startups

October 13, 2022

Things to Consider When Allocating Startup Equity

Think About Equity from the Start

When incorporating a start-up company, founders are typically concerned with growing their company and bringing in capital to execute their vision. To properly set the company up for growth, the company needs to have a sound policy for allocating equity. There is not just one correct way for all start-ups to allocate their stock. Rather, there are many considerations that founders must address. The path to a sound corporate equity structure starts from the very beginning. Even before incorporation, meet with your co-founders and discuss these issues to ensure you start the right way.

Dividing Stock Among Founders

After determining the amount of stock your company will authorize, which is the total amount of issuable stock, you will decide how much stock each founder will receive. The number of stock issued to each co-founder should be catered to each co-founders’ involvement and relationship with the company. If one of the co-founders has a passive role in the company’s business operations, it may not make sense to issue them the same amount as someone more involved. Although this may be a difficult discussion to have with your co-founders, it ensures that the ownership of the company rests with the members closest to it.

Executing Stock Purchases and Investments

After determining the appropriate amount of stock each founder should receive, founders will need to execute some form of a stock purchase agreement. This agreement will dictate the terms of each founders’ ownership in the company. The value of each share at an early-stage company will likely be very low, so the purchase price will be small, but it is integral to enter into this agreement.

In these agreements, companies should consider whether they want to include provisions like right of first refusal, IP rights, limitations on transfer, vesting schedules, and other language that will solidify the boundaries of a given shareholders’ interest. A right of first refusal provision will give your company the initial right to buy stock from an existing stockholder that is planning to sell their interest before they can sell it to any other buyer. IP rights provisions will dictate what intellectual property will belong to the company after a stock purchase. Limitations on transfer can include many different provisions that essentially prevent the purchaser from selling their stock unless certain conditions are met. Vesting schedules are discussed below.

Vesting Schedules and Other Restrictions

Founders should determine whether to implement a vesting schedule into their issued stock. A vesting schedule is a time-based restriction to issued stock, typically applied to founders’ and employees’ stock. It incentivizes critical members of the company to stay for the long-term by preventing the member access to all their issued stock until they have been at the company for a certain amount of time.

Founders may feel like a vesting schedule is an unnecessary restriction on their interest in the company but there are a few reasons that implementing a vesting schedule is a good idea. First, potential investors love, and often request vesting schedules. From the investor’s perspective, a vesting schedule provides some assurance that the company’s key members are in it for the long haul. Second, a vesting schedule also provides an assurance to co-founders. It may seem unlikely that any of your fellow founders would abandon the company, but it is helpful to provide an extra incentive to make sure.

Option Pools for Future Use

It is also important to decide how many of the corporation’s authorized stock will be available to issue and how many will be saved for later issuance. As your company grows, you may want to offer employees some type of equity package as compensation. To do so, you would want to set up an option pool that you can eventually pull from. Typically, an option pool should make up about 10-20% of total authorized stock, with the remaining stock allocated among founders, advisors, and investors. It is crucial to decide on an option pool early on because it will dictate your corporation’s total available stock.

Compensate Advisors with Equity

Start-up companies usually benefit from hiring advisors or consultants that are not typical employees but have some sort of expertise that brings value to the company. Allocating equity to advisors is a practical consideration because the start-up may not have enough money to pay a typical compensation and it can be attractive to investors. Since advisors will usually not be involved with the management of the company, they will not be issued a large portion of the company’s stock. When deciding to bring on advisors, consider the value that they are adding and how much time they will be dedicating towards the company, and allocate stock accordingly.

Use a Capitalization Table

A capitalization table, or cap table, is a document (usually on a spreadsheet) that provides a layout of the company’s ownership distribution. After tackling the equity issues raised in this article, it is important to keep an updated cap table that documents how your company has allocated its stock and to whom they allocated it to. Therefore, the table will include all the stockholders, how much they own, what type of stock they own, how much stock the company has issued and how many are still available for issue.

There are several different software platforms that you can use to store your equity documents and produce a cap table for you. Carta and Pulley are two examples of commonly used platforms. The best way to make sure your cap table is properly constructed and regularly updated is to hire a law firm to manage this platform for you. Hiring a law firm administrator is especially helpful for start-ups engaging in multiple financing rounds because expressing the specific terms of each financing instrument can be difficult.

Lloyd & Mousilli is Here to Help

You should consider hiring Lloyd & Mousilli to successfully implement your company’s equity allocation plan. Our firm has helped form hundreds of startup companies, and we have the experience and expertise necessary to set your company up for past, present, and future equity allocation.

May 21, 2020

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.

May 22, 2020

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.

February 25, 2020

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


March 10, 2020

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.

May 29, 2017

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.
April 29, 2020

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.

May 29, 2017

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.

October 24, 2017

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.

February 19, 2020

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.

March 20, 2020

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.

May 15, 2020

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.

February 21, 2020

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.

March 4, 2020

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.

February 21, 2020

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 


June 9, 2020

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!
May 22, 2020

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.
June 20, 2017

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.

May 21, 2020

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. 

September 30, 2018

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
May 22, 2020

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.
May 30, 2018

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.

February 27, 2019

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.
May 21, 2020

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.