in commerce to identify a given set of goods and services, but are limited to a particular geographic scope of the business market. So, say someone is selling clothing under the trademark Mousilli Mops, and can establish that they have had continuous sales in 20 states. They may have developed common law trademark rights to Mousilli Mops in those states, even if they never filed anything with the USPTO or with their Secretary of State's office in the 20 states, at least on paper.The problem with common law rights is that they are only as good as your ability to enforce them, which means that in practice you need to have a lot of evidence of ongoing sales in the states in question, as well as constant supply of money to pay attorneys to enforce your rights. For this reason, federal registrations are practically a no-brainer for people serious about protecting their brands. They also provide protection throughout the entire country, rather than just the states or markets where you had a continuous presence and market.In fact, rights from a federal registration are what most people think of when they think of having a trademark as these rights tend to be much easier to enforce both in court, and out. Pointing an opposing party a valid Principal Register trademark registration tends to diffuse the vast majority of disputes before they ever get even close to a court proceeding, saving a lot of time and money. Especially once you have put a potential infringer on notice of their infringement.A federal trademark registration creates a presumption of the trademark holder’s exclusive rights in the trademark. This places the burden of proof on the other party, to attempt to overcome the presumption. This means that if you hold a trademark registration, the burden is not on you to prove that you have rights in the mark as would be the case with common law rights, but it is on the opposing party to prove that you do not. Because this is usually a very difficult burden to meet, these trademark rights are typically considered very strong.

Copyright

Copyright is protection for the expression of an idea as captured in a recorded form. This is what is typically sought after for creative expressions of art, music, books, and film.

Copyrights do protect the content of creative works laid down in some physical medium, this includes:

  • Printed books, brochures, pamphlets, poems, documents, etc.
  • Recorded films
  • Recorded music
  • Board games, card games, tabletop roleplaying games and their attendant rules sheets, rulebooks, etc.
  • Paintings, drawings, sculptures, and other physical pieces of art
  • Software source code
  • Unique interfaces or designs (though not the functional elements)

Copyrights do not protect:

  • Special methods by which goods are manufactured or services are provided
  • The unique function of inventions
  • Any performance that is not recorded
  • Generic expressions of data (phone book, contact lists, etc.)
  • Anything listed as protected by trademark

Copyright technically exists for the author as soon as a copyright eligible work is recorded, so, as soon as a book is written, movie is filmed, or painting is painted. That said, as with common law trademark rights, unregistered copyright is not very strong and doesn't provide a lot of easy remedies for infringement.The remedy for dealing with infringement of copyright in the United States are to file a DMCA takedown notice. This is considerably easier if you have a Copyright Office registration that you can cite in your complaint.If you want to have the ability to sue (and credibly threaten to sue) infringers for damages, you will need a federal copyright registration. As with trademarks, the greatest practical advantage of a registration is not that it gives you better chances in court, but it is the threat of being able to sue infringers for money damages is likely to keep you out of court, as most infringers do not want the very costly uphill battle of fighting a federal registration.Especially since once an infringer is put on notice, statutory damages for copyright infringement are up to $150,000 per instance.

Sep 1, 2022

The Startup Conference 2017

The 2017 program includes:

  • Ron Palmeri is a famous entrepreneur and investor. He founded Layer, winner of TechCrunch Disprupt 2013. Previously, he was at Grand Central before the acquisition by Google.
  • David Hornik of August Capital is one of the most popular VC in Silicon Valley, with a unique perspective. He stole the show at the Startup Conference a few years back. We are so excited to get him again this year.
  • Max Mullen is the co-founder of InstaCart. The same-day grocery delivery startup has raised more than $500M of funding. If you want to learn how to think like a Unicorn, this session is for you.
  • Nancy Hua is the founder of Apptimize, a mobile growth platform, that has raised $20M in funding.
  • And these are just a few of the 100+ speakers, entrepreneurs, investors and angels, that the conference will feature this year.
  • The startup pitch competition
  • The investor panel.
Sep 1, 2022

Trademark Protection for Your Small Business

The valuable time that you invested in coming up with just the right creative name and developing the branding and marketing around that company name is impossible to measure. After creating signage, letterhead, and advertising materials the last thing that you want to learn is that another company has sent you a cease and desist letter to stop using your company name. This costly mistake can be avoided by taking proactive steps on the front end to ensure that you have all the rights to use the name you choose through trademark searches and registration.

With this in mind we offer the following guidelines for trademark protection for your business. This is a brief but critical overview of what trademark rights businesses should protect and, most importantly, how.

What Should You Trademark?

Often businesses have no idea what should be protected by trademark registration, since it extends far beyond just your company name. Here are a few of the items that you should consider seeking trademark protection for your startup.

Company Name

First, a small business should always protect its company name. Your company’s name is how consumers, your customers, find you and your goods or services (e.g., Nike, Amazon, Apple, McDonald’s, etc.). Without protection a competitor can open shop under a highly similar corporate name and siphon away business from you by confusing your customers as to the business they are patronizing.

Product Names

Like your company name, consumers also locate your goods and services through your product names. As such, if you provide a product or a service under a particular name you must also protect the same to avoid competitors from using like names on their goods and services (e.g., iPhone, Wii, Explorer).

Logos

In addition, it is not only the names of products that should be protected but logos as well. The Nike Swoosh, the Adidas three stripes, and, of course, Apple’s now iconic apple with a bite are all examples of logos that serve as trademarks.

Advertising & Marketing Slogans

If you use a particular advertising slogan in connection with the promotion of your goods and services these should also be protected as a trademark. Think of

  • McDonalds – “I’m Lovin’ It”
  • KFC – “Finger Lickin’ Good”
  • Nike – “Just Do It”
  • Kit Kat – “Have a Break, Have a Kit Kat”
  • Heinz – “Beanz Meanz Heinz”
  • Skittles – “Taste the Rainbow”
  • Rice Krispies – “Snap! Crackle! Pop!”

Benefits of Trademark Registration

Often businesses wonder if trademarking is worth the cost and efforts at the early stages. In addition to the potential savings of avoiding a costly rebranding after learning that the name you have been using is trademarked by another company that has sent you a cease and desist letter, here are a few of the benefits of having a trademark registration for your startup.

Deterrence

Having your trademark registered with the U.S. Patent and Trademark Office makes them easier to uncover by those doing trademark searches to see if their own trademark is available to be registered. This, in turn, helps to prevent the adoption of confusingly similar marks by third parties who may not choose a specific trademark similar to yours if they see your trademark is already registered with the U.S. Patent and Trademark Office.

Registration Symbol 

Only trademarks that have been registered with the U.S. Patent and Trademark Office have the authorization to use the® symbol in their advertising and marketing. The right to use the ® symbol in connection with your trademark which, in turn, also deters potential infringers from adopting or using a similar trademark to yours. It is also a great way to communicate that your brand is legitimate and valuable in a crowded field of imposters and cheap knock off brands.

Damages

Unfortunately it is a reality that we often have to resort to filing lawsuits to enforce trademarks against infringers that don’t respond to cease and desist letters. When your trademark is registered it increases the type of monetary damages you can demand in a lawsuit if it is later infringed upon such as the ability to recover lost profits associated with the infringement including the possibility of receiving treble damages in certain circumstances as well as recovering attorneys fees. Essentially, having a trademark registration really pays for itself multiple times over.

Block Importation of Infringing Goods

If your trademark is used in connection with goods this is a key factor. Once registered your trademark registration can be provided to the U.S. Customs and Border Protection that will block the importation of any goods into the United States bearing a trademark that infringes upon yours.

Takedown Notices

In this digital commerce age where many brands are distributed in online marketplaces like Amazon and eBay, one of the most powerful weapons that you have against counter-fitters and unauthorized distributors is their infringing use of your registered trademarks. With a trademark registration, it is relatively straightforward to provide notice to these online marketplaces to remove the infringing listings in the quickest fashion possible.

How to Protect Your Trademark

1. Check if Your Name is Available.

If you have yet to begin use of your product or service name it is imperative that you research to see if it is available. A properly conducted research report will let you know if the name you seek is available to be registered before you incur the expense of the non-refundable government filing fees required for registration. Also, a research report will ensure you are not adopting and using a name that is infringing upon another’s trademark. If this occurs, you could be forced to give up use of your name and even pay damages to the entity you have infringed upon, even if done innocently. A research report will avoid these issues and make sure your name is available to use with minimal risk.

You should be leery of  any “free” trademark searches. Recall the old adage that you always get what you pay for. The “free” trademark searches are largely marketing ploys that do not provide the quality of search a trademark holder needs to determine whether their trademark is available for registration. As such, they may inform you your name is available to get you to use their trademark registration services when, in fact, their search algorithms fail to discover and advise you of actual trademarks you will be infringing upon if you begin use of your trademark. If this happens, your “free” trademark searches can be very expensive in the long run.

2. Register Your Trademark.

Once you have determined your desired name is available to trademark you should immediately apply to register it with the U.S. Patent and Trademark Office. Since trademark rights can be acquired either when you first use your trademark or first to file for an intent to use the same, it is imperative you get a trademark application on file with the USPTO as soon as possible to secure your rights in the trademark before someone else does.

3. Monitor For Infringement.

Now that you have a trademark you need to make sure that no one else adopts and begins use of a confusingly similar trademark. Trademark infringement costs businesses hundreds of millions of dollars each year in lost revenue. Even if a competitor begins use of a similar, albeit not identical, trademark to yours it can still funnel customers away from your business. In essence, competitors create confusion between your and their goods and services by adopting a similar trademark to yours. They then use the good will you have created in your trademark through your marketing and otherwise to steal your customers through use of their infringing trademark.

To stop this before you notice a decline in business regularly monitor your trademark and others’ use of similar trademarks by watching trademark filings before the U.S. Patent and Trademark Office as well as online and through other traditional means.

There are a number of solutions for monitoring online use of your trademark. Seek the advice of a trademark attorney on options available to automate this monitoring process.

4. Police Your Trademark.

Once infringement of your trademark is discovered you must act quickly to stop the same. There are numerous ways to enforce your trademark depending upon how it is being infringed upon. For instance, if a competitor has registered and is using a domain name that is similar to your trademark, a domain name dispute may be the right avenue for you. If a competitor is simply using a similar trademark on their web site to yours than sending them a cease and desist letter or possibly suing them in court may be the best option. Or if they have applied to register a confusingly similar trademark with the U.S. Patent and Trademark Office you can oppose the registration of the trademark through several different means.

Of note, enforcement can be tricky as there are many pitfalls associated with determining first use of a trademark to ensure you are not enforcing against someone who may actually have acquired rights in their trademark before you. As such, seeking the advice of trademark counsel specializing in enforcement is always advised.

Final Thoughts

For many businesses, their brand is their most valuable asset. Through a few judicious steps in seeking trademark protection, monitoring use by others, and policing infringement, you can ensure that your company brand is secured and flourishes with the growth of your business.

Read a thorough discussion about Trademarks on the next article for a better view on how this works.

Sep 1, 2022

Thinking about the End: Equity Buyout Agreements

When a business is organized or expands ownership ranks, the owners need to consider what will be done when the relationship has run its course and it becomes necessary or desirable for the company and/or the owners remaining with the company (“Buying Owners” or “BOs”) to buy out a member of the ownership team (a “Selling Owner” or “SO”). There are several basic questions to address and, when those questions are answered, to document -- (i) What sort of events should trigger a buyout? (ii) When should such buyout be mandatory (and if so, for whom?) or optional? (iii) How should the buyout price be determined? and (iv) How should buyout funds be obtained?

Triggering Events

A change in ownership status may be dictated by (i) ‘life’ events such as an SO’s death, disability, divorce or conventional retirement, (ii)an SO’s wish to “cash-out” all or a portion of the SO’s interest or (iii) disagreements among the ownership team. When an SO leaves the company in a ‘life’ event situation, companies will usually not want to have estate executors, ex-spouses or family members succeeding to SO interests and able to access company records or vote on company affairs. In other cases, SOs simply wish to monetize all or a portion of their interests and use the sale proceeds for personal purposes such as retirement, children’s education or investing in other ventures. In such situations, companies will not want interests falling into the hands of competitors or other potentially hostile persons. Finally, when involuntary termination or business disagreement is involved, it can get especially thorny. In light of the usually strong feelings (and occasional litigation) associated with these hostile situations, the company or the BOs will probably want to reclaim the interests and not deal with someone motivated by a desire for retribution. Anticipated third party interest in purchasing the company may call for some variation of these techniques.

Mandatory vs Optional. Three basic mandatory purchase techniques are (i) company (or BO) ‘call’ or right to purchase, and corresponding requirement of the SO to sell; on occasion, this is embodied in a so-called ‘right of first refusal’ or ability to buy if there is a desire to sell to a third party; (ii) SO ‘put’ or right to require the company (or BO(s)) to buy; and (c) mutual commitment to buy and sell under specified circumstances. Of course, parties are always free to negotiate voluntary deals in accordance with individual needs and preferences. With many of the events described in this article, it is highly unlikely that the parties can come to terms on a voluntary transaction. Typically, some sort of mandatory transaction is called for in cases where animosity is likely, such as a divorce or involuntary termination. That is, a company will want to be able to force a repurchase of interest from a terminated employee or one going through a divorce involving potential transfer of the interest pursuant to a decree or settlement. SOs not leaving on their own terms will often want to require a buyout.

Price Determination

Again, while parties are always free to negotiate a price, the likelihood of acrimony trumping rationality in an exit situation, makes it essential that a default mechanism be prescribed in advance. For unvested interests, the buyback price is usually de minimis. For vested interests, such mechanisms consist of an appraisal by an

objective third party or a formula based upon what is reasonable in the particular industry. All concerned should be mindful of tax consequences. If an appraisal is desired, parties need to specify how the independent appraiser(s) are determined and paid and required background. A specific firm can be identified in the original agreement. Buyout formulae can be based on multiples or percentage of sales or earnings/cash flow (EBITDA) for one or a number of years, balance sheet book value, or simply a dollar amount per percentage point, or a combination of metrics.

A minority interest in a closely-held business is almost always highly illiquid and, consequently, subject to a discount to its ‘inherent’ value. Accordingly, prudent employee-owners will often want a commitment to have their interests purchased at a fairly determined price in the event of an involuntary termination. A similar discount would likely apply in connection with a normal retirement although the company may not have the same motivation as it would with a termination. Companies will often bargain for a further discount in the event of a termination for cause.

Source of Funds

Unless companies and BOs are likely to keep cash on hand for buyouts, business owners should prescribe a method to fund buyouts. For buyouts upon death, term or whole life insurance owned by the company is often quite helpful. Some companies maintain a standby line of credit to fund buyouts. In other cases, subject to tax considerations, companies may periodically put aside funds out of earnings to cover anticipated buyout obligations.

Our lawyers are ready to work with you to determine which techniques make the most sense now and as your business grows.

Sep 1, 2022

Terminating Your Texas LLC

Background

There are a variety of circumstances that could lead yourbusiness towards the decision to terminate your Texas LLC. For the purposes ofthis article, we are referring to a voluntary termination.

Step 1: Ensure Franchise Tax Filings are up to date

In order for the required Certificate of Account Status (discussed below) to be issued, your business needs to have up to date franchise tax filings in the State of Texas. These include the Public Information Report, and the No Tax Due Report. If you are unsure whether your business is up to date on its franchise tax filings, please reach out to your Lloyd & Mousilli attorney to assist you. Once these tax filings have been verified, it is time to formally request your Certificate of Account Status.

Step 2: Formally Request a Certificate of AccountStatus

In order for a Certificate of Termination to be issued by the State Of Texas your business must attach a formal Certificate of Account Status to Terminate a Taxable Entity’s Existence in Texas. This form is referred to as 05-359 from the Texas Comptroller’s office. It is possible to make the formal request for a Certificate of Account Status by fax or regular mail, and generally has a relatively quick turnaround. 

Step 3: Filing the Certificate of Termination

Once a completed Certificate of Account Status has been verified through the Texas Comptroller’s office, it is ready to be attached to the Certificate of Termination. This document is known as the 651 from the Texas Secretary of State’s office. This can be filled out online. Once submitted online, the IRS estimates roughly a 48-hour processing time.

Talk to Your Lloyd & Mousilli Lawyer

If all of the tax reports are upto date, the process of termination is relatively painless. If you need helpfiling the appropriate paperwork or making sure you're following the law, reachout to your contact at Lloyd & Mousilli and we will make sure that yourbusiness fully and completely terminates existence under Texas law.

Sep 1, 2022

Specifics on Service Specimens - Meeting Trademark Hurdles

Often our clients will ask about how they can meet the requirements for a "specimen" in their application to register a service mark with the United States Patent & Trademark Office (USPTO), since it's usually easier to understand examples of specimens with physical goods and difficult to understand what can meet the threshold for a service.

Trademark Basics

A "service mark" identifies and distinguishes the services of one party from those of another and indicates their source. To obtain registration of a service mark under Section 1 of the Trademark Act, an applicant must submit a specimen showing the mark as used in commerce.  A mark is deemed to be in “use in commerce” on services “when it is used or displayed in the sale or advertising of services.”

To be acceptable for registration in the USPTO, a service mark specimen must show use of the mark in association with the claimed services in their sale or advertising in commerce, namely interstate, territorial and commerce between the United States and a foreign country. “Interstate commerce" generally refers to buying and selling products, and selling or advertising services, across state borders or internationally.

The way the service mark is used in a specimen must be in such a way that customers would understand the service mark as identifying and distinguishing the services in a way that indicates their source. To be acceptable, a service-mark specimen must show the mark sought to be registered used in a manner that demonstrates direct association between the mark and the services.

For your trademark application, a single specimen as currently used in commerce is required in an application to register a service mark with the USPTO.

The mark on the drawing must be a substantially exact representation of the mark shown on the specimen. Furthermore, the designation must appear sufficiently prominent or stand out in the specimen (e.g., placement, size, or stylization) so that it will be perceived by consumers as a mark.  For instance, if shown in the same font, size, and color as the surrounding text on the specimen, the designation may not be perceived as a source indicator and thus rejected as a trademark.

The following are examples of submissions that are acceptable as specimens for service application purposes.

ACCEPTABLE SERVICE MARK SPECIMENS:

  • internet web page/newspaper/magazine/trade journal advertising
  • promotional brochures on which the service mark is imprinted
  • direct mail advertising materials
  • handbills, posters, leaflets, circulars, fliers
  • business signage (on storefront, office door or company vehicle - provide photos)
  • invoices may be acceptable service mark specimens provided they show the mark and refer to the relevant services.
  • menus that show the mark and refer to restaurant services
  • business letterhead stationary and business cards that show the mark and contain a clear identification of the services
  • a copy of an actual letter to a customer on business letterhead stationery bearing the service mark where the content of the letter indicates the field or service area
  • trade show demonstration materials (provide photos)
  • static displays in customer showrooms (provide photos)
  • billboard advertising (photographs)
  • radio/television advertising (provide script/photos)
  • gift items such as T-shirts, hats, coffee mugs, etc. on which the mark is imprinted and a clear reference is made to the services (provide photos)

The specimen must show the mark as actually used by the applicant in selling or advertising the services. Therefore, materials such as news articles and mock-ups of advertisements are not acceptable because they do not demonstrate the required use of the mark by the applicant.  In some instances, a specimen or the specimen description may indicate that the specimen is not yet in use in commerce by inclusion of wording such as “internal only,” “printer’s proof,” “website coming soon,” or “under construction.” These types of specimens are typically not acceptable for a trademark application.

The following are examples of submissions that are not acceptable as specimens.

NOT ACCEPTABLE SERVICE MARK SPECIMENS:

  • price lists; order forms; announcements; publicity releases; listings in trade directories; business cards; and materials used for the purpose of conducting internal business such as invoices, bills of lading, waybills, inventory sheets, warranties and business letterhead stationery;  and bags and other packaging materials bearing the name of a retail store and used by the store merely for packaging items of sold merchandise.
  • bumper stickers which feature only the service mark with no reference to services
  • advertising in which the mark is used only for identifying a process or system with no reference to services
  • mark used in technical bulletins and data sheets merely to identify and advertise chemicals and not services
  • specimens show mark as used to identify a computer program only, and not any services
  • the mere advertising of one's products does not constitute service mark usage
  • technical bulletins and data sheets that use a mark merely to advertise chemicals, not consulting services
  • using a mark on a written proposal while providing technical assistance on how to use the applicant's own manufactured products
  • printer's proofs for advertisements, publicity releases to news media, or printed articles resulting from such releases, are not acceptable because they do not show use of the mark in the sale or advertising of the services

Technology Marks

For our technology clients, often the only service is a software interface, website, or mobile applications (“apps”). Because apps are simply the interface that enables the providers of the services to reach the users and render the services, and the users to access those services, screenshots are often the only specimens that can be used.  Common specimens of  screenshots demonstrate the apps delivering the services.  Such a specimen may not always depict proper service-mark use of the mark in connection with the identified services, but it may be acceptable if the displayed screenshot clearly and legibly shows the mark associated with the identified services as the services are rendered or performed via the app.

Similarly, applicants often submit screenshots of sign-in screens as specimens for online services, such as non-downloadable software services and application-service-provider services.  Sign-in screens show that the services are available and the context indicates that they are accessed by inputting credentials. Such a specimen may provide a sufficient basis for accepting the sign-in screen, as long as there is no contradictory information in the record indicating that the mark is not associated with the identified services.

Next Steps

This detailed explanation may seem incredibly complicated, but it is critical to applying for and securing a trademark related to your services. Not fully appreciating these details will often lead to your trademark application being rejected and unnecessary delays in securing your brand. Lloyd & Mousilli attorneys are ready to help you understand the nuances of protecting your intellectual property and  preparing your trademark applications to protect your company and brand.

Sep 1, 2022

Provisional Patent Applications Overview

The U.S. Patent and Trademark Office (USPTO) offers inventors the option of filing a provisional application for patent which was designed to provide a lower-cost first patent filing in the United States than traditional nonprovisional patent applications.

A provisional application does not have the same formal patent claim, oath, declaration, and other requirements of a nonprovisional application, but does provide the means to establish an early effective filing date in a later filed nonprovisional patent application. It also allows the term “Patent Pending” to be applied with the described invention.

Priority

  • The U.S. joined the “first-to-file” world and the first inventor to file gets the patent, as opposed to the old USPTO system of “first-to-invent”
  • The provisional application gives inventors and companies nearly 12 months to explore market acceptance and opportunities
  • Filing a provisional application is NOT a substitute for filing a non-provisional (utility or design) patent application

Timelines

  • The provisional application expires ON the one-year anniversary; the non-provisional application must be filed WITHIN the one-year provisional period (Read: Patent Application Preparation Outline)
  • The provisional application does NOT start the pendency clock running to get your patent application evaluated (“examined”) by the patent examiner
  • A public disclosure (e.g., publication, public use, offer for sale) more than one year before the provisional application filing date would bar patenting in the U.S.

Fees

  • The provisional filing fee is less than the non-provisional filing fees ($130 USD versus about $730)
  • The attorney fees are typically substantially less to prepare a provisional application than the non-provisional application, depending on the complexity 
  • Once the Invention Disclosure Questionnaire has been completed by the client, a better estimate of the attorney fees can be provided  

Scope

  • The provisional application needs to anticipate as many different ways of practicing the novel aspects of the invention as possible in order to give sufficient flexibility to write a good non-provisional patent application
  • The provisional application is subject to the same disclosure requirements of the non-provisional application. At a minimum it must:
  • (1) sufficiently teach others how to “make and use” the invention, and 
  • (2) show that they were “in possession” as of the date of filing of the entire invention AS CLAIMED in the follow-on nonprovisional application
  • There is a risk of not including enough details if no provisional claims are submitted with the provisional patent application

Formality

  • The provisional application is never examined and is not required to have claims
  • There are no strict format and language guidelines for the information submitted in a provisional application 
  • The provisional application does not require a formal oath (declaration) signed by each inventor
  • The provisional application does not require listing of known references in an information disclosure statement (IDS)
  • A provisional application can include color and black-and-white pictures in addition to standard line drawings, flowcharts and so forth for the same initial provisional filing fee 
  • The provisional application is subject to the 100-page limit or extra fees apply
  • Multiple provisional applications can be filed and later combined into a single non-provisional patent application 

Royalties

  • Reasonable royalties and other patent damages are court awarded judgments for successfully proving patent infringement by others on a patent that has been published and later awarded 
  • Reasonable royalties and other patent damages cannot accrue from the provisional patent application filing date because the provisional application is not published within the 12 months of its pendency
  • Reasonable royalties are only available from the time of publication and only if the infringed claims as published match the claims as issued

Next Steps

This overview may seem complex, but it is extremely important to know and understand the specifics in applying and getting your services patented. Not fully appreciating these details will often lead to your patent application being rejected and unnecessary delays in securing your brand. Lloyd & Mousilli attorneys are ready to help you understand the nuances of protecting your intellectual property and  preparing your patent applications to protect your company and brand.

Sep 1, 2022

Registering a California Fictitious Business Name

Background

Companies of all structures andsizes often find themselves desiring to conduct business under a name that isdifferent from the legal name that the business entity was formed with. Thevariance could be as slight as wishing to drop the entity type from the end,such as “LLC” or “Inc”, or may be a completely different name altogether. Ineither circumstance however, the required fictitious business name (FBN)paperwork still needs to be filed. It is critical to note that this processtakes 4-5 weeks from beginning to end so should be initiated well in advance ofwhen your business wants to begin using its new FBN.

Step 1: Choosing a name

When choosing a fictitiousbusiness name, the name must be “sufficiently different” from names that otherentities are already using. If your entity is an LLC, it can have the same FBNas an INC, but not as another LLC. There are online searches that your Lloyd& Mousilli team can run on your behalf to check the availability of the FBNyou’ve chosen.

Step 2: Registering Your Business with the County Tax Office

After an FBN has been selected, if your business is not already registered with the county tax office, that paperwork needs to be filed. In California, FBN’s are done only on a county by county basis, so for each county requested, separate tax registrations are required. While these business registrations are done online, there is both a cost and diligence aspect as they also need to be renewed annually. From the time the registration is submitted online, it usually takes 48 hours to become effective. Depending on the needs of your company, your Lloyd & Mousilli attorney can help direct you on which counties are necessary to register within to maintain compliance.

Step 3: Filing the FBN itself

After your business has filedits registrations with the tax office in the appropriate counties, it is timeto submit the FBN application itself. There is a fee associated with this whichvaries by county. In addition to being accepted by only by hand delivery or byregular mail.

Step 4: The Publishing Requirement

After your business has filedthe FBN application, it is time to begin fulfilling the publishing requirement.In many California counties, FBN need to run in an approved publication for aminimum of four (4) consecutive weeks. There is a cost associated with this,which can vary greatly depending on which publication is chosen. Many publishingvendors will also file the appropriate paperwork with the county afterpublication is complete.

Talk to Your Lloyd & Mousilli Lawyer

While it is fairly straightforward, the process is lengthy. If you need help filing the appropriate paperwork or making sure you're following the law, reach out to your contact at Lloyd & Mousilli and we will make sure that your business successfully registers its FBN in California.

Sep 1, 2022

Patents

There are three different types of patent applications that can be filed. Please select from the three options to learn more.

1. Provisional Patent

2. Design Patent

3. Utility Patent

PROVISIONAL PATENT

Securing a Provisional Patent

Working with provisional patent lawyers will provide you with an expedient way to establish a priority date for an invention with the United States Patent and Trademark Office (USPTO). It is an effective and relatively cost-friendly way to safeguard your place in line with the USPTO while you decide whether to file a regular patent application.

A provisional patent application by itself is not a patent, but simply a holding place. To receive the benefit of the earlier provisional patent application date, a regular patent application must be filed within one year. Importantly, the 12-month period cannot be extended. Filing a provisional patent application also allows you to immediately start labeling your invention as “patent pending.” (See: Provisional Patent Applications Overview)

Can I complete a provisional patent on my own?

It’s possible but risky. Patent law is one of the most complex areas of law in the U.S; it can take a regular person weeks, even months, to learn the ins and outs. If you have that type of free time and dedication then you can certainly try to apply on your own. Even so, there’s still a chance of making a small mistake that can have a drastic impact by delaying your priority date and spending even more money on a patent attorney to clean up your mess. With patent law, it’s just not worth trying to do it on your own.

What are the requirements for a provisional patent application?

The provisional application requires a specification satisfying 35 U.S.C. § 112, except claims are not required. The specification must allow for someone skilled in the art to be able to practice the invention, and must disclose the best mode known for practicing the invention. Also, a drawing must be provided if needed to explain the invention. The provisional application must also identify the inventors who contributed to the subject matter disclosed in the application. Lastly, a cover sheet and the necessary filing fees are required.

Are the provisional patent applications public or are they kept confidential?

All provisional patent applications received at the USPTO are kept secret until that patent “Issues.” When an application is issued (or approved), the entire application file becomes public. Inventors are encouraged to use “patent pending” on items that are in the provisional patent application phase in order to provide some type of warning to possible infringers.

Can I submit a provisional patent for a design?

No. Provisional applications for patent may not be filed for design inventions.

What is a non-provisional patent application?

An applicant who files a provisional patent application must file a corresponding non-provisional patent application within 12 months to benefit from the earlier filing date. The non-provisional application must specifically refer to the provisional application. The USPTO will compare the non-provisional patent application with the provisional application and if the subject matter of the descriptions is determined to be the same in both applications, the USPTO will grant the non-provisional application with the earlier filing date. (See: Non-Provisional Patent Applications Overview)

DESIGN PATENT

Design patents will help you protect the unique shape, look, and form of your products that are independent of the function or usefulness of your invention covered by utility patents. Furniture, packaging, fashion articles are typical subjects for design patents.
Think of the classic Coca-cola glass bottle, Crocs shoes, or the multi-color triangular shaped Mac computers as examples of products that have design patents. Filing a patent application for your product design is a smart way to enhance the value of your offering.

A design patent lawyer will help you protect the unique shape, look, and form of a product. The design patent does not focus on usefulness and instead focuses on the ornamental design of the invention. If the product has no unique or distinctive shape or appearance at the time it was created then it cannot obtain a design patent. A design patent allows the owner to exclude others from making, using, copying, importing a design substantially similar to the design claimed in the design patent.

Design patents are granted for the term of 15 years from the date of issuance (14 years if issued before 12/19/2013) and are not subject to maintenance fees. Like all patents, a design patent application should be filed with the assistance and guidance of a patent attorney because of its complexity.

Why should I get a design patent?

A design patent is a great option for those with unique, ornamental designs for manufactured products. If your design is different enough that it is eligible for protection, you can receive a design patent on it. Common industries include apparel, furnishings, food and drink containers, and electronics.

You should consider applying for a design patent if your item has an ornamentally different design that qualifies for patent protection.

What is required in a design patent application?

The elements of a design patent application should include: (1) the Preamble; (2) a cross-reference to related applications (if any); (3) a statement regarding federally sponsored research or development; (4) a description of the figure(s) of the drawing; (5) a feature description; (6) a single claim; (7) drawings or photographs; (8) an executed oath or declaration; 9) the filing fee, search fee, and examination fee.

Can I submit a provisional patent for a design?

No. Provisional applications for patent may not be filed for design inventions.

Can I apply for utility patent and design patent simultaneously?

Yes. While a utility patent protects the functionality of a product or process, a design patent protects the unique visual elements of such product or process. As a result, design patents are made up of drawings that show the invention and, unlike a utility patent application, contains very little text.

What’s the difference between a design patent and a trademark?

A design patent protects the physical appearance of a product whereas a trademark protects the symbols or words used to identify the product as coming from a particular business.

Is it possible to submit multiple designs in a design patent application?

No. Each application is limited to a single, distinct claim (design). If you intent to submit multiple versions of a design then you can attempt to include them but it’s possible that the USPTO may restrict your application to one version of the design and require additional applications for the other versions.

What kind of designs do not qualify for a design patent?

The following patents cannot receive patent protection: 1) purely functional designs; 2) designs that are intended for items that cannot be seen; 3) designs that have no fixed appearance, and 4) colors of an object.

How much does a design patent cost?

The basic USPTO filing fee for a design patent application is $760 for a large entity and small entity’s fee is $380. To assist with preparing documents and filing the design patent application, our typical costs are around $1,500-$3,000.

UTILITY PATENT

What Is A Utility Patent?

A utility or “non-provisional” patent protects the invention or creation of a new or improved product, process, or machine. To obtain a utility patent, the invention must be useful and serve some practical or functional purpose and be non-obvious. Filing a utility patent application requires a tremendous amount of legal and technical expertise to define and layout the parameters of the invention and negotiate with the patent office examiner. Our experience in preparing applications is why so many of our clients turn to us to draft and file their patents.

A utility patent protects the creation of a new or improved product, process, or machine and is by far the most common filed patent application with the United States Patent and Trademark Office (USPTO).

To obtain a utility patent, the invention must be useful and serve some practical or functional purpose. While utility patents are more expensive than design patents, which protect a product’s ornamental design, they typically provide broader patent protection.

A utility patent expires 20 years from the application filing date, subject to the payment of appropriate maintenance fees. Filing for a utility patent application on your own is no easy task and carries too much of a risk for making a mistake. That’s why so many turn to the top-notch patent attorneys on Lloyd & Mousilli for their patent needs.

What does a utility patent application require?

Most utility patent applications include:

1) a description and claim of the invention (called a specification);

2) drawings and the explanation of them (if necessary);

3.) a declaration or oath by the inventor;

4) fees for the filing, search, and examination of the patent

All non-provisional utility patent applications have to be in English, or have an English translation with a statement that confirms that the translation is accurate, and a fee.

What is public disclosure?

Public disclosure is the making public of a concept or invention. In the U.S., an inventor’s public disclosure of their work made less than one year prior to their patent filing date will not count as prior art. This is referred to as a “grace period” for the inventor’s own disclosure. The grace period allows others to publish similar work or work that builds off your own work. These intervening publications can prevent or prevent patentability of your invention.

What qualifies for utility patent protection?

Utility patent protection extends to:

1) machines;

2) articles of manufacture;

3) processes, and (chemical) compositions of matter.

Can I submit a provisional patent for a design?

No. Provisional applications for patent may not be filed for design inventions.

How long does it take to receive utility patent protection?

While the length is subject to a myriad of factors, it generally takes between two and three years for the USPTO to determine whether to issue the patent.

Can computer software qualify for utility patent protection?

Yes the software may qualify for a patent if the patent application produces a useful, concrete, and tangible result. The lawyers on Lloyd & Mousilli have helped many software startups obtain utility patents.

Sep 1, 2022

Patent Application Preparation Outline

ProcessOutline

The general timing for each step in theapplication is provided in the outline below. In case of urgent needs,expedited processing is available as required.

The U.S. Patent and Trademark Office (USPTO) offers inventors the option of filing a provisional application for patent which was designed to provide a lower-cost first patent filing in the United States than traditional nonprovisional patent applications.

Step1: Patent Prior Art Search and Report (5-10 business days)

This is a prudent and essential step ofdue diligence to determine the scope and extent of the relevant prior art. Thesearch will identify any patents or patent applications that might beconsidered relevant to the inventive concept.

PatBase offers access to bibliographicinformation and Full-Text of patent documents from over 95 patent issuingauthorities worldwide. PatBase offers additional patent information and relatedservices, such as direct links to patent registers, legal status, copies oforiginal patent documents, translations and more. PatBase has been designedspecifically for patent professionals and patent searchers. It facilitates thecombining of full-text searching with the five main classifications andproduces results grouped by patent families.

Pat Base is used frame for completingand reviewing the patent prior art search is typically two weeks.

The prior art search typically takesfrom 5 to 8 business days. We generally give the client a couple of days to aweek to review the material before going over it and discussing strategiesgoing forward.

Search queries will be developed tofind issued patents and patent application publications that are relevant tothe invention:

1) Key word and Boolean operators willbe used and tested for scope and relevance;

2) Citation analysis using selectedpatents and patent applications will be included in search queries;

3) Specific patent classes andsub-classes will be evaluated and included for refining the

scope of broad keyword queries;

4) Assignee searches will be conductedwith class and/or keyword limitation.

Step2: Claim and Drawing Draft (5-10 business days)

A full set of claims and figures areprepared for review and evaluation. The drawings are prepared to ensure thatall embodiment and critical features of the invention are shown. The claims areprepared to ensure the full scope of the invention is covered and to confirmthat the nomenclature used for describing the features of the invention arecorrect. The inventor is asked to comment and provide feedback on the drawingsand claims. Edits and additions will be made as required.

Step3: Full Patent Application Draft (5-10 business days)

With confirmation from the inventorthat the drawings and claims are acceptable, a full patent application isprepared complete with the following:

1) Background;

2) Summary of the invention;

3) Description of the figures;

4) Detailed description of theembodiments; and

5) Additional claim edits and additionsas a function of preparing the full specification.

The inventor is asked to review andprovide feedback on the patent application draft. Edits and additions are madeas required.

Step4: Patent Application Filing (1-2 days)

The filing forms for the patentapplication will be prepared and signatures will be required from theinventor(s). A determination of the filing status, (non-discounted, small andmicro-entity) will be made and the application will be filed accordingly. Acertification of micro entity status will be required if the inventorqualifies.

Upon approval from inventor usuallywithin 1 to 2 business days)

An acknowledgement receipt will beprovided along with a copy of the application as filed after filing.

Sep 1, 2022

Overview of Foreign Employer Identification Numbers (FEIN)

Overview

Starting a business, opening a business bank account, and filing taxes are just of few of the tasks that require setting up an Employer Identification Number (Tax ID). How do you obtan an EIN? The process is fairly straightforward if you already have a Social Security Number and can be done online through the Internal Revenue Service (IRS) website. However, if you are a foreign individual or company, the process of obtaining an EIN becomes more tedious, and specific steps must be followed.  

The Process

If you do not have a Social Security Number (SSN), the following process should be followed:

  1. Reach out to Lloyd & Mousilli to act as a Third-Party Designee for you
  2. You will need to answer some basic questions to begin the application process
  3. Lloyd & Mousilli will then prepare your Application for Employer Identification Number on your behalf, and send it out for your review and signature
  4. Lloyd & Mousilli will process your application with Internal Revenue Service (IRS) and receive your EIN on your behalf within two to four weeks.

To guarantee accurate and timely completion of the EIN application process, it is highly recommended to have a business attorney act as your Third-Party Designee to apply for your EIN on your behalf.

Frequently AskedQuestions (FAQ):

Whatare EINs used for?

You can use your EIN to start and conduct business in UnitedStates, open up a U.S. bank account, hire employees, comply with the InternalRevenue Service (IRS), apply for permits or licenses, and file taxes.

Is an EIN the same as aTax ID?

An EIN is a form of a Tax ID. Tax ID and EIN are sometimes usedinterchangeably to mean the same thing.

Is an SSN required to apply for an EIN?

No, as outlined above in “The Process” section, by reaching out Lloyd & Mousilli, to act at a Third-Party Designee, we are able to apply for the EIN on behalf of yourself or your company—even if you do not have a social security number.

Is an ITIN required to apply for an EIN?

No, you can get an EIN even if you do not have an Individual Tax Identification Number (ITIN).

Is a United States mailing address required to apply for an EIN?

No, you do not need a U.S. mailing address to apply for an EIN. You can use a non-U.S. address to apply for an EIN.

What are the othernames for an EIN?

Tax ID, Employer Identification Number, Tax ID Number, TaxIdentification Number, Federal Employer Identification Number, FEIN, EmployerID Number, Business TIN, Business Tax ID Number, Federal Tax ID Number, among othernames.

Whenwill I receive my EIN?

From the time theprocess begins by reaching out to Lloyd & Mousilli and providing basicinformation, to the IRS fully processing the paperwork is typically between twoand four weeks.

Howwill I receive my EIN?

You will receive yourEIN via email.

Can I use my EIN forAmazon, Kickstarter, Google Adsense, or Stripe account?

Yes, you can use yourEIN to open up an account with any of the online services above.

Whatis an SSN?

A Social Security Number, or SSN, is anine-digit number issued by the government for tax identification. Social security numbersare issued to people in the United States. You must be a permanent residentcitizen or a temporary alien resident working in the country. If you weren’tborn in the United States, you have to fill out a form to ask to be issued asocial security number. This form is Form SS-5 and the United States ofCitizenship and Immigration Services office reviews your application.

What is an ITIN?

An Individual Taxpayer Identification Number, or ITIN, is anidentification number issued to people who are not eligible for a socialsecurity number. An ITIN allows you to file a tax return and is issued by the IRSafter you fill out Form W-7. An individual taxpayer identification number is anine-digit number used for tax purposes only.

If you need help applying for your ITIN, Lloyd & Mousilli can help with that process as well.

EINNumber Cost

The cost to get an EIN depends on your situation and can vary. Please reach out to Lloyd & Mousilli to receive an accurate cost assessment.  

WhoNeeds an EIN?

You may need an EIN if you have your own business.The EIN is used to identify you as a business.
If you answer yes to any of these questions, you need an EIN:

  • Do you have employees?
  • Do you operate a corporation orpartnership?
  • Do you file employment, excise, alcohol,or tobacco and firearms on your tax returns?
  • Do you withhold taxes on income that’snot wages for a non-resident alien?
  • Do you have Keogh plan?
  • Are you involved with a trust, IRA,exempt organization business income tax return, estate, real estate mortgageinvestment conduits, non-profit organization, farmers’ cooperative, or a planadministrator?

If you’re unsure whetheror not you need an EIN, contact Lloyd & Mousilli and we can help youdetermine the answer.

Who Doesn’t Need anEIN?

You don’t need an EIN if you don’t have a business or only have a soleproprietorship with no employees. Since an EIN is used to separate business finances from personalfinances, you don’t need an EIN as a sole proprietorship because you are yourbusiness. Remember that an EIN is needed to differentiate your personalfinances and those of a business. While you aren’t required to obtain an EIN asa sole proprietor in most cases, you may want to do so.

WhatTypes of Business Entities Need an EIN?

The types of business entities that needan EIN are C Corporations, S Corporations, Multiple-Member LLCs, andSingle-Member LLCs with employees. As a C or S Corporation, you are required to have an EIN. Ifyou don’t have a social security number or an ITIN, there are still optionsavailable. Reach out to Lloyd & Mousilli to help obtain an EIN for you soyou can start your corporation as soon as possible. If you’re forming a generalpartnership or a limited partnership, you also need an EIN. There’s no way towork around it, so scratch this major item off of your list so you can moveforward in your business.

If you’re forming an LLC, you may not need to have an EIN.It all depends on whether you’re forming a multiple member LLC or if you’regoing to hire employees.

If your LLC will have more than one member, you need anEIN even if you aren’t going to hire employees.

If your LLC is a single member LLC, you do not needto obtain EIN.

As long as you aren’t going to hire employees, you don’t have aKeogh plan, nor do you have a company that owes federal excise taxes – youdon’t have to use an EIN.

As a sole proprietorship, your need for an EIN is the samerequirements that a single member LLC follows, mentioned above.

The easiest thing to do in order to find out what you need as anew business is to contact Lloyd & Mousilli, and we will make sure yourbusiness is compliant.

 ShouldI obtain an EIN even if it’s not required?

There are multiple benefits to securingan EIN, even if your business doesn’t need one to operate lawfully. For example, you can’tobtain much of anything with your business name unless you have an EIN. Usingan EIN also increases individual privacy and lowers the risk of theft. If youoperate a sole proprietorship or single-member LLC, you’ll be able to use yourEIN when you work as an independent contractor instead of your social securitynumber. 

EIN Number Lookup

If you believe you may already have an EIN for your business but are unsure (or simply can’t remember what it is), you may call the IRS Business & Specialty Tax Line at (800) 829-4933 to find out what it is.

There are also times when knowing the EIN of your employer isbeneficial. The best place to start that search is on your W-2.

The EIN for a public company can be found on their InvestorRelations website or their SEC Filings page.

If the company doesn’t post its SEC filings online, you can usethe SEC EDGAR online Forms and Filings database to find an EIN.

 Conclusion

The process of obtaining an EIN as a foreign individual or entity is tedious, but it does not need to be stressful. Reach out to Lloyd & Mousilli to help determine whether or not an EIN is necessary for you, and to begin the process.

Sep 1, 2022

Non-Provisional Patent Applications Overview

Definition

A patent for an invention is the grant of a property right to the inventor, issued by the United States Patent and Trademark Office (USPTO). Generally, the term of a patent is 20 years from the filing date of the application in the US. 

Rights

The rights in the granted patent grant provide “the right to exclude others from making, using, offering for sale, or selling” the invention in the US or “importing” the invention into the US. What is granted is not the right to make, use, offer for sale, sell or import, but the right to exclude others from making, using, offering for sale, selling or importing the invention. Once a patent is issued, the patentee must enforce the patent rights themselves. 

Patentability

Patent law defines the general subject matter that can be patented and the criteria under which a patent may be obtained. Any person who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent,” subject to the conditions and requirements of the law. 

The word “process” is defined by law as a process, act, or method, and primarily includes industrial or technical processes. The term “machine” used in the statute needs no explanation. The term “manufacture” refers to articles that are made, and includes all manufactured articles. The term “composition of matter” relates to chemical compositions and may include mixtures of ingredients as well as new chemical compounds. These classes of patentable subject matter taken together include practically everything that is made by man and the processes for making the products.  

Criteria

Utility. The first criteria for an invention to be patentable, it must have utility (i.e. be useful). For an invention to be useful, the invention must work, even if it works crudely, but it must do what is claimed. 

To satisfy the utility requirement the claimed invention must be useful for some purpose, either explicitly or implicitly. Most often the applicant will make explicit utility statements in a patent application, but this is not always necessary. For example, if you were to invent a new and improved hammer the utility of the device would be apparent. Still, given that the utility requirement is a low threshold requirement there is little to be gained by hiding the ball and relying on what is implicitly disclosed or inherently present in the invention. 

Novelty. Another criteria for an invention to be patentable, it must be novel (i.e. new) as defined by patent law, which define that an invention cannot be patented if: 

(1) “the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention” or (2) “the claimed invention was described in a patent issued [by the U.S.] or in an  application for patent published or deemed published [by the U.S.], in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.” 

Non-obviousness. Even if the innovation sought to be patented is not exactly shown by the prior art, but it involves one or more differences over the most nearly similar thing already known, a patent may still be refused if the differences would be obvious. The innovation sought to be patented must be sufficiently different from what has been used or described before. The standard for non-obviousness is from the perspective of a person having ordinary skill in the area of technology related to the invention. 

Application

The components of a non-provisional application for a patent include: 

(1) A written document which comprises a specification (description and claims); (2) Drawings (when necessary); (3) An oath or declaration; and (4) Filing, search, and examination fees. Fees for filing, searching, examining, issuing,  appealing, and maintaining patent applications and patents are reduced for small entities that meet USPTO criteria.   

Priority 

• The U.S. joined the “first-to-file” world and the first inventor to file gets the patent, as opposed to the old USPTO system of “first-to-invent” 

• Filing a provisional application is NOT a substitute for filing a non-provisional (utility or design) patent application 

Fees

• The provisional filing fee is less than the non-provisional filing fees ($130 USD versus about $730)

• The attorney fees are typically substantially less to prepare a provisional application than the non-provisional application, depending on the complexity 

• Once the Invention Disclosure Questionnaire has been completed by the client, a better estimate of the attorney fees can be provided 

Scope

The patent application needs to anticipate as many different ways of practicing the novel aspects of the invention as possible

• The non-provisional application disclosure requirements require at a minimum: 

             o (1) sufficiently teach others how to “make and use” the invention, and

            o (2) show that they were “in possession” as of the date of filing of the entire invention AS CLAIMED in the follow-on nonprovisional application 

• There is a risk of not including enough details if no provisional claims are submitted with the provisional patent application 

Publication

Publication of patent applications is required by the American Inventors Protection Act of 1999. The patent application is generally published 18 months after the filing date. After publication, the patent application is no longer confidential and any member of the public may request access to the entire file history of the application. 

Patent Marking

A patentee is required to mark articles with the word “patent” and the patent number. Failure to mark means that the patentee may not recover damages from an infringer unless the infringer was notified of the infringement and continued to infringe notice. 

Persons with an application for patent in the USPTO may mark articles sold with “Patent Pending” but this has no legal effect, since the protection afforded by a patent only starts with the actual grant of the patent. 

Royalties 

• Reasonable royalties and other patent damages are court awarded judgments for successfully proving patent infringement by others on a patent that has been published and later awarded 

• Reasonable royalties are only available from the time of publication and only if the infringed claims as published match the claims as issued 


Sep 1, 2022

New Trademark Filing Fees Effective January 2021

Previously, the United States Patent and Trademark Office (USPTO) announced that in August 2019, the trademark filing fees would be increasing. Due to the pandemic, they had to delay rolling it out.

Just recently, the new Commissioner of Trademarks announced that the increase would be effective on January 2, 2021. The last fee increase by the USPTO was back in 2017. The Commissioner did not provide any specific fee structure during the announcement.

Although micro-entities and small companies are still recovering from the pandemic, the USPTO has informed the public that the increase is necessary to keep the USPTO and the Trademark Trial and Appeal Board (TTAB) still operate efficiently.

Over the past year, the members of the trademark bar and industry trade groups had provided comments on the proposed fees and the USPTO had taken some of those comments into consideration before finalizing the schedule of fees. The new schedule of fees focuses more on electronic filings because of the high preference compared to paper filings.

Lloyd & Mousilli will also apply the fee increase following the effectivity date of USPTO. For more information about fees, trademarks, and anything related to IP and Technology law, feel free to contact us.

Summary Chart of USPTO Trademark Fee Increases Starting January 2, 2021

For more information or questions, please contact us. If you have any upcoming maintenance or renewal deadlines in the first three to six months of 2021 that you would like to file before the end of the year to save money, please contact us so we can assist you with your filings. Now is the best time to file new trademark applications before the fee increase takes effect, Lloyd & Mousilli can help!

DescriptionCurrent Fee*New Fees*

Jan. 2, 2021

Trademark Application FeesTEAS Plus Trademark Application

(using the ID manual only)

$225 per class$250 per classTEAS Standard Trademark Application$275 per class$350 per classPetition to Revive Application$100 per application$150 per applicationSection 8/71 Declaration of Continued Use$125 per class$225 per classDeletion of goods/services after submission of Section 8/71$0$250 per classNEW: Letter of Protest$0$50 per letterTTAB FeesFiling an Ex Parte Appeal$200 per class$225 per classInitial Extension of Time to file Appeal Brief$0$0NEW: Subsequent Extensions of Time to File Appeal Brief$0$100 per applicationNEW: Submitting an Appeal Brief$0$200 per classExtension of Time to Oppose (initial 30 days)$0$0Extension of Time to Oppose (for 60/90 days)$100$200 per applicationExtension of Time to Oppose (final 60 days)$200$400 per applicationNotice of Opposition$400 per class$600 per classPetition for Cancellation$400 per class$600 per classNEW: Request for Oral Hearings$0$500 per proceeding

*Note: All fees noted above are for electronically filed documents through TEAS or ESTTA

Sep 1, 2022

LLC NOW, Corporation Later?

Founders have been known to set up LLCs at the earliest stages of their ventures for obvious reasons, including:  

  • LLCs tend to have flexible management structures and are often easier to maintain. Unlike corporations, LLCs are not required to comply with a formal management structure; and  
  • LLCs tend to have flexible tax regimes. An LLC can elect to be taxed as a sole proprietor, partnership, or corporation. Using default tax classifications, profits are taxed personally at the member level, not at the LLC level.  

For more information, check out our article on What’s the Difference between a C Corp, S Corp, and LLC?

Potential Problems with Forming an LLC for your Startup

LLCs have some notable limitations and are not the best choice for accelerated growth startups for many reasons, including (but not limited to) the following:  

  • The equity compensation process for employees is not as straightforward in LLCs  and standard incentive stock options employed by C corporations are typically not available. Moreover, if you have any inclination to pursue outside funding, you’ll be better off steering clear of creative, complex equity structures that fall outside the C corporation norm so that you avoid unnecessary scrutiny from potential investors and acquirers.  
  • Investors may be wary of the LLC structure and prefer the traditional corporate structure of a C corporation. This can make raising capital very difficult for members of an LLC.  

Can’t I just convert my LLC to a C Corp later on?  

Not so fast! You may run into some problems if you try to convert your LLC into a C corporation at a later date:  

  • Not all states permit the conversion from an LLC to a C corporation;  
  • A conversion from an LLC to a C corporation may have surprising tax implications and you should make sure you hire an experienced accountant to advise you. If your IP development, employee acquisition, and customer engagement are well underway, the conversion costs can be costly and time consuming.  
  • Even if a state permits the conversion to take place, make sure you hire an experienced startup lawyer to lead this charge on your behalf. Your Lloyd & Mousilli team is well positioned to represent you. Remember that potential investors and acquirers will run you through a thorough due diligence process, which will expose any corporate vulnerabilities and put the transaction at risk. Do things the right way to start!
Sep 1, 2022

Incorporate In Delaware

This is the essential first step prior to purchasing your Delaware Post Incorporation Documents and issuing stock to founders in your company.

Incorporating in Delaware is the overwhelming popular choice for anyone who is:

  • Looking to establish a US Presence; and
  • Seeking Venture Capital investment; and
  • Projecting accelerated growth or planning to go public.

With Lloyd & Mousilli's’ Incorporate in Delaware service you will get:

  • Certificate of Incorporation – This is a legal document relating to the formation of your company and is drafted by experienced Silicon Valley lawyers. Your Certificate of Incorporation will be stamped by the State of Delaware when your company formation is approved.
  • Proprietary Lloyd & Mousilli startup checklist – Our proprietary checklist was carefully prepared to provide you with important next steps for launching your venture, how to use your documents, and important filing dates. It is very detailed and easy to follow.
  • State of Delaware filing fee - included in the total price.
  • Expedited processing – Your form will be processed with the State of Delaware and, assuming there are no formality issues, a stamped copy will be returned to your document folder within 2-3 business days at no additional charge.
  • Service handling fee – This is the fee for coordinating your form processing with the State of Delaware, included in the total price.
  • Annual registered agent fee for the first year – We secured a competitive annual agent renewal fee of $150 for you. After your initial purchase, this fee is paid directly to the agent for subsequent years with no further obligation to Lloyd & Mousilli. Our flat fee for forming your company in Delaware includes the annual registered agent fee for the first year.
  • Electronic signature – We offer a fast electronic signature feature that is compliant with US and international E-Sign legislation and the Uniform Electronic Transactions Act.
Sep 1, 2022

How to Slice the Startup Equity Pie

Get 'er Done

This allocation is so critical and pressing that teams often push themselves to make a decision very early on, with very little information. In fact, a 2016 study, T. & N. Wasserman, The First Deal: The Division of Founder Equity in New Ventures, found that 73% of teams split the equity within the first month of the startup, at the heights of the uncertainty about their startup’s strategy and business model, their roles in it, and their levels of commitment to it. Most of the teams barely spent any time discussing the split, avoiding having the difficult conversations necessary to really understand each other’s potential contributions and intentions. And the majority of them split it statically – meaning the teams didn’t allow for future adjustments as new information emerged about contributions and commitment. This is a classic fallacy that we see too often for first time founders and is highlighted in the Wasserman study.

Quick Handshakes

The study refers to teams who split equity equally, without much discussion as “Quick
Handshake” teams. The analysis showed that Quick Handshake teams incurred a significant penalty when raising their first round of financing, either in reduced ability to raise the round or in lower average valuations if they did raise. It's important to note that was only the cost in terms of financing; within the founding teams themselves, the destructive tensions caused by a bad split are often even more devastating.

Vexing Vesting - From Static to Dynamic

How can founders avoid the angst, destructive tension, and legal problems that come with a bad equity split? The hard-learned advice was to adopt something more “organic” – something that takes seriously the remaining uncertainties and is able to adjust to their occurrence. The most common “organic” approach is to adopt vesting, in which the individual has to earn his or her equity stake instead of being granted it fully at the time of the split. In the U.S., this vesting is almost always time-based, but about 10% of teams adopt milestone-based vesting, which requires clearly-definable milestones, a concrete division of labor within the team, and other characteristics lacking in many founding teams. Vesting is a huge improvement over the static splits that pervade Silicon Valley. However, in many cases, time is a weak proxy for the creation of value in a startup, making it an imperfect basis on which to split.

Slicing Pie Manual

To avoid these typical pitfalls for cofounders, an excellent resource on the topic of equity distributions for startups is the Slicing Pie manual. Slicing Pie is a universal, one-size-fits all model that creates a perfectly fair equity split in an early-stage, bootstrapped start-up company.

At-Risk Contributions

Allocation of shares should be a simple formula based on the principle that a person's percentage share of the equity should always be equal to that person's share of the at-risk contributions.

What are "At-risk contributions" in this formula? They include time, money, ideas, relationships, supplies, equipment, facilities or anything else someone provides without full payment of it's fair market value. Every day people contribute more and more to a startup in hopes that it will someday generate a profit, go public or sell. Because contributions are constantly being made, the model should be dynamic, and not a simple static split. The model self-adjusts to stay fair as circumstances change.

Type of Slice

There are two basic types of contributions to be considered in the calculations. Cash contributions consume cash, non-cash contributions do not. Time, for instance, is a non-cash contribution whereas a reimbursed expense is a cash contribution. The model behind Slicing Pie normalizes cash and non-cash contributions by converting to a fictional unit called a "Slice." A slice represents a normalized at-risk contributions. A slice is similar in many ways to a poker chip.

Formula

Here's the basic formula to be utilized:

An individuals % share = individual's Slices ​÷ all Slices

At any given time, the above formula from Slicing Pie will provide a perfect equity split. The formula applies until the company breaks even or raises enough capital to pay participants for their contributions. At this point the split "freezes" and subsequently determines the distribution of dividends or the proceeds of a sale.

Buyouts

​Not only does Slicing Pie determine a perfect equity split, but also it will help you calculate a fair buyout price, if any, when someone leaves the company before breakeven. This is better covered in our article entitled, "Thinking About the End- Equity Buyout Agreements".

Further Reading

Hopefully, this article has provided you with enough curiosity to really think through your approach for approaching equity allocation for your startup. Our attorneys are ready to help you work through these issues with your co-founders. We highly recommend that you purchase a copy of the Slicing Pie Manual, but you can access a free sample of the Slicing Pie Manual by Mike Moyer here.

Sep 1, 2022

How Companies Collect And Use Personal Information

It’s quite common, and even expected, for apps and online services to collect some type of personal information from users, ranging from names and emails to log and device information. Users have some expectations of privacy so that personal information isn’t used in unauthorized or annoying ways. But the reality is such that online service providers require users to relinquish at least some identifiable information for marketing, research and development, and strategic partnerships. This information is collected automatically by online service providers or is voluntarily provided by users (though most likely a combination of both).

Types of information that online service providers typically collect from users:

  • Any information users provide when they register for a new account, such as name, email address, or telephone number;
  • Information users provide in order to purchase products or services such as credit card numbers and shipping or billing addresses;
  • Profile information that is created by users, which may include a username and photo;
  • Information automatically collected from use of online services, such as device specific information (hardware model, operating system version, unique device identifiers, and mobile network information);
  • Log information, such as search queries, how services were used, internet protocol addresses, telephony log information, cookies, and device event information such as crashes, system activity, hardware settings, browser type, browser language, and the date and time of a user’s request and referral URL;
  • Location information, including IP address, GPS, and other sensors on nearby devices like cell towers and Wi-Fi access points;
  • Local storage that a service provider stores locally on a users’ device using browser web storage (including HTML 5) and application data caches; and
  • Cookies and other anonymous identifiers that are collected when a user visits or interacts with an online service provider’s site.

Read on California Consumer Privacy Act to get a better view on what obligations these companies have when collecting user information from California residents.

How user information is typically used by online service providers:

App developers and online service providers typically collect personal and anonymous user information to provide, improve, and develop services or products. However, they may also use such information for other (sometimes nefarious) purposes. The following is a non-exhaustive list of ways that app developers and online service providers use the personal and non-personal information that they collect from users:

  • Providing tailored content to users, such as delivering more relevant ads or search results;
  • Using a username or any other identifier a user provides in association with a profile that the user creates, which may be private or publicly available to other users;
     
  • Displaying photos or other media that you provide in content feeds or within a service’s advertising;
     
  • Communicate with users about technical issues and product or service questions;
     
  • Improve user experience of a website or app. Users sometimes have the option of setting account preferences, which may change the appearance, subject matter, and frequency of ads or other content on a site or app;
     
  • Provide personally relevant product features such as customized products, tailored advertising, and spam and malware detection; and
     
  • Combine user information from one service with another service to make it easier to access a users’ network and to share content between services.

App developers and online service providers should always use a publicly accessible and conspicuous privacy policy to disclose how personal information is collected, used, shared, and accessed, and what types of choices users have with regards to reviewing, updating, and controlling their own personal information.

Lloyd & Mousilli offers a fairly comprehensive Privacy Policy template generator. You can always consult with us if you have any questions around the legality of your privacy practices. 

Sep 1, 2022

How to Open a Company Bank Account

Congratulations on registering your new business! Or if you're still contemplating forming your business, and just trying to better understand the steps required for having a bank account under the company name, you're in the right place. Be sure you have seen our guide on incorporation here for a step by step analysis.

There are many benefits to having a bank account under the name of the corporation- checks printed under the company name, corporate credit cards with a host of perks, accounts on PayPal and other online processors, and receiving payments from your clients under your company name.

But beyond the benefits of opening a bank account in the name of a corporation, it is actually a necessary step for legal compliance. Having a corporate bank account helps prove that the company is not mixing the shareholders' personal funds with cash generated from the company. A corporation that does not open a bank account using the corporation's name puts the company's limited liability status in serious jeopardy.

Draft a corporate resolution

The corporate resolution indicates to the bank the individuals who are authorized by the corporation to open the corporate banking account and sign checks. The individuals listed in the corporate resolution have complete authority to act on the corporation's behalf in regard to the company's bank account. Some banks will require a corporate resolution to open an account in the corporation's name.

Provide photo identification

Every person who is authorized by the corporate resolution to control the company's bank account must supply the bank with a photo identification. This allows the bank to verify the identity of each person who is authorized to make transactions for the corporation. Acceptable photo identification includes a state identification card or a driver's license.

Present Employer Identification Number (EIN)

Present the corporation's employer identification number (EIN) that is issued by the Internal Revenue Service. The EIN is a 9-digit number used to identify a corporation for tax and banking purposes. Most banks will not open a business account in the corporation's name without an EIN.

You can apply for an EIN by following this link to the IRS website.

Corporate Seal

Show the corporation's seal to the bank. The corporate seal contains information about a corporation such as the date when the company became incorporated, the state of incorporation and the legal name of the corporation. Banks may require a corporation to use the company's seal as a signature on all the corporation's banking documents.

Articles of Incorporation

Present the corporation's articles of incorporation to the bank representative. The articles of incorporation contain information about a corporation such as the number of shares the company has the authority to issue, as well as the legal name and address of the corporation. A corporation's articles of incorporation offer proof that the company has been established as a separate legal entity.

Often, you will be required to present the copy of your articles of incorporation that are file-stamped by the Secretary of State's office in the state in which the corporation was registered.

Entity Type Checklist

The specific documentation that the bank may require will often vary depending on the type of entity that you are opening an account for. Below you will find the documentation often requested based on the type of entity for your business.

Corporation

  • Business Tax Identification Number
  • Articles of Incorporation or Certificate of Incorporation
  • Corporate Resolution identifying authorized signers if officer names are not listed on Articles of Incorporation or Certificate of Incorporation

Limited Liability Company

  • Business Tax Identification Number
  • Articles of Organization or Certificate of Formation
  • Corporate Resolution identifying authorized signers if officer names are not listed on Articles of Organization or Certificate of Formation

Professional Corporation

  • Business Tax Identification Number
  • Articles of Incorporation or Certificate of Incorporation
  • Corporate Resolution identifying authorized signers if officer names are not listed on Articles of Incorporation or Certificate of Incorporation

General Partnership

  • Business Tax Identification Number
  • Partnership Agreement showing business name and name of partners, and
  • Business name filing document, such as Fictitious Name Certificate or Certificate of Trade Name, showing business name and name of partners

Limited Partnership

  • Business Tax Identification Number
  • Limited Partnership Agreement showing business name and name of partners, and
  • Business organizing document filed with and certified by state official, such as Certificate of Limited Partnership, showing business name and name of partners

Limited Liability Partnership

  • Business Tax Identification Number
  • Limited Liability Partnership Agreement showing business name and name of partners, and
  • Business organizing document filed with and certified by state official, such as Certificate of Limited Liability Partnership, showing business name and name of partners
Sep 1, 2022

Delaware Franchise Taxes and Annual Reports

How is Delaware’s franchise tax calculated?

The franchise tax is calculated using either the Authorized Shares Method (in which case the minimum tax is $75 or the Assumed Par Value Capital method (in which case the minimum tax is $350). There is a strict penalty with interest for any failures to timely file the Annual Report and pay the franchise tax. You may visit here https://corp.delaware.gov/frtaxcalc.shtml on the State of Delaware site to view methods of calculating your company’s franchise taxes. Make sure you speak with your tax advisor if you have any questions about the calculation and payment of the franchise tax.

How do you learn about your company’s tax and Annual Reporting obligations?

The State of Delaware will send a notice to your registered agent around December of each year. Your agent will then forward the notice to your address that they have on file. Keep in mind that it is quite common for companies to recalculate their tax obligations based on either method mentioned above. Before you panic, speak with your registered agent and your tax advisor about the franchise tax method that is most appropriate for your business. It is very important that you maintain a current address with your agent at all times so that you may continue to receive important, time-sensitive notices and legal documents.

How do you file your Annual Report and pay the franchise tax?

You may electronically file your Annual Report and taxes here: https://corp.delaware.gov/paytaxes.shtml

Sep 1, 2022

Delaware Post Incorporation and Checklist

Our corporate and transactional practice helps you generate the necessary corporate and founder formation documents and provides you with a detailed guide for how to use them. (Read the process of incorporating in Delaware if you're not familiar with the process yet.)

Lloyd & Mousilli's Delaware Post Incorporation service is a popular choice for anyone who:

  • Has recently incorporated their company in Delaware; and
  • Is getting ready for accelerated growth or venture capital funding; and
  • Is looking to generate standard and customizable founder formation documents for up to five (5) founders.

With Lloyd & Mousilli's Delaware Post Incorporation service you will get:

  • Founder(s) Restricted Stock Purchase Agreements with optional and configurable vesting provisions (for up to 5 founders) – These are the initial documents by which the founders will purchase their initial ownership stakes in the company and may establish share vesting, transfer restrictions, and the company’s right to repurchase unvested shares.
  • Proprietary Information and Inventions Agreement(s) – This form should be signed by every founder of the company at the outset of their engagement with the company. It sets forth the restrictions on use and disclosure of confidential information and establishes the company’s ownership of work product.
  • Stock Certificates – These will be issued to each stockholder once the formation process is complete to identify the number of shares they own and contains important legends, such as restrictions on resale and transfer, among other things.
  • Form 83(b) – This form is important for tax purposes and applies to any unvested founder shares.
  • Indemnification Agreement(s) – In this agreement, the company agrees to indemnify and advance expenses on behalf of a director or officer in the event that a claim arises against him or her relating to his or her services as a director or officer of the company.
  • Bylaws – The Bylaws set forth the procedural rules that govern the company, including procedures for meeting of the stockholders and voting.
Sep 1, 2022

Why Terms of Use are Critical for Your Company Like Playground Rules

Every time you’ve installed a piece of commercial software, you’ve invariably been presented with what must have appeared to be legal gibberish- a seeming difficult to read, needlessly long, solid block of text that was almost impossible to understand. Most people never bother to read the information presented- quickly scrolling to the bottom of the page, checking a box, clicking on “I Agree” or doing whatever it takes to get past this legal hurdle to access the software.

Despite the relative ease with which these legal terms are bypassed, or the wide range of names they are called (e.g., Terms of Use, Terms and Conditions, T&Cs, Terms of Service, End User License Agreement, EULA, etc.) these terms contain critical contractual language limiting your rights as a user of the software or service and granting rights to the use of your information and data to the software publisher, among a host of other conditions and limitations.

Terms of Use are your Playground Rules, placing users on notice upon entering your playground.

While this may seem like a nefarious or underhanded practice to take advantage of unwitting users, it is actually business critical for the software publisher to be able to prevent abuse of the software or service by malicious users, hackers, or even competitors. These terms also limit the liability for the business for claims that may be filed by the user of the software in ways that the business could never have anticipated.

Just as every business has different requirements that vary by size, industry, and region, software terms are not one size fits all, and should be customized to meet the specific service offering, secure the rights required, and mitigate the associated risks unique to the business model.

Playground Rules

As the business providing the software or services being offered, you are setting the “Playground Rules.” Your Terms of Use are your Playground Rules, placing users on notice upon entering your playground

Within the Terms of Use, you can spell out exactly what activities are prohibited on your website or platform. You can create a laundry list of prohibited practices, anything from use of profanity, multiple accounts, harassment of other users, etc. There are way too many terms that could be potentially included here to be discussed in detail, but it is sufficient to know that a social media platform would have very different terms from a personal finance management application.

At a minimum, it should allow your business to stop abusive users, terminate access or accounts at your sole discretion, and enforce restrictions and guidelines that you spell out in the Terms of Use. Users must follow your terms to access, use, and interact with your software or service.

Limiting Your Exposure

No matter how long you’ve been in business, users invariably find a way of surprising you with a confounding use of your software that you may never have anticipated. It’s baffling how these corner use cases often become the most litigious in their demands or claims when your software fails to continue meeting their needs.

A potential scenario follows. Your small business lead platform quietly becomes the default CRM for a statewide real estate agency that can no longer access closing contracts when your servers are offline for unscheduled maintenance. All of their real estate closings have to be rescheduled, loan rates are no longer valid, and the buyers are looking for blood.

While this may seem unreasonable in reliance, your terms of use can also limit the liability for your business for claims that may be filed by the user of the software in ways that the business could never have anticipated. A limitation of liability clause can easily set the maximum exposure for your business to the license fees paid by the user.

Your State, Your Laws

While electronic distribution over the internet or app stores lets you distribute your software offering far and wide, the last thing that you want for your business is to be dragged into court in some unfamiliar jurisdiction, with unanticipated state or country laws you are now subject to.  You may strategically use your Terms of Use to contractually set out venue requirement in your home state and country and designate the governing law to be used in the event of a legal issue arising.

It may also be preferable for your business to require arbitration proceedings for any legal issue that arises with your users, rather than allow for litigation, as a cost saving measure.

Rights, Rights, Baby

For many software and service offerings, the information received from users (i.e., photos, written content, reviews, purchase transactions, behavioral tracking, and other data) serves as an essential element of your value proposition. But have you properly secured the right to the use of this information? For creative material, the copyright vests in the author and you will need to ensure you have been granted the right to the use of this material. Your Terms of Use is the vehicle to obtain a license to the use of any intellectual property that a user provides on your platform.

Terms of Use can allow a license to any IP a user provides on your platform.

Oftentimes, platforms with user-generated content tend to allow users to retain ownership to their content, but take a very broad license for the use of the material. This heavy-handed approach can cause customer satisfaction issues, as evidenced by the backlash Facebook and other content sharing sites have experienced when they expanded their rights to the user content. This license needs to be crafted for your specific business requirements to secure the rights you legitimately need to fulfill your platform objectives.

This information collection also raises the issue of privacy rights that is a topic in its own right and addressed in a separate article covering the usage of Privacy Policies.

User Generated Headaches

Many platforms allow for users to create content that is visible to other users on the platform or publicly. Often times this user generated content includes the ability for users to upload photos, audio, or video to make the content more engaging and attractive. The viral user video that got all the press for your platform? Turns out it included clips from Game of Thrones and HBO isn’t happy about the copyright infringement.

DMCA can provide a defense against user copyright infringement liability

Fortunately, you can provide a defense for your business from copyright violations your users may create by virtue of complying with the Digital Millennium Copyright Act (“DMCA”). The DMCA helps protect businesses and apps from having legal liability for any copyright infringement that takes place due to the actions of its users, if they follow the procedures required. While the DMCA is a United States law, other countries around the world have laws regarding copyright infringement.

In order to comply with the requirements of the DMCA defense to infringement, your Terms of Use need to include (a) clause that states you will take down/remove any material that turns out to be copyrighted if the violation is brought to your attention, (b) provide a method by which the third-party copyright owner can report a copyright violation, and (c) have a policy in place for responding to take down notices for violating material reported.

Unlawful Content

In addition to the copyright issues from user generated content, your business can still run afoul of content considered unlawful in any number of jurisdictions around the world. Many jurisdictions worldwide have laws restricting material that is considered hate speech, inflammatory, child pornography, graphic violence, depictions of abuse, and other material considered unlawful content. These interpretations vary widely in their scope and breadth.

Your Terms of Use can address this issue through a relatively straightforward clause restricting any unlawful content and stating your policy of removal of any such offending content upon review.

Summary

Hopefully, you have developed an appreciation for the benefits and risk mitigation measures springing from having a comprehensive Terms of Use tailored to your specific business requirements.

While not required by law, we firmly believe one of the greatest benefits to having an effective Terms of Use for your business is the intangible one from having clarity of your users on their expectations and responsibilities in using your software and services and will pay dividends in customer satisfaction. See Lloyd & Mousilli's Terms  for a sample.

We stand ready to review your business needs and help you achieve your business objectives in consultation with your lawyer at Lloyd & Mousilli.

Sep 1, 2022

Why Your Business Needs to Register Copyrights

What Is Protected Under U.S. Copyright Law? 

A Copyright is a form of protection for original works of authorship fixed in a tangible medium of expression. Copyright covers both published and unpublished works. In short, U.S. Copyright law protects original works of artistic expression such as movies, books, songs, lyrics, computer programs, paintings, photographs, graphic designs and other similar works.

Do I have to register to get copyright protection?

No. Once registration was required to protect a work under U.S. Copyright law.  However, the current law is explicit:  “registration is not a condition of copyright protection.” 17 USC §408(a).  Copyright protection attaches as soon as “original works of authorship” are “fixed in any tangible medium of expression.” 17 USC §102(a).  In other words, your words, images, code, music, paintings are protected as soon as you write them down, paint them, record them on film, or otherwise.

Then why should I register my work under U.S. Copyright law?

Registration gives you several additional protections not afforded to unregistered works.  For instance:

  • You must register your copyright before you can sue someone in court for infringement. 17 USC §411(a).
  • You must register your copyright within 3 months of the date of first publication (or, in the case of unpublished works, before the end of the first month after initially learning that your work was infringed) to be entitled to statutory damages and attorney’s fees (more on this below). 17 USC §412.
  • Registration made before the end of five years after the date of first publication constitutes prima facie evidence in court that a copyright is valid and that all the facts stated in the certificate of registration are true. 17 USC §410. This shifts the burden to the defendant to show that your copyright is not valid or that you are not the owner, a valuable shift in the burden of proof of the parties.
  • Registration provides notice to all that you own the copyright, making it more difficult for infringers to argue that they infringed “innocently” or “unknowingly.”
  • Registration makes it easier to transfer or assign rights in your copyright which is critical in some industries wherein you intend to sell or license your work for financial gain (e.g., authors who author a book and wish to sell it, musicians who record music and wish to distribute it for sale, etc.).

When is the deadline to register a copyright?

You can register a copyright anytime during its statutory lifetime which is currently the life of the author plus 70 years. However, as set forth above, you can obtain certain benefits only by timely registration.

What are statutory damages?

When someone infringes your copyright you are entitled to “actual damages” and “profits of the infringer that are attributable to the infringement” 17 USC §504(b). Proof of these forms of damages are highly subjective and often makes pursuing a legal remedy not worthwhile.

However, a copyright registrant may elect statutory damages in lieu of actual damages. 17 USC §504(c).  Statutory damages ranges from between $750 to $30,000 per work and can even go up to $150,000 per work if the infringement can be proven to have been willful.  Additionally, you may get attorney’s fees and costs at the court’s discretion. 17 USC §505.

How do I register my copyright?

The U.S. Copyright Office, part of the Library of Congress, is the official registrar of U.S. Copyrights.  The cost to register a work varies on the filing timing- if the registration is needed within a few days, there is an expedited fee for several hundred dollars.  Given the complexities of the process and the ability of defense lawyers in copyright actions to invalidate registrations that contain even the slightest of errors it is recommended that you seek assistance from an experienced service to register your copyrights.

Summary

Registering your works is affordable and, if done properly, grants you significant additional rights making it easier and more lucrative to enforce against infringement which may occur.  If you do not do not register your copyrights as we have discussed you may lose certain statutory rights against infringers lessening the value of your work.  Moreover, if you intend to sell or license your work in whole or in part registration makes it easier to do so and is often a prerequisite for companies who buy, license, or distribute works (e.g., publishers, record labels, etc.).

Accordingly, think of a copyright registration as an investment in your work that can result in significant benefits both by assisting to stop infringement as well as making your work more marketable for potential distribution thereof.

As always, if you have any questions regarding copyrights, please feel free to reach out to our attorneys.

Sep 1, 2022

Corporations – How Many Shares to Authorize Upon Formation?

Whenever you are seeking to incorporate in Delaware, one of the first questions that you must address after selecting your entity type, you must determine how many shares your company should authorize upon formation.

There really isn’t an answer that fits every situation for every type of company when making this decision in forming a Delaware corporation or a corporation in any state, for that matter. You should really consult with a corporate lawyer to do your research here and only authorize as many shares as you will need in the reasonably foreseeable future. In addition to reviewing this article, we recommend that you talk to venture capitalists or other investors that may be interested in your company, as well as other startup founders to understand the different combinations of shares issuances that will affect the number of authorized shares at the incorporation stage before you make your decision. You should also speak with a tax advisor if you have any questions about the tax consequences of stock issuance.

No Formal Requirements on Number of Authorized Shares

Keep in mind that there is no formal requirement for any specific number of shares, and, from a mathematical perspective, a single share could have the same value as 100,000 shares. On the other hand, psychologically, when you issue shares to any individual, 100,000 shares may sound more attractive than a single share. That’s just how our minds work- we tend to assume that bigger numbers indicate more than they may actually. Ultimately, it all depends on the percentage owned and the value of the entire pie.

We at Lloyd & Mousilli created this article with the goal to keep this topic as simple and easy to understand, without losing the nuances in the decisions to be made. We always aim to educate our clients when legal processes are often complex, but can be explained with some details.

What are Authorized Shares?

Authorized shares are exactly what the name suggests – they are the number of shares authorized to be issued but not outstanding. Shares can be authorized (which means they are reserved and not issued) or outstanding (meaning they are issued and no longer reserved). Authorizing “x” number of shares does not mean that they will all be issued at once. It is the process of issuance of shares that triggers a number of other

What Happens if You Don’t Authorize Enough Shares?

A major consideration related to the decision on number of shares to authorize is if you do not authorize enough shares at the formation stage in your certificate of incorporation. When this occurs you may address this issue through filing an amendment to your articles of incorporation with the relevant state office with shareholder approval and by paying additional filing fees. Since this must be approved by the secretary of state’s office, it cannot be done without a public filing. It is for this reason that it is better to err on the side of authorizing slightly more authorized shares than you may think you will need in the foreseeable future. For startups that are focused on technology, it is most common to designate 10 million to 20 million authorized shares.

Issuing the Authorized Shares

If 10 million shares are authorized upon incorporation, you may, but need not, actually issue all 10 million shares in total. As mentioned above, you may always make an amendment to the articles to authorize more shares later, but must proceed through the Secretary of State’s office. What is often more important practically is the number of outstanding shares. It is not uncommon for approximately 80% of the unauthorized shares to be outstanding and issued to founders at the outset, with the remaining shares allocated to future founders, advisors, investors, and employees through incentive stock options plans. In general, it is important to leave some portion of the shares (approximately 20%) for the stock you may reasonably foresee will need to be issued at a later date.

As always, you should consult with your Lloyd & Mousilli startup legal team if you have any questions about authorizing and issuing shares in your situation.

Sep 1, 2022

Can I Form an LLC in a State I don’t live in?

Several states actively compete for new business formations. The most popular, in no particular order, are New Mexico, Nevada, Delaware and Wyoming. Each state competes for a different part of the market and, unfortunately, there are many misconceptions.

The goal is to find the state which works for you. Below is a guide to how the states differ when it comes to price, privacy and asset protection.

What is the best state to register an LLC for you is the question we will try to answer?

Everyone is different, but we find the low cost and simplicity of a New Mexico LLC often make the difference for business owners.

Here is a brief overview of your options with a lengthier analysis further down:

New Mexico: With NM, you enjoy all the benefits of an LLC at a fraction of the usual cost. New Mexico acknowledges the corporate veil and provides the same limited liability as other jurisdictions. There are no annual fees or annual reports. In other states, periodic reporting is really just an excuse to collect fees on businesses. New Mexico skips this step, saving you time and money.

Delaware: DE is most famous for its Corporations. They offer hundreds of years of well-defined corporate case law to act as precedent. For large corporations such formalities are important. Small businesses do not benefit from these corporate laws however. The only difference most owners will notice are the significantly higher fees that Delaware levies on its companies. Their LLCs offer privacy, too, but are simply not worth the extra cost versus the other three states we cover. See Why Do Startups Incorporate in Delaware?

Wyoming: WY is a haven for asset protection. There are a number of debtor friendly laws for those seeking protection from personal creditors. These protections come at a price, however. Wyoming’s filing fee is twice that of New Mexico’s, plus there is a $50 annual report which must be signed by someone. This means if you want true anonymity, then you are stuck paying for an additional nominee service to handle the filing each year.

Nevada: NV is similar to Wyoming in being a haven for asset protection. They have a well-developed brand and their Secretary spends considerable sums on advertising the benefits of moving your company to Nevada. They have levered this brand value by increasing fees for eight straight years. This makes Nevada’s LLC one of the nation’s most expensive to start and maintain, just behind California. The Secretary also requires a list of members and managers which they do not publish… yet. In short, Nevada is not the best state for LLC privacy, it is the worst among these four.

Which of the above states appeals to you will depend on your situation. You may even select different states for different companies and operations. Large corporations will enjoy the familiarity of Delaware, asset protection specialists will utilize Wyoming, and those wanting a simple and inexpensive solution should choose to form an LLC in New Mexico.

Why Choose New Mexico?

New Mexico is best suited for small businesses, cost conscious investors and privacy minded individuals. They are a good fit for internet businesses, consulting, real estate and other location independent businesses.

Price: New Mexico LLCs are the cheapest anonymous LLC in the USA. There are no annual reports which saves hundreds of dollars over the life the company. You only need to maintain a registered agent in New Mexico. Note, our agent service includes free mail forwarding with the option to upgrade to a virtual office.

Privacy: Members and Managers are not listed. Only the Organizer (us) has to list their name. With no additional annual reports there are also no additional chances for your name to be exposed or nominee services to pay for. Learn more about anonymous New Mexico LLCs here.

Asset Protection: New Mexico companies offer the same corporate veil as other states. This means you are not personally liable for the company’s debt. Hence the “limited liability” in limited liability company.

With New Mexico, you enjoy all the benefits of an LLC at a fraction of the usual cost. In other states, periodic reporting is really just an excuse to collect fees from businesses. New Mexico skips this step, saving you time and money. The state is not well suited for large corporations, however. If you are a large company, then you should consider Delaware or Wyoming.

Why Choose Delaware?

Delaware offers over a hundred years of well-defined corporate case law to act as precedent. They also have a dedicated court system for hearing business disputes called the Court of Chancery. This court system which ensures cases are heard quickly. However, if you a creditor is pursuing you, then the last thing you generally want is a fast track trial. They also do not have as favorable of asset protection laws. This combination makes Delaware ideal for large corporations, but not for small business.

For large corporations such formalities are important. It is also important to have a dedicated court system for complex matters. The only difference most small business owners will notice are the significantly higher fees that Delaware levies on its companies.

Price: There are several hundred dollars in fees, including a $300 annual franchise tax. The Secretary fee to change registered agents is $50. Again, large companies may not notice these fees, but small companies certainly will.

Privacy: Delaware allows anonymity and nominee officers. There are cheaper ways to obtain anonymity, though (New Mexico).

Asset Protection: Delaware companies offer the same corporate veil as other states.

You can obtain the benefits above for a much lower price elsewhere. Delaware has obtained a certain mystique because of the large corporations which reside there. However, you should not believe that Bank of America has the same needs as an entrepreneur. Find out more on Delaware Post Incorporation and Checklist here.  

Why Choose Nevada?

Nevada limited liability companies are among the nation’s most popular. This is due to great their asset protection features and even better marketing. Nevada remains one of the most popular states, but their sky-high fees have many second guessing.

Price: There are several fees to start an LLC, not all of which the Nevada Secretary of State is up front about. You may be mistaken into thinking they only charge $75, but within 30 days of filing you must pay additional fee, e.g. members/managers list and a business license tax.

Privacy: The same as the other states, anonymity is allowed. However, a list of Members and Managers must be provided to the Secretary. There is nothing to stop them from releasing this information at a later date, or suffering from a hack which would disclose this information inadvertently.

Asset Protection: Nevada became popular because of its asset protection. They provide the same corporate veil as other states, but also provide asset protection from personal creditors. Assets inside the LLC are not as easily accessible to creditors as personal assets.

The Nevada LLC certainly earned its popularity early on. Years of continual price increases have eroded its value however. Having to spend money before registered agent fees is an expensive pill to swallow. Those needing personal asset protection are often advised to consider Wyoming.

Why Choose Wyoming?

Wyoming companies have become popular as Nevada became less competitive. Wyoming does not market as extensively and is less well known. They also have a less developed financial system which can make establishing a bank account difficult.

Price: Wyoming charges $100, twice New Mexico, to form an LLC. They also charge $50 each year after and there has been talk of raising it. Plus, the annual report

Privacy: Wyoming does not list owners, managers, directors etc. There is an annual report which asks the name of the filer, thus necessitating the use of a nominee – further raising costs.

Asset Protection: Wyoming offers asset protection similar to Nevada.

Next Steps

While the choice of which state to form your LLC in is personal, you can always seek advice from your Lloyd & Mousilli team. Book a free consultation call here.

Sep 1, 2022

2019 Tax Deadlines for San Francisco Startups

  • JAN 1: San Francisco companies with 20+ employees: Post Paid Parental Leave Ordinance (PPLO) and Health Care Security Ordinance (HCSO) posters and begin compliance.
  • JAN 31: Send 1099 ‘s to Contractors. Send W2 ‘s to Employees. 1099-MISC for non-employee compensation must also be e-filed to IRS on this date.
  • JAN 31: Send 1095-B and 1095-C forms to Employees.
  • JAN 31: Claim R&D Tax Credits on Form 941 , and deadline to file annual FUTA return on Form 940.
  • FEB 28: IRS ACA Compliance 1094-B , 1095-B , 1094-C and 1095-C filings are due (if paper-filing, due APR 1 if eFiling).
  • FEB 28: SF Annual Gross Receipts Tax for 2018 filing & payment deadline.
  • MAR 1: Delaware Annual Franchise Report filing due: Pay a min. of $400, +more if you have significant funding.
  • MAR 1: IRS 30 day automatic extension: provide Form 1095-B and 1095-C form s to Employees.
  • APR 1: IRS ACA Compliance 1094-B , 1095-B , 1094-C and 1095-C filings are due (eFile).
  • APR 1: 1099 ‘s and W2 ‘s must be e-filed with the IRS by this due date.
  • APR 1: SF 571-L Business Property Tax filing due. Initial deadline.
  • APR 15: C-Corp Form 1120 Tax Return due. Can extend to Oct 15.
  • APR 15: File the R&D Tax Credit Form 6765 with your tax return. Can extend the tax deadline to OCT 15.
  • APR 15: File the CA Franchise Tax due. Pay $800.
  • APR 30: Q1 2019 Estimated SF Gross Receipts Tax installment payment.
  • APR 30: Claim R&D Tax Credits on Form 941.
  • MAY 7: SF 571-L Business Property Tax due. Final date to avoid 10% penalty.
  • MAY 31: SF Business Registration Renewal filing due. Payment calc’d on Gross Receipts.
  • JUN 3: Delaware Quarterly Estimated Franchise Tax, Pay 40% of estimated annual amount (if annual amount expected to exceed $5,000).
  • JUL 31: Q2 2018 Estimated SF Gross Receipts Tax installment payment deadline.
  • JUL 31: Claim R&D Tax Credits on Form 941.
  • AUG 31: SF 571-L Business Property Tax due.
  • SEP 2: Delaware Quarterly Estimated Franchise Tax, Pay 20% of estimated annual amount (if annual amount expected to exceed $5,000).
  • OCT 15: C-Corp Form 1120 Tax Return final due date if extension was filed.
  • OCT 31: Q3 2018 Estimated SF Gross Receipts Tax installment payment.
  • OCT 31: Claim your R&D Tax Credits on Form 941.
  • DEC 2: Delaware Quarterly Estimated Franchise Tax, Pay 20% of estimated annual amount (if annual amount expected to exceed $5,000).
  • ROLLING: CA Statement of Information due. Pay $25.
Sep 1, 2022

Can a Non-US Resident Form a Delaware Corporation?

For more on this topic of Delaware corporations, you can read our article, Why do Startups Incorporate in Delaware. One popular reason for international startups to form a Delaware corporation with accelerated growth is to establish a US presence that will attract US investors, since most US investors will not invest in a foreign legal entity.

Non-US Resident as a Delaware Incorporator

The State of Delaware website describes who qualifies as an incorporator in Section 101 of the Delaware General Corporation Law:

"Any person, partnership, association or corporation, singly or jointly with others, and without regard to such person's or entity's residence, domicile or state of incorporation, may incorporate or organize a corporation under this chapter by filing with the Division of Corporations in the Department of State a certificate of incorporation..."

The short answer is any person, regardless of where that person resides (in the US or outside), may form a C corporation in Delaware. There is no specific State of Delaware requirement that the person be a resident of Delaware or a US resident. The US government has little to no controls or restrictions on stock ownership.

Non-US Resident Stock Ownership in a Delaware Corporation

It's also important to note that visa or immigration status has no bearing on ownership or interest in a Delaware corporation. A startup founder in Egypt, Ukraine, Croatia, Slovakia, or California can be a stockholder in a Delaware C corporation. Any foreign founder in any country can own stock in a Delaware corporation. Our law firm regularly helps foreign founders that wish to setup a legal entity in the USA, often because venture capital and other investors will often require the US entity formation as a prerequisite to writing a check for investment.

Non-US Resident Employment in a Corporation

The question of employment in a US corporation is a different issued, however. The US government can and does regulate foreign workers working in the United States. If you plan to work for a corporation in the United States and are not a US citizen or green card holder, proper work authorization will be required.

Next Steps for a Non-US Resident Starting a Corporation

If you are a non-US resident founder looking to expand your startup or business, or if you have any questions surrounding your legal status and qualifications as a non-US resident, the Lloyd & Mousilli team is ready to answer all your questions to understand your visa options. Book a free consultation call here.

Sep 1, 2022

California Consumer Privacy Act: What to Know for Business Owners

The California Consumer Privacy Act (“CCPA”), formally known as Assembly Bill Law 375, is officially in effect. The law is broad in scope, and imposes many new obligations on companies that collect “personal information” from California residents.

CCPA applies to businesses that are incorporated and/or registered to transact business in California. It also applies to any business that has customers, markets and/or otherwise advertises or seeks business or consumer contacts in California, that collects consumers’ personal data, which satisfies at least one of the following thresholds:

  • Has annual gross revenues in excess of $25 million;
  • Buys, receives, or sells the personal information of 50,000 or more consumers or households; or
  • Earns more than half of its annual revenue from selling consumers’ personal information

Additionally, businesses are now required to “implement and maintain reasonable security procedures and practices” in protecting consumer data.

Thus, even if your business is only collecting email addresses, it is subject to CCPA. Therefore, even if your business had a privacy policy in effect prior to the passing of CCPA, that policy must now be revised for CCPA compliance. Furthermore, there are steep penalties for non-compliance with the statute.

Hence, there are many nuances of CCPA that your business must now be aware of.

What are the key privacy provisions in CCPA?

Businesses must allow consumers to choose not to have their data shared with third parties. That means businesses must be able to separate the data they collect according to consumers’ privacy choices.

Moreover, while a business cannot refuse users equal service, it can offer incentives to users who provide personal information. For example, businesses can offer discounts to people who are willing to have their data shared or sold to third parties. Thus, a business’s pricing structure might change depending on its user’s privacy choices. This has wide range of technical and legal implications because businesses can parlay the privacy provisions of CCPA into a whole new business venture.

California law also allows consumers great access to their records. Businesses will have trouble pulling information together if they do not maintain a comprehensive data collection process and compliant privacy policy. The amount of data that businesses collect through web traffic alone is already massive and continues to grow.

A business has only 45 days to provide consumers with a comprehensive report about what type of information they have, was it sold, and to whom, and if it was sold to third parties over the past 12 months, it must give the names and addresses of the third parties the data is sold to. Thus, CCPA has changed the privacy landscape in the United States forever, not just in California.

With this in mind, below is a streamlined understanding of CCPA that Lloyd & Mousilli has developed for businesses to ensure that they are in compliance.

What does CCPA actually require businesses to do?

Businesses must provide notice about the data it collects about a person, and what it does with that data. Businesses must also create a process by which individuals can exercise the rights created by CCPA. Finally, businesses must ensure that vendors send personal information to protect the information and comply with their CCPA obligations.

What rights does CCPA create?

  • Transparency - Identification and discloses to consumers of the information being collected and the purpose of information collection.
  • Access - Consumers have the right to access the information a business collects and maintains about them. 
  • Opt-Out - Consumers are able to opt-out of having their information sold.
  • Deletion - Consumers can have their information deleted (in some circumstances). 
  • Portability - Consumers have a right to get a copy of the information a business has about them. 
  • Equal Service - Businesses cannot discriminate against consumers who exercise their rights, including access to information rights

What are the penalties for non-compliance?

CCPA gives the California Attorney General the power to enforce the law and issue fines of up to $7,500 per violation. This means that if a company does not provide 100 people with their rights, it could face a $750,000 fine. 

Additionally, CCPA gives individuals the right to sue businesses in the event of a data breach, which could result in a large settlement or judgment against the business. 

What counts as “personal information?”

CCPA defines “personal information” very broadly and formally considers the following “personal information”:

  • Real name, alias, postal address, unique personal identifier, online identifier IP address, email address, account name, Social Security number, driver’s license number, passport number/ other similar identifiers
  • Characteristics of protected classifications under California/federal law
  • Commercial information including records of personal property, products or services purchased, obtained or considered, or other purchasing or consuming histories or tendencies
  • Biometric information
  • Internet/other electronic network activity information including, but not limited to, browsing history, search history and information regarding a consumer’s interaction with a website, application or advertisement
  • Geolocation data
  • Audio, electronic, visual, thermal, olfactory/similar information
  • Professional/employment-related information
  • Education information as defined in the Family Educational Rights and Privacy Act
  • Inferences drawn from any of the information identified in this subdivision to create a profile about a consumer reflecting the consumer’s preferences, characteristics, psychological trends, preferences, predispositions, behavior, attitudes, intelligence, abilities and aptitudes

CCPA does not consider publicly available information as personal information. Thus, businesses do not have to worry about gathering information that falls within those categories, including information that is already posted on other websites, news sources, or generally common knowledge.

Are there exceptions?

Yes, information that is subject to HIPAA, Gramm-Leach-Bliley and some California state laws is exempted from CCPA compliance.

What does CCPA mean for security?

Interestingly, businesses are not required to report security breaches under CCPA, and consumers must first file complaints before fines are possible. The best course of action for security, then, is for a business to know what data CCPA defines as “private data” and take steps to secure it.

CCPA requirements around tracking, accessing, and storing data also mean security teams will need to work closely with database administrators. Any tools selected to ensure CCPA compliance will not only need to have full visibility into data stored across the entire corporate environment but also ensure that access to this data is properly secured. Lastly, a business will need these tools to cooperate with any new consumer portal to share specific data with the verifiable consumer requesting it.

Businesses also need to be aware of potential problems if the data is stored with cloud providers. For example, employees might create a file-sharing account to keep track of marketing or sales contacts. Controlling privacy and personal information flowing between machines is already incredibly difficult, and a hurdle all businesses must keep in mind.

Potential CCPA Conflicts

CCPA currently contains many potentially conflicting provisions. One concern is businesses charging consumers different prices based on their privacy settings. For example, many businesses already have an option where a consumer can upgrade to a paid tier that blocks ads on their website.  

If the consumer exercises his rights under CCPA, businesses cannot provide a lesser level or quality of product, goods or services to the consumer. On the other hand, businesses are not prohibited from charging a different price, or from providing a different level or quality of goods or services to the consumer, if that difference is reasonably related to the value provided to the consumer by the consumer’s data. Businesses must keep this in mind going forward when deciding whether to offer different qualities of service for pay.

What should Businesses be doing?

Lloyd & Mousilli recommends breaking CCPA compliance into four phases and these phases will tackle six discrete work streams. The four phases are as follows:  

PhasesPlanning  Data Gathering ActivitiesAssessment & Gap AnalysisImplementation & RemediationActivitiesAnalysis of how and why CCPA applies to the company ­ Draft Project Work Plan ­ Review existing data inventories/maps for CCPA relevancy ­ Develop interview questionnaire ­ Identify preliminary set of questionnaires for recipients and other stakeholders ­ Schedule stakeholder meetings (in person or by phone)  ­ Conduct data mapping ­ Submit and get responses to questionnaires ­ Identify all vendors and third parties that receive data and contacts for each ­ Collect existing policies, procedures and practices ­Commence onsite visits and/ or stakeholder telephone interviews  Cross-reference statutory requirements to current policies, procedures and practices ­Assess vendor contracts ­Perform gap analysis ­Prepare Compliance and Risk Report ­Develop prioritized remediation plan ­ Create an action plan and supporting documentation  Update and develop new processes ­ Update and draft new policies and procedures ­ Update disclosures and consent documents ­Revise and/or put in place vendor contracts  Deliverables1. Meeting Materials & Work Plan
2. Interview questionnaire  
3. Stakeholder interview schedule
4. Weekly Status Meetings and Reporting Template  1. Completed data map
2. Completed gap analysis questionnaires
3. Stakeholder interview notes  1.Compliance Readiness Findings 2. Gap Analysis Results
3. Compliance and Risk Report  
4. Remediation and Action Plans  Same as above

These phases will tackle six discrete work streams:

Work-streamDescriptionData MappingReview/update Personal Information inventories and flows to understand what Personal Information is being processed, for what purposes, where and who has accessVendor ReviewIdentify vendors/service providers to whom Personal Information is transferred, how such Personal Information is used/further shared/sold ­ Review and revise contracts ­ Diligence to ensure consumer right fulfillment mechanismsConsumer Request Fulfillment­ Review systems and operations to ensure ability to comply with data subjects’ requests ­ Provide opt-out mechanism and rights request channels ­ Establish policies and procedures for data subject requests, including identity verificationPrivacy DisclosuresUpdate privacy policy disclosures and ensure proper notifications are provided prior to collection of Personal InformationIT SecurityReview systems and operations to ensure appropriate encryptions used for data ­Establish and document data retention policies for each category of data to ensure data minimizationOngoing ComplianceEstablish training program and update/establish appropriate internal compliance policies and procedures

WRAP UP

Once your business has completed internal assessments, Lloyd & Mousilli recommend retaining an attorney to review all existing measures, including preparing a privacy policy if none previously existed or, if one does exist, analyzing and revising the current privacy policy to ensure compliance. Lloyd & Mousilli is on board to assist you in this process.

Sep 1, 2022

Imitation can be the most lucrative form of flattery

Most business owners’ heart sink when they stumble upon a competitor shamelessly copying their hard work. Understandably so, in a culture where attention is scarce the likelihood of confusion in the market when scrolling on social media can add up to a noticeable loss in profits depending on the size of the competitor.

Proactive Intellectual Property

The situation described above is a very different conversation for business owners that have proactively sought to register the intellectual property that creates the foundation of their business. The often-overlooked reality about intellectual property is that registering your work does not stop others from trying to imitate you – it increases your ability to be made whole when they do.

Like all business decisions, a well-formulated intellectual property strategy requires a cost-benefit analysis. There is no “one size fits all” strategy to building out the IP registrations in an early-stage companies and each should be carefully weighed based on several factors including but certainly not limited to:

  • Protectable content that is mission-critical to business operations
  • Target markets
  • Number and type of direct competitors
  • Timeline for business growth and development
  • Available capital to deploy towards intellectual property.

Costs and Potential Award

Type of RegistrationInitial InvestmentPotential RecoveryCopyrights$600.00actual damages suffered as a result of the infringement, any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.
or Statutory damages between $750 - $30,000
or In the event of willful infringement, statutory damages of up to $150,000Patents$10,000-$15,000*
(on average)Damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. The court may award up to three times the actual damages.
In exceptional cases, the court may award attorney fees to the prevailing party.Trademarks$1500-$2500* (on average)Infringer’s profits, any damages sustained by the registered owner, and the costs of the action, in the event of willful infringement on a registered trademark, mark’s owners are entitled to treble (3x) damages or profits, whichever is greater AND reasonable attorney fees.
OR
statutory damages not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just; or if the court finds that the use of the counterfeit mark was willful, not more than $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.Showing 1 to 3 of 3 entries

________________________________________________________________________________

[1] The potential recovery and remedies summarized here are for educational purposes only and in no way guarantee or represent to guarantee actual recovery in any infringement action. The summary provided is indeed a summary and is in no way exhaustive of potential remedies available.

*Prosecuting trademarks and patents often requires hourly work on office action responses that cannot be given a guaranteed price estimate in advance.

The best kind of infringement is willful

As you can see above, the potential recovery in most infringement actions increases significantly in the event that the infringing party is found to have been doing so willfully, or on purpose. This is why policing your intellectual property registrations is so important. Sending cease and desist letters and notice of claims letters to intellectual property infringers is a crucial step in this process. The best method of notice is to have an experienced law firm send formal correspondence through certified mail so that there is clear evidence that the other party was made aware and continued with their infringing behavior.

Contracts are key

Former consultants, advisors, contractors, employees or anyone otherwise associated with your business should have express contractual terms regarding how and when to use your company’s intellectual property. In the event of a separation, if they go on to work for competitors – it will be incredibly beneficial to have clear contractual obligations for them to proceed under. If not, the road to recovery in those situations is made more difficult.

You cannot enforce rights you do not have

The full rights and protections that are associated with intellectual property registrations are only as available to those with the prudence to seek out registration before infringement takes place. With the relatively low cost up front compared to the potential recovery, strategic registrations need to be implemented early on in the business plan.

Is it too late?

There are avenues of relief for unregistered intellectual property, but it is a more difficult burden of proof and the potential recovery is less. Nevertheless, if you believe your intellectual property is being wrongfully used by another party, consulting with experienced attorneys is a must so that you can make informed decisions regarding any and all potential avenues for recovery and not leave any money on the table.

Sep 1, 2022

Can California residents register an LLC for an online business in a state they don’t live in?

Texas

  • Price: The cost of registering an LLC in Texas is more than three times the cost of registering an LLC in California. Texas LLC Certificate of Formation has a one-time cost of $300 for filing through mail or $308 for online filing. Texas also requires the designation of a Registered Agent, with a Texas address, to receive legal documents for the LLC. California residents planning on registering an LLC in Texas should expect to pay about $125 per year for a Commercial Registered Agent.
  • Ease of Registration: Like most states, Texas allows online filing and filing through the mail.
  • Privacy: Texas does not maintain any information on the ownership of a LLC, except records of the LLC’s registered agent and registered office address.
  • Asset Protection: Texas is an exception to the traditional corporate veil rules, and instead follows the ‘actual fraud rule’. Under this rule, owners or members of the LLC cannot be held liable for corporate obligations unless they used the LLC to commit actual fraud.

Delaware

  • Price: Between Texas, California and Delaware, Delaware is the most expensive state to register an LLC. The costs of registering an LLC in Delaware often outweigh the benefits a smaller business can expect to receive. The initial one-time filing fee is $90 ($99 for a 24-hour turnaround). Like Texas, California residents can expect to pay up to an additional $100/year for a Commercial Registered Agent. Delaware also requires all Delaware LLCs, regardless of their principal place of business or size, to pay an additional $300/year for the Delaware Franchise Tax.
  • Ease of Registration: Like most states, Delaware allows online filing and filing through
    mail.
  • Privacy: Delaware allows anonymity and nominee officers.
  • Asset Protection: Delaware companies offer the same corporate veil as other states.

The high costs associated with registering and maintaining a Delaware LLC often make it a less than ideal choice for new entrepreneurs. Find out more on Delaware Post Incorporation and Checklist here.

California

  • Price: The cost of filing articles of organization in California is $70. There is an additional $20 fee to file a Statement of Information, which needs to be filed every two years. California residents can appoint themselves as registered agents for the LLC instead of paying for Commercial Registered Agents.
  • Ease of Registration: Like most states, California allows online filing and filing through
    the mail.
  • Privacy: California allows anonymity and nominee officers.
  • Asset Protection: California companies offer the same corporate veil as other states.

Will an LLC registered in Texas/Delaware still need a foreign qualification in California if most of the staff and customer meetings will be in California?

Any LLC registered in a state other than California is a foreign LLC and would need a foreign qualification in California in order to transact intrastate business in California. California law classifies transacting intrastate business as the physical presence of company officers, employees, offices, or other facilities within California or if the business plans to develop extensive commercial relations within the state over a long period of time. However, your business does not need to be registered in California if your only connection to California is hiring independent contractors located in California.

You may not have any option other than registering your LLC in California or registering it as a foreign LLC in California if your online business hopes to solicit customers in the state. Failure to register in California can bar businesses from bringing lawsuits in the state. The inability to utilize California’s court system can be particularly detrimental to online businesses with valuable intellectual property prone to infringement. If you wish to register as a foreign LLC in California, then you must provide the same information needed to create an LLC in your state of incorporation and pay all the fees required to register and maintain an LLC in California.