Environmental Lawyering for Responsible Start-Ups

By: Tyler Archer

As the modern economy becomes greener and more efficient, environmental considerations are requiring more and more attention. This is especially true as older factories, mills, and manufacturing districts are being retooled and repurposed. To cope with changing priorities, small businesses should consider contracting with environmental lawyers and professionals to conduct an environmental audit, which can be a valuable tool for starts-up in identifying risks, correcting problems, crafting successful deals, and building responsible companies.

The goal of an environmental audit is to reduce environmental exposure. Operationally, this is important because pollution can always trigger potential enforcement, which can be detriment to both the bottom line and public perception. And from a deals perspective, increased risk can reduce bargaining power and can bring down the deal all together. The environmental audit and due diligence process generally includes the following: identify the framework, develop standards, document and analyze results, and establish a follow-up procedure.

For the purposes of this blog, envision a fictional start-up working in light manufacturing and machining. They operate in a centuries-old factory building, regularly use oils and other chemicals, and produce a moderate amount of metals and packaging waste. Assume the manufacturing company is looking to improve its environmental record in the hopes of securing a buy-out from a larger competitor, and approaches a law firm for guidance. (Many of these environmental and considerations would not apply to technology start-ups, unless they manufacture hardware.)

The first step is the most important. Without the appropriate framework, the environmental audit won’t prove successful. It begins by identifying the relevant statutes, regulations, and jurisdictions. Insurance requirements are also worth reviewing. For example, our manufacturing start-up regularly uses metals, oils, and other potentially environmentally risky products which can implicate a range of rules regulating discharge, storage, and disposal.

After establishing the framework, the next stage is all about collecting data. As always, proper documentation is extremely important, particularly if there is a chance of appearing before a court. There are two important steps in this stage: reviewing the start-up’s documents and operations. While the document review is fairly straight forward—and can include state and federal filings and employment and vendor agreements — “walking the land” is vital. Examining the facilities and operations first hand provides valuable context and can reveal problems and inefficiencies that can be overlooked in paperwork.

In a transactional setting, it is important to realize the other party—whether friend or foe—will be conducting their own due diligence for the deal. While they may not have the same access, particularly to facilities and employees, they will certainly review public documents and industry contacts. They will be concerned about inheriting environmental liabilities, and this play out in the structure of the deal. For example, a potential buyer may prefer an asset sale and dissolution, which would erase all liability, rather than a merger, which would transfer liability to the successor.

In the final step, creativity is key. Working with their attorneys and business advisors, the start-up should develop ways of addressing the environmental issues identified by the audit that are both business-friendly and sustainable. Some—such as purchasing more robust oil storage containers—can be simple yet impactful. Others can require a bit more ingenuity—such as redesigning the plant to reuse excess heat in the building rather than as a discharge, thereby reducing pollution and lowering energy bills long term.

Regular environmental auditing can be a valuable tool for managers both from an operations perspective and in the context of a corporate transaction. In general, companies need to consider how the various laws and responsibilities impact their operations (i.e. production) and bureaucracy (i.e. paperwork), and how they can be creative in addressing these issues. This can be particularly important to start-ups, where inefficiency and wasted capital can change the trajectory of a new business. By incorporating environmental responsibly into their business plans from the outset, start-ups can set themselves up for a sustainable and profitable future.

 

Watering Hole or Money Pit: The State of the Liquor Licensing System in Boston

By: Saba Habte

Location, location, location is a well-established mantra emphasized by entrepreneurs, as an integral component for a successful business. If you are a budding entrepreneur planning to open a restaurant in Boston, you may be saying license, license, license—and for good reason. Thanks to an 84-year-old state law from the bygone years following Prohibition, obtaining a liquor license, while a significant determinant of financial viability, is practically unattainable, particularly for small/local and minority business enterprises. Due to the high demand and limited availability, liquor licenses have become a precious commodity for business owners, as a license can cost upwards of $400,000.

Origins of Libation Laws in the U.S.

In 1920, the Eighteenth Amendment banned the manufacturing, sale, and distribution of liquor. As a result, the Prohibition era began, ushered in by advocates who thought a federal ban would lower crime rates and improve the nation’s character and economy. After 10 years of Prohibition, however, the economy began to suffer as breweries, distilleries, and saloons were shut down, projected sales in the purchase of other goods and entertainment dropped, and restaurants could not make enough money without liquor sales.

The government lost valuable excise tax revenue totaling $11 billion dollars. Despite spending over $300 million to enforce Prohibition, crime rates rose with a rise in illegal alcohol distribution (or “bootlegging”) and the spread of illegal drinking spots (or “speakeasies”). Support for Prohibition waned and ultimately lead to the Twenty-first Amendment repealing prohibition.

Origins of the Liquor Licensing System in Boston

Following the repeal in 1933, state legislatures took control of alcohol licensing, wary of the predominantly Irish city council and the stereotypes regarding Irish drunkenness. As a result, an arbitrary cap (or quota) was placed allotting a limited number of liquor licenses to municipalities throughout the Commonwealth and mandating legislative approval for any additional licenses requested. Unfortunately, there has been very little progress on expansion of the amount of license’s granted since the law’s enactment 84 years ago.

Maintaining the Status Quo-ta

Most municipalities in Massachusetts are apportioned one on-premise license for every 1,000 residents, with the option to request additional licenses as the population increases. Boston, however, is not privy to these increases and has an arbitrary cap that has rarely been raised.

According to the Boston Licensing Board (last updated December 2016), there are about 1,100 total liquor licenses available, which are only 130 more than originally allocated in 1933. Once this cap is reached, prospective new restaurateurs face the choice of either purchasing an already issued permit (i.e. from a restaurant going out of business/closing), which can cost up to $400,000 or more or losing potential revenue from not serving alcohol. The latter option, however, creates an uphill battle since the availability of alcohol in a restaurant can either make or break a business.

The cap has only been raised twice since it was set in 1933: 2006 and 2014. In 2014, state legislatures granted the city of Boston 75 new liquor licenses to be issued over 3 years, with 60 of those new licenses restricted to underserved neighborhoods, such as Dorchester, Mission Hill, Roxbury, and Mattapan. Mattapan, however, still has no restaurants that serve alcohol, and has only 2 full licenses in the city: one for a local veteran post and another for a nightclub. Implemented to promote economic growth in the designated neighborhoods, these restricted licenses are leased from the city and cannot be used anywhere else. When a restaurant holding this license closes, the license will return back to the city and be earmarked for the same neighborhood. These licenses cannot be sold on the private market, since the owners do not own them.

Reform

This strict and outdated cap and quota especially impacts small businesses, which rely on alcohol sales for a significant portion of their profits. The financial constraints and the high cost of doing business tend to also affect small/local and minority business enterprises’ ability to bring cultural, artistic, culinary, and economic development to underserved, less affluent neighborhoods, in need of revitalization.

Councilwoman Ayanna Pressley recently introduced a new proposal, which would create over a hundred low-cost licenses. Pressley says, “the proposal is both fair to existing owners and will put us one step closer to creating more jobs, closing the wealth gap, enriching the quality of life for residents, as well as making neighborhoods a destination location.” If approved, the legislation would provide 105 restricted licenses costing about $3,000 for lower-income neighborhoods, in addition to a new bill that would create 30 additional licenses that could be used anywhere in the city. The latter has current restaurateurs very concerned.

Devaluing the Liquor License

Current restaurateurs fear that dismantling the current quota system or allowing more establishments to obtain these liquor licenses will lower the value of their existing licenses. The concern stems from the worry that new restaurateurs with low-cost permits could provide similar services better priced against existing restaurants already in debt to investors or banks for their full-cost licenses, oftentimes the restaurateur’s biggest asset. Massachusetts alcohol attorney, John Connell, believes that many ‘would-be restaurants’ will sit on the sidelines, not finalizing their leases, and wait for the lower-priced licenses to become available. Furthermore, creating additional licenses may diminish an already decreased supply of food workers, particularly in the uncertain setting of immigration policies.

Conclusion

Massachusetts’s old licensing system is outdated and change is needed to rectify the scarcity and astronomical costs of liquor licenses. Councilwoman Pressley’s proposal appears to take a more balanced approach to the licensing system, ensuring that both historically disadvantaged neighborhoods and larger establishments receive a share of the licenses to be issued. Nonetheless, the objective in any licensing system should be to serve the public interest, not to sustain the value of personal investments.

 

A Select Few: The State of Digital Advertising

By: Stephen Anderson

The New Digital Landscape

            In the early days of the worldwide web, digital advertising was straightforward.  Consumers had access to free content and, in exchange, would endure advertisements.  A cursory glance at the industry seems to show this is still the status quo and, consequently, life is good for digital advertisers.  Global spending in 2017 is expected to be around $229 billion, with projections for 2020 north of $335 billion. [1] However, life is in fact not good for the entire industry.  It is good for only a select few.

Where there is growth in an industry, there is typically room for startups.  Although the digital advertising space is undergoing rapid growth, startups are being squeezed out.  This is due to the concentration of earning power in only a handful of companies, namely Google and Facebook, and the emergence of ad blockers. [2]

There are primarily two types of startups that find themselves in the digital advertisements industry: those that specialize in advertising technology (ad tech), and those that rely on digital advertising for necessary capital (content publishers).  While they are drastically different businesses, both are experiencing the difficulties born from this newfound landscape.

Time to Fold

Although content publishers find themselves on uneasy ground, ad tech startups may be watching the floor fall out from beneath them.  Simply put, it is looking increasingly likely that venture capitalist investments into ad tech has already peaked and is now falling off at a rapid pace.  Since the peak of ad tech deals in 2013, the pace of venture capital investments have dropped by almost 80 percent. [3] Many argue that this is direct correlation to the market consolidation that is taking place. [4] Ad tech startups can thank Google and Facebook for this new reality.

Independent ad tech startups are having trouble finding advertisers to do business with because of the Google-Facebook duopoly.  While they are still able to attract business in certain niches, this will not provide sufficient means for most ad tech startups to stay afloat. [5] Google and Facebook began focusing on how to entice consumers to click ads and are now bearing the fruit of their labor.  To give context, together the companies earned nearly two-thirds of the Internet advertising revenue in the U.S. in 2016. [6] Adtech startups do not have enough revenue to share amongst themselves and that fact alone is pointing towards a flood of consolidation.

Blocking out the Haters

            Content publishers, on the other hand, are facing a different type of challenge.  To say that ad blocking companies are divisive would be an understatement.  Extortionists.  Internet killers. Unethical, immoral, and mendacious covens of techie wannabes.  These all are terms that have been used to describe ad blockers. Nonetheless, as much as digital advertisers may disapprove, it is not illegal to block advertisements. [7] Readers have the fundamental right to decide what content and which scripts enter their system.  Specifically, courts have found that Internet users have a legitimate interest in the prevention of undesired advertising, protection from malicious software, and control of their data. [8] By downloading ad blockers they are exercising that right and filtering the content they digest.

            To be frank, the popularity of ad blockers is more than understandable. They slow down the speed of browsers and, aesthetically speaking, make webpages cluttered and unattractive.  For these reasons, it is no surprise that, as of last year, around 600 million devices were using some form of ad blocking software and there was a 30 percent year to year increase in the use. [9] From the publisher’s point of view, if they lose ads, they lose money.

Legality of Ad Blockers

In order to fully appreciate the impact that ad blockers have caused to the advertising industry, it is necessary to understand the legality of the software.  At a basic level, it helps to define the software’s role not as blocking advertisements, but as filtering advertisements.  They are “selective downloaders.”  This distinction is the primary reason they have prevailed in a number of court decisions, both in the United States and Europe.

            Ad blockers, such as the popular and litigious, AdBlock Plus, are considered filters due to their software programs that whitelist select publishers.  In the case of AdBlock Plus, there are two avenues that allow publishers to become part of the list.  They can either meet a set of criteria or, if you are a larger company, such as Google or Facebook, you may pay.  Although many in the advertising industry have described this as a “patronizing and obnoxious form of gatekeeping,” it is perfectly legal. The reality of the situation is that the large advertisers, such as Facebook, Google, and Verizon, will pay to bypass the ad blockers.

            Not all ad blockers, however, are acting legally.  In the United States, the Digital Millennium Copyright Act forbids the circumvention of a technological measure that effectively controls access to a copyrighted work.  The problem is that some ad blockers do precisely that.  They employ circumvention technologies that elude the defensive measures utilized by publishers. [10] The appearance of this software is not beneficial for any part of the advertising industry, and in response there has been a concerted effort, particularly by the Interactive Advertising Bureau, to put forth principles that address ad blocking.  This response legitimized ad blocking as a recognized tool for enhancing the consumer’s experience.  Whether advertisers like it or not, consumers may now voice their displeasure of intrusive advertising.

Room for Startups?

With all of the above in mind, it would seem that these startups face an uncertain future.  Unfortunately, this is their reality.  Ad tech startups will likely have to consolidate or scale their business to the niche they find themselves in.  Content publishers that rely on website traffic and advertising funds are faced with a new ad blocker-insulated world.  Many publishers, likely including your favorite blog, rely on advertising to fund the free content they provide.  Ultimately, advertising and digital publishing industry must adapt to the new digital age.  Although all may seem bleak, not all hope is lost.

One avenue content publishers can pursue is native advertising.  In order to be a native advertisement, the content of the ad has to align websites style and tone, while also providing information that the website’s audience expects. [11] For example, in a blog the advertisement will look, or at least attempt to look, like any other post on the blog.  The difficult aspect of native advertising is the sincerity, or lack thereof, of the post.  Additionally, the FTC requires advertisements to have certain keywords, such as “sponsored by.”  Ad blockers are forcing content publishers, and the digital publishing industry in general, to become more creative and ingratiate advertisements in a way that is ultimately enjoyable for the consumers, such as the advertisements seen on Instagram.

            In spite of the Google-Facebook duopoly, there are examples of ad tech startups still succeeding. Trade Desk, for instance, went public last year and, earlier this year, reported earnings north of $28 million. [12] Additionally, there is a possibility that companies such as Snap and Pinterest could challenge these giants, and ultimately dilute their share of the market.  If so, ad tech startups could, at least in theory, attempt to take back a percentage of the market.  At the very least, they could expand the niche many find themselves in. 

            At the end of the day, the current landscape of the digital publishing industry makes it difficult for startups to succeed.  Whether it is a well-funded ad tech startup or a content publisher that generates consistent viewers, larger companies and market forces are dictating the terms of the playing field at the moment.  Nevertheless, it will be interesting to track the variety means by which these startups attempt to navigate these obstacles.

 

Ride-Sharing & Autonomous Vehicles: Social Responsibility in the Tech Environment

By: EIC Student

Let’s Uber

“Let’s Uber” has become just as popular as phrases like, “just Google it” or “pass me a Kleenex.” The name of the company is now ubiquitous.

Uber was founded in 2009 and is now available in 84 countries and 734 cities. In October 2016, Uber had 40 million monthly riders. Lyft is catching up to Uber’s market share.

This blog post focuses on the ways that ride-sharing companies and autonomous vehicles impact our society. From auto-industry workers to urban transportation, the rapid advance and adoption of these services are changing our social fabric.

What Happens to the Auto Industry?

The question becomes: what happens to auto industry workers, valet attendants, taxi drivers, car service companies, truck drivers, for-hire drivers, para-transit drivers, and auto-shop workers? Is it the social responsibility of companies, such as Uber and Lyft, to address the loss of jobs and changes in these industries? Can lawyers help?

There are arguments both for and against these changes. The below sections will address each side of the argument. Then the blog post will then address the role of lawyers in the equation.

The Benefits of Disrupting the Auto Industry

Many advocate for the expansion of ride-sharing services and autonomous vehicles. Here are some of the arguments:

·         Uber and self-driving cars allow the elderly to regain mobility as many no longer have a driver’s license due to vision impairment.

·         Self-driving cars reduce the number of deaths on the road because most accidents occur due to human error.

·         Under a ride-sharing economy, a car owner that only drives a few hours per day is now able to gain additional value in working as an Uber or Lyft driver.

·         Riders will no longer be bogged down by a road-rage-filled commute. Instead, commuters can talk on the phone with family, catch up on work, read or rest.

·         Traffic and fuel efficiency will improve resulting in a reduction in carbon emissions.

The auto-industry is jumping in headfirst: General Motors invested $500 million in Lyft for self-driving vehicles; Ford acquired Chariot, another ride-sharing service; and other car companies are investing in similar ride-sharing initiatives. Lyft has created Lyft Express, in which the company provides drivers with cars to increase the cars available for users. Alphabet is about to invest $1 billion in Lyft.

Chris Urmson, CEO of Aurora Innovation, believes that there will no longer be a need for individual car ownership. Aurora Innovation designs and develops the sensors, software, and data services needed to deploy autonomous vehicles. Urmson believes that people own cars out of convenience, but that most drivers do not enjoy driving. Instead, Urmson thinks that people will gravitate towards the ease with which they can ride in an autonomous vehicle. Urmson views autonomous vehicles as functioning like buses or a subway system in an urban center, except, the vehicles will be specifically geared towards the riders’ discrete destination.

The Argument Against Disrupting the Auto Industry

On the flip-side, there are many opponents to the vast changes that are impacting the auto industry. How can Uber help a person who lives in a rural area without cell service? How can Lyft help an elderly person who does not know how to operate a cell phone to call a ride? While “disruption” and the ease of calling an Uber enhance the lives of many, these advancements have no impact on or detriment the lives of others. Here are some of the arguments:

·         Self-driving cars and ride-sharing services destroy the auto industry, a central and historical asset to the American economy.

·         Some fear the general advances of robots, as humans may lose control of their creations. The New York Times recently titled an article, “Facebook’s Frankenstein Moment,” discussing how Facebook is no longer able to control its product.

·         The imperfection of the autonomous vehicle technology scares Americans, especially after Tesla’s accident in which a driver died while the car was on autopilot.

·         Loss of jobs is the main reason that many oppose autonomous vehicles and ride-sharing services. These services would wipe out taxi drivers, truck drivers, etc. For example, New York City has 45,000 for-hire drivers whose careers could be erased.

·         Federal and state regulators are not ready to implement regulation that addresses a mix of self-driving and non-self-driving cars on the road.

While there are arguments on both sides of the coin, ultimately, ride-sharing services and autonomous vehicles will become a tenet of our technologically-driven society. As a result, we must figure out the best way to move forward.

Social Responsibility and How Attorneys Can Help

Scott Galloway, Founder of L2 and NYU Professor, believes that Uber is so entrenched in our society that even with the recent scandals, the company is not going away anytime soon. Urmson believes self-driving cars and autonomous vehicles will have a grave impact on the jobs of millions of American workers. Thus, these companies have a social responsibility to address their impacts on society.

This is where attorneys can provide value. Attorneys can counsel ride-sharing companies and autonomous vehicle companies to consider their social impact on the broader workforce.

There are two ways that attorneys can help:

1. Create Programs for the Existing Large, Tech Companies in the Auto Industry

·         Attorneys can draft decrees that show the companies’ commitment to helping industry-specific workers.

·         Attorneys can brainstorm ways to assimilate industry-specific workers into a new tech force for the ride-sharing and autonomous vehicle economy. They can create programs in cities like Detroit, New York City, and Pittsburgh to train auto industry workers, truck drivers, and for-hire drivers to work in conjunction with the autonomous vehicle production, vehicle repair, vehicle oversight, and vehicle dispatch.

·         Attorneys can engage in corporate governance to ensure that the companies consider the ripple effects of their services.

2. Guide New Tech Start-ups in the Ride-sharing and Transportation Space

·         Attorneys can guide the smaller start-ups with their leadership and goals at the outset of their formation to consider these issues.

·         Attorneys can help guide the entrepreneurs to sources to inform them about effective leadership. Frances Frei, currently SVP at Uber for Leadership and previously a Dean at Harvard Business School, has written extensively on leadership and is now trying to help Uber through its leadership crisis. Amongst other things, Frei believes that founders should focus on the first 180 days and engage in teamwork.

·         Attorneys can help implement hiring programs that source applicants and professionals from rural areas and non-coastal areas to create a more diverse employee base.

Attorneys can help steer the conversation towards the social responsibility of these companies.

Conclusion

As cars are viewed as a service instead of a good, as autonomous vehicles take over the jobs of drivers, and as ride-sharing services flood cities, it is incumbent on attorneys to advise these companies to consider their social impact. Attorneys can guide entrepreneurs and companies to engage in socially responsible behavior as we continue to embrace the advances in technology. 

Change is good, and “disruption” in the auto industry may result in more efficiency, accessibility, and autonomy for all. Let’s Uber.

 

 

 

Films as Startups: A Legal Guide for the Indie Filmmaker

By: Sammy Zand

The film industry is changing. We no longer see the days where writers shopped a script around Hollywood, hoping to catch the eye of a major production studio. Instead, that model has turned upside down. Films are aiming to captivate an audience first, without the assistance of studios. Technology and social media have made it feasible.

Instead of following a more traditional path of production, a writer may enter his feature-length script into a contest, or create a small teaser to get the premise of the film in front of a large audience. If the film is bought, it will then lead to a feature-length film. The teaser trailer acts like a short pilot that will reveal the numbers to potential investors and financiers up front.

Studios spend a tremendous amount of money in marketing the film, but independent filmmakers are now capable of distributing their content in even the smallest of budgets. Websites like Facebook, Kickstarter, and Twitter have changed the way films are now made.

For example, film director, actor, writer, and producer, Edward Burns has said that twitter has fundamentally changed the way he makes films. Thanks to social media, the independent film movement is in a renaissance. Burns created Newlyweds on a $9,000 movie budget in 12 days. Twitter helped Burns connect with people that really care about the work in the most effective way to get things seen. Since joining Twitter, Burns answers questions from fans, shares his filmmaking process and yes, uses his followers to promote his projects. While studios spend incredible amounts of money in raising awareness as to the digital and home availability of their films, Burns was able to accomplish that completely through Twitter.

Edward Burns is one of hundreds of independent filmmakers that have chosen this alternative route. Amazon and Netflix has made that even more possible. Last year, Amazon bought five independent films, including the Oscar-nominated film, Manchester by the Sea for a reported $10 million. Meanwhile, Netflix has picked up streaming rights for many other films and announced it will produce a slate of indie films. Technology is changing film production. More and more filmmakers are taking the independent film route.

For those that are beginning their “indie venture”, there are important legal issues that independent filmmakers must face. 3 major areas of concern are: business structure, crowdfunding, and intellectual property rights.

Business Structure

Just like any other business or when starting any new venture, the first question an entrepreneur faces is how to organize the business structure. The same goes for independent filmmakers when setting up a production company. The best choice of business structure will depend on the objectives of the filmmaker in balancing four considerations: control, financing, liability, and tax obligations. Often times, these four areas are in conflict. The filmmaker must determine the nature of the project early in its existence, because the planning choices may dictate some of the subsequent choices available to the filmmaker. But, business organizations can change as the situation evolves.

A Sole Proprietorship: Here, a single person is personally responsible for all aspects of a business. Unless the filmmaker works with a partner or adopts a more formal legal structure for his film company, he is considered a proprietor by default. A sole proprietor is never separate from its owner and all control stays with the business owner, including all liability like debts, promises, and obligations. Without a separate legal entity, there are few formalities. While the primary benefit is that of simplicity, the single biggest drawback is the personal liability the filmmaker takes. This model also does not accommodate fundraising. The filmmaker can take out personal loans, but the sole proprietorship is not suited for raising capital from third parties.

Corporations: An S or C Corp is managed by a board of directors, operated by its officers, and owned by its shareholders. The corporation provides the shareholders with limited liability for all acts conducted on behalf of the corporation and protect the officers, directors, and employees from many forms of personal liability. Yet one of the key features is separation of management from control. The shareholders (investors) control the corporation and operate by electing a board of directors. The board is then bound by operating rules established in the corporation’s bylaws. For many filmmakers, this complexity may seem extreme. But, most states (including MA), allow a single person to serve as the board of directors. Perhaps the biggest downside to operating a corporation is following the corporate formalities. An S Corp. can only have 75 stockholders or fewer, while the number of a C Corp.'s stockholders is unlimited, but the latter is subject to "double taxation" (first on the corporation, then on the individual level).

The LLC: For most independent filmmakers, a limited liability company is the best choice for forming a film production company. It can be taxed as either a corporation or a partnership, and its operating agreement is more flexible that corporate bylaws for structuring the film company’s operations. The personal liability shield is effectively the same as a corporation. Many filmmakers also hope to launch an ongoing film company with the hope of creating multiple projects but they need to keep investments of each film project separate in order to ensure that the profits from each film are distributed to the investors of a particular project. To accomplish both goals, a popular structure is to create one umbrella company formed as an LLC to be owned and operated by the production team or single film entrepreneur, and then that umbrella LLC will be the sole manager of a second LLC that is formed to finance, develop, and distribute a particular film. Investors of the movie are members of the second LLC. Nonetheless, a different structure may be preferred. It depends on the particular makeup of filmmakers and investors. For films that are heavily financed by outside investors, the traditional corporate form may be best. Investors can be often times reluctant to participate in an LLC, and may prefer a more traditional corporate structure to purchase shares that invest in an LLC.

Crowdfunding

Crowdfunding has become a popular choice for filmmakers who are unsure of the size of units they will need, or anticipate approaching a large swath of different investors. Each crowdfunding company has a different set of rules for fundraising, and, very often, you have to provide your contributors with "rewards" in exchange for their funding. Kickstarter is the most famous of these companies.

Kickstarter: projects must reach goal in order for project creator to receive funds. Kickstarter is free to sign up, 5% fee to funds raised, plus Amazon Payments processing fees.

Indiegogo: allows you to choose to get the funds earned for projects, whether or not the project reaches its goal. Indiegogo charges a 4% fee to funds if the project reaches its goal, 9% fee to funds if it does not, plus 3% credit card processing fee and $25 wire fee for non-US campaign.

RocketHub: is a lesser known crowdfunding site, but appealing for indie filmmakers. It allows you to get the monies raised for a project, even if you don't reach your goal. They charge a 4% fee to funds if the project reaches its goal, 8% fee to funds if it does not, plus 4% credit card processing fee. Side note: RocketHub has an affiliation with A&E Networks, which may be useful.

Intellectual Property Protection

Intellectual property rights refer to property rights over creations. This includes screenplays, motion pictures, sound recordings, and more. The types of intellectual property rights most important to independent filmmakers are those concerning copyright, which gives the copyright owner the rights to reproduce, adapt, arrange, perform, display, distribute, or sell copies of the work. Gaining a copyright over a screenplay is simple. It only requires that the idea be in a tangible form. Writing it into a screenplay will suffice. However, unless it is registered with the US Copyright Office, a lawsuit for damages in the event of infringement cannot be brought. Filmmakers should also be certain not only to protect their own work, but also to make sure they are not infringing on the copyright of others as they begin a project.

Patent Considerations For Start-ups And Small Businesses

By: Michael Thomas

Protecting intellectual property rights are a concern for many start-ups and small businesses. Patents, trademarks, copyright, and trade secrets are all forms of intellectual property protection available to start-ups and small businesses. Of these four types, patents generally raise the most questions and are the hardest to acquire. Knowing what exactly a patent is, if the invention qualifies for a patent, and information on how to file for a patent can help a start-up or small business decide if a patent is the right choice. 

The Basics: What Is A Patent?

A patent is a property right awarded to the inventor by the United States Patent and Trademark Office (USPTO). This right allows the owner to exclude others from making, selling, or using his or her invention. Much like other forms of intellectual property, the USPTO plays no role in enforcing this right and it is up to the inventor to ensure there is no unauthorized use of his or her invention. In most cases, this right to exclude exists for a period of 20 years from the date the inventor files for a patent. From a policy standpoint, this grant of exclusivity is offered in exchange for the inventor sharing his or her invention with the public. It is important to note that patent rights granted in the United States are only valid in the United States. If the invention is something that may be used globally, it is important to consider filing in different countries during the application process. Another thing to keep in mind is that the validity of a patent can be contested at any time. This means that even if a patent has been granted by the USPTO it can be challenged and found invalid before the 20 year period is up.

How Much Does It Cost To Get A Patent And How Long Will It Take?

            The cost of acquiring a patent can vary greatly depending on whether a patent attorney is used or the inventor decides to file on his or her own. The USPTO lists all of the current application fees on its website. For a basic patent application these fees will range from $280 for larger companies, down to $70 for small companies and individual inventors. Using a patent attorney to file the application will raise these costs but is recommended, as it will ensure the best chance for success. Filing an application on your own can be much cheaper but one should balance the cost savings with the time it will take to learn and work through the process.

            Although much of it is time spent waiting, the process of filing to ultimately receiving a patent can be a long one so patience is key. The USPTO keeps track of the estimated time to complete the application process, which currently sits at a little under three years. This timeframe can play a role in the choice of pursuing a patent, as the patent may not be as valuable in three years when it finally issues.

Is My Invention Eligible For A Patent?

While there are a number of statutory requirements that must be met, one of the basic requirements is that the invention must fall into one of the allowable subject matter areas. The Patent Act states that the invention must be directed towards a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” In many cases an inventor can see if they qualify by asking themselves which of the above categories their invention falls into. While these categories cover a large breadth of products and the processes for making those products, it does not cover things such as abstract ideas, laws of nature, and literary or artistic works.

Is My Invention Novel?

One of the most important requirements, and well-known ones, is that the invention must be novel. While this seems like a very straightforward concept there are a number of subtleties that can be unknown to someone unfamiliar with the patent system. The concept of novelty is covered in 35 U.S.C §102. In 2012 the America Invents Act was passed and changed the United States patent system to a first to file system, making the United States system consistent with the rest of the world. Under this system the inventor that files first with the USPTO is entitled to the patent even though another inventor may have developed the concept first.

A simple step that can be taken to determine if your invention is novel is to conduct a simple cursory search of current patents and pending patent applications. This can be helpful as it can save the inventor time and money if a quick search reveals that someone else has already considered the invention. Both the USPTO and Google offer patent specific search engines that are extremely easy to use. Google Patents provides a layout that will be familiar to most people and offers a very user-friendly format. In addition, Google Patents can search not only patents but also articles that may have addressed a particular invention or concept. For those a little more familiar with patent searches, Google offers an advanced patent search engine as well.

While a search is unlikely to reveal the exact invention, it can give the inventor an idea of what currently exists and presents an opportunity to think about what makes their product truly innovative. In many cases, an inventor has a truly novel product but hasn’t quite articulated what makes it worthy of a patent. This can be an important step in acquiring a patent because the USPTO will require a well articulated reason for what makes the product innovative compared to similar inventions. A patent attorney can be very helpful in crafting language that explains the invention in a way that increases the chances of acquiring a patent.

When Should I File For A Patent?

In some instances it may be advisable to wait before filing, for example if funds are low for a new business and other costs take priority. However, in most cases it is important to consider patenting your invention during development or soon thereafter because our patent system is a first to file system. This is also important because even though an inventor may have filed the application first and no one else has patented the invention, there are a number of requirements that can disqualify an invention. An important thing to remember is that any public disclosure of the invention prior to the filing date can disqualify the inventor from obtaining a patent. For example, a public sale of the product, use of a process to make a product, or even publishing a paper a year prior to the filing date can disqualify an inventor from receiving a patent.

To ensure an inventor has the earliest possible filing date the USPTO offers the option of a provisional application. A provisional application must describe the invention but it allows the inventor to file an application with the USPTO without many of the formalities associated with a full application. The provisional essentially allows the inventor to hold their place in line with an earlier filing date while they work out details of the invention. Upon filing a provisional application the inventor has one year to file a formal application with the USPTO. This is a worthwhile option in many cases but it must be used correctly. The provisional should be used when an inventor is perfecting their invention, not when they have a good idea and want to see where it goes. 

If a small business decides to file for an application they can do so themselves or with the help of a patent attorney. The USPTO will work with inventors filing their own application and offers a number of great resources to help an inventor through the process. However, it can be very helpful and is recommended to seek the advice of a patent attorney. The process of filing a patent and communicating with the USPTO has the potential to trip up those who are unfamiliar with the process. A patent attorney will give the small business or start-up the best chance for acquiring a patent and ensuring the patent offers the greatest amount of protection. Ultimately, a little research and familiarizing oneself with the patent system can help significantly in the decision on whether or not to file for a patent.

 

 

Establishing a Co-Founder Relationship

By: Maria Stracqualursi 

Finding a co-founder to help you launch and build your business can be a daunting task. However, working with a co-founder is a good idea both in terms of strategic business planning and your own mental health. This post examines the benefits of having a co-founder, how you can find a good match in a business partner, and how to develop and formalize the working relationship moving forward.

Importance of a Co-Founder

Starting a company is really hard. Having someone else by your side can be immensely helpful, not only to add different skills but also to share the stress that come with running a business. One report found that startups with two founders are able to raise 30% more in funding and increase their customer base three times as fast as startups with solo founders.

The reasons are many. First, having more than one set of eyes looking at the issues facing the startup generates not only more solutions, but also more creative solutions. A co-founder can help you see potential pitfalls you may not have noticed and hone your ideas. Combining multiple skills sets, experiences, and perspectives allow for more productive brainstorming sessions.

A co-founder can also be a valuable source of emotional support. She can take on some of the burden of stress and will understand exactly what you are going through because they are in it with you. Co-founders can motivate each other to keep moving forward. When the going gets tough, knowing that there is someone else who is committed to and invested in your business on whom you can rely is key.

Having a co-founder could make it much easier to raise funds for your burgeoning business. Venture capitalists repeatedly emphasize that they look for a quality team when investing in startups, and some may even require it as a condition of funding. This may stem from fears that the business will fail if a solo founder burns out or becomes incapacitated.

Number of Co-Founders

The general consensus seems to be that two cofounders is the sweet spot for a successful startup. Fewer cooks in the kitchen means the faster decisions and less equity split. As an individual’s share of the company becomes diluted, he has less of a personal investment and may become less incentivized to work hard and stick with the company through thick and thin. Although it is often preferable to have a co-founder with essential skills that will help the company grow, hiring independent contractors or employees can often be more cost-effective and efficient!

Where to Find a Co-Founder

It is often preferable to connect with a prospective co-founder through a friend, coworker, or even an industry acquaintance because they can personally vouch for their skills. You should certainly start spreading the word that you are seeking someone with a certain background or skillset, and check out Linkedin and other social networks to see if you can find someone who fits. However, if this is a no go, there many other alternatives to connecting with other innovators.

Finding a co-founder has become such an important step for startups that businesses have grown up around assisting entrepreneurs in meeting their perfect counterpart. Cofounderslab.com and founder2be.com allow its members to create profiles detailing their skills, business stage, and what they are looking for in a co-founder – complete with a picture of themselves, like a dating website for entrepreneurs! Startupweekend.org hosts weekend long workshops where entrepreneurs can network while working together on a project that culminates in a presentation at the end of the weekend. You can also attend coding boot camp or events thrown by Meetup or General Assembly. Don’t be afraid to ask individuals that you meet through these channels for a reference, and certainly feel free to do a little Googling!

Things to Look for in a Co-Founder

When trying to figure out what you are seeking in a cofounder, think SEPP: skills, experience, passion and personality fit. First, identify any gaps in your own skillset that are essential to getting the company up and running. Generally, co-founders should have complementary skills but some overlap is helpful for sharing work and bouncing ideas off each other. It is unlikely that you have design, finance, software development, AND marketing skills, all of which are crucial to launching almost any startup. You want to ask yourself whether the person can grow with your company and continue to contribute after the initial launch. Ideally, your prospective co-founder will have some experience working in startups or in the same industry. At the very least, she should be passionate about your product or services and share your drive to make the business a success. Finally, your co-founder should be someone that you can imagine spending long hours with and who won’t drive you nuts. Use the Pizza Test: can you picture yourself eating pizza with this person while working at 12am?

Co-Founder “Dating”

Choosing a co-founder is a huge decision and should not be rushed into. Before you give away equity, you will want to ask a lot of questions to ensure you and your potential co-founder are on the same page and avoid conflict as much as possible down the line. These include finding out about each other’s motivations, values and passions. For example, if you want your company to focus on advocacy and creating a social benefit, you will want to make sure that your potential co-founder agrees with managing the startup in such a way to achieve those goals.

You also want to feel comfortable speaking openly with each other. You will need to be able to give constructive criticism and disagree honestly but respectfully. Additionally, you should have an understanding of each other’s lifestyle and family commitments. For example, someone parenting young children may have a different financial situation and number of hours that they can work, and they may have different priorities or a different financial situation from a single young person with a full time job who just graduated with student loans.

Consider spending a weekend with your prospective co-founder engaging in some kind of intense activity that necessitates decision-making, such as a hackathon or camping trip. If all goes well, you should follow this with a trial period of whatever length you feel comfortable with.

The Co-Founder Pre-Nup

Committing to a co-founder is frequently described as a marriage without the romance. It is potentially a long-term relationship and the expectations should be clear before formalizing the relationship. If the commitment is similar to a marriage, the co-founder agreement is sort of like a pre-nup.

The co-founder agreement should first clarify the roles and responsibilities (including titles) of the parties. Second, it should lay out equity ownership and any vesting schedule. The decision on how to split equity is a process that may involve negotiation and should be done after determining what each party will contribute in terms of skills, time, and experience. Some research suggests that startups with equal equity splits among the founders may have more difficulty raising capital, as it may signal to investors that the team has trouble negotiating and handling difficult issues. Startups should also consider a vesting schedule, in which each founder has to earn his or her equity share by staying active in the company or hitting certain pre-defined milestones. The co-founder agreement should also outline any restrictions on transferring stock and any initial capital contributions made by the founders. The co-founder agreement should additionally require that co-founders assign their intellectual property rights to the company for any material that they develop on behalf of the company. That way, if a founder decides to leave the startup, he will not legally be able to take an essential piece of intellectual property with them. Of course, you should speak with a lawyer to help you draft a co-founders agreement and ensure all your bases are covered.

Finding a co-founder can be a long and demanding process, but ultimately it could be a major contributor to the success of your startup.