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Trademarks Simplified

28 Aug

trademarks simplified

Trademark infringements are one of the most talked about issues faced by young companies – both because they unknowingly infringed on another’s trademark and because someone else is using their trademark without permission.  So we decided to help clarify some frequently asked trademark questions:

1. What is a trademark?

A trademark is a word, symbol, or phrase, used to identify a particular company’s products and distinguish them from the products of another.  Example:  Nike & the Nike “swoosh” are both used to identify the products made by Nike.  They give the consumer the ability to distinguish a Nike product from products made by another company (Walmart brand, Reebok, etc.).

If the company is a service-oriented one that does not create products, their marks are called “service marks” and are generally treated just the same as trademarks.  (Ex: law firms, accounting firms, etc.)

2.  What is the difference between a trademark and a registered trademark?

Any distinctive name, symbol, or word can be designated as trademarked by using the symbol “TM” – it notifies others that the company owns the product’s name and design. However, by simply using the “TM” symbol you are not protected from another company that produces a similar product or uses a similar name without having to prove that you were the first to use the name or design.  Further, you may still not have a legal defense without registration.

A registered trademark can be identified by the symbol “®” being used.   This symbol can be used once the trademark is registered with the US Patent & Trademark Office (USPTO) and is considered a “Federally Registered Trademark.”  Once registered, a trademark is protected against another company’s use of the name or image.  Any future companies wishing to register its own design/name/image has to check to be sure that it is not like any registered trademarks.

3.  Why should I spend the money and register a trademark?

Registration of a trademark constitutes nationwide constructive notice to others that the trademark is owned by the registering party.  It confers a lot of additional benefits, such as:  (1) enables a party to bring an infringement suit in federal court;  (2)  allows a party to potentially recover treble damages, attorneys fees, and other remedies; and (3)  registered trademarks can, after five years, become “incontestable,” at which point the exclusive right to use the mark is conclusively established.

4.  What can be seen as trademark infringement?

To bring a suit for trademark infringement that standard is called “likelihood of confusion.”  What this means is, generally, by using a mark that is too similar to yours in the sale of goods you are likely confusing the customer as to who created the goods in the first place.  (Example:  using a “swoosh” symbol but not using the word Nike on a pair of shoes may confuse people into thinking they are buying a Nike product.)

In deciding whether consumers are likely to be confused, the courts will typically look to a number of factors, including: (1) the strength of the mark; (2) the proximity of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the similarity of marketing channels used; (6) the degree of caution exercised by the typical purchaser; (7) the defendant’s intent.  Polaroid Corp. v. Polarad Elect. Corp., 287 F.2d 492 (2d Cir.), cert. denied, 368 U.S. 820 (1961).

5.  What is trademark dilution?

Owners of a trademark can also bring suit for “trademark dilution” under either federal or state law.  Under federal law, the standard is that the mark must be “famous” – and to determine whether it’s  famous or not, the court will look at the following factors:  (1) the degree of inherent or acquired distinctiveness; (2) the duration and extent of use; (3) the amount of advertising and publicity; (4) the geographic extent of the market; (5) the channels of trade; (6) the degree of recognition in trading areas; (7) any use of similar marks by third parties; (8) whether the mark is registered.

Under (most) state laws, a mark does not need to be “famous” for a dilution claim.  Instead, the standard is that:  (1) the mark has “selling power” or, in other words, a distinctive quality; and (2) the two marks are substantially similar. 

Have more questions?  Email Sheheryar Sardar of Sardar Law Firm LLC.

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5 Crucial Questions to Ask Before Hiring a Startup Lawyer

28 Jul

5 questions to ask before hiring a startup lawyer

I’m going to be honest from the get-go: I hold a legal degree, and I’ve spent a long time advising startups after they’ve already gotten themselves into a small (or big) situation. I’ve worked as both a large-firm lawyer and a boutique lawyer. And I think large law firms are great — I just don’t think they happen to be the right choice for every startup.

That said, as an entrepreneur myself, I’m also a big fan of working with service providers that want to grow with your company.

Getting the right legal counsel for your company is like getting a great base for your startup, but you have to know how to pick the lawyer or firm that will best serve your goals. Here are five questions to ask as you embark on your own search:

1. Do they understand your industry?

My biggest gripe with lawyers is that they often don’t understand their clients’ industries. Many firms are excellent with contracts and document preparation, but if they don’t understand the industry your startup lives in, they aren’t going to be the best counsel for you, because they simply won’t know what to look out for.

So test their industry knowledge a little, and make sure they get your business. We’re in the fashion world at Viciare NY, which means we looked for someone who understood everything from international textile buying to copyrights, manufacturing contracts, and e-commerce. If our legal counsel doesn’t know key industry information, they won’t know what to advise you except what you tell them. And in that case, what’s the point?

2. Have they worked with early-stage startups?

Early-stage startups have very different legal needs from mature startups. For early-stage companies, the focus has to be on building a legal infrastructure for the company; for later-stage companies, the focus is often on securities, funding, etc.

If a firm hasn’t worked with early-stage companies, it may not understand what goes into that architecture. I once worked with a startup that had incorporated a C-Corp in Delaware and then registered in New York as a foreign entity – and, as a result, was paying twice the fees and taxes it would have if it had chosen to register in only one state. It just did what its lawyer said to do, without having the lawyer explain exactly why he/she was advising this course of action. The startup folded after two years and paid taxes even without having made any money.

Remember, a lot of firms work with very established clients. Many don’t have the experience of setting up a business from scratch. Look for a lawyer that understands the inception-to-launch process.

3. Which lawyer will actually be working on your matter?

This is critical, because you may get a great presentation by an experienced partner and find out later that the person handling you as a client is a first-year associate who doesn’t understand exactly what your company does.

Those conversations become very annoying, very quickly.

4. What is their fee structure?

Startups want everything for extremely cheap or for free – especially when it comes to service providers (hey, it’s bootstrapping – we get it!).  But when someone starts offering you free legal services, I want you to consider this: What are they getting out of it?

If you can’t find an answer, then there is something wrong with the scenario. Last year, I ran into a startup that was two months away from closing a funding round and was in a panic because its lawyers were now demanding legal fees in excess of $30,000. Until that point, the lawyers had been working on the startup’s matter for a mere $150/hour (a heavily reduced rate). What the startup had not realized was the firm was not bound by any obligation to continue that rate – and exactly when the startup needed lawyers the most, the firm upped the charges.

This is not all that unusual — it’s just rarely discussed. There’s a reason they call us sharks — because lawyers are good at knowing the right time to get what is needed.

So look for legal counsel that is up-front with its fee structure or has a startup legal package.

5. Do you actually like the person you’re talking to?

This is something we all forget to consider: Do we actually like the lawyer we’re hiring? In any hiring decision, personality matters. If you don’t want to talk to your lawyer more than you absolutely have to, they not be the right person to represent and advise your company. Treat your legal counsel like any other hire.

Sardar Law Firm LLC is a startup focused law firm in New York City that has worked with over 60 startups.
ORIGINALLY PUBLISHED IN:  http://venturebeat.com/2013/02/09/5-crucial-questions-to-ask-before-hiring-a-startup-lawyer/#duYA5QMpL8KkWwbb.99

Instagram’s New Policy: Yes, it does mean what you think.

19 Dec

You do have the rights to your Instagram photos, but you share the rights to your photos.  That means when someone pays Instagram to use your photos, you can’t do anything about it (like litigate.)

There’s been a lot of talk on the web about two issues related to Instagram’s newest policy updates:

The fact is, both are pretty correct.

instaface-facebook-instagram

Yes, the terms are not that different. But what does that mean exactly?

It means that from the get go, Instagram reserved the right to use your photos in the public space.  Those Instagram users that are not private are aware that almost anyone can access their photos, either through the app or the web version.  That’s the idea behind the “open-web” theme propagating by companies like Instagram and Facebook.  Their concern is not user privacy, and to their credit they never pretend that it was their number one priority.  They are focused on bringing you an open platform to be social and create new social ties; if you are concerned about your privacy on social media sites, you can do one of two things: (1) get off the interwebs; or (2) memorize those privacy settings so you know what to do and not do to keep your data safe.   (Yes, we said all of the interwebs, because even Google tracks your searches in order to give you a better user experience).

While Instagram has always reserved the right to use your personal photos in their own advertising campaigns, what’s got everyone in a tizzy is that the new language seems to indicate that Instagram can now sell your photos to third parties.  That’s where it gets interesting.

Instagram, technically, does have a right to “sell” your photos.

We read this great article yesterday in The Verge that said, No Instagram does not have the right to sell your photos – except that it does.  The article pointed out that companies can’t take a picture of you and slap their logo on it because that goes beyond “displaying” the photo into the world of modifying the photo.

But what advertisers can do is pay Instagram to take user photos and display them on their own site or advertising real estate.  This means, if you take a photo of your baby wearing Baby Gap, then Baby Gap can pay Instagram to use your photo and display it on their site.  They can say something like, “Look at the cute babies wearing Baby Gap!”  There are deeper rules as to whether they can modify that photo (which they can’t), but that’s not enough to make parents feel safe about using Instagram to take pictures of their families.

Here’s the biggest issue: people don’t want their personal photos displayed on a company’s site/ad real estate because, well, people don’t like to be used without getting paid and without consent. In addition, many users post pictures of their families to Instagram –  they don’t quite fancy having their 12-year-old’s picture on a company’s advertising.  This isn’t the generation that sees their picture somewhere and thinks, “Oh my God that’s awesome!”  This is the generation that says, “That’s not okay.”  We’ve had clients file complaints with multinationals based on these scenarios.  It’s not good for anyone, really.

So why the outrage?

The most interesting argument we’ve heard is, “Well you are consenting because you signed up for Instagram.”  Yes, that’s true.  Absolutely.  But people are angry because they either have to agree, or they can’t use the service.  That’s because it’s not a free market contract; you cannot call up Instagram and negotiate your own contract terms with them.  It’s boilerplate and that’s that.

And when you take away a real choice, people get upset.  It happens more often than not with web startups – because it’s a tension between how to make money and how to keep users.

What now?

Instagram has come out and try to do damage control.  They are saying that they will not be selling user photos; but until they release an actual policy stating this, it’s still up in the air and the terms stand where they are.

For us – ours is an office divided.  I, as a litigation attorney, am pretty positive I’ll be deleting my Instagram account.  As for our corporate partner that knows all things tech-startup, he says he will be keeping his account.

By:  
 
Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel
 
Sheheryar T. Sardar, Esq.
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Technology, Corporate & General Counsel, Startup Law, Project Finance, VC/PE, Arbitration/Mediation, Entertainment, and Human Capital

VC Financing for Startups: Understanding Cost Drivers

12 Dec

By:  Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel
 

There has been a lot of debate on the legal costs associated with financing rounds for startups.  Fred Wilson’s challenge to startup lawyers called for legal costs to be reduced to $5,000.00 for a seed financing round.   The issue, brought up by many lawyers is this: (1) large firms are not going to drop their rates from $17k+ to $5k because their costs are too high based on the army of associates working on each piece of the matter; (2) startup focused firms aren’t well known enough to VCs but they could get the work done in between $5K-$10k because they are lean and understand the startup world because they themselves are startups.

To understand what drives legal fees (aside from an army of associates) during a financing round, it’s important for startups, especially those going through their first few rounds, to understand why a transaction costs more than a few hundred dollars.  It’s also important to understand why choosing a firm that’s a good fit for a startup matters in these rounds.

Leveraging Knowledge 

Few things can hurt a startup more than a vague or hurried term sheet that will result in increased costs down the road.  To avoid these problems, smart entrepreneurs and investors involve counsel early on in the term sheet process to make it as smooth as possible.  For entrepreneurs, they need to understand that a VC’s counsel is not the startup’s counsel and that they absolutely need their own counsel as well. It’s like buying an insurance policy that will cost your startup much less than potential future problems stemming from vague term sheets.

Involving attorneys from the get go also allows lawyers to provide increased value-add through market knowledge; entrepreneurs and investors can leverage that knowledge and experience for their own benefit.  For startups, they can also discuss with their lawyers what is “normal” or “market-value” and what safeguards they should be pushing for, and what they can be more lenient on.  Lawyers have a knack for seeing what can cause a potentially massive lawsuit down the road, but clients need to involve them early on to leverage such knowledge.

Understanding Due Diligence

In most funding rounds, costs start increasing due to due diligence required by investors before a deal is closed.  This means due diligence on the following (if not more) subjects:

(1) Litigation Diligence:  Investors want to ensure that there are no pending or threatened suits against the startup that could materially reduce its value  (they cannot just take your word on this).

(2) Tax and Liability Diligence: Investors need assurance that the startup is up to date on all taxes and potential obligations.

(3) IP Diligence:  The assurance that each IP the startup claims as its own really belongs to the startup and not anyone else. This also includes review of whether there are any open source or similar issues, that all former/current employees/consultants/contractors/founders have legally and properly assigned rights to any IP to the startup, and if reverse vesting of common stock held by key employees is necessary.

(4) Employee Diligence: Ensuring that employees/contractors/consultants/founders have signed properly drafted non-compete, non-disclosure and non-solicitation agreements.  Also ensuring that employees & contractors are properly classified to avoid potential liabilities.  

(5) Corporate Governance Diligence:  Investors want to ensure that the entity is properly formed and corporate governance matters have been properly followed (i.e. startup’s corporate records must be in order; if they are not, lawyers and the startup must go into overdrive conducting a “cleanup” to ensure that everything is up to date, properly documented, and ready for inspection – this can add significant costs and often can be delay, or kill, a deal closing).

(6) Stock Option Diligence: Legal diligence to ensure that all stock option grants were properly approved and 409A compliant; this may also result in a change to the price per share if contemplated on a “pre-money valuation” basis.

(There are more aspects that can drive up the costs, but those listed above can be some of the most time-consuming).

Setting a Cap

Anytime a startup (or an investor) hires counsel, they should ask for a cap on the legal fees; SLF works to ensure that in closing deals such as early financing rounds, our legal bill comes under the cap, however other firms have been known to bill at the cap regardless of complexity or simplicity of the deal.

If an attorney or firm does not want to talk in terms of a cap on the legal fee, it may be prudent to search around a little more.

For more information on startup legal services, email us at sardar@sardarlawfirm.com or join us for a class taught by Benish Shah and Sheheryar Sardar.

 

 

Are Twitter Followers a “Client List” – and Who Owns the Account?

16 Jul

By:  Sheheryar T. Sardar, Esq.
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Technology, Corporate & General Counsel, Startup Law, Project Finance, VC/PE, Arbitration/Mediation, Entertainment, and Human Capital
 

When you start tweeting as part of your corporate position, the lines between what is a personal Twitter account and one made for business purposes is blurred – especially in the world of startups, new ventures, and media companies.  What happens when you leave the company?  Who has ownership rights over the Twitter account – the company, or the employee?

Recently, PhoneDog Media LLC sued former employee Noah Kravitz over exactly this.  Noah Kravitz, while employed by PhoneDog, tweeted under the name “Phonedog_Noah” and upon his departure from the company, Kravitz was allegedly given the rights to keep the Twitter account in exchange for occasional tweets about PhoneDog.  However, Kravitz switched his Twitter handle from “PhoneDog_Noah” to “NoahKravitz” while keep the followers and the good will from the initial Twitter handle.

Under the new Twitter handle, Kravitz increased his Twitter followers from 17,000 to 20,000.  Eight months later, PhoneDog sued Kravitz claiming that those Twitter followers were in fact a proprietary client list, claiming damages of $2.50 per month, per follower – totaling to about $340,000.00 USD.

The question, of course, is whether Twitter followers are in fact proprietary or if they can be considered company property.  This leads to the question: who owns a Twitter account?

Many businesses utilize social media to increase brand awareness, and many employees – especially rainmakers – utilize their personal Twitter accounts to help generate business for their employer.  Since Twitter is not a paid service, the lines are blurred as to who owns the account, especially when the Tweets are related to building business in some manner.

Regardless of the outcome of this case, companies should take steps to develop a written Twitter use policy, establishing the use of Twitter handles for company use.

A few questions employers should pose internally regarding Twitter use:

(1)  If an employee tweets during the work day as part of his/her job description, is that Twitter handle now owned by the company?

(2) Was the Twitter handle created by the employee before joining the company, or after joining the company, and for what purpose?

(3) Were any company resources spent/utilized in the creation and/or use of the Twitter handle?

(4) Can employers restrict/monitor what the employee Tweets about?

(5) Was this a personal Twitter handle that the employee was using for business purposes at the request of the company – and if so, how much of that really “belongs” to the company as opposed to the employee?

(6) Is this something that should discussed and incorporated into an agreement at the outset, or upon the separation of the employee from the company?

For employees, the question comes down to this: how to ensure that their Twitter handle is separate from their employment.  Many journalists face this problem, as they do list in their Twitter accounts where they work, and they also post articles they have written.  While their accounts are personal, there is a clear business crossover.  For some, they put a clear disclaimer in their profile that this is not a company account and is personal; for others, the lines are blurred.  It remains to be seen how and if a disclaimer would be valid in these situations.

The main thing to try and avoid is a “he-said-she-said” battle in the court systems; from both the employer and employee sides.

Personal Liability of Corporate Shareholders

11 Jul

By:  Benish Shah
Sardar Law Firm LLC
New York, New York
Core Practice Areas:  Fashion/Retail, E-commerce, Commercial Litigation, Art Law, Startup Law, Social Media, Mergers & Acquisitions, and Corporate & General Counsel
 
 

It’s a little known fact (especially in the startup world) that New York privately held corporations can hold the top 10 shareholders of such corporations personally liable for any unpaid compensation to the corporation’s employees.

The reason for this is that incorporation does not offer absolute protection to the business owners; otherwise the situation would be one of the wild wild west, and the legal profession does not look too fondly on that.  There are sound exceptions to the protections of incorporations, and one of them is that 10 of the largest shareholders of a privately held corporation may be held personally liable for unpaid compensation.

Main Points

Here are 5 key things to note about this exception (found in Section 630(a) of New York Business Corporation Law):

(1) Corporations only.  The law applies only to privately held corporations; this does not include LLCs or investment companies.

(2) All compensation.  Wages and all other types of monetary compensation are within the purview of this exception, including, but not limited to: severance pay, pension or annuity funds, vacation pay, overtime, and/or contributions to insurance or welfare benefits.

(3) Employees, not contractors.  Only employees are covered, not independent contractors (there is a critical distinction here, see also: Employee Misclassification Can Cost You).

(4) Joint and several liability.  There is joint and several liability amongst the shareholders, allowing the employees to go after only one of the shareholders (likely with the deepest pockets) for the whole amount owed.  The shareholder then can seek pro rata contributions from the other largest shareholders.  

(5) Strict procedure.  Employees need to first attempt to recover unpaid compensation from the corporation; if the judgment remains unsatisfied, then they move towards the shareholders. (There is a procedure that employees must follow, including a written notice under Section 630(a)).

Escape Clause?

This rule applies only to companies that were formed in New York, not to corporations formed in other states that do business in New York.  So for corporations that are concerned about this exception, an escape clause may be to form your corporation in another state (such as Delaware that does not have this exception) and then register in New York State as a foreign corporation.

Sardar Law Firm named “Best Law Firm for Startups”

16 May

For the full article, http://broadstreettimes.com/best-resources-for-startups/

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