law firm evolved - s tar tup p ack age...2012/08/22  · rimon p.c. 220 sansome street suite 310 san...

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Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 www.rimonlaw.com Startup Package Menu of Flat Fees Basic Legal Issues a Start-up Needs to Consider LAW FIRM EVOLVED 415.683.5472

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Page 1: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

Rimon P.C.

220 Sansome Street Suite 310

San Francisco, CA 94104

800.930.7271

www.rimonlaw.com

Startup Package Menu of Flat Fees

Basic Legal Issues a Start-up Needs to Consider

LAW FIRM EVOLVED

415.683.5472

Page 2: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

Startup Package Services and Flat Fees

For a basic primer on each area of legal services, please view the appropriate section.

Entity Formation Page 5

• Typical entity formation package $1,200 o Charter / Certificate of incorporation o Operating agreement / Bylaws o Board consents

• Other agreements available (not included in fee above) o Advisory board agreement $600 each o Assignment of rights $600 each o Director indemnification $750 each o Promissory note $800 each o Foreign qualification in other states $350 each o Founder stock purchase agreement $750 each

Employment Agreements Page 9 • Typical employment package $2,150

o Basic employment agreement o Nondisclosure agreement

• Other agreements available (not included in fee above) o Non-competition agreement $425 o Offer letters $360 o Assignment of rights $600 o Trade secret policy (discounted pre-financing rate) $375/hr o Independent contractor / Consultant agreement $800 o Subcontractor agreement $800 o Policies and procedures $400 o Indemnification agreement $750 o Stockholder approval of indemnification agreement $325

Page 3: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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Stock Option Agreements Page 10

• Typical stock option package $3,275 o Stock option plan and agreement o Restricted stock purchase agreement o Option agreement o Spousal consent o Exercise notice o Board approval of stock plan o California Corporation Code §25102(o) notice o Stockholder approval of stock plan

• Other agreements available (not included in fee above) o Common stock certificate $250 o Capitalization table $1,500 o Stock ledger $350 o 83(b) election form $475 o California Corporation Code §25102(f) notice $200 o Board approval of option grant $900

Trademarks Page 12 • Trademark Search

o Preliminary, knock-out search $350 o Full US search

Raw report by outside vendor $655 (vendor fee) Analyze report and discuss result with client $625

• Draft opinion letter $425 • Trademark Prosecution

o Draft and file application with USPTO (up to 3 classes) $500 o Each additional class $100 o USPTO filing fee (per class) $325 (gov’t fee) o Office actions

Analyze and report substantive office action to client with recommendations $250 • Report nonsubstantive office action to client $150 • Draft and file response with USPTO $350 per hour

o Statement of use (only for Intent to Use Applications Draft and file with USPTO (up to 3 classes) $300 Each additional class $50 USPTO filing fee (per class) $100 (gov’t fee)

Page 4: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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• Draft and file with USPTO (up to 3 classes) $200 • Each additional class $25 • USPTO filing fee (per class) $150 (gov’t fee)

o Review, docket, and communicate misc. notices from USPTO, including Notice of Publication, Notice of Allowance, Notice of Acceptance of Extension of Time, and Notice of Registration $150 each

Patents Page 14

• Typical Patent package $7,500 and up o Preliminary, knock out search o Patentability search & due diligence o Opinion o IP assignment for employees and consultants o Patent Licenses

• Other agreements available (not included in fee above) o Various non-provisional application fees $1,800-4,000 o Patent preparation $6,000-15,000 o Patent application (discounted pre-financing rate) $375/hr o Government filing fees $300-500 o Patent maintenance $490-4,100

Initial Venture Capital Round Page 17

• Typical fundraising package $25,000 o Term sheet o Standard Series A Preferred Stock purchase agreement o Board consent o Stockholder consent o Amended and restated certificate of incorporation o Investors’ rights agreement o Right of first refusal and co-sale agreement o Voting agreement o Management rights letter (if applicable) o Director indemnification agreement

Page 5: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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General Fee Information New clients are asked to pay a retainer before services will be rendered. The amount of the retainer depends upon the services to be provided. Rimon reserves the right to delay completion of services until your account is brought current. If you incur fees in excess of your retainer, or your retainer is exhausted and you incur significant legal costs in any single month, you may be asked to either replenish your retainer or submit an interim payment on account. After establishing relationships with our clients, Rimon is happy to extend certain credit terms to our clients. We value you as our client and do not want payment issues to interfere with your need for legal services. If you are unable to make a payment, please do not hesitate to call us immediately to discuss your options. All fees are subject to change based on complexity. The above fees presume little to no negotiation with other parties. If matters require more than minimal negotiation, an additional fee will be charged. The fees quoted above include the amounts payable to Rimon only and do not include any applicable fees due to government entities or third party service providers, each of which will be charged to clients in addition to the fees set forth above. Disclaimer

THE FOLLOWING IS ONLY A SIMPLE OUTLINE. WE STRONGLY RECOMMEND YOU SPEAK TO A LAWYER TO LEARN WHAT IS BEST FOR YOU.

For a free consultation, or learn more about our startup bundle services and fees, please contact Rimon, P.C.:

Email: [email protected] Telephone: 800.930.7271

Page 6: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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A Primer on Entity Formation

Should I create a legal entity? Yes, you absolutely should create a legal entity for yourself. The overriding reason is that most (not all) legal entities give you, the founder or owner, limited liability. This means that barring specific criminal acts, you and your personal assets cannot be held liable for the company’s debts in a situation where the company’s liabilities exceed its assets. You will only be liable for the amount that you have personally invested in the business, and nothing more. You may lose the business, but not your house. A limited liability entity also provides financial benefits: the ability to deduct more business expenses from annual revenue when calculating taxable income than would be possible without an entity. This requires the limited liability entity to make sure that the company:

1. is adequately capitalized (it has the money necessary to cover the reasonably predictable legal and business responsibilities of the business);

2. keeps clean accounting books and has accounts that are separate from the personal accounts of its owners or employees; and

3. complies with corporate governance laws and properly maintains all legal documents. Forming a corporation or LLC also usually makes it easier for a business to borrow money and to sell all or parts of the business in the future. It is important to note that the longer a business operates without a legal entity, the more complicated and expensive it becomes to transform it into a separate, legal entity. For this reason it is very important to form a legal entity as soon as feasible. So what entities are available? Generally speaking, an entrepreneur is faced with three entity choices. They are:

1. C-Corporation 2. Limited Liability Company (LLC) 3. S-corporation

That’s it. Chances are that you’ll have absolutely no interest in (1) a limited liability partnership, (2) a limited partnership, or (3) a general partnership. Why not? Because they (1) are used specifically for professional entities like a law firm, (2) require one partner to have unlimited liability, or (3) are completely unlimited liability, respectively. Each entity has its own advantages and disadvantages which we will outline briefly here.

Page 7: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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C-Corporation A corporation is made up of three groups of people – the shareholders, the board of directors and the officers, although the same person can hold multiple positions. The board of directors is formally elected by the shareholders and represents their interests. It is the board of directors that hires the officers of the company, also known as management. Management’s job is to oversee the day-to-day operations of the company. Many decisions, however, require the approval of the shareholders and/or the board of directors. A corporate structure is thus a highly organized and rigid structure of governance that can often be quite burdensome. A corporation requires a slew of corporate governance documents that must be frequently updated. It also requires that annual meetings be held for shareholders and the board of directors. Notably, C-corporations are subject to double taxation. They are taxed a corporate income tax at the end of the fiscal year in addition to the personal income taxes and dividend taxes that its owners and employees pay. Federal corporate income tax is about 15% to 35% of profits, and most states also have corporate income tax. This means after a C-Corporation has paid its expenses for the year, it will be taxed at least 15%-35% of whatever is left above the amount the company started with that year. Reasons to opt for a C-corporation:

1. Desiring a board of directors that is distinct from the officers and/or shareholders of the company

2. Institutional investors typically will invest only in C-corporations because of the corporate structure and governance.

Limited Liability Company (LLC) Generally it provides the same legal protections from personal liability as a corporation, but is governed more like a partnership than a corporation. Whereas a corporation’s owners are called shareholders, the owners of an LLC are known as members. An LLC does not require a board of directors or even officers and can simply be managed directly by its members, if so desired. It can also be structured more like a corporation, with managers that are distinct from its owners. LLCs allow for significantly more flexibility than do corporations. For instance, the owners of an LLC can allocate distributions in whichever way they see fit. Even if the ownership of an LLC is split 60/40, the owners can decide to split the profits 50/50 - something that is not possible in a corporation without a significantly more complicated structure. Reasons to opt for an LLC include:

1. If your business only has a few investors and you do not anticipate receiving outside financing in the near future.

Page 8: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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2. Pass-through/flow-through taxation. The LLC’s income and expenses “pass through” the entity and are treated as the income and expenses of its owners. This means that there is no corporate tax, and the owners can even apply losses of the company against their personal income.

3. LLCs may qualify for the additional tax benefits an S-corporation confers. (see below) S-Corporation

In order to qualify for S-Corporation status a corporation must meet several conditions:

1. The business owner files for an S-corporation election; 2. All shareholders must be residents of the United States; 3. The corporation may only have one class of shareholders and may not have more than 75

shareholders; 4. The company’s shareholders must be any of the following: individuals, estates, certain trusts,

certain partnerships, tax-exempt charitable organizations, and other S corporations (but only if the other S corporation is the sole shareholder). This means S-Corporations may not be owned by other C-Corporations, LLCs, or foreign residents. If any of the requirements are not met at any time, the corporation automatically loses its S-Corporation status and will be treated as a C-Corporation.

Why would one elect to form an S-corporation instead of the default C-corporation?

1. Flow-through/pass-through taxation, like the LLC. 2. The ability to reduce owners’ payroll taxes. Business owners can reduce their self employment

taxes. Any small business owner who has not made an S-Corp election and uses Schedule C for their personal tax return for 2010 is subject to both employer and employee FICA and Medicare payroll taxes at 15.3% up to $106,800, 2.9% Medicare for Schedule C net income greater than $106,800, and California SDI for 1.1% up to $93,316. If the owner of an S-corporation pays himself/herself a “reasonable salary”, the rest of the net income is not subject to these payroll taxes.

Can an LLC get the tax benefits of an S-Corp Election?

Yes, if it makes an S-Corporation election as long as the entity meets the IRS criteria to be taxed as an S-Corp, files an S-Corp election, and gets approved by the IRS to be taxed as an S-Corporation. Without an S-Corporation election, single member LLCs default to be taxed as sole proprietors, and multi-member LLCs defaults to be taxed as a partnership since they are considered “disregarded entities” unable to get the tax benefits of an S-Corp election. However, if a single or multiple member LLC meets the IRS criteria to be classified as an S-Corp and the S-Corp election is filed and approved by the IRS, then for tax purposes (not legal purposes), the entity is treated like an S-Corporation.

Page 9: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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Where should I form my entity?

This can be a very complex question. If you are looking to grow the company and get outside investment, then you should probably form an entity in Delaware. If your entity will have real estate holdings, Nevada might also be a good option. Otherwise, it might make the most sense to simply form the entity in the state where you will be conducting most of your business.

Page 10: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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A Primer on Employment Agreements

Once an employment relationship exists, a company is required to adhere to applicable labor laws, regardless of whether a newly formed company has one employee or more. Three agreements are basic to a company. 1. Employment or Service Agreements A new company should determine which of its workers are employees and which are independent contractors. The workers’ status will determine what benefits he or she is owed during employment and at its conclusion. A new company is building its reputation not just for its product, but for its staff and for fairness as an employer as well. To this end, a company should have a written agreement to clarify for its workers and itself a position’s expectations, benefits and responsibilities. A written contract delineates scope and hours of work, how the relationship is to continue, and how it is to be terminated.

2. Nondisclosure Agreements Your company’s ideas, methods, organization, and products are entitled to varying degrees of protection. With products and secrets more esoteric and virtual than ever before, it is essential that expectations and responsibilities are set forth in black and white. A nondisclosure agreement serves a dual purpose: it educates the employee or contractor and it protects the company. A clearly written nondisclosure agreement will tell your workers what his or her responsibilities are toward the company and what the law considers to be company property.

3. Non−competition Agreements Can a part-time employee hold another job while working for you? Can he or she work for a direct competitor a year after he involuntarily leaves his employment? Does this change if he owns part of your business? What if the competitor is anywhere in the world instead of in the same country? Different states have different laws regarding the restrictions that will be enforced once a worker leaves your company. It is important for your company’s future and stability that you take full advantage of whatever protections the applicable law affords. In California, non-competition agreements are generally not enforceable except in connection with the sale of a business.

Page 11: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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A Primer on Stock Option Agreements and Restricted Stock

Agreements

Why have a stock option plan?

Startups often prefer to compensate employees using stock options when possible because it does not require a cash outlay. In addition, employees may prefer the favorable tax treatment associated with stock options. Stock options also often give employees a stake in the long-term success of the company that salaries or bonuses often do not. What is a stock option?

A stock option is the right to acquire a certain number of shares of stock for a specific price (the “exercise price”). Usually, the employer does not permit an employee to exercise the right to purchase stock immediately on the date the stock option is issued. Rather, the right to purchase stock typically “vests” or accrues over a period of time or upon meeting certain company performance goals. This encourages employees to remain with the company for the rest of the vesting period and help the company meet its goals. Tax consequences of Incentive Stock Options and Nonstatutory Stock Options

There are two forms of stock options:

1. Incentive stock options (“ISO”) and 2. Nonstatutory stock options (“NSO”).

ISOs are different from NSOs in that ISOs typically receive more favorable federal tax treatment if the option meets certain requirements of the Internal Revenue Code. When granted, both ISOs and NSOs should have an exercise price that is not less than 100 percent of the fair market value of the underlying stock. Neither ISOs nor NSOs are taxable upon grant to the employee or when the option vests. The difference between them lies in the tax consequences when the option is exercised. When an NSO is exercised, the employee recognizes compensation (ordinary) income in an amount equal to the spread at exercise. An employee does not recognize taxable income on exercise of an ISO. However, the spread at exercise is includible in the employee’s federal alternative minimum taxable (“AMT”) income and may give rise to AMT tax liability. If stock acquired upon exercise of an NSO is held for more than one year, any gain realized on the disposition of the stock is taxed at favorable long-term capital gain rates. ISOs must be held for at least two years from the date of grant and at least one year from the date of exercise to qualify for favorable capital gain tax rates. Otherwise, the employee recognizes compensation income that is taxed at ordinary income tax rates.

Page 12: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

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The other difference between ISOs and NSOs is in the benefit to the employer: for NSOs, the employer can take a deduction equal to the amount recognized by the employee upon exercise of the NSO. For ISOs, there is no deduction. The different aspects of ISOs and NSOs provide flexibility in tailoring an equity compensation plan to fit a company’s needs. What is restricted stock?

Instead of issuing stock options, some companies issue “restricted stock.” Restricted stock refers to stock that is transferred to an employee as compensation for services, subject to a vesting schedule. The employee usually is not required to pay for the stock. If the employee does not remain with the employer until the end of the vesting period, the stock must be returned to the employer. If the employee has paid any amount for the restricted stock but then fails to become vested, the employer usually refunds the purchase price to the employee. A discussion of the tax consequences of restricted stock is beyond the scope of this primer and requires a detailed conversation with a tax attorney. Given the complex legal, accounting and tax issues, a company should seek advice before implementing an equity compensation plan.

Page 13: Law Firm Evolved - S tar tup P ack age...2012/08/22  · Rimon P.C. 220 Sansome Street Suite 310 San Francisco, CA 94104 800.930.7271 w w w .rimonla w .com S tar tup P ack age Menu

NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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A Primer on Trademarks Trademarks identify and distinguish a business, product, or service in the marketplace. Trademarks can consist of words, names, symbols, or devices or any combination thereof. Brands are trademarks. Trademarks often are a business’s most valuable asset. For example, the world's most valuable brand, Coca Cola, was valued at more than $70+ million dollars in 2010. Clearing a name for registration with the Secretary of State’s office is not the same as conducting a trademark search. Corporate formation and domain name registration do not confer any trademark rights. The trademark search and registration (aka trademark prosecution) process can be long (typically 1.5 to 2 years) and complicated. Trademark Basics There are five basic facts to keep in mind when dealing with trademarks:

1. U.S. trademark rights are governed by a system of “priority” or “superiority” -- the first person /entity to use a mark in interstate commerce can prevent all others from using an identical or similar mark for identical or similar services.

2. Common-law trademark rights (those not associated with a federal trademark registration) are geographic in scope and limited to the locations in which the mark has been used. Common law trademark rights are more difficult, and therefore more costly, to prove than rights associated with a state or federal trademark registration.

3. U.S. trademark rights also may be obtained by filing an Intent to Use (“ITU”) federal trademark registration application, though the mere filing of an ITU application does not convey any trademark rights; registration must be obtained for trademark rights to accrue.

4. Trademark infringement occurs when it is likely that consumers would be confused regarding the source or origin of a product or service. Infringement also exists when consumers would perceive an association between products, or a sponsorship between companies, that does not really exist. This is what trademark professionals refer to as a “likelihood of confusion.”

5. There are 19 variables that determine how much a trademark registration will cost. Trademark Searching Conducting a full trademark search before adopting a mark greatly reduces the chances of being involved in a costly trademark infringement dispute and having to re-brand down the road. Trademark infringement matters often result in the infringer changing its mark, including on letterhead, business cards, brochures, products, packaging, phone listings, signage, domain names and in all marketing, advertising, and promotional materials. The infringer generally is responsible for bearing the cost of

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purchasing all new materials to associate with its new mark. Federal court litigation poses the additional risks of treble damages (three times the trademark owner’s damages), as well as being liable for the trademark owner’s attorneys’ fees and costs of bringing the suit, in addition to having to pay its own attorneys’ fees and costs. Many insurance policies do not cover trademark infringement lawsuits, even under an “advertising injury rider.” Trademark Registration Provided that a trademark is used in interstate commerce, a trademark owner can protect nationwide simply by federally registering it. Federal trademark registration also evidences the mark’s validity and the owner’s exclusive right to use the mark nationwide for the goods / services listed in the registration. A certificate of federal trademark registration serves as a “title” or “deed” to the trademark asset, which is especially important if one plans to acquire funding or transfer ownership. International Classification System and Recitation of Goods & Services The Nice Agreement is an international trademark treaty that sets forth 45 International Classifications of goods and services. All U.S. applicants must use this classification system when applying for trademark registration. The Patent & Trademark Office (PTO) charges a $325 filing fee per International Classification. It is important to determine in which International Classes the mark is / will be used before conducting the trademark search, as you want the search to be as accurate as possible. There is a PTO Manual of Acceptable Identifications of Goods and Services on the PTO’s website, with which the applicants must comply whenever possible. Once an application is filed, the applicant may only narrow or clarify its recitation of goods / services, no additions or material alterations are allowed. Conclusion Trademarks often are a business’s most valuable assets, as they embody the relationship a business has with its consumers. Trademarks are the tools that consumers use to identify what they want and distinguish it from what they don’t (i.e., competitors’ products / services). While the search and registration process can be costly, especially for a start-up company, it is always more cost effective to act diligently and pro-actively in the beginning, rather than scrambling to do damage control down the road. Dispute resolution ALWAYS costs more than trademark prosecution; thus, it pays to search, clear and register marks up front.

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NEW YORK | PALO ALTO | SAN FRANCISCO | TEL AVIV | TYSONS CORNER | WASHINGTON, D.C. RIMON, P.C. 220 SANSOME STREET, SUITE 310, SAN FRANCISCO, CA 94104 P: 800.930.7271 415.683.5472 www.rimonlaw.com

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A Primer on Patents A patent is a legal document that defines a set of exclusive rights to a new technology, product or service. The exclusive rights are granted to the patent owner for a limited amount of time and can be leveraged in a variety of ways to support a business strategy and add value to a business. Patents have many strategic uses. Patents can be used to create a legal barrier to competition, to establish a portfolio of assets that can be used to generate revenues through licensing or IP transfers or to augment the value of a business for purposes of raising seed or venture funding. Patent Basics - What types of innovations are patentable? Under U.S. patent law, 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." Virtually “anything made by man under the sun” can be patentable. Utility patents can protect inventions that are novel (new), nonobvious, and useful including the following types of subject matter:

1. Process or method (e.g., method of making or using a product or computer-based processes)

2. Machine (something with moving parts or circuitry)

3. Article of manufacture (such as a tool or another object that accomplishes a result with no moving parts, such as a new hammer)

4. Composition of matter (such as a new pharmaceutical, food, or toothpaste)

5. Or an improvement of any of the above items. Most patents are for incremental improvements made to known or pre-existing technology - thus typically evolution rather than revolution.

Even if the invention falls into one of the above categories, there are certain subject matters that cannot be patented including mathematical formulas, naturally occurring substances, abstract ideas, or laws of nature.

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What does a Patent contain? Patents typically contain:

> Background of the Invention

> Summary of the invention

> Detailed Description of the Invention

> Example(s) (Actual or Prophetic) (Optional)

> Must include at least one claim.

The Claims The claims define the exclusive property right provided by a granted patent. Patents must include one or more independent claims and may include one or more dependent claims that further narrow the independent claims. Dependent claims are helpful in the event the broader independent claims are later found to be invalid. Provisional Patent Application Rimon P.C. recommends first filing provisional applications since they are less expensive to file compared to non-provisional applications and can be updated less expensively throughout the following year. However, the provisional application should be as complete as possible so that it can ultimately support any patent claims issuing based on that initial filing. That is, the provisional application should not be considered a shortcut but is instead an opportunity to secure an initial filing date at a reduced cost. Accordingly, we strongly recommend drafting the provisional application as if it were a regular non-provisional application (including claims and drawings), but filing provisionally. Design Patents In general terms, a “utility patent” protects the way an article is used and works, while a “design patent” protects the way an article looks. Both design and utility patents may be obtained on an article if invention resides both in its utility and ornamental appearance.

Design patents may be granted for any new, original and ornamental design for an article of manufacture and protects only the appearance of the article and not its structural or utilitarian features.

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Patent Prosecution After the patent application is prepared and filed, there is usually at least one office action issued by the patent office that requires a written response and other formalities to comply with (e.g., the filing of information disclosure statements). Patent prosecution costs can range from $2,000 to $5,000+ depending on the complexity and the office actions involved. Currently, prosecution within the US Patent Office typically does not start until at least 12 months after the filing of the non-provisional application. Rimon Patent Services Rimon’s IP attorneys provide value-added services to clients by combining creativity with extensive experience and expertise in key areas. We help our clients secure valuable patent assets, monetize those assets through licensing or business transactions and develop strategies to enforce patent rights through litigation. Our patent services include:

Advising on the patentability of inventions. Preparing and prosecuting patent applications to issuance. Managing and developing strategies for patent portfolios. Training personnel to help identify and protect patentable inventions. Performing patent audits to confirm patent assets are optimized for a client’s business strategy in

a cost-effective manner. Generating patent landscapes for product lines and development roadmaps. Preparing non-infringement and invalidity opinions. Developing design-around strategies. Managing infringement matters or other disputes. Reviewing, negotiating and drafting complex intellectual property, corporate and commercial

agreements or other transactions. Advising on merger and acquisition transactions and conducting due diligence relating to

intellectual property issues. Our clients include multi-national corporations, small businesses, early-stage startups and individual inventors. Our IP attorneys also provide “do it yourself” training for cost-conscious clients who wish to protect their patent assets at reduced cost.

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A Primer on Initial Venture Capital Financing

When you are ready to sell part of your company to venture capital investors in exchange for cash for the business, it is important to find a good business partner and not just take the first money that comes along. If you have a good idea and business plan, generally multiple investors will be interested. That being said, fewer than 10% of proposals received by venture capital funds typically result in investments. You need to be prepared to be valiant in the face of repeated rejection and confident in your idea and business plan. However, if you receive feedback from venture capitalists, please do take it to heart and consider revising your idea and/or business plan. Early stage companies that are flexible, willing and able to change tend to be more successful. Once you have identified the venture capital (VC) fund you will be working with, you will typically enter into a term sheet outlining the key terms of the investment. The term sheet will include things like how much money the VC will invest, how many shares of stock it will get in exchange for its investment and what other rights, preferences and privileges it will have. You should be aware that in addition to paying for your legal fees, it is typical for the company to pay the VC’s legal fees (up to an agreed upon amount) from the proceeds of the investment. VCs typically receive Preferred Stock in exchange for their cash, which gives them the right to get paid first, before the Common Stock (which is what you and your employees will own) upon an IPO or acquisition. Both before and after the term sheet is signed, the VC fund will engage in due diligence, where it tries to learn as much as it can about you, your idea and your company. It is a good idea to have all of your documentation listed, organized and readily available in digital form to share with the VCs. You may want to limit how much you share with the VC prior to receiving a signed term sheet. Keep in mind that just because the term sheet is signed, does not mean the investment is a done deal. If the VCs find something during their due diligence that they don’t like, they may try to renegotiate the terms of the investment or may walk away completely. Once the due diligence is completed, your company will enter into several agreements with the VC fund, including the following: Amended and Restated Charter This document will be revised to create the Preferred Stock that the VCs will own, as well as to set forth the rights, preferences and privileges of this stock.

Stock Purchase Agreement This document will contain the basic terms of the investment, including representations and warranties that you need to make about the company, the number of shares of stock being purchased and the price per share.

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Investors’ Rights Agreement This document will contain certain rights of the investors such as registration rights (the right of the investor to force the company to sell its shares in an IPO or in a follow-on offering), information rights (the obligation of the company to provide the investors with certain information on a regular basis), pre-emptive rights (the right of the investors to maintain the ownership percentage in the company if the company decides to issue more stock) and additional covenants of the company (such as an obligation to maintain a minimum amount of insurance and to have all employees sign certain agreements). Right of First Refusal and Co-Sale Agreement The Right of First Refusal portion of this document obligates certain key stockholders to offer their stock to the VC if that stockholder wants to sell its stock. The VC would have the right for a specified period of time to purchase the stock from the other stockholder on the same terms and conditions as the 3rd party. The Co-Sale portion of this document allows the VC to sell a portion of its stock to a 3rd party it one of the key stockholders tries to sell any of its stock, resulting in the 3rd party buying the same amount of stock at the same price, but some of the stock would come from the key stockholder and some of it would come from the VC. Voting Agreement This document accomplishes two things. First it is an agreement amongst the VC, the company and certain key stockholders to all vote their stock to elect directors nominated by the VC and certain groups of stockholders. Second it typically contains a drag-along provision, which obligates most, if not all, stockholders to sell their stock on the same terms and conditions as everyone else, if a certain percentage of stockholders (always more than a majority) agree to sell their stock. In addition to the agreements noted above, there are a few other ancillary agreements that are typically entered into in connection with an initial venture financing round. Many “angel” investments also fall into this category, and follow the same procedures. We are happy to discuss the nature of those ancillary documents with you, but they are not generally as heavily negotiated as the 5 documents mentioned above.