It is no secret that entrepreneurs face difficult challenges when attempting to start a business, but for those with their sights set on the ever-evolving world of high tech, the challenges become even more complex.
In today’s digital world, where technology changes at breakneck speed, the window of opportunity for a startup’s product or service can slam shut quickly. However, if a startup moves too fast, it could fall victim to competitors, who could potentially take advantage of the trail-just-blazed in ways that the original startup could not.
This is why it is particularly important to understand the intricacies of protecting one’s product or idea, especially when it comes to the intangible nature of intellectual property (IP).
Robert F. Coyne, director, corporate department at Gibbons P.C., says that attorneys can act as trusted advisors for entrepreneurs.
“We not only need to know and convey the law to our clients, but we must do so within the context of the business,” he says. “Startups in particular will not have the funds to do everything. [We] will work with our clients to prioritize legal tasks and offer interim solutions.”
Rhonda Carniol, member, and leader of the media & technology practice, Chiesa Shahinian & Giantomasi PC (CSG), says that first, an attorney needs to understand a company’s technology so that he or she can advise it on how to use the legal environment to assist with business objectives.
“Many want to ultimately sell the business and look to their attorneys for advice on measures to maximize business value. Others, however, are more interested in operating the business long-term for cash generation,” she says.
Aside from acting as general counsel for her entrepreneur clients, Carniol says that her firm can bring substantial experience with licensing and service agreements and development contracts, as well as with cybersecurity and privacy concerns, IP protection, employment matters, and, if necessary, litigation.
“Most of our intellectual property attorneys have backgrounds working as engineers and/or as in-house counsel for technology businesses,” Gibbons’ Coyne says. “We understand the business issues that go hand-in-hand with IP development.”
A company’s IP can include, for example: patents, trademarks, copyrights and trade secrets. IP law gives individuals and businesses property rights to this information – or intellectual goods – giving economic incentive for its creation.
“Many high-tech startups don’t think about protecting their IP until they are significantly down the path of development,” Coyne says. “Companies need to think about protection from day one. A company needs to establish and clarify ownership of IP with any employee, consultant or strategic venture partner who may be working on the development.”
Coyne says that many high-tech startup founders make verbal arrangements in the company’s very early days with partners, developers, consultants, early family investors, and others, for example, that cast uncertainty over ownership of the company and of IP rights.
“This uncertainty can have an adverse ripple effect on the company’s ability to commercialize its product or attract investors as the company grows,” he says.
To eliminate any uncertainty, Coyne says the business should obtain a non-disclosure agreement from any third-party with whom it meets and discloses its IP or business plans. Contracts should also be entered into that identify the owner of any newly developed or invented IP.
Carniol adds that sometimes entrepreneurs are reluctant to spend money on legal costs, another decision that could scare off potential investors. She says that a small investment up front can also mitigate costly mistakes on the backend.
“I’ve heard horror stories of startups running out of cash after becoming involved in trademark infringement claims or having to deal with consultants still technically owning unique aspects and functionalities of their technology,” she says. “A more common scenario is a startup that enters into an onerous agreement with its initial customers, and gives up ownership of its development or takes on liability risk that is not standard for technology companies.”
Of course, IP laws differ from country to country, which further highlights the need for assistance when navigating international law in today’s global economy.
“Those dealing directly with consumers and personally identifiable information (PII), for instance, should closely follow developments related to privacy regulations since some laws – such as the European Union’s General Data Protection Regulation (GDPR) – define PII more broadly than others,” Carniol says.
Robert E. Rudnick, director, intellectual property department and member, early-stage business team at Gibbons P.C. explains that even before companies are ready to do business in non-US jurisdictions, they need to begin thinking about the steps they need to take to preserve the right to protect their IP where they are likely to engage in business down the road.
“Publication of their IP developments before taking steps to register such IP may have adverse consequences on their ability to obtain patent and other IP protections in non-US jurisdictions,” he says.
The coronavirus has hit nearly all businesses hard, but as Coyne points out, startups in particular were likely operating at a loss even before the pandemic.
And while in some cases, the current working environment has sparked business growth for startups facilitating successful remote working environments, more often, according to Carniol, the concern is the business’s continuity given the unprecedented nature of the current environment.
“You may have a vision to grow during this period, but for some, stabilizing and remaining stable is sufficient,” Carniol says. “Unfortunately, some companies are also concerned about retaining their employees and potentially having to make difficult lay-off decisions. We are also finding that clients have many questions about contractual force majeure clauses, which account for unforeseeable circumstances that prevent the fulfillment of a contract.”
Dorit F. Kressel, member and co-chair of the public finance group, CSG, suggests that high-tech startups impacted by COVID-19 consider whether they are eligible to participate in the NJ Entrepreneurship Guarantee Program, a new initiative of the New Jersey Economic Development Authority (NJEDA). The program provides an opportunity for a startup to get an infusion of working capital by giving the equity investor some protection in the form of a partial NJEDA guarantee.
“The NJEDA will guarantee a portion of an investor loan advanced for working capital to a qualifying entrepreneurial business,” Kressel says. “The investor must have previously supported the startup in the form of a convertible note, SAFE (simple agreement for equity) or equity investment, as of March 9, 2020. To be eligible for the guarantee, the new investment must have been made after March 26, 2020 – the date of President Trump’s emergency declaration for the state.”
Whether it is navigating through uncertain times during a global pandemic, or ensuring that one’s IP is protected, law firms can provide the guidance needed for entrepreneurs to make educated decisions about the future of their business.
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