It is a familiar issue. When should a consumer “be on the hook” for all of the terms and conditions in a company’s agreement accompanying its product or service?

The permeations relating to this problem are extensive. Are all of the terms buried in the fine print enforceable?  Does the consumer ignore such terms at his or her peril when the consumer fails to read the agreement?  Is it enough that the customer was given a chance to read the terms at the time of purchase? What manner or degree of consent is enough to bind the consumer to the letter of the written terms?  These are all problems of contract formation.  The question of acceptance of terms and conditions is especially tricky in the context of online commerce.

The California Court of Appeal (Second District) recently considered this issue as it relates to the “terms and conditions” or “terms of use” to which users are often asked to agree as part of an online purchase. The court’s decision in Long v. Provide Commerce, Inc., dealt with an appeal by Provide Commerce, Inc., the operator of ProFlowers.com.  See Long v. Provide Commerce, Inc. (Cal. Ct. App. Mar. 17, 2016) 2016 WL 1056555, at *1.  After a customer sued over an online purchase, the Internet-based flower purveyor sought to enforce a clause in the company’s “Terms of Use” that required its customer to arbitrate disputes, including a waiver of the right to a jury trial.

The type of online terms and conditions used by ProFlowers is often known as a “browsewrap” agreement. With that type of agreement, a user does not have to affirmatively click anything to signal his or her consent to the terms of the company’s written agreement.  Rather, “a user’s assent is inferred from his or her use of the website.” Long, supra, at *1.

At the time the plaintiff placed his order, the website’s “Terms of Use” could be found by clicking on a capitalized and underlined hyperlink at the bottom of each web page on the ProFlowers.com site. The court noted that the “hyperlink was displayed in what appears to have been a light green typeface on the website’s lime green background, and was situated among 14 other capitalized and underlined hyperlinks of the same color, font and size.” Long, supra, at *2.  The “Terms of Use” were also accessible by a hyperlink embodied in an email order confirmation, though the link was in small grey font toward the very bottom of the email and relatively obscured by other information and links.

The court observed that while Internet commerce presents new issues, it does not fundamentally alter the key requirement that for a party to be bound by a contractual provision, there must be a sufficient manifestation of consent. In the context of a “browsewrap” agreement, the courts have held that “the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of a website’s terms and conditions.” Long, supra, at *4 (quoting the federal Ninth Circuit Court of Appeal’s decision in Nguyen v. Barnes & Noble Inc. [(9th Cir. 2014) 763 F.3d 1171]).  In the absence of actual notice, the validity of the browsewrap agreement “turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” Id.

The court noted the elements that the courts have considered in deciding whether to conclude that a website design puts the user on sufficient notice of the company’s terms and conditions, including the proximity of the hyperlink (linking to the written terms) to the areas likely to be in view of the user as he or she interacts with the website and completes the transaction and whether the website design includes “something more to capture the user’s attention and secure her assent” to the terms and conditions. Long, supra, at *5.

Here, the court found that the hyperlinks and the overall design of the ProFlowers.com website failed to put a reasonably prudent Internet user on notice of the company’s Terms of Use. The court found that the placement, color, size and other qualities of the hyperlinks to the Terms of Use were too inconspicuous, relative to the overall website design.  Most of the user’s interactions were in a separate bright white box in the center of the page that contrasts sharply with the lime green background.  To find the Terms of Use hyperlinks on various pages, the user must look below the area that has the information fields and the buttons he or she must otherwise click to proceed with the transaction.  Even then, the hyperlinks themselves are buried below multiple other links and in a light green font that blends in with the lime green background of the website.

The lesson for the day is that conspicuousness means conspicuousness. If no affirmative user click is required demonstrating the user’s consent to the terms and conditions, the website design should ensure that a link to a terms and conditions page will be hard to miss.  The visual prominence of the link is key.  Avoid having the link situated in a submerged page (i.e., where the user must scroll down to see it).  Certainly avoid having the link be in a font difficult to distinguish from the webpage background.  The link should be in what one would expect to be the plain view of the user as he or she interacts with the site.

As is obvious from our many posts on the subject, we here at IP Legal Forum are big fans of the show “Silicon Valley.” That said, its season finale could have used more Jared Dunn (can we give him a spin-off already?), as well as some legal real-talk, both of which I present to you now:

Hooli’s employment contract, including the clause assigning Hooli IP rights, is entirely unenforceable because of a bad non-compete clause. 

Really?  Standard “boilerplate” clauses in contracts are standard for a reason: they are often absolutely necessary. And one such necessary boilerplate provision is a saving/severability clause. This provision essentially says, “If any part of this contract is void or unenforceable under the law, that part can be ignored, but the rest of this contract is still enforceable and binding on the parties.” These clauses are ubiquitous, so I find it extremely difficult to believe that Hooli, with its huge team of lawyers, failed to insert a severability clause into its employment contracts. If the contract didn’t include the provision, it looks like Hooli needs to hire new counsel, and Hooli’s old counsel should contact their malpractice carriers. If Hooli’s employment contract did, in fact, include a severability provision and the arbitrator ignored it, well, this leads me to my next issue with this episode…

Arbitrators gonna arbitr-hate, and Hooli accepts that without pursuing any further litigation.

As Gavin Belson found out the hard way, even if you think your case is a slam dunk, the decision to submit a matter to binding arbitration is always a risky one, as you generally have no recourse if the arbitrator screws up; even if the arbitrator’s decision is factually or legally flawed. Unlike a bad decision by a judge or jury, an arbitrator’s decision is final and the courts will not second guess the decision unless (A) the arbitration agreement expressly permits it, or (B) extreme circumstance, like fraud or misconduct by the arbitrator. Not having read the arbitration agreement here, it’s hard to know whether Hooli could have persuaded the court to disregard or set aside the arbitrator’s decision. Maybe Gavin ultimately thought it would have been futile, but given his arrogance and deep pockets, I’m surprised he, or his lawyers, didn’t even try.

Lessons to be learned:

-Make sure your contracts include the necessary “boilerplate” language, especially a saving/severability clause.

-Final binding arbitration is almost always final and binding, so when you draft your contract, think long and hard about whether you are ready for that kind of commitment.

A recent  episode of “Silicon Valley” was brought to you by the letters N-D-A.  The protagonists are seeking funding for their start-up, Pied Piper, and one of the potential investment groups starts asking curiously technical questions regarding how Pied Piper’s algorithm works.  Pied Piper’s developers are so flattered that somebody finally appreciates their genius that they fail to recognize that the investors aren’t conducting due diligence, the investors are trying to steal Pied Piper’s intellectual property.

Beware of TMI; don’t overshare without the protection of a nondisclosure agreement.  Nobody expects an investor to take a meeting, much less invest, without understanding the general nature of your start up.  But start-ups are often so hungry for investors that they provide too many details of their product or service, their business plans or other proprietary information without the protection of an NDA.

Under the Uniform Trade Secrets Act, there are two prongs to a trade secret:

(1) the information must provide the owner with independent economic value by not being generally known to the public or those in the relevant industry; and

(2) the owner must have taken reasonable efforts to keep the information secret.

A start-up that shares its proprietary information with a potential investor or partner without an NDA has blown the second prong by failing to take “reasonable steps.”  So even if the investor passes and doesn’t misappropriate your idea, evidence that you failed to obtain an NDA from the investor can and will be used against you if a third party, say a disgruntled employee, misappropriates your trade secret.

A potential investor or partner will respect you more if you act professional and insist on an NDA.

It’s a monster movie cliché – near the end, when the monster is “dead,” the dust is settling and the heroes are patting each other on the back, the monster rises from the dead and goes on one more rampage before it expires.

Monster Cable, originator of the Beats headphones, has risen from the dead and filed a lawsuit for hundreds of millions of dollars against its former “partner,” Beats Electronics, its principals and the company that acquired Beats Electronics. Monster alleges that the defendants created a $300 million sham transaction to steal Monster’s intellectual property and disenfranchise Monster before Apple purchased the company for $3.2 billion. (Monster’s Complaint)

BACKGROUND

As I discussed more fully in a prior post, Monster and Beats entered into a License Agreement in 2008. In 2011, Beats arranged to sell a controlling interest in the company to defendant HTC. As a result of the sale, Beats was able to transfer Monster’s intellectual property and ownership rights to HTC, and Beats was also able to terminate the License Agreement with Monster. In 2012, Beats repurchased the controlling interest of the company from HTC, along with the intellectual property. And in 2014, Beats sold the company to Apple for $3.2 billion. When the sale was announced, Monster’s reaction to missing the big payday was anything but monstrous. Monster’s CEO , Noel Lee said: “We’re very happy they received such a high valuation. And I’m thinking of what that means for Monster’s valuation.” But like the movie cliché, Monster has now risen from the dead and is on the rampage, suing Beats, its principals and HTC.

MONSTER ALLEGATIONS

The primary focus of Monster’s eight causes of action are that Beats and HTC conspired to create a sham sale of the company to HTC, which effectively stripped Monster of its intellectual property and ownership rights. Later, when Beats had terminated its relationship with Monster, Beats bought the company back from HTC. Monster’s complaint alleges:

The timing of the Beats/HTC transaction that triggered the “Change of Control” provision is significant: it occurred months before the Amended License Agreement was set to expire. If Beats had not exercised the “Change of Control” provision in the Amended License Agreement, the Amended License Agreement would have expired on its own terms and Beats would have lost its ability to assume complete manufacturing, promotion, distribution, and sales of the “Beats By Dr. Dre” product line. (Complaint ¶ 31.)

Monster also alleges that Beats tricked Monster’s CEO into reducing his 5% share of Beats by lying to him about the pending Apple acquisition, which deprived him of more than $100 million.

Monster’s complaint draws a colorful but unflattering picture of two of Beat’s principals:

Dre’s primary contribution was to bless Monster’s headphones when he exclaimed: “That’s the shit!”

[James] Iovine is a respected but ruthless music mogul….

Monster’s complaint does not calculate its damages, but it does allege Lee’s shares were worth more than $100 million and Apple’s purchase for $3.2 billion draws a large target. Monster also seeks punitive damages, which could potentially treble any award.

CLASH OF THE TITANS

Monster has alleged that the HTC transaction was a sham, and Monster’s various claims for fraud, breach of trust, breach of fiduciary duty, etc. all focus on the suspect timing of the controlling interest shell game. Defendants will likely respond that Monster read and signed the License Agreement, and “the deal is the deal.” Under the License Agreement’s terms, Beats was allowed to sell shares, terminate Monster and then buy back shares. This “lawful but awful” defense has a better chance before a judge than a jury, especially a jury in San Mateo, California, Monster’s home town.

As the defendants are reviewing Monster’s complaint, I’m sure they are collecting and pouring through hundreds of thousands of emails among and between Beats and HTC, praying that nobody was stupid enough to create a smoking gun. Any document created during the negotiations leading up to HTC’s purchase of the shares, that discussed Beat’s potential repurchase of the shares, could confirm Monster’s legal theory that, from the start, the HTC purchase was designed as a revolving door scam with the sole purpose of seizing Monster’s technology. As the WikiLeaks, Snowden, and most recently Sony leaks have taught us, anything you write that is incriminating or embarrassing can and will be held against you.

When there’s a huge pile of money staring you in the face, it’s easy to overlook some of the potential pitfalls. But a recent $3 billion monster deal provides a cautionary tale for businesses negotiating make/break the company contracts.

Back in the 80’s, Monster Inc. was known for producing high priced (quality?) stereo cables, but as the public began shifting from stereo systems to headphones, Monster sought to expand into the new market. In 2007, Monster signed a deal with Dr. Dre’s company, Beats Electronics, which lead to the “Beats,” the ubiquitous, colorful headphones and ear buds that are today’s cool credential, like wearing Air Jordans back in the day. (I bought the hype and a shiny pair of red Beats, quick review, meh. Here’s what Consumer Reports had to say about them.

But while Monster’s owners might be audio geniuses, they deserve an F in negotiation and contract comprehension. Without a lawyer, they entered a contract whereby Monster transferred all ownership of the trademarks and technology behind the products to Beats Electronics. Monster also shouldered the obligation to manufacture and distribute the products, an expensive proposition.

INSULT-In 2011, HTC, a Taiwanese company purchased a majority stake in Beats Electronics for more than $300 million, but Monster only got a small payout and according to BusinessWeek.com, in 2012 Beats declined to renew the contract with Monster.

INJURY-Beats bought back a majority share from HTC, and in spring of this year, Apple purchased Beats for $3 billion, mostly in cash, and Monster’s share was zero.

FATAL ERROR 1: Recognize your leverage. Monster had the technology. They could have negotiated a non-exclusive license or an exclusive license with an end date, or they could have sold the technology outright at a higher price. Instead, Monster got the worst of both worlds, losing its technology without adequate compensation.

FATAL ERROR 2: Hire a professional. When you’re sick, see a doctor. When your dishwasher starts spewing water, call a plumber. When you’re negotiating the future of your company, call a business lawyer. Even when you’re “negotiating” with an 800 pound gorilla (i.e. Microsoft, Coca Cola) and you have no leverage, at least have a lawyer look at the contract and identify the potential pitfalls. Whether you’re selling your key technology, disclosing your trade secrets, or indemnifying another party, you need to do so with your eyes open.

FATAL ERROR 3: Understand your relationship. The PR regarding the Monster/Beats deal described it as a partnership, but because Beats owned the technology, Monster ended up as a service provider that merely obtained a cut of the profits. When Beats decided not to renew the contract and sold the company, Monster ended up with virtually nothing, even though it developed the key technology behind the Beats products and considered itself a partner.

It’s 1975; Saturday Night Live just debuted, disturbed women keep shooting at President Ford and Sony just came out with a new-fangled product called Betamax that allows television viewers to record shows and watch them on their own schedules and to fast forward through the ads. The television networks, there were only a handful, since this was the dark ages (a.k.a. pre-cable), claimed this would destroy their industry and sued Sony for copyright infringement.

The Betamax Decision Begat the VHS, DVD, Blu-ray and DVR Revolutions

The networks’ argued that Sony designed Betamax to enable copyright infringement and thus it was liable for contributory infringement. The Supreme Court ruled for Sony, finding that “the business of supplying the equipment that makes such copying feasible should not be stifled simply because the equipment is used by some individuals to make unauthorized reproductions of [the networks’] works.”

The Aereo Decision Will Wound, if not Kill, a Cutting Edge Industry

This week, the Supreme Court took a giant step backwards when it ruled for the networks and against Aereo. Aereo provides antennas to its subscribers that, at the subscribers’ direction, record or view broadcast signals. This allows subscribers to unbundle cable by allowing subscribers to subscribe to just the channels they want at a fraction of cable’s cost. The Court rejected Aereo’s argument that, like Betamax, Aereo simply allowed each subscriber to view or record whichever programs he or she wanted and to watch them at the time of their choice. Instead, the Court found that Aereo was publicly rebroadcasting the networks’ programs when it sent the same signal to multiple subscribers and thus Aereo was infringing the networks’ copyrights.

In a statement that will send chills to cloud storage innovators, the Court stated that “resolution of questions about cloud computing, remote storage DVRs and other novel matters not now before us should await a case in which they are clearly presented.” To paraphrase the Court’s pronouncement on pornography, the Court will “know [copyright infringement] when they see it.”

If you’re an unhappy cable subscriber (is there any other kind), or a start-up developing cloud storage devices, the Supreme Court just slammed a door that looked pretty securely open with its prior Betamax decision.   In the real world, investors and innovators are unlikely to sink hundreds of millions of dollars into developing technology that may or may not infringe the networks’ copyrights.

In the HBO show, “Silicon Valley,” the protagonist Richard Hendriks is an awkward, nerdy creator of a fancy algorithm for a music app that helps songwriters figure out whether their songs are infringing on another person’s copyright.  He’s been calling his app “Pied Piper” for reasons unknown, other than the fact that it vaguely has to do with music.  The algorithm turns out to be extremely valuable, and Richard decides to start a company to develop and market it, also under the name “Pied Piper.”  He brings on Jared Dunn, an awkward, nerdy business development guy, to figure out the procedures required to make Pied Piper a real company.

By doing some minimal research, Jared finds out there’s already a sprinkler company in Gilroy with the name “Pied Piper,” and the company is owned by a crotchety old man who wants nothing to do with young, rich techies.  The man claims that he owns the rights to the name Pied Piper.  To avoid a confrontation, Richard and his team attempt to come up with some new names, none of which Richard likes.

Jared: What about SMLLR?  Because we make things smaller, and this would be, like, a smaller version of the word smaller.

Gilfoyle: Looks like Smeller.

Because this is television, after a series of hilarious mishaps, everything works out and Richard is able to convince the surly old man to sell him the name for $1,000.

My issues (why I screamed at the television set):

1) Richard paid $1,000 to obtain ownership rights to the name “Pied Piper.” No, no, no, no! Richard got ripped off because he paid Crotchety Sprinkler Man (“CSM”) $1,000 for an ownership right that doesn’t exist.  CSM never “owned” the rights to the name Pied Piper because no one can own the rights to a name — you can register the name with the USPTO and receive limited protection for it under trademark law.  While CSM’s sprinkler company could potentially sue Richard’s company down the line for using the name “Pied Piper” if it caused damage to his sprinkler business, trademark protection doesn’t entitle a registrant to exclusive use of a name.

2) Maybe Richard paid $1,000 to obtain CSM’s agreement not to sue him for infringement.  Putting aside the fact that there were no witnesses to this “agreement” or a receipt from CSM confirming that Richard paid him $1,000 (high risk), even if Richard paid the money to preempt CSM from suing him, he was still probably ripped off. Would CSM’s sprinkler company have a viable trademark infringement claim against Richard’s compression algorithm-based startup?  Where is the likelihood of confusion? “Pied Piper” itself is not a very distinctive name, as it’s based off of a well-known childhood fairytale.  CSM operates out of Gilroy, a small farming community 50 miles (and a world away) from the heart of Silicon Valley, where Richard’s company is based.  CSM deals in sprinklers and Richard deals in . . . something so technologically complicated that Richard can’t even describe it in layman’s terms.  And CSM’s customer base (probably mostly farmers) likely won’t overlap with Richard’s techie base.

3) The sprinkler company is the only company in the immediate area that uses a name as generic as “Pied Piper.”  This one is more of a “reality” gripe than a legal one.  Such a generic name would probably have at least dozens of owners, a few of which may be in the Bay Area (and according to the Wall Street Journal – there are).  An additional consideration is that the name Pied Piper could potentially infringe on similar names.  It doesn’t appear that Jared did a search for similar marks, and searches through the USPTO’s online system are limited.  What if there was a plumbing company called Pied Piping?  What if there was a local bakery called Piper’s Pies?

Lessons from this episode:

• It’s probably not a great idea to immediately pay someone for ownership rights based solely on the person’s representation that he/she has these rights.  Do your research and consult a professional.

• If you’re starting a business, don’t become invested in a name (emotionally or monetarily) before you, or a business-savvy person at your company like Jared, have done your research.  The USPTO website has information on how to conduct a trademark search through its Trademark Electronic Search System.  You can also retain a private trademark search firm or an attorney to do a more thorough search for similar marks that may present problems down the road.

Don’t be forced into a situation where you’re surprised by an infringement suit well after you’ve established your company and your brand.  And don’t settle for a name like SMLLR.

The attorneys of Wendel Rosen’s Technology Practice Group have compiled this list of 10 common mistakes they’ve seen in the trenches. Smart companies will take the time to address these issues early in formation to prevent a future situation that could turn into a company killer.

1. Choosing the Wrong Type of Entity
A big decision prospective company founders face is determining the type of entity formation their company should take – a “C” corporation, an “S” corporation or a limited liability company (LLC). In a nutshell, LLCs and “S” corporations have significant tax advantages. However, “S” corps can offer only a single class of common stock. That eliminates them as an alternative for most fast-growing tech companies, since investors typically want a different class of stock than those desired by company founders and employees. LLCs can offer different classes of ownership interests. However, some investors dislike LLCs, because the company’s income and loss will be reported on the owners’ personal tax returns.  Many outside investors prefer “C” corporations. Therefore, the discussion generally starts with forming a “C” corporation and then explores whether the tax benefits of LLCs or “S” corps outweigh the presumption in favor of the “C” corporation. California companies with a social or environmental mission now have the option to become Benefit Corporations. While companies organized under the State’s general corporate law must consider solely the interests of shareholders in the profits of the business, Benefit Corporations must consider impacts on society, employees and the environment, as well as the interests of shareholders in profits, and may prioritize these at their discretion. For further reading on this type of entity, please visit http://bcorporation.net/publicpolicy.

2. Not Planning for Early Exits
What happens when one of a company’s founders decides to leave or the other founders decide they’ve had enough? The founder leaves (either willingly or unwillingly) while the other founders work 24/7 to make the company successful. And what happens to the founder’s stock?

Often, people don’t think about that scenario when they are launching their next great idea.
They think about it only when someone’s walking out the door. The remaining founders may resent the fact that while they are working hard, the person who left is still benefiting from their labor. Founders should discuss the possibility of an early split in the beginning. Clear shareholder agreements provide for various exit scenarios, including the remaining founders’ reserving an option to buy all or a portion of the original founder’s shares.

3. Not Documenting Stock and Equity Promises
Sometimes, company founders make vague promises to employees that they will receive a certain number of shares of stock or that they will get a “percentage” (e.g. 2%) of the company as an equity incentive. These promises are typically verbal or contained in an email without being very specific. The founder and the employee plan to work out the details in “paperwork” later.

“Doing the paperwork later” is a common source of problems in fast-growing tech companies. People are so busy that they postpone so-called nonessential paperwork. However, doing it later opens the door to disagreements over what was intended at the time the promise was made. If an employee was offered a set number of shares, what happens if many more shares are offered to investors in the interim? Should the employee’s number of shares be increased to the same percentage as would have existed at the earlier date? And, if the employee was offered a percentage of the company, is the number of shares calculated based on the number of shares outstanding when the offer was made or when the shares are ultimately issued? Moreover, if the value of the company has increased, then the price of the shares needs to reflect that increased
value. The shares can’t be offered at the original low bargain price without unfavorable tax
effects. For these reasons and others, when a young, fast-growing company wants to offer equity, it should have a written equity incentive plan and related contracts in place first.

4. Failing to Lock Up Trade Secrets
All too often, a business realizes it has trade secrets only after a former employee or potential investor starts using or disclosing the business’s proprietary information. By then, it may be too late. To protect its trade secrets, a business needs to develop, disclose and, most importantly, consistently execute policies to protect its trade secrets. To prevail in court, a business must prove that the alleged trade secrets are not readily available to others and that it took reasonable steps to protect the information. The courts look at what is reasonable under the circumstances.

For example, a court will require a greater effort by Apple regarding its marketing strategy for its next “i” product than it would for a venture capital company’s list of investors. Customer and prospect lists frequently spark trade secret disputes, because they are the lifeblood of almost every business. The simplest way to evaluate whether you have trade secrets that need protection is to ask yourself, “If some of our key employees left today and joined a competitor, is there any information they could take that would hurt my business?”

5. Carrying Inadequate (or No!) Insurance
Business is inherently unpredictable and risky. For example, it’s not unusual (although highly frustrating) to be sued – sometimes for a frivolous and baseless claim. You don’t want the first time you read the fine print of your insurance policy to be after you’ve been served with a notice of a pending lawsuit, only to find out that the claim is not covered.
Every company needs to assess its potential risks to make sure the more likely ones are covered. There are insurance policies for nearly every imaginably risk (although some of them may be cost-prohibitive), from your standard Commercial General Liability policy, Error & Omissions policy, Employment Practices Liability policy, and property insurance policies to policies for intellectual property claims, privacy claims, and loss of electronic data. And, of course, the amount of your coverage should be sufficient to allow you to carry on with continued operations.

6. Using Outdated Privacy Policies
Online privacy is an ever-shifting area. New laws are being proposed in both the U.S. and
abroad. The European Union is in the process of overhauling its privacy regulations, and Latin American countries are expected to follow. Scholars and policymakers are in dispute over the fundamental theoretical framework for the regulation of online privacy issues. Emerging technology changes the way companies collect and use data, with new uses cropping up constantly – both online and through mobile apps. Against this backdrop, does your company have an adequate – and updated – privacy policy and privacy notice? Transparent and detailed notices and policies should be the starting point for all businesses that handle and collect private data.

7. Not Getting Written Assignments of Intellectual Property Rights
Intellectual property rights are the key assets for most new technology companies, but often young companies fail to secure rights in IP.  An assignment of copyright or patent rights must be in writing, not an oral agreement. Work product, such as software code created by an independent contractor, may not qualify as a “work for hire” under the federal Copyright Act. Assignments of trademarks must also include an assignment of the goodwill associated with the mark. In addition, company founders or early employees often register domain names, blogs and social media accounts in their own names; these should be transferred to the company.

8. Failing to Register Patents, Trademarks and Copyrights
Along the same lines, emerging companies often put off or delay applying for registrations for patents, trademarks, and copyrights in order to save a bit of money. For patents, this can be fatal due to the “one-year bar” requiring an application be filed within one year of public use, sale, offer to sell, or description of the invention in a published document. For copyrights, failure to register may prevent one from obtaining certain remedies in court, like statutory damages and fees. For trademarks, one advantage of registration is that it establishes nationwide constructive notice of the mark, even if a company has not yet used its mark in every state.

9. Treating Social Media as the Wild West
Social media sites, such as Facebook, LinkedIn and Google+, present new challenges to
companies in terms of marketing issues, intellectual property protection, and employee confidentiality and privacy. Too often, however, companies have few guidelines for monitoring use of their intellectual property on such sites or employee usage of social media. These issues confront both established and emerging companies, but emerging companies need to be particularly mindful of such issues, as they may not have the resources to litigate disputes. It’s a good practice to establish and follow a formal social media policy.

10. Mismanaging an International Launch
Today, emerging companies are often ready to immediately offer goods and service to foreign markets. Too often, however, they are not ready or have not researched how to deal with the laws and regulations of foreign countries. For example, as noted above, European privacy and data protection laws differ markedly from U.S. laws and are continually evolving. An emerging company that collects certain consumer information from consumers living abroad must be mindful of these differences.

As you can see, there are a number of challenges companies need to anticipate. With a little forethought and preparation, you can make sure your company avoids some of these costly ones.