David Lizerbram is an attorney in San Diego, California. He founded his law firm in 2005 to provide legal services to entrepreneurs locally and nationwide. He has provided legal guidance on multimillion-dollar funding rounds, negotiated strategic partnerships, managed international intellectual property portfolios, and advised many innovative startups.
David regularly speaks on legal matters and has presented as part of a legal education panel at San Diego’s Comic-Con every year since 2008. He has also created Products of the Mind, a podcast about the intersection of business and creativity.
In this episode, David and I discuss trademarks, legal entities and where you should form them, legal jurisdictions in the unfortunate event of a lawsuit, and the handful of things every SaaS entrepreneur should do to avoid legal problems.
Please see Disclosure* (below) concerning affiliate links on this page.
- [00:10] The law (business law, intellectual property law) is a set of tools that, hopefully, will help your business grow and succeed. So, just like you need to learn whatever other skills are appropriate (maybe it’s coding software or maybe it’s sales or marketing), getting an understanding of these subjects can be interesting and can be helpful in terms of avoiding problems and training yourself how to think–not to think exactly like a lawyer but how to anticipate where you’re going to need to put your resources and time in the future. That’s going to be an important key to the growth of a business. Whether it’s a solo business or a larger enterprise, I think that’s probably the right way to think about these things.
- [02:40] What due diligence is required when picking a company name to make sure someone else doesn’t have rights to it?
- [02:45] David cautions that what he discusses on the podcast is only information and should not be taken as legal advice.
- [03:15] What is a trademark? A trademark is anything that identifies the source of goods or services. A trademark could be a business name, a brand name, a logo, a slogan, or a tagline. It is almost unavoidable for a business not to have a trademark or trademarks. You are in the intellectual property business whether you like it or not.
- [04:15] In the United States, and most other places, trademark rights are acquired through use in commerce. Generally, the first company to use a brand name for a particular type of good or service is going to have superior trademark rights even if they have not filed to register that trademark. You need to do some due diligence (research).
- [05:55] What do you do to make sure that someone else doesn’t have a claim on a trademark? First, do the research to make sure that you are the first to use the name in that category of goods or services. Now, we’re going to get into some gray areas. It’s never exactly clear what falls into your category of goods and services. Another factor is that the names do not need to be 100% identical for there to be a conflict. The standard is “likelihood of confusion.” Is there a likelihood that a reasonable consumer would be confused as to the source of the goods or services?
- [09:45] What are the minimum steps someone starting out on a shoestring budget should take to avoid getting into trouble with a trademark conflict? If you can’t hire a professional to do the research for you, the first thing to do, in the United States, is search the United States Patent and Trademark Office website. Search for variations on the name. Check spelling variations and plurals. Google it. Use any search engines that may be appropriate for your type of business. Psychologically, you have to avoid trying to convince yourself that something is not going to be a problem. The more research you do, the better off you will be. It helps if you chose a unique name. Pharmaceuticals chose made up names (coinages) for this reason.
- [13:05] Is there a way to register a trademark in case someone does claim that it’s theirs? Even having a registered trademark does not cure an underlying conflict. It doesn’t make the problem go away. Registering the trademark amounts to attesting to the fact that you believe that the trademark is clear and fair to use. In the United States you can file on the basis of “in use” or “intent to use.”
- [15:50] What are the types of legal entities a SaaS company is likely to be, and what are the advantages and disadvantages of each of these? There are really four types of legal entities a business could be. None of them is wrong or right. It all depends on the circumstances and where you’re going with the business.
- [16:15] A sole proprietorship is one person who hasn’t filed anything and is just doing business as him or herself. Refer also to [19:50].
- [16:25] A partnership is the default entity for two or more people doing business together. A partnership can have different types of agreements and filings or can be fairly informal. Refer also to [20:30].
- [16:50] The next level of complexity or sophistication would be limited liability entities: Limited Liability Companies (LLCs) and corporations. Refer also to [22:20] and [24:35].
- [17:15] A corporation can be anything from one person to Apple or General Motors. Refer also to [25:55] and [31:00].
- [17:35] If you are operating as a sole proprietorship or general partnership, you and your partners are liable personally for the debts of the business and being bound to contracts, meaning: you can be sued personally.
- [18:05] The primary reason for an LLC or corporation (which are actually very similar) is that the owners are not subject to personal liability in most cases. These entities provide some protection for your personal assets, credit, etc. There is a cost for these entities and some other requirements, but it’s insurance against you being personally sued over something having to do with the business.
- [24:35] What do you need to do to maintain the limited liability limitation? Usually, it’s just a matter of informing your state that you are still in business. Generally, the costs and requirements for operating an LLC are low.
- [25:55] What are the different kinds of corporations? The typical kinds of for-profit corporations are S-Corps and C-Corps. A corporation is a company owned by shareholders, one or many. The difference is how you have chosen to be taxed. The corporation pays corporate taxes, and the shareholders pay individual taxes on distributions and salaries. The so-called S-election results in taxation much like a partnership. Refer also to [29:50].
- [28:40] What type of entity you want to be is an important decision, but is not a decision you are making for life. It’s common for companies to convert. You can close a company and sell the assets. You can change to another state. There may be expenses, and it may be cumbersome, but it’s not the end of the world if you have to change.
- [29:50] Profits and losses are passed through to the owners at the end of the year for LLCs and S-Corps. An LLC and an S-Corp provide essentially the same legal liability protection.
- [31:00] What is the burden for maintaining an S-Corp? Typically, a corporation does have to have annual meetings of shareholders and directors. There may just be one shareholder and director, and it may be the same person; in this case, there is just a document that needs to be generated and signed. If you are sued, you need to be able to show compliance with regulations.
- [34:20] How do these laws work when dealing with companies internationally? Most contracts contain a choice-of-law provision. Pay attention to these, they are important negotiating points. If there is a lawsuit, arbitration, or something else related to a contract you may need to travel and hire attorneys in some distant jurisdiction to defend your rights.
- [38:45] If you’re selling from your website, think about your terms and conditions. If you’re going through distributors or third parties, there are terms and conditions there as well.
- [40:00] Why do some companies incorporate in Delaware? What makes Delaware attractive? It depends on where you are going with your business. If you’re starting out and not necessarily planning to have a large enterprise that is backed by venture capital, going to have lots of investors, or go public, the recommended move is to form your entity in the state in which you are going to do business.
- [44:15] What are the things every business should do? Pay attention to trademarks. Get a good handle on the people who are working for you. Make sure they are classified correctly as employees or independent contractors, according to the laws the state in which you are doing business, and treated appropriately for their classification.
- [46:35] What resources have you found to be exceptionally valuable? The book People Skills by Robert Bolton has become an invaluable resource. We all need to continue to work on our people skills.
- [48:15] David is launching a podcast named Products of the Mind. It will be a discussion about the intersection of creativity and entrepreneurship. How do people who classify themselves as creative find their way in the business world? How do business people access creative skills to solve problems, keep their customers happy, and create a lifestyle that works for them?
- Lizerbram Law – David Lizerbram’s legal practice in San Diego, California providing legal services to entrepreneurs locally and nationwide.
- People Skills: How to Assert Yourself, Listen to Others, and Resolve Conflicts – book by Robert Bolton.
- Products of the Mind – podcast by David Lizerbram about the intersection of creativity and entrepreneurship. How do people who classify themselves as creative find their way in the business world? How do business people access creative skills to solve problems, keep their customers happy, and create a lifestyle that works for them?
- United States Patent and Trademark Office – website to begin your due diligence for trademark research.
*Disclosure: Some of the links on this page may be affiliate links. I may earn a commission if you purchase through these links. These commissions help to cover the cost of producing the podcast. I am affiliated only with companies I know and trust to deliver what you need. In most cases, affiliate links are to products and services I currently use or have used in the past. I would not recommend these resources if I did not sincerely believe that they would help you. I value you as a visitor/customer far more than any small commission I might earn from recommending a product or service. I recommend many more resources with which I am not affiliated than affiliated. In most cases where there is an affiliation, I will note it, but affiliations come and go, and the notes may not keep up.