US Patent and Trademark Office Trademark Filling Extensions Update

COVID-19 continues to cause numerous cities and states to issue “stay at home orders” disrupting many business’ ordinary operations. As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the United States Patent and Trademark Office (the “USPTO”) has extended certain filing deadlines for selected patent and trademark documents.

Specifically, for trademark filings, any of the following actions under certain sections may now qualify for a revised due date:

  • Response to a USPTO office action
  • Response to a notice of appeal from a final refusal
  • Statement of use or request for an extension of time for a statement of use
  • Notice of opposition or request for an extension of time for a notice of opposition
  • Priority filing basis
  • Transformation of an extension of protection to the United States into a US application
  • Affidavit of use or excusable nonuse
  • Renewal application

If the original filing deadlines for any of the above filings are due between March 27, 2020 and April 30, 2020, the USPTO has authorized a 30-day extension “provided that the filing is accompanied by a statement that the delay in filing or payment was due to the COVID-19 outbreak.” The USPTO clarified that this means a practitioner, applicant, registrant, or other person associated with the filing or few was personally affected by the COVID-19 pandemic, “including, without limitation, through office closures,
cash flow interruptions, inaccessibility of files or other materials, travel delays, personal or family illness, or similar circumstances, such that the outbreak materially interfered with timely filing or payment.”

The USPTO has also waived the handwritten signature requirement for registration to practice before the USPTO in patent cases, enrollment and disciplinary investigations, or disciplinary proceedings and payments by credit cards not made via the USPTO’s electronic filing system.

The USPTO maintains that it is still open and operational having made the necessary operational adjustment to keep its staff safe and working remotely. As well, in-person meetings, such as hearings and examiner interviews, are being conducted virtually by phone and video until further notice.

Written by Andrei Tsygankov and Stan Sater

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If you are a business that has questions about your trademark filings during this time, contact our Founders Legal team at [email protected] and [email protected].

The Benefits of the GDPR Two Years In

The General Data Protection Regulation (the “GDPR”), promulgated by the European Commission, was adopted in April 2016 and became effective in May 2018. Rarely mentioned with positivity in the past two years, the GDPR standardizes data protection laws across the European Union and applies to companies located outside of the EU that offer goods or services or are monitoring the behavior of persons inside the EU. The Benefits of the GDPR for Companies

Not only does the GDPR call for the adherence to seven fundamental privacy principals (lawfulness, fairness, and transparency; purpose limitation; data minimization; accuracy; storage limitation; integrity and confidentiality; and accountability), but it also calls for increased technical measures for businesses to update and strengthen their data  protection practices. Instead of mindlessly gathering any and all data, businesses should gather more purposeful data. Data mapping and inventory exercises challenge businesses to fully understand the data the business holds and how it fits into the broader organization. For many businesses, this is the first time the business will actually take the time to truly know and understand the data it holds. This data knowledge is useful in particular for mapping data strategies going forward. By raising awareness of the importance of well-maintained data, the GDPR has allowed organizations to make more informed decisions around strategic business partners and future avenues of growth.

Data Processing Inventory: Article 30 requires controllers and processors to create and maintain a formal, written record of its processing activities subject one exception:  when the organization has less than 250 employees and the processing is not likely to result in a risk for the rights and freedoms of data subjects, is not occasional, or is not of special categories of data. The records maintained by the processor must include the personal data processing activities done on behalf of a controller and to provide the controller a copy of the report upon request. While not a granular report of each data element in a business’s repository, it provides a high-level snapshot of how the business processes personal data.

Data Protection Impact Assessments (DPIA): Under Article 35, if processing personal information is likely to result in a high risk to data subjects’ rights and freedoms, the controller should perform a DPIA. Practically speaking, the DPIA is a risk assessment exercise meant to identify and minimize risks relating to the controller’s personal data processing activities.

Privacy Notices: Businesses are also required to publicly post a privacy notice detailing the source of the personal data, the legal basis for processing the personal data, the period for which the personal data will be retained, and the third-party recipients of the data. Further, the privacy notice must be provided in a manner that is concise, transparent, intelligible and easily accessible using clear and plain language.

Data Processing Agreements: Article 28 provides that controllers may only engage with a processor who provides sufficient guarantees of compliance with the obligations of the GDPR. Specifically, Article 28(3) of the GDPR requires a contractual agreement between controllers and processors regarding the parties’ roles and the processor’s obligations to comply with certain provisions in the GDPR.

While these measures, and the GDPR in general, certainly increase the costs of doing business, it can be a competitive advantage for companies that commit to real compliance. Not only can a business become a preferred vendor by showing its commitment to data protection, but also it is an opportunity to build customer loyalty by being transparent about how they use personal data.

Leveraging GDPR for Trends in the US

The GDPR kicked off this new wave of data privacy and data protection laws. Particularly in the US, which lacks an omnibus federal data protection law, many States have  proposed their own data protection laws. Most recently, this was seen with the passage of the California Consumer Privacy Act (the “CCPA”) that was heavily influenced by the GDPR. Despite the COVID-19 pandemic, the California Attorney General has reiterated that the enforcement date of the CCPA is still July 1, 2020. The California Attorney General is currently working on the third draft of his CCPA regulations before a final draft is due by July 1.

For companies that have never undergone data protection compliance exercises, it can be daunting but we can leverage our existing data protection knowledge to quickly get in front of these issues as they come up in the day to day business operations.

Dated April 8, 2020

Written by Stan Sater and Jeff Bekiares

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If you are a business that has questions about data protection laws and how the laws impact your business contracts, contact our Founders Legal team at [email protected]m and [email protected].

Part Two: Managing Equity Incentive Plans in a Volatile Market

This blog post is part two of two discussing equity incentives and ways for employees to liquidate a portion of their shares while the company remains private. Part One discussed the issuance of equity incentives to employees and other key personnel. Focusing now on already issued and vested equity incentives (for illustrative purposes hereof, we will focus on stock options), this blog post discusses the potential internal transactions that can provide liquidity to these vested employees and personnel.

The Broader Trend to Stay Private

In the last decade, the pre-IPO marketplace has grown significantly, being dominated by an increase in venture capital firms and private placement agents, brokers, and banks. With the increase in private market capital and willing buyers of private-company securities, the trend for post-2008 financial crisis startups has been to delay an IPO for as long as possible. High valuation startups such as Uber, Lyft, Slack, and Zoom all went public in 2019 into an all-time high in the public markets. When these companies go public, not only do the founders, venture capitalists, and investment banks make money, but also the employees who were granted stock options under the company’s equity incentive plan. While these companies stay private longer, secondary private-company marketplaces have evolved to purchase private-securities from employees or early-stage investors. Given the recent market volatility surrounding COVID-19, we expect valuations of private companies to be revised downward, companies to remain private, mergers and acquisitions deals to slow, venture capital deal terms to favor the venture capitalists, and cash strapped employees looking to sell their illiquid shares to weather personal financial volatility. The current financial markets signal that now is the time for liquidity and financial security. Liquidity and financial security are not only important to companies but also the companies’ employees. Conversely, with a drawdown in valuations, some existing investors in a private company might want to acquire more shares and provide liquidity to existing shareholders while the markets are not encouraging a sufficient liquidity event at a desirable valuation.

Structuring the Tender Offer

A tender offer is a transaction that can be utilized to allow an investor to buy a company’s shares from employees with vested stock options or company common stock. Tender offers are often structured in one of two ways: (1) share buybacks by the company or (2) a secondary sale by an existing shareholder(s) to a third-party purchaser. Under the first option, the company uses either cash on its balance sheet or cash from a prior equity financing to buy back shares. However, many states (for example, Delaware and California) have statues that limit the amount of capital that a company may use to buy back its shares. Meanwhile, these statutory restrictions do not apply to secondary sales to third-party purchasers, which makes secondary sales often the preferred route for many companies. Third parties who are considering initiating a tender offer should be aware that there are strict tender offer securities rules which must be adhered to in the conduct of any such offering.

Considerations in Secondary Sales Valuation: Tender offers will always affect a company’s 409A valuation. The degree to which any transaction will impact the valuation  depends on the terms of the transaction, the parties involved in the transaction, the size of the transaction, and the methods used by the valuation firm.

Share Restrictions: Restrictions on the sale or transfer of shares, such as rights of first refusal, or state corporate law ‘control share acquisition statutes’, are often imposed on shareholders. Therefore, potential sellers must review the organizational documents they signed or are otherwise bound by (i.e., the company’s bylaws, certificate of incorporation, and shareholders agreements, for example) to determine if there are obstacles to transfer unique to the company.

Securities Laws: Secondary sales must also comply with federal and state securities laws. Part of compliance with securities laws is the proper disclosure of information to
potential buyers. When it comes to the disclosure of information, on the one hand, sellers may have signed a confidentiality agreement with the company to protect against the disclosure of confidential information to third parties including prospective buyers. However, this restriction must be balanced with whether or not the seller has material, non-public information which would impact the transaction.

Summary: Compliance with securities laws, a thorough review of the applicable transfer restrictions, and the company disclosing material information will all help sellers obtain a
higher price for their otherwise illiquid shares. Companies wanting to hold off on a liquidity event and get through this financial volatility while providing employees and other common stock holders an opportunity to achieve personal liquidity should consider the avenue of a secondary sale.

Dated April 7, 2020

Written by Stan Sater and
Jeff Bekiares

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If you are a business that has questions about secondary sales of private company common stock or tender offers, contact our Founders Legal team at [email protected] and [email protected].

Part One: Managing Equity Incentive Plans in a Volatile Market

This blog post is part one of two discussing equity incentives and ways for employees to liquidate a portion of their shares while the company remains private. Most companies are in the middle of granting 2020 annual equity awards. This granting of equity awards is happening simultaneously with the COVID-19 outbreak and the larger volatility on business operations and financial markets. The purpose of this blog is to highlight some considerations when granting equity awards in light of recent events.

409A Valuations

The threshold consideration is the overall value of the company, which then flows through to the value of any equity incentives being granted, impacting such matters as the strike price and the number of incentives being issued to eligible recipients (such as, e.g., employees, contractors, advisors, and directors). Although it is not required by law to do so, typically, a company will conduct a 409A valuation to derive the fair market value of the company and its common stock, to provide a base for determination of the value of any equity incentives to be issued (although other factors may be taken into account as well). A 409A valuation is often (but not always) different from a company’s post-money valuation following a financing round because investors typically receive preferred stock. Nonetheless, it is generally good practice to commission a new 409A valuation every 12 months, before the company issues its first common stock options, after raising a round of venture financing, and/or when there is a material event that may impact the value of the company.

Equity Incentives

Equity incentive plans are standard features of startups granting an equity interest in the company to employees and other personnel allowing them to share in the upside potential of the company. A well-crafted omnibus equity incentive plan is going to give the company the optionality to issue (a) Incentive Stock Options (ISO), (b) Non-qualified Stock Options (NQSO), (c) Restricted Stock and (d) Restricted Stock Units. Within the equity incentive plan, the committee appointed by the board of directors to administer the plan should have the authority, among other matters, to determine when the awards are to be granted under the plan and the applicable grant date; to determine the number of shares of common stock subject to each award; to determine the instrument to grant the employee or personnel; and to amend the awards including the time of vesting.

So, if the 409A valuation returns a lower than expected valuation (especially given the current market) requiring the company to use more shares from the equity incentive pool than anticipated, the company could consider certain alternatives, such as, for example: grant restricted stock units (RSUs), which command a higher value based on how the RSUs are structured, thereby requiring fewer shares to grant to come to an equivalent value;

  • Make the equity awards contingent on shareholders approving an increase in the size of the equity incentive pool at the annual meeting;
  • Delay the grant until the after the annual meeting of shareholders, if an increase in the size of the equity incentive pool is
    approved; or
  • Provide the option to have the awards cash-settled (which itself does come with some tax and accounting downsides).

It might also be an option to reprice the options if the equity incentive plan permits or pending shareholder approval. If the repricing involves any change in the award other than a reduction in the exercise price, such as exchanging options for RSUs, the company must comply with securities laws and the corresponding tender offer requirements. If a repricing is not an option, the company could also consider granting supplemental awards. However, the granting of supplemental awards does come with accounting difficulties and would adversely affect the company’s dilution levels.

It is also worth mentioning that there could be ‘upside’ to a lower than expected 409A valuation, in light of recent events, as it relates to equity incentive base pricing. With lower base pricing, there is an opportunity for companies to issue equity incentives that are credibly (and, more importantly, tax defensibly) less valuable than they were even one month ago. If one believes that the price of equities and company valuations are, currently, artificially low as a result of the COVID-19 scare, then, by the time they return to normality, the previously issued equity incentives will be more valuable in the hands of key employees and other recipients. Explanation the company’s theory of the same could be a useful recruiting tool for key employees in these uncertain times.

Our View

Boards and management teams should consult with their legal, tax, and accounting advisors before changing their equity incentive plans as changes can force the company down different paths. As well, the boards and management teams should make decisions based on potential reactions from all stakeholders who are dependent on the future of the company. The next few months are shaping up to be volatile economic times but that also means time for introspection and internal brand strengthening to come out
stronger on the other side.

Looking past the issuance of equity and incentive compensation, Part 2 of this blog post is going to cover companies conducting internal tender offers for those seeking to sell a portion of their vested options while the company remains private and weathers this financial volatility.

Dated April 6, 2020

Written by Stan Sater and Jeff Bekiares

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If you are a business that has questions about equity incentive plans, contact our Founders Legal team at [email protected] and [email protected].

Can My Venture-Backed StartUp Benefit From a Payroll Protection Program Loan?

With so many companies’ runways depleting in these unprecedented times, many companies are seeking relief through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). One attractive program falling within the U.S. Small Business Administration’s (SBA’s) Section 7(a) loan program is called the Paycheck Protection Program (the “PPP”), where a business can receive a forgivable loan in amount up to 2.5 X its average monthly payroll for the prior year.

To be eligible for an SBA loan a business must meet the size qualifications for a “small business concern”, or alternatively, in the case of PPP, employ fewer than 500 employees. A
businesses qualification as a “small business concern”, however, can be frustrated by a business’s association with other companies or investors as provided under 13 CFR §121.301.

These affiliation rules consider the amount of control or power a third party has to control the applicant. While the rules are somewhat nuanced and consider the totality of circumstances, businesses can conduct a simple back-of-the-envelope exercise to help determine eligibility:

  • Do any of our investors own 50% or more of the outstanding shares of our company?
  • Do any of our investors have the right to purchase (through options, warrants, or other means) 50% or more of the outstanding shares of our company?
  • Do any of our investors control a majority of our board of directors?
  • Do any investors have the right to prevent a quorum or otherwise block action by the board of directors or shareholders?

Where your company has to answer any of these questions in the affirmative, you will likely need to add in the number of employees and annual receipts of your investor (and the investors affiliates) to determine your eligibility as a “small business concern”. A notable exception to this rule applies where a company is classified under NAICS Sector 72 (food services, etc.). Additionally, there is some speculation that the Treasury will release guidance simplifying the guidelines for PPP eligibility, and potentially loosening the affiliation rules for these extraordinary circumstances such that a small business that is not controlled by a single outside shareholder will be eligible. Accordingly, if you fall into this camp, please stay posted.

Where your company can answer all of these questions in the negative, and where your company meets the prior referenced size qualifications, you company will qualify as a “small business concern” eligible for the PPP and other SBA Section 7(a) loans. In this case, we implore you to reach out to your SBA approved lender as soon as possible to submit your loan application.

Please acknowledge that this write-up is meant for informational purposes only and is not intended as legal advice.

By: David H. Pierce

US and Foreign Patent Office Updates as of March 31, 2020

As COVID-19 continues to spread and disrupt industries across the globe, patent offices in Coronavirus affected countries are, for lack of better term, not immune. These patent offices are responding by implementing deadline extensions, office closures, and delays in services.

Below is a list of relevant patent offices divided by region and their respective statuses as of March 31, 2020:

NORTH AMERICA

  • United States Patent and Trademark Office (USPTO)
    • All offices closed from March 16, 2020 until further notice – all USPTO operations will continue without interruption
    • Original handwritten signature no longer required for certain correspondence with the Office of Enrollment and Discipline (OED) and certain payments by credit card
    • Petition fees waived in certain situations for customers impacted by the coronavirus, but does not grant waivers or extensions of dates or requirements set by statute
  • Canadian IP Office (CIPO) 
    • All deadlines occurring March 16 – April 30 extended until May 1, 2020
    • Expect significant delays in all services
    • Multiple CIPO offices are no longer receiving correspondence, including in Edmonton, Montreal, Toronto and Vancouver

EUROPE

  • World Intellectual Property Organisation (WIPO) 
    • Reserving access to its headquarters to only personnel essential personnel
    • Processing of applications filed via WIPO’s IP services are so far not affected
    • Will be delivering electronic versions (pdf) of the following documents for the foreseeable future:
      • Certified copies of certificates of international registration and renewal,
      • Attestations, and
      • Detailed certified extracts
  • European Patent Office (EPO) 
    • All deadlines due between March 9 and April 16 are now due April 17, 2020
    • The extension also applies to PCT applications handled by the EPO
    • Affected parties are not required to file a request to the office for the extension of the time limit to take effect
  • Belgium, the Netherlands, and Luxembourg
    • No requests or procedures will be withdrawn because a deadline has not been met during the period of public health restrictions caused by COVID-19
    • This is applicable to payments not received on time
  • United Kingdom IP Office (UKIPO)
    • Deadlines extended and IP rights reinstated for those affected by the virus, granting on a case-by-case basis
    • All physical hearings cancelled until June 1
  • Italian IP Office (UIBM)
    • Any certificates and IP titles that expire between January 31 and April 15 will remain valid until June 15, 2020
  • The German IP Office (DPMA) 
    • The following are closed or unavailable until further notice
      • Information centres
      • Research rooms
      • On-site consultations
      • Initial consultations for inventors
  • French IP Office (INPI) 
    • All buildings closed to the public
    • Most IP-related deadlines occurring “in the period between 12 March and one month after the end of the state of health emergency” are now postponed by either one month after the end of this period (if the initial period was one month) or two months after the end of this period (if the initial period was two months or more)
  • Czech Republic IP Office (UPV) 
    • Open with reduced hours
  • Norway IP Office (NIPO) 
    • Customer service centre will “hold normal office hours, but staff will be taking the calls from home
    • No in-person meetings
    • NIPO headquarters are closed to the public until further notice
    • If specific deadlines or lost registered rights occur during this period, applicants and registrants can request re-establishment of those rights
  • Finland IP Office (PRH) 
    • Customer service building in Helsinki is closed
  • Portugal IP Office (INPI) 
    • All employees will be working from home from March 16, 2020
    • In-person services only available through pre-scheduling
  • Austrian IP Office
    • All office deadlines in proceedings before the registry are extended by two months without the need for users to request a further extension
    • However, all deadlines directly resulting from the law cannot be extended

ASIA/PACIFIC

  • Chinese Patent and Trademark Office (CNIPA)
    • Unaffected
    • Anyone in China who would miss the deadlines with regard to patents due to the coronavirus can apply for restoration of their rights
  • Hong Kong IP Office
    • Extended all patent, design and trademark deadlines for any filing date that fell between January 29 and February 21
    • Deadlines that fall after these dates are currently unaffected
  • India Office of the Controller General of Patents, Designs and Trademarks
    • Closed for 21 days from March 25
    • Due dates during this period are delayed until the office reopens (Projected April 15, 2020)
    • Delayed due dates are applicable to:
      • completion of various acts/proceedings,
      • filing of any reply/document, and
      • payment of fees
  • South Korea – Korean Intellectual Property Office 
    • Granting of automatic deadline extension for applicants who have failed to comply with the statutory time limits for submitting documents or paying fees to KIPO, for any reasons relating to COVID-19.
      • Applicants will be asked to submit a relief measure request or statement of payment with an explanatory statement and evidence of impairment due to COVID-19
  • Australian IP Office 
    • Requests for extensions can be made “in the normal way” and will be considered on a case-by-case basis
    • However, “some time periods cannot be extended” and suggested that brand owners reach out to IP professionals to check if an extension is possible
  • Philippines IP Office (IPOPHL) 
    • Moved to an “online only” service
    • From March 16 until April 14, all manual IP filings are suspended
  • New Zealand IP Office (IPONZ) 
    • All services are currently operating as usual
    • Users can request an extension of time should they be affected by the virus

MIDDLE EAST/AFRICA

  • Israel Patent Office 
    • Do not visit the registry’s headquarters until further notice
    • Can contact the Authority by phone as usual, and submit documents online
    • Regular hearings in the Tribunal are cancelled, and new dates will be adjusted
    • Extensions will be granted where applicants can demonstrate COVID-19 epidemic resulting in an inability to meet ILPO deadlines
      • To allow applicants time to submit extension requests, no files will be closed before May 1 for failure to answer ILPO correspondence
  • South African Companies and Intellectual Property Commission (CIPC)
    • Closed through April 16, including online systems.
    • Certain automated services will become available again on April 1
    • Deadlines for filing Annual Returns between March 25 and April 15 will be automatically extended until April 30, 2020
  • Saudi Arabia IP Office 
    • Suspended operations for at least 16 days from March 16, 2020
  • African Regional IP Office (ARIPO) 
    • Closed to the public from March 25 until April 30.
    • All IP deadlines are extended until May 1, 2020

CENTRAL/SOUTH AMERICA

  • Mexican Institute of Industrial Property (IMPI)
    • Closed to the public,
    • All terms suspended and extended at least until April 20, 2020
    • All deadlines will be moved to April 20, 2020, when applications/responses can be filed before IMPI
  • Brazilian IP Office (INPI) 
    • Face-to-face service is now suspended indefinitely
  • Peru IP Office (Indecopi) 
    • Suspended all public meetings indefinitely
    • All deadlines being processed are now suspended
  • Chilean IP Office (INAPI) 
    • Public opening hours reduced essential queries and procedures that cannot be carried out by other means
    • Extension of terms for administrative procedures