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David and Goliath: Approaching the ‘deal’

Published July 26, 2019
Adam Zagaris
Contributor

Adam Zagaris is an attorney, partner and founder at Moonshot Legal, specializing in commercial contracts. Adam helps startups close deals and move up and to the right.

It is a simple question with a complex answer. How does a startup get from zero to execution when negotiating contracts with potential customers that are large enterprises? The 800-pound gorillas. Situations in which your negotiating leverage is limited (often severely so).

As a commercial contracts attorney, clients often ask me about the one right way to approach deals. Many are looking for a cheat sheet of universal terms they should push for in contracts. But there is no one answer.

Deals are not cookie-cutter, and neither are the contracts on which they are built. That said, a basic framework can help provide startups with some grounding to better think about negotiations with large enterprises. The idea is to avoid over-lawyering, and instead approach the discussion with a legally prudent yet deal-centric mindset.

There are generally six overarching considerations as you head into negotiations with large, enterprise organizations.

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What everyone at a startup needs to know about immigration

Published July 3, 2019
Sophie Alcorn
Contributor

Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.

The immigration process in the U.S. has become a high-stakes undertaking for employers, workers, and entrepreneurs. Predictability has eroded. Processing times have soared. And any mistake or misstep now has dire consequences.

Over the past three years, immigration policies and procedures have been in a state of flux and the process has become more unforgiving for even the smallest mistakes. Putting your best foot forward is crucial. Employers and individuals need to formulate a long-term strategy and backup options to stay protected.

The increase in Requests for Evidence and the backlog for many visa and green card categories has meant longer waiting times. What’s more, the Trump administration’s recent decision to close all USCIS’s international offices—and shift that workload back to the U.S.—is expected to compound the backlogs and delays.

We are seeing these issues affect startups every day. My law firm works with hundreds of startups every year to help them and their employers figure out their immigration paperwork. The overall piece of advice we give is to decide on a specific goal based on a deep understanding of the company and the individual and by examining the options strategically.

Then, you can figure out the right approach for a visa, green card, or citizenship application. Regardless of my personal interest in the matter, now more than ever, I recommend consulting with an experienced immigration attorney who can handle the process with integrity, creativity, compassion, and rigor.

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What employers should know

The new normal for immigration means increased employee recruiting and retention costs for employers. However, hiring immigrants remains possible.

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IP strategy: How should startups decide whether to file patents

Published July 3, 2019
Bryant Lee, Ed Steakley & Saleh Kaihani
Contributor

Bryant Lee is the co-founder and managing partner of Cognition IP, a YC-backed IP law firm for startups. Ed Steakley was the Head of IP at Airware and Senior Patent Counsel at Apple. Saleh Kaihani is a partner at Cognition IP.

Deciding what to patent can be a confusing process but by creating a formal process it is something that every startup can manage.

Intellectual property (IP) is one of the most valuable assets of a startup and patents are often chief among IP in terms of value. Patents allow the startup to prevent competitors from using their technology, which is a powerful feature that can grant unique advantages in the marketplace.

From a business perspective, patents can help with driving investment and acquisitions, provide protection during partnerships and business deals, and help defend itself against patent lawsuits by others.

However, startups also often have a hard time determining when and what to patent. Innovative startups are inventing new things on a regular basis, and there is a danger of slipping into a haphazard approach of patenting whatever happens to be available rather than systematically analyzing the business needs of the company and protecting the IP that moves the needle the most.

Moreover, startups must balance the need to protect IP with other areas of the business: Patents are complex documents that require an investment of time and resources to obtain. They often require specialized legal counsel to write and a lengthy examination process at the U.S. Patent & Trademark Office (USPTO).

This article is a how-to guide for startups to make the decision on when and what to patent with a mature approach to IP strategy.

Table of Contents

Creating a regular IP harvesting process

Index 02

In order to make a decision about what to patent, a startup must first know what IP it has. For very small teams, it may be possible for everyone to have a shared idea of the IP. However, once teams grow beyond a few people, it is no longer possible to have complete visibility into what everyone on the team is doing and potentially inventing. Therefore, a regular IP harvesting process must be put in place to ensure proper reporting of IP to the executive level.

Most startups are best served with a simple IP harvesting process involving just three steps: (1) disclosure (2) invention review and (3) patent filing. In the disclosure stage, employees who are in IP creation roles must be trained to disclose ideas that are potentially protectable IP.

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Leaving for a competitor? Onboarding new employees? Avoid accusations of trade secret theft

Published June 18, 2019
Nick Saenz
Contributor

Nick Saenz is a partner at Lewis & Llewellyn LLP, a boutique litigation firm in San Francisco specializing in complex corporate litigation.

When a company hires talent away from a competitor, onboarding the new employee can pose significant legal risks for both the company and the new employee. A fundamental aspect of Silicon Valley is that employees are generally free to move between competitors.

This unrestricted movement of talent facilitates the robust competition that helps drive the Silicon Valley economy. While this is no doubt positive, unfettered employment mobility also creates unique challenges when it comes to protecting a company’s trade secrets, which are the lifeblood of many Silicon Valley companies.

Because of California’s policies regarding free employment mobility, unlike in most other states, California companies cannot protect their trade secrets with non-compete contracts. So, they instead rely heavily on trade secret laws for protection.

And, of course, when trade secret theft occurs, it is often when an employee transitions from one company to another. Thus, when a key employee gives notice that he or she is leaving for a competitor, it sets off alarm bells for the soon-to-be former company.

Unfortunately, because of the hypersensitivity to protecting trade secrets, many departing employees who have no interest in actually taking their former company’s trade secrets get accused of theft. This allegation can trigger a long, stressful, expensive legal process for both the employee and the new company, and sometimes cost the employee his or her reputation and new job.

This article explains how this situation arises and provides some practical considerations for how the employee transitioning jobs, and the onboarding company, can avoid an unnecessary legal fight.

1. California companies’ aggressive protection of trade secrets.

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Startup Law A to Z: Regulatory Compliance

Published April 4, 2019

Startups are but one species in a complex regulatory and public policy ecosystem. This ecosystem is larger and more powerfully dynamic than many founders appreciate, with distinct yet overlapping laws at the federal, state and local/city levels, all set against a vast array of public and private interests. Where startup founders see opportunity for disruption in regulated markets, lawyers counsel prudence: regulations exist to promote certain strongly-held public policy objectives which (unlike your startup’s business model) carry the force of law.

Snapshot of the regulatory and public policy ecosystem. Image via Law Office of Daniel McKenzie

Although the canonical “ask forgiveness and not permission” approach taken by Airbnb and Uber circa 2009 might lead founders to conclude it is strategically acceptable to “move fast and break things” (including the law), don’t lose sight of the resulting lawsuits and enforcement actions. If you look closely at Airbnb and Uber today, each have devoted immense resources to building regulatory and policy teams, lobbying, public relations, defending lawsuits, while increasingly looking to work within the law rather than outside it – not to mention, in the case of Uber, a change in leadership as well.

Indeed, more recently, examples of founders and startups running into serious regulatory issues are commonplace: whether in healthcare, where CEO/Co-founder Conrad Parker was forced to resign from Zenefits and later fined approximately $500K; in the securities registration arena, where cryptocurrency startups Airfox and Paragon have each been fined $250K and further could be required to return to investors the millions raised through their respective ICOs; in the social media and privacy realm, where TikTok was recently fined $5.7 million for violating COPPA, or in the antitrust context, where tech giant Google is facing billions in fines from the EU.

Suffice it to say, regulation is not a low-stakes table game. In 2017 alone, according to Duff and Phelps, US financial regulators levied $24.4 billion in penalties against companies and another $621.3 million against individuals. Particularly in today’s highly competitive business landscape, even if your startup can financially absorb the fines for non-compliance, the additional stress and distraction for your team may still inflict serious injury, if not an outright death-blow.

The best way to avoid regulatory setbacks is to first understand relevant regulations and work to develop compliant policies and business practices from the beginning. This article represents a step in that direction, the fifth and final installment in Extra Crunch’s exclusive “Startup Law A to Z” series, following previous articles on corporate matters, intellectual property (IP), customer contracts and employment law.

Given the breadth of activities subject to regulation, however, and the many corresponding regulations across federal, state, and municipal levels, no analysis of any particular regulatory framework would be sufficiently complete here. Instead, the purpose of this article is to provide founders a 30,000-foot view across several dozen applicable laws in key regulatory areas, providing a “lay of the land” such that with some additional navigation and guidance, an optimal course may be charted.

The regulatory areas highlighted here include: (a) Taxes; (b) Securities; (c) Employment; (d) Privacy; (e) Antitrust; (f) Advertising, Commerce and Telecommunications; (g) Intellectual Property; (h) Financial Services and Insurance; and finally (i) Transportation, Health and Safety.

Of course, some regulations may touch on multiple regulatory areas, for example, the “Fair Credit Reporting Act” is a law ultimately about privacy, but it impacts many financial and employment-related services as well. Certain laws may therefore be cross-listed in more than one regulatory area. Also, since we can’t look at every U.S. state and city, this article will focus primarily on the federal and California state laws.

After you focus on the particular regulatory areas that may implicate your business, next reference the short quotations and links to relevant primary and secondary sources below, then work to identify the specific compliance risks you face. This is where other Extra Crunch resources can help. For example, the Verified Experts of Extra Crunch include some of the most experienced and skilled startup lawyers in practice today. Use these profiles to identify attorneys who are focused on serving companies at your particular stage and then seek out any further guidance you need to address the regulatory matters pertinent to your startup.

With that as context, the Startup Law A to Z – Regulatory Compliance checklist is below:

Taxes

Securities

Employment

Privacy

Antitrust

Advertising, Commerce and Telecommunications

Intellectual Property

Financial Services and Insurance

Transportation, Health & Safety

Before diving into further detail, it may be helpful for some readers to note the distinction between a law and a regulation. Simply put, regulations provide more detailed direction on how certain laws should be followed. So regulations are not technically laws, but they carry the force of law (including penalties for violation), since they are adopted by governmental agencies under authority granted by statute. Beyond that, understanding how laws and regulations are actually enacted is helpful to illustrate the extent to which the process is politically driven.

In the U.S., a bill must first pass both legislative branches of government, then, if signed by the executive branch, it will be codified in statute as law (Schoolhouse Rock anyone?). Once codified, the legislative branch will authorize the relevant executive department or agency to determine whether specific regulations are necessary to give the law effect. If so, those executive departments or agencies will determine what further rules are needed, and in turn, work to enforce them.

At the federal level, for example, proposed regulations are developed first through a “Notice of Proposed Rulemaking,” listed in the Federal Register and filed in the corresponding executive agency’s official docket (available at Regulations.gov). This affords the public an opportunity to comment on the regulations. After receiving comments, the filing agency may revise the proposed regulation before final rules are issued, which again will be published in the Federal Register and then filed in the agency’s official docket at Regulations.gov, before they are codified in the Code of Federal Regulations (CFR).

At nearly every step in this process then, institutions, government, and interest groups are working – sometimes at cross purposes – to shape what the law will be and how it will impact your startup.

The Startup Law A to Z – Regulatory Compliance reference guide is below:

A. TAXES

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How to handle dark data compliance risk at your company

Published April 2, 2019
Lisa Hawke
Contributor

Lisa Hawke is VP of Security and Compliance at Everlaw, and Vice Chair of Women in Security and Privacy.

Slack and other consumer-grade productivity tools have been taking off in workplaces large and small — and data governance hasn’t caught up.

Whether it’s litigation, compliance with regulations like GDPR or concerns about data breaches, legal teams need to account for new types of employee communication. And that’s hard when work is happening across the latest messaging apps and SaaS products, which make data searchability and accessibility more complex.

Here’s a quick look at the problem, followed by our suggestions for best practices at your company.

Problems

The increasing frequency of reported data breaches and expanding jurisdiction of new privacy laws are prompting conversations about dark data and risks at companies of all sizes, even small startups. Data risk discussions necessarily include the risk of a data breach, as well as preservation of data. Just two weeks ago it was reported that Jared Kushner used WhatsApp for official communications and screenshots of those messages for preservation, which commentators say complies with record keeping laws but raises questions about potential admissibility as evidence.

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Amazon will refund millions of unauthorized in-app purchases made by kids

Published April 5, 2017

 Amazon will refund millions of unauthorized in-app purchases kids made on mobile devices, having now dropped its appeal of last year’s ruling by a federal judge who sided with the Federal Trade Commission in the agency’s lawsuit against Amazon. The FTC’s original complaint said that Amazon should be liable for millions of dollars it charged customers, because of the way… Read More

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Postmates now allows drivers to opt out of mandatory arbitration

Published February 17, 2017

The Postmates sign outside the office In fall 2015, the National Labor Relations Board filed a complaint against Postmates that challenged the legality of the company’s mandatory arbitration agreement between it and its contractors. Yesterday, Postmates updated its legal document to offer contractors a way to opt out of mandatory arbitration. Read More

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VMware Agrees To Pay $75.5M To Settle Illegal Pricing Allegations

Published June 30, 2015

gavel, law books and scales of justice In a significant settlement that could embolden American employees who witness company misconduct, VMware and government contractor Carahsoft Technology Corporation agreed to pay the $75.5 million today to settle illegal pricing allegations. The Department of Justice accused the companies of violating the Fair Claims Act and overcharging the government, in a case brought in conjunction with… Read More

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