Corporate Housekeeping for Emerging Tech and CPG Startups
Founders need to comply with dozens of laws, large and small. A good corporate lawyer will help quarterback compliance, but founders should understand basic corporate housekeeping matters. This post highlights some common legal risks for technology and CPG startups. If you address these issues early, there is usually a efficient solution. If you let them fester, they become extremely expensive.
Chinese Trademark Pirates
Chinese trademarks are awarded to the person to file an application, not the first person to actually use the brand. This incentivizes trademark pirates and squatters to rush in and register your trademarks before you can. They then ransom the trademark registrations back to you for a hefty price. Here's how to avoid this nightmare scenario.
Yes, AI Art Can Be Copyrightable
Generative AI models are trained on massive sets of image data. And the training images are often scraped from the internet without permission. A human user can then type in a short prompt, and the software will return incredible images. Does the person who entered the prompt own the copyright to the resulting image?
Copyright and Fair Use Issues In The Andersen v. Stability AI Art Litigation
To make AI art, you take a few billion images, puree them into a fine mathematical slurry, and then assemble new art from the flecks of expression and authorship floating in the mixture. This raises interesting copyright questions! Is AI Art like the first amoeba crawling forth from primordial ooze: something entirely new made from existing molecules? Or is it more like T2: a puddle reforming into the same old monster?
Low-cost trademark mills can't provide the guidance you need to build a defensible brand.
A trademark mill can slap a trademark app together for $99, but you get what you pay for. An experienced trademark lawyer provides counsel on complex legal issues that often involve difficult judgment calls. If you're building a real brand, then you need a real lawyer.
Post-Money SAFEs Give Investors Extreme Anti-Dilution Protection. Here’s How to Remove It.
Post-Money SAFEs give investors a very strong type of Anti-Dilution protection; one which is extremely unfavorable to founders and other common stockholders. Investors get protection from both downrounds *and* up rounds. This post proposes a solution to remove the extreme investor anti-dilution. It also provides a spreadsheet comparing the economics between Pre-Money SAFEs, Post-Money SAFEs, and our proposed amendment to the Post-Money SAFEs.
Common Option Grant Mistakes Seattle Startups Make
Take some time to learn about these common errors, such as granting options at below fair market value or with a stale 409a valuation, issuing ISOs to a contractor, or promising employees a percentage of the company rather than a fixed number of options.
The (Big) Problem with Post-Money SAFEs
Y Combinator's post-money SAFEs shift dilution from investors to founders.
Short Term Sheets Hurt Startups
Once you sign a term sheet, you are locked in with a 'no shop' clause. Some of your negotiating leverage slips away. Aim to nail down the material terms while negotiating the term sheet, while you have more leverage.
Granting Pro Rata Rights to Convertible Note Investors
'Pro rata' rights are an investor's right to invest money in the *next* round, and in an amount that will maintain the investor's current ownership percentage. Should you grant pro rata rights to early investors in your startup? It depends on a few factors.
Checklist for Engaging a Seattle Startup Lawyer
Do they have the right background? Can they scale? Are they the right size for your startup or just overkill? Can you trust their advice when negotiating against investors?
Trademark Fair Use
You can generally use another company's trademarks, without infringement, for purposes such as news reporting, commentary, parody, comparative advertising and advertising compatibility. The rules are tricky, so discuss your advertising with counsel before going live.
How do I Protect My Trademark Internationally?
Trademarks rights are *territorial*, meaning that you need a trademark registration in each country where you want to protect your brand. Building an international trademark portfolio is expensive, but a worthwhile investment for consumer products and technology companies.
Postponing Incorporation Until Jan 1 Can Save a Bit of Tax
Most startups pay the minimum DE franchise tax of $350. Startups pay this minimum for each year of existence, even if they incorporate on December 31.
Negotiating a Master Service Agreement in Tech Deals
The Master Service Agreement and Statement of Work describe what is being delivered, and what happens when things go wrong. This post runs through common contract terms, provides some negotiation tips, and highlights issues you may want your MSA to address.