Saturday, December 6, 2014

Should You Serve on a Board of Directors?

I am often asked about serving on Boards of Directors for publicly traded corporations, privately held corporations and non profits.  A board of directors is a body of elected or appointed members who jointly oversee the activities of an organization. Typical duties of a board of directors includes:
  1. governing the organization by establishing broad policies and objectives;
  2. selecting, appointing, supporting and reviewing the performance of the chief executive;
  3. ensuring the availability of adequate financial resources;
  4. approving annual budgets;
  5. accounting to the stakeholders for the organization’s performance

Participation in a board can be an incredibly rewarding experience, but should never be taken lightly. Understanding the expectations of serving on a board is critical for a mutually beneficial relationship. Below is a list of questions which may help in making that decision.

For Nonprofits (NFP):
  1. Do I have a passion for this nonprofit’s cause?
  2. Do I understand what is expected of me, especially the fund raising expectations? What is the length of the term? Can I resign midterm?
  3. What is an accurate picture of the overall financial and operational health of the NFP?
  4. Is there any litigation pending or expected?
  5. Is the NFP is good standing with both State and Federal authorities?
  6. Does the NFP have satisfactory amounts of D&O insurance, does it advance costs and expenses of litigation and does it fully indemnify its board members?

For either privately held or publicly traded corporations:
  1. What are the expectations of the each Board member, and what is the term?
  2. For publicly traded corporations on what committees will I serve?
  3. Have you examined past tax returns?
  4. For publicly traded corporations have you examined past public filings including proxy statements?
  5. Have you asked about the relationship between the Board and management?
  6. Is there litigation pending or expected?
  7. What is the compensation and expense reimbursement policy?
  8. Does the Corporation have satisfactory D&O insurance, does it advance costs and expenses of litigation, and does it fully indemnify its board members?

While this list of questions is not all inclusive and each situation demands its own analysis, this is a great starting point to determine if serving on a board is right for you.  Do you have any other questions to recommend?

Len Goldstein, Denver Business Attorney at Law

Designing Intellectual Property Strategy

There are many steps to constructing an effective IP portfolio and strategy. An IP portfolio and strategy can enhance the value of any business but most importantly startups.  In the initial stages of business, documented differentiation can make the difference between getting funding or closing the doors.  Having a realistic strategy can mean the difference between defending your business against infringement and monetizing you IP.

Patents protect an inventor’s creation, while trademark protection safeguards distinctive words, names, symbols, sounds and colors used to distinguish products and services of one business from another. Property that qualifies for copyright protection include literary works such as books and computer programs; dramatic works and the accompanying words; pictorial, graphics, photographs and sculptural works; motion pictures and audiovisual works; and sound recordings and musical works, including music from plays and dramatic readings, and recordings.

Inventing a product or service is the first step for any company. Developing a portfolio requires obtaining the appropriate intellectual property protection and understanding the processes by which you will protect you intellectual property. With a well-developed IP strategy, you can protect your company’s inventions and creative work, keeping tabs on how to allocate resources and when to explore new research and development opportunities. Here are five steps that can help you develop your own IP strategy:

1. Let your company’s size guide you

First, your company’s size and structure should guide your IP strategy. For defensive purposes If you have a small company with only a few employees working on an invention you might not need a formal IP strategy. A larger company would be wise to develop a detailed IP strategy. One of the most important areas to clarify is ownership rights and publication policies. The strategy should take into account previous agreements between the company and employees (or contractors).
Larger companies may want to outline the roles and responsibilities of managers and employees in managing and disseminating the company policy regarding intellectual property use to ensure everyone follows the proper procedures that will maintain the company’s intellectual property rights.

2. Establish guidelines for creating intellectual property

Decide how the intellectual property will be created. You should list each person involved in creating the work, then outline exactly what type of intellectual property protection you are seeking.  A search of prior art will become crucial to the development of your IP to ensure you don’t infringe on someone else’s IP. Requesting professional help to conduct a search is probably the better option. Your IP strategy should take into account whether or not the company can afford this preliminary intellectual property search. In addition, you should hold regular meetings to devise a plan of attack for creating your intellectual property. Taking into account the time for research and time to market.

3. Analyze your competitive advantage and barriers to entry

One of the first questions you should answer before you invest in creating any kind of intellectual property is whether or not you can reap the rewards of your work in the marketplace. Would your invention, brand or creative work give you a competitive advantage in the marketplace? You’ll need to do your research to see what’s out there and evaluate if you could capitalize on your work. The market climate for your product or service will dictate how and if you develop intellectual property as well as which kinds of intellectual property to develop.

·         You can gain a competitive edge by understanding and overcoming any barriers to entry, which include the following:

  •  Are there key personnel who might impede the process?
  • What is the cost to develop the product or service  and get it to market
  • Will the product or service require regulatory approval?
  • Are there any competitors who offer a product that’s similar to yours or are you the first to offer this type of product?

4. Understand third-party interactions

Problems and misunderstandings that may arise from third-party relationships are one of the surest ways intellectual property can be lost. Any third parties who could potentially be involved in any portion of the development of the product or service being protected should be considered in developing your IP strategy. Third parties can include employees, suppliers, partners, contractors and even customers. Your IP strategy should dictate any employee contracts, supplier and contractor agreements, confidentiality agreements and licensing options.

5. Review your intellectual property

The scope of protection of the intellectual property should also be included in the intellectual property audit to determine whether there may be any gaps in protection or risks in the development and intellectual property protection process. Monitoring what is going on in the market place and what the competition is doing is crucial.
Companies of all sizes can spend a lot of time on developing a product or service. An equal amount of time should be spent on developing your IP portfolio and strategy to ensure the maximum return on your intellectual property investment. 

Len Goldstein, Denver Business Attorney at Law

Trade Secret Protection

A crucial component of any startups intellectual portfolio is the strategy surrounding the protection of trade secrets.  Globalization and a increasing public concern has led the federal government to develop a comprehensive strategy to protect against trade secret theft. What is clear from the report, Administration Strategy on Mitigating the Theft of U.S. Trade Secrets  however, is that while public policies aimed at protecting the nation’s economy through protection of trade secrets are part of the equation, an equal—and arguably more vital—component of that protection comes from the private sector. The report contains examples of thefts of trade secrets which are instructive.

The report laid out five “Strategy Action Items” for protecting U.S. trade secrets. One of these items focused on the promotion of voluntary best practices by private industry.( See Report section 5 ) The report reflects that while the public sector is taking action to increase the security of U.S. trade secrets, responsibility falls primarily upon the private sector. Numerous factors—including the globalization of our economy and the trend towards employees working remotely—will contribute to an increasingly high risk of trade secret misappropriation. Self examination of the value of your IP portfolio and specifically trade secrets will be invaluable to any start up.

The report emphasizes the importance that “companies need to consider whether their approaches to protecting trade secrets keeps pace with technology and the evolving techniques to acquire trade secrets enabled by technology.” This means it is important to regularly audit information/data security policies to ensure they provide adequate protection. For example, does a business have a policy of allowing employees to access email and company files from their personal smartphones and laptops (known as “Bring Your Own Device” or BYOD policies)? If so, it is critically important to regularly evaluate the topics that are addressed in such policies to make sure they are in line with the state of technology. For instance, a BYOD policy in 2008 would likely not have addressed cloud networks, but by 2010, cloud networks should have been a central concern, given that they cause a wider distribution of data onto devices not completely controlled by the company. No longer does a would-be thief need to break into the company vault to steal the secret formula. Instead, if that formula was contained on a company-controlled server, but then accessed remotely and stored onto an outside cloud network, the thief would simply need to access the cloud—a significantly less-protected storage space. This example illustrates why it is important to ensure that policies reflect the current state of technology, since trade secret thieves are generally more tech-savvy than an average business.

The report also recognized that industry best-practices should encompass a holistic approach to protect trade secrets via a wide array of vulnerabilities. Not only is it important to stay current on technology, but companies must also not forget about the basics. Protecting trade secrets requires a broad approach with numerous focal points. The report identified a number of “best practice target areas,” and three in particular are worth mentioning. The first is “R&D compartmentalization,” which concentrates on the compartmentalization of processes, components and personnel. By compartmentalization, a security breach of one sector will leave the others unaffected, and helps to prevent a total breach. Secondly, the company should continue to focus on physical security policies. While it may seem a bit antiquated, the old-school practices of hiring security guards, installing security systems and setting up surveillance cameras still remain an effective and necessary component of a comprehensive protection strategy. Lastly, HR policies should also be utilized to provide enhanced protection. Running permissible background screens on employees—particularly those with access to trade secrets—is critical, as are robust confidentiality, non-disclosure and non-solicitation agreements. Moreover, while there is a general presumption against non-compete agreements, they are typically permissible when drafted narrowly to focus on protection of trade secrets.

Of course, no single strategy will be sufficient by itself. Rather, the combination of these various approaches is critical to ensuring a comprehensive strategy of trade secret protection. Businesses that have not recently conducted a thorough evaluation of their comprehensive strategy should strongly consider doing so to protect their proprietary information.

Len Goldstein, Denver Business Attorney at Law