The High-touch Legal Services® Blog • For Startup Companies

Dur-a-Flex v. Laticrete International illustrates the value of a well-drafted nondisclosure agreement (NDA) – not to mention one that includes an attorneys’ fee provision.

Dur-a-Flex developed a trade-secret process for producing colored sand. Laticrete was a long-time Dur-a-Flex customer and the only customer for this product.

When Laticrete’s orders dropped significantly, Dur-a-Flex suspected that Laticrete was using the Dur-a-Flex process in violation of the NDA that Laticrete had signed.

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As previewed in last Friday’s post, over the weekend I presented “Social Media for Lawyers” with colleagues Mark Ressa and Brett Burlison at the State Bar of California Annual Meeting.

I estimate that we had approximately 60 attendees. (Pretty good, considering that there were prior presentations on social media at the four-day conference!)

Attendees’ area of greatest interest was search engine optimization (SEO) - how to show up on the first page (preferably, high on the first page) of relevant Google searches.

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On Saturday (September 25), at 2:15 pm, I will be on a panel presenting “Social Media for Lawyers” at the State Bar of California’s 2010 Annual Meeting. With 25% of my new clients during the past year coming directly from my online activities, I have been asked to help fellow lawyers understand that the law must be practiced with an eye on the future, rather than being stuck in the past.

As the sole business / transactional lawyer on the panel (Mark Ressa practices family law, and Brett Burlison is a personal injury lawyer), I have a different perspective from that of my colleagues. The topics that I will discuss include:

• Blogging successfully
• Using social media sites (LinkedIn, Avvo) to generate blog traffic
• Developing an effective social media methodology (why, who, what, where, when, how)
• Complying with ethical requirements (testimonials, confidentiality)

* * *

Follow-up: What Lawyers Want from Social Media discusses what I saw and learned at the session and provides access to our PowerPoint slides.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Detail from an illustration of a machine by Leonardo da Vinci

Your invention is so novel and non-obvious that you have applied for a patent. You have formed a legal entity (see Should I form an LLC or a corporation?) to turn the patent, once it issues, into a revenue stream. How do you assign the patent application to your new entity so your startup company can begin conducting business?

First, you need to prepare an Assignment Agreement. The most important point is that the agreement must assign not just the application, itself, but any patents that are issued with respect to the invention. Here is an example of operative assignment language adapted from Drafting Patent License Agreements by Brian G. Brunsvold and Dennis P. O’Reilly:

I hereby sell and assign to ABC Company the entire right, title and interest in and to the [name of invention] invented by me as described in U.S. patent application number __________, and any and all applications for patent and patents in any and all countries, including all divisions, continuations,reissues and extensions thereof, and all rights of priority resulting from the filing of said U.S. application.

Second, you need to record assignment of the application using the U.S. Patent and Trademark Office’s Electronic Patent Assignment System (EPAS).

Related post: How Can I Switch from a Sole Proprietorship to a Corporation?

Photo credit: Leonardo3

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Title page from the California Civil Code enacted in 1872 and published in 1880

I recently prepared a Stock Redemption Agreement pursuant to which one of the founders would leave a corporation (my client). The agreement included a General Release by which the parties would release one another from all liability. The corporation’s CEO had a difficult time understanding the need for, and the significance of, a provision that cited a particular Section of the California Civil Code.

California Civil Code Section 1542 says:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

This statute is a potential threat to any general release: At some point down the road, a party may be able to compromise the release – thwarting the parties’ original expectations – by saying “I would not have signed the release, had I known that!”

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This post is based on (and is an edited version of) a Quora question and my answer. Q. How do you switch from a sole proprietorship to a corporation? You do, of course, want to keep all your intellectual property and brand and street cred and so on. Can you treat that as equity?

A. Yes, you can treat the assets of your sole proprietorship as the consideration for which your shares are issued. You need to create an agreement by which you (as an individual) assign those assets (including the intellectual property rights therein) to the corporation. This is, of course, a friendly transaction, so the assignment agreement can be simple – no need for endless pages of legal boilerplate to protect against litigation that never will occur.

Related post: How to Assign a Patent Application to Your Startup Company

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

I have seen a recent increase in the number of foreign companies inquiring about doing business in the U.S. Their most frequent question: Should they just open a branch office here, or should they form a separate legal entity, such as a corporation? They almost always form a new corporation – here’s why:

1. Many customers here prefer to do business with a U.S., rather than overseas, entity. The U.S. entity provides a level of comfort, and shows a level of commitment, that is not present with the overseas entity.
2. The U.S. legal system is well-known for a high incidence of litigation. Foreign companies like to have a legal firewall between their U.S. operations and the foreign parent company.
3. Although both corporations and limited liability companies (LLCs) can provide legal protection, there is a widespread marketplace perception that a corporation is more substantial and more “real” than an LLC.
   
4. The cost to form and maintain a corporation here is quite low, especially in comparison to the formation costs and minimum-capital requirements in many other countries.

Related posts:

• Foreign Parent + U.S. Sub = Legal Firewall
• Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S.
• Visa Basics for Foreign Entrepreneurs Coming to the U.S.
• Ten Tips for Success in the U.S.
• How Much Does It Cost to Incorporate?
• Why (not) Incorporate in Delaware?

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

A client’s former employee / co-founder departed to form a competing business. Violating the client’s copyrights, he posted dozens of the client’s images on his website and blog. I sent takedown notices to the website’s and the blog’s service providers (see “Terms of Use and the Digital Millennium Copyright Act [DMCA]“). I wondered how expeditiously the service providers would respond.

17 USC Section 512(c)(1)(C) provides a “safe harbor” incentive for service providers to remove, or disable access to, infringing works expeditiously. Unfortunately, “expeditiously” is not defined (see “Defining Expeditious: Uncharted Territory of the DMCA Safe Harbor Provision“).

I faxed the notices last Wednesday evening and followed up by certified mail Thursday morning. Network Solutions, the website host, responded to the infringer by e-mail, with a cc to me, Friday morning. I consider that quite expeditious. The infringer removed all of the infringing works over the weekend.

Meanwhile, as I write this early Monday evening, I have not yet heard back from Google Blogger, the blog host. I consider that quite disappointing. I’ll try to follow up in a couple of days if I do not receive anything before then. The only saving grace is that the vast majority of the infringing works were on the website, rather than the blog.

Check out all posts about DMCA takedown notices.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

At 6 pm on Wednesday, September 15, the Silicon Valley Association of Startup Entrepreneurs‘ East Bay Series will present “Picking the Right VC” at the beautiful Crow Canyon Country Club in Danville (tasty buffet dinner included).

Panel members:

• Kent Godfrey, Pond Venture Partners
• Tim Wilson, Partner, Partech International
• Sean Jacobsohn, Harvard Angels

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Corporate Kit from Attorneys Corporation Service, Inc.

I recently answered the following question on Quora: If you incorporate a company [in Delaware], should you purchase a corporate kit? My answer about corporate record books, and a follow-up exchange about providing records electronically, are reproduced, slightly edited, below.

A: When I form a corporation for a client, I include a corporate records kit in the fee (and do similarly for LLCs) because:

• It is important – both to the company and to any shareholders or directors who may have an inspection right – that there be a single specified location where complete, up-to-date corporate records are kept.
• The kit includes share certificates, which should be prepared – including applicable securities and restrictive legends – and signed to protect against allegations by third-parties that ownership interests were transferred to them.
• The kit includes a corporate seal, which may (or may not) be helpful or necessary at some point.

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