Food Patents

Understanding Patent Cease and Desist Letters Patents apply to actual inventions and prevent others from manufacturing, selling, or using a product or process. These protections are granted by the government in exchange for public disclosure of the invention, which can leave creators open to instances of patent infringement. When this occurs, an inventor’s first line of defense is the patent cease and desist letter. This formal demand is sent directly to an alleged infringer and can later be used during litigation to show misconduct was knowing and willful. If you have received a cease-and-desist letter based upon patent infringement, please contact us at Verna Law, P.C. at 914-908-6757 or send an e-mail to [email protected]   What is a Patent Cease and Desist Letter? Once a patent application has been granted, the owner of the patent has exclusive rights over the invention. When these rights are violated, a patent cease and desist letter can be sent to an alleged infringer of these rights. This is typically the first step in defending a patent, and in most cases, it’s also the last necessary step. Cease and desist notices are partially credited with keeping over 97 percent of legal disputes from ever entering the system. Although patent owners are granted certain protections by the U.S. Government, the onus of policing violations still falls upon the patent owner. Any enforcement activities must begin with the IP owner, and in many cases, this can lead directly to litigation. The driving focus behind patent cease and desist letters is to avoid further legal issues, but without professional assistance, these notices may simply be ignored. Every cease and desist letter explains the misconduct that’s occurring and demands that it be ended. By sending one, patent owners create an evidentiary trail that can later be used in court. If you receive a patent cease and desist letter, you have a specified time period to respond. If infringement is obviously taking place, it’s important to cease those actions immediately. Of course, not every claim of patent infringement is cut and dry, so if there’s any confusion as to whether infringement is occurring, it’s important to consult with a patent law firm to understand the patent owner’s demands and the patent owner’s patent claims. What Constitutes Patent Infringement? Patent infringement occurs when someone other than the intellectual property owner sells, offers to sell, uses, or manufactures a patented item or process. This must occur during the duration of protection – typically 20 years – and meet all elements of at least one claim within the patent. Some typical defenses to a patent infringement claim include: Prior Art: Alleged infringers may claim that a patent is invalid due to the existence of prior art. Non-Infringement: If the device at issue does not utilize all elements of a claim, infringement has not taken place. Inequitable Conduct: A patent can be invalidated if the owner acted in bad faith during prosecution. Doctrine of Laches: If a patent owner procrastinates in defending its rights, they could lose the ability to do so. Estoppel: Individuals are prevented from making assertions contrary to prior claims, actions, or established facts. Writing a Patent Cease and Desist Letter Considering the increasing number of design and utility patents granted by the USPTO, there’s little doubt that the frequency of patent cease and desist letters is increasing. It’s important to include pertinent patent law when sending a cease and desist letter. This lets the recipient know that you’re doing more than just “fishing” for potential infringing behavior. In addition to including specific instances where your patent was infringed, you need to explain how the recipient’s behavior constitutes infringement. This is done through a patent’s claims. Whenever you file a patent application, you’re required to list several claims that describe the invention. These explain the scope of your patent and thus dictate the protection provided by the U.S. Patent and Trademark Office. If alleged violations don’t meet the criteria of at least one of the claims, then infringement has not occurred. Parts of a Patent Cease and Desist Letter A well-crafted patent cease and desist letter sent by a patent litigation attorney can bring a quick resolution to a matter. Failing to include appropriate information, though, could result in the notice carrying no legal weight. This is why it’s important to consult with a lawyer. The following are all integral parts of a patent cease and desist letter: Contact information for yourself and the infringer. Demand that all infringing activities end. Demand that infringing activities not be resumed. Patent registration number. Dates and examples of the infringing activities. Additional legal actions that may be taken. Deadline for response (often 10 days). Each of these aspects of a cease and desist letter is geared toward removing all doubt that infringing activities are accidental. At this point, infringers typically acquiesce and end their activities – especially if their misconduct was knowing and willful. Those who engaged in accidental violations usually abide by the requests in these notices as well.   Responding to Patent Cease and Desist Letters If you’ve received a patent cease and desist letter claiming infringement, it’s important to thoroughly review the information provided. Keep in mind that this document is not legally binding. Patent trolls send out bad faith cease and desist letters frequently. In doing so, they hope to either stifle competition or extort money from individuals engaged in legitimate conduct. You’re not obligated to respond, but failing to do so could lead to litigation, so clearly, every cease and desist letter should be responded to in writing. If your behavior doesn’t constitute infringement, a patent cease and desist response letter is your opportunity to showcase that fact. In doing so, you may eliminate any further harassment from the alleged patent owner. You’ll also start establishing your own evidentiary trail. This can become useful later if you end up in court. Always keep in mind that cease and desist letters and their responses are simply meant to enforce the law. If you’re engaged in patent infringement, a cease and desist notice should be viewed as an opportunity to end a conflict before further legal action is taken.   When Cease and Desist Letters Don’t Work Cease and desist letters are among the most effective tools in the intellectual property world, but there will always be instances when an infringer refuses to cease an infringement. This is why around 4,000 patent infringement cases have been filed yearly in federal courts over the last few years. Unfortunately, this may be your only recourse if a cease and desist letter isn’t effective. If another party is wrongfully claiming that they’re not infringing upon your patent, you’ll have the option to file a complaint to initiate patent litigation in court and have the infringer served. They’ll have time to respond, but if they fail to do so, you may be awarded a default judgment that includes an injunction and monetary compensation. Judgment amounts in patent cases have been trending upwards over the last two decades. One of the most overlooked issues regarding patent cease and desist letters is the possibility of declaratory judgments. The infringer could seek a judgment of non-infringement in a more favorable court the moment they feel litigation is imminent. This could put you on the defensive side, so at times, you may want to consider filing a lawsuit prior to sending a cease and desist letter. The lawsuit can always be dropped later if an acceptable conclusion is reached. A cease-and-desist (C&D) letter typically demands that the recipient stop (cease) doing something now and avoid (desist from) doing it in the future, or risk being sued. The steps you take after receiving a C&D letter can critically impact how the potential dispute affects your business (as discussed in our related IP Update regarding trademark and brand protection). In patent disputes, C&D letters are frequently used to advise the recipient that they are infringing the patent rights of the patent holder and demanding the recipient to stop. Sometimes the patent holder may offer the recipient a license to the patent at issue. A C&D letter may fall across a spectrum of threatening to friendly, depending on the sender, the recipient, and the nature of the allegations/accusations.   Steps to Take if You Receive a Patent Cease and Desist Letter If you receive correspondence that you believe is a C&D letter, consider these five steps: Consult an Intellectual Property Lawyer:If you receive a C&D letter for patent infringement, you should consult with an Intellectual Property (IP) lawyer with expertise in patent infringement litigation. Intellectual property law is a highly specialized practice area. It is important to obtain counsel who is familiar with patent litigation to put yourself in the best position moving forward. Patent infringement allegations are often rooted in complex and highly technical facts and can take time to properly investigate. Consulting with an experienced IP lawyer quickly after receiving a C&D letter makes for the best use of the time leading to the sender’s proposed deadline and will set you up to properly consider the allegations, gain an understanding of your risk level, and evaluate the next steps. Make Note of the Deadline:A C&D letter will typically include a deadline for you to respond and confirm your compliance with the demands. A deadline may have been chosen randomly or may be intentional and especially important where there is a risk of fast-approaching harm or legal deadlines by which the sender needs to commence litigation. Even if you do not intend to comply with the demand, there is value in responding by the identified deadline to try to resolve or reduce the conflict, or to demonstrate to a future judge or arbitrator that you did not simply ignore the request. If the deadline is too quick for you to respond meaningfully, you can consider sending a short-term response that you will need additional time to investigate the allegations and/or seek legal advice. Consider the Merits:Just because someone sent you a C&D letter, it does not mean they have a (strong) claim against you. When evaluating the merits of a C&D letter, consider the sender and the nature of the complaint. Questions to ask yourself include: Does the sender appear to have the rights it is asserting? Does it seem like your actions infringe on the sender’s rights? How important are your allegedly infringing activities with respect to your business interests? What is the bigger picture? Is there a relationship between you and the sender that you wish to preserve? Are there other aspects to the dispute between you and the sender beyond the patent infringement allegations, such as employment considerations or allegations of breach of confidence? Considering the merits at the outset will give you a better understanding of the possible risks you are facing. Experienced patent litigation counsel can assist you in evaluating your position, including the questions above. See, below, a discussion on the possibility of filing a Declaratory Judgment lawsuit.   Evaluate Your Options and Respond:How you respond to the C&D letter will depend on various factors, including the nature and strength of the allegations and the possible commercial interests at stake. Among other options, you may choose to comply with the demands, deny any wrongdoing through a responding letter, or explore the possibility of mutually agreeable patent licensing terms. All correspondence with the sender should be made on a ‘without prejudice’ basis to prevent any such correspondence from being used as evidence by the sender in future court proceedings. You should also be careful not to make any public statements or comments to any third parties about the dispute without first discussing it with an IP lawyer. Gather and Preserve Your Records:Even if you receive a C&D letter that does not expressly threaten litigation, a lawsuit is a possible outcome. For this reason, as soon as you receive a C&D letter, you should put a “litigation hold” in effect, where you preserve all records that may be relevant to a lawsuit later. This will help you avoid any allegations that you intentionally deleted or destroyed records that you would have been required to provide to the other side during the litigation. What you preserve depends on the nature of the allegations, and you should seek legal advice to ensure that you safeguard the proper records.   Another Consideration: Declaratory Judgment Jurisdiction: A Look at the Totality of the Circumstances ​Recipients of a cease-and-desist letter may consider filing a Declaratory Judgment lawsuit against the IP owner who sent the letter, asking the court for a declaratory judgment stating that the recipient is not infringing the patent (and asking for attorney’s fees as damages).  Declaratory judgment actions different because they permit a party to seek a court judgment that defines the parties’ rights before an injury occurs. A declaratory judgment differs from other judgments because it does not provide for any enforcement or order a party to take any action or pay damages. Essentially, it states the court’s authoritative opinion regarding the exact nature of the legal matter and whether the parties would be entitled to relief without actually requiring the parties to do anything. For example, a declaratory judgment action could be brought to determine party rights and obligations under a contract or to establish the validity of a patent. Under Article III of the U.S. Constitution, a federal court may only issue a declaratory judgment when there is an actual controversy. Without an actual controversy, the federal courts do not have jurisdiction to hear the case. For an actual controversy to be found, the plaintiff cannot be merely seeking advice from the court, but instead must show that the controversy between parties is substantial, immediate, and real and that the parties have adverse legal interests. In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the Supreme Court evaluated Declaratory Judgment (“DJ”) jurisdiction under a totality-of-the-circumstances test, where there must be “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant relief.” Looking to the totality of the circumstances, courts analyze the contents of a cease-and-desist letter as a key factor—but often not the only factor—in assessing DJ jurisdiction. Other factors include the relationship of the parties, litigation history of the patent owner, actions of the parties, and more, as discussed below in the context of the MedImmune test. Creating a “Substantial Controversy” through Cease-and-Desist Letters The “substantial controversy” requirement allows potential infringers to challenge infringement claims and patent validity without “betting the farm” by requiring potential infringers to make (or continue to make) a potentially infringing product. But when do a patentee’s actions create a substantial controversy? In SanDisk v. STMicroelectronics, for example, the U.S. Court of Appeals for the Federal Circuit’s analysis searched for an act by the patent owner indicating it would enforce its rights. The court found that the patent owner provided a clear intent to enforce its rights by, among other things, providing detailed infringement charts explaining how the accused infringer violated its patents. But patentees rarely provide such clear accusations when they want to avoid DJ jurisdiction, and the court refused to define the boundaries in this case. The court extended its analysis in decisions following SanDisk. The Federal Circuit has consistently stated that “a communication from a patent owner to another party, merely identifying its patent and the other party’s product line” is not enough for a definite and concrete dispute. Still, simply avoiding specific threatening phrases, such as “you are infringing my patent,” generally does not inoculate a patent owner’s letter from creating DJ jurisdiction. Instead, the language of the letter usually must connect the patents with an accused product, and the language or circumstances surrounding the letter must suggest that the patent owner will assert its patent rights. While a strongly worded letter may be sufficient alone to trigger DJ jurisdiction, many letters use less threatening language. In those instances, courts do not stop their analysis at the words of the letters. All communications become relevant, with courts considering informal conversations, the history of the parties (e.g., whether they have a litigious history), later discussions between the parties about the contents of the letters, and more. Courts analyze these facts collectively to determine whether a patent owner signaled an intent to assert its rights, creating a definite and concrete dispute. As an example where the court found no DJ jurisdiction, in Element Six v. Novatek the patent owner worded its letter as an information gathering tool. It requested information on the accused infringer’s products so that it could determine potential liability. The court did not consider this to be a demand or accusation. Instead, the court viewed it as an attempt to gather information to determine the rights of the patent owner. Further, the patentee did not provide additional information on its patents or a potential infringement analysis until the accused infringer requested the information. The court did not find this later-arising information to contribute to DJ jurisdiction because the accused infringer asked for it as opposed to the patent owner using it to threaten filing suit. The court focused on the information in the original letter and determined that a request for information was not a definite enough threat to enforce the patent owner’s rights and did not create a substantial controversy. “Sufficient Immediacy and Reality” in the wake of Cease-and-Desist Letters Some view the “sufficient immediacy and reality” requirement to be more straightforward than the “substantial controversy” requirement. In general, if a recipient allows time to pass between receiving a cease-and-desist letter and filing a DJ action, the delay will undermine the immediacy and reality of the dispute. Patent owners seeking to avoid DJ jurisdiction can further bolster this argument by showing that the accused infringer has not taken any corrective action in response to the letter or other communications. But even with the passage of time, courts might still find sufficient immediacy and reality if the patent owner has taken other actions in the interim. For example, a potential infringer might believe they are a target of the patent owner if the patent owner has sued others in the same market after sending similar cease-and-desist letters. The potential infringer may believe that the patent owner simply has not gotten around to suing it, creating an immediacy and reality to support DJ jurisdiction. An accused infringer can also retain the immediacy and reality of a controversy if it temporarily takes corrective action to avoid the accused conduct but is still prepared and wanting to revert to its original accused conduct. This is true even if the alleged infringement had abated for many years. In Myriad, for example, the patent owner sent a letter demanding that the accused infringer refrain from performing its patented tests. The accused infringer refrained from performing the tests for 10 years but then filed a DJ action. The court found sufficient immediacy and reality based in part on the fact that the parties’ legal positions had not changed during the abatement. The patent owner had continued asserting its patent rights by demanding that accused infringers run their tests through the patent owner, suing those who violated these terms. The accused infringer in this case succumbed to these threats and did not provide accused services to his patients. The court also noted that the accused infringer wanted to provide and was ready to provide the patented tests. The court even compared this with the fact that it affirmed the dismissal of claims by other accused infringers who stated they may want to provide the tests. Because these facts did not change over the 10 years between the letter and the DJ action, the immediacy and reality of the suit did not dissipate. It is important to remember that this is not a rigid, formulaic analysis. Courts have said that attorneys cannot simply prevent DJ jurisdiction by avoiding “magic words” such as “litigation” or “infringement.” Instead, courts evaluate the totality of the circumstances and determine whether the accused infringer is reasonably concerned about being sued to the point of satisfying these two requirements. This dynamic prevents the courts from clearly defining a universal set of language that would always avoid DJ jurisdiction in a cease-and-desist letter, further complicating the balancing act that patent owners must perform when sending letters to create notice for damages or knowledge for indirect infringement. The Interplay Between DJ Jurisdiction and Notice for Damages To recover damages for patent infringement, a patent owner must provide actual or constructive notice to the accused infringer. A cease-and-desist letter may provide actual notice, but to do so it must “assure that the recipient knew of the adverse patent during the period in which liability accrues.” The courts focus on the acts by the patent owner to put the accused infringer on notice, not any independent knowledge the accused infringer may have separately developed regarding the patent. To provide this notice, the Federal Circuit has stated that “the actual notice requirement of § 287(a) is satisfied when the recipient is informed of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by license or otherwise.” At first glance, this appears to create a binary choice either to avoid DJ jurisdiction and fail to create notice for damages, or to create both DJ jurisdiction and notice. But courts insist the rules are not coextensive. For example, the Federal Circuit noted the distinct requirements and purposes of these doctrines in SRI International v. Advanced Technology Laboratories: The criteria for actual notice under § 287(a) are not coextensive with the criteria for filing a declaratory judgment action. These statutory purposes are distinct, serve different policies, and are governed by different laws. The requirement of actual notice under § 287(a) is designed to assure that the recipient knew of the adverse patent under the period in which liability accrues, when constructive notice by marking is absent. Actual notice may be achieved without creating a case of actual controversy. Despite this recognition, courts generally analyze challenges to DJ jurisdiction and notice for damages at different stages of the litigation, preventing them from providing a direct comparison. Still, analyzing the rules for notice can be instructive. Identifying the asserted patent is fairly straightforward. While rare cases have not required a patent owner to identify the patent number, it is generally not advisable. Courts allow more flexibility in identifying an accused product, however. Patent owners can generally identify a line of products and often are not required to identify a particular product by its model number. This allows patent owners to be less specific in their letters, which could undermine DJ jurisdiction in some instances. In PCT International v. Holland Electronics, the patent owner identified an entire family of products as potentially infringing its patents. The accused infringer insisted that the patent owner needed to identify specific model numbers the patent owner thought were infringing,   If you have received a cease-and-desist letter based upon patent infringement, please contact us at Verna Law, P.C. at 914-908-6757 or send an e-mail to [email protected]   Conclusion Patent cease and desist letters are powerful tools in protecting intellectual property rights. Whether you are sending or receiving one, understanding the process and taking the correct steps is crucial. By consulting with an experienced IP lawyer, accurately assessing the merits of the situation, and carefully crafting or responding to these letters, you can significantly impact the outcome of any potential disputes.   If you have received a cease-and-desist letter based upon patent infringement, please contact us at Verna Law, P.C. at 914-908-6757 or send an e-mail to [email protected]      

It’s a fun Super Bowl weekend! So this video blog talks about trademarks for the Super Bowl, the NFL, and teams. Enjoy!

Let’s talk a little bit about the Post cereal lawsuit against OkGo. I think there’s been a lot of confusion about that. So I figured even though I’m on the road, let’s chat post filed a lawsuit against the band. Okay go. Why Post wants to file a trademark called OkGo for a line of cereals. Probably ready to made cereals is my guess. The band sent the post a what we call a cease and desist letter. Now, we’ve heard a lot about cease and desist letters, but we haven’t really heard a lot about what happens after you send a cease and desist letter. One of the pitfalls of sending a cease and desist letter is that the potential defendant in a lawsuit who receives that cease and desist letter may have the ability to go to federal court, especially in trademark law, because everything is federal. We want the court to say “We are not infringing upon this trademark.” Now, in that particular case, what has to happen then is that the now defendant who asserted the trademark claims, who would have been a plaintiff, also has to file a counter lawsuit for the trademark infringement, as well as answering the the complaint that’s there. So really what’s happened here is that post started using the phrase, okay, go on cereal. Okay, go. The band did not like that particular use of the phrase. Okay, go. Despite the different sets of goods and services, that lawyer said the cease and desist letter. And in response to the cease and desist letter post decided to take that issue to their home district court and they filed a what we call a declaratory judgment asking the District of Minnesota that they are not infringing. So that’s one of the that’s one of the things that happens when you send a cease and desist letter. It can backfire on you. And you might actually wind up being a defendant in a lawsuit where, you know, they’re being asked to say that they’re not actually infringing. You have to make sure that you write your cease and desist letters calmly. You must make sure that you need to write your cease and desist letters specifically, and you need to make sure that you’re not really going to kick up dust. But that is certainly one of the things that can happen. And in this particular case, that is exactly what happened that a lawsuit just started. So we have a lot to to to determine, especially a lot to determine about. Okay. Go’s use of the trademark. Okay. Go ahead. And if it’s a trademark that is famous enough that all other uses should be banned. To me, that’s going to be the one and only question on the trademark case.

The “Law & Business” podcast has returned. Once again, we are with Heather Abissi, our co-host, from Abissi Law. We discuss domain names: How domain names are property; How domain names relate to trademark law; In which ways a person or business can challenge the validity of a domain name registration; Arbitration or Federal Court? What happens when the federal government seizes your domain name? It’s a fun conversation! Don’t forget to subscribe and rate us 5 stars!

The “Law and Business” podcast is BACK. And Anthony is joined by his new co-host, Heather Abissi. Heather M. Abissi, an attorney beginning her 15th year of practice, having served as an Executive Assistant District Attorney, Criminal Defense Attorney, Civil Rights Attorney, Tort Attorney, Family Law Attorney, Matrimonial Attorney, and Senior Assistant Corporation Counsel for the City of New York, and Corporate Outside Counsel, has a practice focused on legal writing, editing, contract negotiation, oral argument, trial support and strategy. The goal of her practice is to improve the work-life balance of attorneys by allowing them to outsource time consuming legal documents, and peace of mind to corporate clients who need detail oriented personal attention to their contracts rather than boilerplate. Heather Abissi The sensitive topic is revenge porn. Heather tackles the topic from the victim’s perspective in terms of criminal law, and how to report such an action. Anthony tackles the problem from the perspective in terms of copyright law and rights of privacy/publicity aka name/image/likeness – how a federal civil lawsuit may help a victim.

Coming aboard the “Law & Business” Podcast is Polina Chtchelok. Polina is an Australian lawyer and engineer. She started her career in the energy sector, where after having lived in 5 different countries and working on various investments and projects, she saw a business opportunity due to lack of specific legal services and she moved from working in-house to creating her own niche market law firm in a controversial and challenging business environment of Bolivia in South America. After completing Executive MBA from HEC Paris with specialization in finance end entrepreneurship her focus now is on development of financial and operational strategies for business growth. This episode on how to define a business vs. how to define a startup was fun to record and we hope you enjoy it, also. Anthony Verna: (00:02)All right. Welcome to the Law and Business podcast, the most blandly named podcast out there. With me today is Polina Chtchelok. Polina, how you doing?Polina Chtchelok:I’m good, and you? Anthony Verna:I’m well. How badly did I butcher your last name?Polina Chtchelok:It was actually quite well. Anthony Verrna:All right. Oh, good. Okay. That’s because your last name is Polish in nature. Polina Chtchelok:Russian. Anthony Verna:Russian, I’m sorry, I keep making that mistake. I grew up near our Lady of Czestochowa, which is I believe a Ukrainian saint. So anyway, I’ve learned a little bit about trying to figure out some of the Eastern Europe… Polina Chtchelok: (00:53)The region of my last name is Ukrainian Cossacks. Anthony Verrna: (00:58)Okay. Okay. So, all right. Thank you for the diversion. Uh, Paulina is an Australian lawyer and engineer. Speaking of a diversion. You started your career in the energy sector after having lived in five different countries, working on various investment and projects. Polina, you saw business opportunity due to lack of specific legal services. And you moved from working with in-house to creating your own niche market law firm in a controversial and challenging business environment in Bolivia, in South America. And then after completing your executive MBA from HEC Paris, with specialization in finance and entrepreneurship, your focus is now on development of financial and operational strategies for business growth. So welcome because law and business is exactly where you and I collide and intersect and thanks for being on today. Polina Chtchelok:Oh, thank you for having me here. Anthony Verna:Hey, so we’re going to talk a little bit about what you think of as an ongoing concern for a business versus a startup. And hopefully our listeners can take away some ideas for thinking about if you’re a startup out there thinking about taking your startup, what do I need to do to be an ongoing business concern? Polina Chtchelok: (02:14)It’s a very complex subject, and it’s a very current subject because as you know, with COVID-19, there’s a lot of businesses being impacted. You have to shut down, but at the same time, COVID-19 accelerated in entrepreneurship. It’s accelerated creation of startups. Its accelerated people being innovative and creative because of their restrictions they’ve been under. They had to think of new ways of doing a business, implement changes to keep the business afloat and, and even the current customers, they change their habits. And you had to adjust to these changes in the habits of your customers. Anthony Verna: (03:06)I completely agree. And we see that as well. We’re seeing a lot more trademark applications come through the door. We’re seeing a lot of patent application inquiries, and a lot of people trying to figure out if their invention is something that they want to invest the time and the money to get a patent application. And, that really begins one of the thoughts, like how much have you invested of your own money in your business? Polina Chtchelok: (03:35)Well, before we get into this point in terms of how much we invest, I want to highlight two things. And the two trends you see in the news is the first one, as I said before, a lot of businesses got impacted, and there is a discussion in terms of, okay, how you get economy going, et cetera. And people just go up private equity, they have lots of money. They have lots of dry powder. Anthony Verna: (04:01)It’s just because of Shark Tank and Dragon’s Den the GB franchise. I mean, that’s really why private equity is very popular. Polina Chtchelok: (04:10)I will get back to the Shark Tank and the Dragon Den, because it’s important point for the discussion in terms of what startups and businesses need to do in how’s it prepared to sort of launch themselves and to grow and to get funds for the growth. But just to let us get back to what I was saying before, the second trend you see is the it’s banks. That basically, because a lot of businesses had a bank loan, the bank day defaulting on the loans because they’re going bankrupt, et cetera, et cetera. And the second trend is saying that banks is Christmas guarantee when they’re giving out new loans and that’s coming back again. So, the people were think, okay, the bank increasing security, private equity has money, lots of money. It will be easy for us to get. Anthony Verna: (05:02)Bank loan. What’s a bank loan? I mean, until COVID 19, nobody wanted to give Verna Law a bank loan. Polina Chtchelok: (05:11)I mean, when you start preparing your business, you’re analyzing what you have to do depending, what is your idea? What is your business? Actually, the bank loan might be the way to go because in Europe, we can get personal loans with very low interest, like 1%. Anthony Verna: (05:30)Color me jealous. Polina Chtchelok: (05:33)Like, I’m in France. So, our current loan market is very low interest rates. That’s why I’m mentioning the bank loans. Maybe it’s different in United States, but for me, bank loan in Europe would be one of them quite solid options to consider. Anthony Verna: (05:52)Okay. Yeah. I would say here in the United States, that’s actually not a very easy avenue to take just because it’s personal guarantee. The rate is definitely not going to be that low. And it’s basically based upon an idea that the bank has to take a leap of faith on you. Polina Chtchelok: (06:12)But as we probably have like a very diverse audience, I feel like we need to cover different options because which something might work in Europe might not work in the United States, but something that works really well in the United States really might not work in Europe. So, basically, we now have this perception that, okay, we might get easy money from private equity, but what do you need to think about it is how many people’s thinking it. It’s quite a lot of people thinking about this. So the guys who run the different funds, they get a lot of applications. And because they are not in a charitable business, they give money, they invest money, but they want to make return on their money. They’re not there to just give it out. Anthony Verna:No, they’re not charity. Polina Chtchelok: (07:08)And the thing is, is that because we do have the Covid-19 situation, we have the more risk there will be also employing higher scrutiny when they’re analyzing the business. And that comes down, is that okay? You have the business or startup, you want to develop it. You want to grow it. You need to prepare it for it. And you need to have money to do this. And when you go into the bank or the private equity fund, et cetera, you need to show that you have something workable in terms of what is your idea? Are you having a product or are you developing some sort of digital business or you’re developing a platform or you developing an application to meet some need that there is nothing existed in the market that can make that need? Anthony Verna: (08:05)I mean, that sounds like what is your business plan? Polina Chtchelok: (08:08)Well, yeah. And what is a business plan? And before we even get to the business plan, we need to differentiate what is the business and what is the start up? Because that’s become really popular. There is a fundamental difference between a business and start up. And I feel like a lot of people actually using a startup to kind of sound cool, but in reality, they just have a business. The fundamental difference between a business and startup is business is you have the fixed product, and you have the fixed model to sell the product. You’re not testing anything. And the way to illustrate it is the, I don’t know, you live in countryside, you have a of different farmers around you and you open a shop to sell the local farming products. This is a business because you have defined products behind way to sell. But if you’re open the same store with this products, but you will be selling it as a say, subscription. You have the basic subscription where every week you can pick up like the basics that you need. You have the big levels, you get some additional items, and you have the sort of a luxury thing where you have items. Then you are start up because you’re not selling it in a normal way. You’re testing it to see how many people will subscribe. What’s going to be popular? Are they’re going to be happy with the basket you’re proposing, or you need to do some adjustments? Anthony Verna: (09:49)You need some extra yolk for your oxen, not a problem. You’re a subscriber. You can come and upgrade once a year. Polina Chtchelok: (10:00)So that’s the fundamental differences. You need to look and say, I have this brand idea for the product. You need to make this product because you cannot just turn up to the bank or the PE guys to say, Hey, I have this idea. I have this widget that I think everyone wants. You need to test. You need to build it. And this is where it comes at you need to invest a little bit of your own money, or maybe not too much a little bit, but you need to see, I mean, you need to analyze what would you require to build this product? I mean, if you need to build a prototype, can you do it with a 3-D printer? Because there’s now a lot of services providing this opportunity to do it. Or if you’re building some sort of platform to sell items, so you building up is like, okay, you need to hire programmers. I mean, where are you going to be doing programming and cost of it? Anthony Verna: (11:08)And, I was going to say, what are the costs involved with putting together those prototypes? So, for example, if you’re, as you said, a 3-D printer, but there are services that create prototypes for different industries. And is that going to be the cheaper way of doing it then getting a 3-D printer? If it’s software, you’re right, who’s going to program it for you? And then what are the legal costs of putting together? Maybe some of, some of those particular items? Like with software, you got to make sure the copyright goes back to the business. So, you have to consider those costs as well in putting this together, right? Polina Chtchelok: (11:46)And this is where I was going to get back to the point. You mentioned about the intellectual property and if you analyze why a lot of businesses or startups fail. One of the major factors is that failing is that they didn’t do enough analysis verification at the initial stage in terms of first of all, can they protect the idea. And in parallel, what of there is this idea already been like, it should be the patent, because if you think of the big tech giants, they want to stay in the business. And they have a big innovation department and they have a huge army of lawyers who will be filing different patents, good ideas. Anthony Verna: (12:36)I always say, welcome to intellectual property. You have to put your big boy pants on because you’re swimming. You might be a small fish, but you’re swimming with the same big fish that everybody else is swimming with. So, for example, when it comes to a new patent, , excuse me, a new invention for a patent application, a new trademark that comes in, the first thing that we do on either of that is a search. Why? Because we want to know what big boys are out there with something similar. Polina Chtchelok: (13:11)And this it’s an important thing. And it’s one of the steps we need to see in terms of you have to put your own money into it, and you need to do this research because you don’t want to end up in a situation that would happen in a case of smiley.Anthony Verna: (13:30)You mean the smiley face, a yellow smiley. Polina Chtchelok: (13:33)The yellow smiley face, yeah. Anthony Verna: (13:36)So boy that with the tortured history, then nothing has happened. Yes. Polina Chtchelok: (13:41)But I mean, is that it’s like in the initial design, I think the marketing guy, he got paid 45 dollars for it. And now the French family horn in business, then… Anthony Verna: (13:55)I know, I know. And he’s fought very hard to try to get some kind of portion of that, / and that doesn’t work, but it’s something that if it’s not generic, it feels generic. So a lot of companies come with some kind of similar smiley face and then that company is always defending its rights as well. So yes, there is a long, tortured history for the smiley face logo. Polina Chtchelok: (14:20)Yeah. But it’s just proves the importance of checking and protecting intellectual property. Anthony Verna: (14:29)I completely agree with you. Polina Chtchelok: (14:31)Yeah. But this is just a one part of it. Then, it’s okay, you have a product, you kind of find a ways you’re going to be making it, and then you also need to think about how are you going to register your company? Like what would be your entity? If you’re thinking of providing some specific service, do you need the licenses? Then also it’s like are you doing this business yourself, or you have a partners, how are you going to spleen the partnership? I mean, and in case of the platforms, you have to think, especially digital platforms or platform to sell something is like, you need to also involve tax lawyers, accountants to see like what taxes you might have to pay. And then another thing you have to think is like, who’s going to be your clients? Are they just going to be based in your country, or it’s going to be global? How do you, how do you perceive your business? Because you need to be very aware of the GDPR, the whole data privacy protection. And the basic claim is this: If you’re thinking of having clients from Europe, you need to comply with this law in terms of protect the personal data of your clients. And even though you’re based maybe in US, Canada, or South America, if your client’s coming from Europe, you have to comply with this regulation. Anthony Verna: (16:03)And that’s going to be very similar here. If you’re in the United States or you really anywhere in the Americas, you have to make sure that you’re complying with California’s new privacy laws, which I’m not going to say line up exactly what GDPR, but I have a feeling that if you’re compliant with GDPR, you’re probably going to be compliant with California’s data privacy laws probably I’m speculating there a little bit because there is still a lot of GDPR that kind of sits there and frustrates me every time I read it. Polina Chtchelok: (16:42)And the problem is in GDPR, it’s even been quite a song for young companies in Europe, is that from one side, this, this legislation created lots of business opportunities for the lawyers and consultants and for the IT professionals, but… Anthony Verna: (17:07)Once they figured it out. Polina Chtchelok: (17:09)They figured it out and they figure out how to make lots of money with it. But then if you’re company and you have to comply with it and you start the dialogue, then your clients or users, et cetera, your clients and users can’t use this legislation against you because they’re not happy with something and lodged the complaint that saying that you are not compliant. And then most likely you will be investigated. Anthony Verna: (17:40)Right. Which you don’t want. Look, it’s the same in California. And I always point to the fact that I have heard the state attorney general from California, sit on stages and say, “California’s position is that if you have a website you’re doing business in California.” And while that might violate traditional norms of jurisdiction, that’s their position at, until they’re overruled by maybe the US Supreme court or even California State Supreme court, until that happens, that is California’s position. And so, it’s the same issue. It’s like, if you’re going to be doing business in the United States, you really have to be mindful of what California’s data privacy laws are as well. Polina Chtchelok: (18:36)So this is kind of all the points that we covered. It illustrates what you need to think about it and what you need to cover up out of your own pocket before you actually proceed in go to banks or crowdfunding, or to angels, et cetera, try that and ask them for more money. And this is why I want to go back to the Dragon Den and Shark Tank, because it is an entertaining show. But you said entertaining factor. If you listen carefully to what the sharks or dragons asked to each like a startup or business who are coming in, how much of your own money you already put in, how much you already invested, because they want to see your commitment. To see, I mean, how well you thought about things, and if you tell them, okay, invest in that much, I thought about this. It’s actually gives the investor indication in terms of how much you committed, how much you are serious about your idea. Anthony Verna: (19:41)I completely agree, because if you’re dealing with an entrepreneur who wants to put the due diligence, and who wants to understand what the business is, who wants to understand the competitors who want. When you have that due diligence and whether you’re coming from your particular angle or my particular angle, because the due diligence will look different, but that is the beginning part of the success. And then understanding, well, okay, if the product is already out there, what changes do I need to make to make it? What improvements do I need to be to make it new and to whom will that actually be attractive as a product that I can sell it to? Polina Chtchelok: (20:21)And this actually comes to the next point that it’s important to mention that, okay, a lot of entrepreneurs business, young business and startups, they make a mistake. They come up with a product, they think it’s a great product. And the first testing they do, they do with friends and family. And this is the main issue is, because it’s your friends and family, it puts them in a situation, a little bit subconscious situation, that any of the support needs to be nice to you and you get quite often false positive feedback. You don’t get sort of an objective review of your idea. I mean, you might get, um, some very direct, I don’t know, uncle who will tell you exactly what he thinks, but you will have the majority of the people being nice. You will probably disregard that objective, grumpy uncle, and you just go, Oh, but all my other aunties, uncles, brothers, sisters, cousins, they think that great. So I feel good. Is it because this group of people think it’s great. My friends all encourage me. And that’s why you need also invest the money into like professional focus groups, professional market surveys, because they will get a variety of people to try out, to review your product or your idea for a service. And during just reviews, maybe you will come to see the things that, okay. So just some features that you thought things are great, but no one likes it, but you missing something and does a group saying, okay, well, we would like to see this, this and this. And this is kind of allows you to improve what you’re trying to put out there. And also, there is a 1 tendency that I seen, especially in my aluminum group of downs, what you see is that the services that tried to do it themselves. One problem I see is when you try to do your surveys yourself, you accidentally disclosed what you’re trying to do. Anthony Verna: (22:44)Because you don’t necessarily know how to word it correctly.Polina Chtchelok: (22:48)Exactly. And when you, if you’re not verdad Catholic, and as a person who is being nice, filling up your service users, just go, “Ooh, this person is trying to do this, but I actually have a connections and I have some spare cash. I will do it faster.” and your idea is lost but when you go to actually the professional survey companies, they work with you and then generate the surveys to get that feeling for your idea, for the product or service without disclosing what it will be. Anthony Verna: (23:25)Polina, I’m reminded of a conversation I just had earlier today with the new client and basically they they’re looking to take their business and have a franchise model around their business. And so they already have the business. It’s ongoing, it’s steady. So they have a business model that they can license. But I said on the franchise part, I said, well, how about your furniture? How about your furniture in your office? Have you thought about that? And they’re like, “No. Why?” Well, because when somebody walks into your New York location versus your New Jersey location, they want to know that they’re in the same company. And so you want your furniture to look the same. You want the colors to look the same. You want the set up to look the same. It’s a franchise you’re licensing, not just the trademark, but everything else, the color scheme, the furniture, The look, the feel, the whole deal. And I said, so you need to think about that all the way through. And I even said, as much as you have fallen in love with the trademark for your business, I said, the way that it was worded is very regional to the New York, New Jersey, Philadelphia region of the United States. I said, if you’re looking to do business outside of that region, I think your trademark is terrible. And that’s from somebody who works with advertising. And I said, look, I’m only saying that because, because I work with advertising agencies and I can tell you that that’s what’s going to happen. And I’m reminded of another trademark from another client where I said, look, your trademark gives a promise. And so you’re going to have regulatory issues with the promise that your trademark gives to consumers. And they were like blown away when I started talking about the federal trade commission and other regulatory issues, like those were just issues that they hadn’t thought about. And you know, they come here and I just want to give them that bigger holistic overview of what their business model may or may not run into that they never thought of. Polina Chtchelok: (25:37)That’s what it’s important to analyze those things. It’s important. I mean, yes, there is a notion that, okay, all those professionals are expensive. Lawyers are expensive, everything is expensive. I can do it myself, but it’s impossible to do it yourself. My point is that maybe it’s the case. Okay, you’re starting to do it. This business, you have your idea. Maybe it is necessary for you to take out personal loans, to cover all those fees, to have everything kind of iron out and check from the beginning because you don’t want to come to a situation that, okay, you have a great idea. You did a hundred presentation to private equity. You had one fund investing, 10 million, you kind of opening up your office. And all of a sudden you have a knock from the state regulatory body or knock from the Microsoft lawyers saying, ah, but you’re infringing our patent. You are infringing this legislation, or you haven’t got this license. And all of a sudden everything is gone because you didn’t do these initial checks. And it’s another factor. Whereas a lot of startups fail because they don’t invest enough from the beginning to do those checks. And I mean it, and when you do those checks, it might be the case that, okay, actually my idea will not fly, but then you are, you have a small bill to pay and you haven’t as much as you lost down the road. Anthony Verna: (27:15)And, and you know, what else Polina, I think one of the other items that a lot of business owners really forget is that an angel investor venture capital is very difficult to receive. And in a way it’s a bit of a matching game. So that, that if they’re hanging their hopes on that, it’s probably a business that’s not going to be successful because it’s hard to go in that direction. Polina Chtchelok: (27:46)Yeah. Well, now we’re getting to the interesting discussion. Okay. You prepared your plan, you analyzed it, you analyze your different supply and demand scenario because this is also important to look down because you don’t want to be in a situation where you have a great product, et cetera, you launched it. And it just sold out so quickly because it’s so great. And then because no one else can sort of get it anymore, then they kind of just go, okay, this is not a serious business. Forget it. And so when you’ve done all those things, you have all those ready. You have all this paperwork ready, you have simulations ready, you have your budget ready. You have your different scenarios ready, you’re ready for the due diligence and now, when you do all those things, the case could be that the money you need to launch, it’s actually, maybe not that much, if you’re doing a sort of a product. And I mean, and if it’s not that much to get going, do you need private equity? Actually, no, you don’t because you can go to crowdfunding and you have a different types of crowd funding because you can go to different websites and the fees for crowdfunding and their charge is not so much. And you can just go for say, okay, I have this great product, please give me a little bit. Anthony Verna: (29:12)And what I like about crowdfunding is that your advertisement on crowdfunding websites is a demonstration of the product. You show the product, how it works, you hold it up, put it to the camera. I mean, it’s an advertisement that frankly is straight out of the 1950s. You show people how to use your product. It doesn’t matter what kind of graphics you put on the screen. You’re not going to get the crowdfunding, unless you tell people here’s the product, here’s how to use it. Here’s what it’s good for. Here’s the solution that it solves. I mean, it’s your pitch. Polina Chtchelok: (29:56)Yeah. And some great companies and some great products, they’ve been basically crowdfunded that they invested into the original prototype was indeed excellent, they made very excellent video showing all the features, how itis. They researched and they invested to making sure that product is a quality, and they kick trophons . It began very good businesses, just through crowdfunding. I mean, one of the examples is a backpack that I have that is an existing design, the anti-kind of robbery, anti-pickpocketing backpack and has been done through crowdfunding. And it’s a fantastic backpack. Anthony Verna: (30:41)So anti pick-pocketing and in other words, you put your money somewhere in an inner kind of… Polina Chtchelok: (30:48)Funky shelf, like a kind of turtle shell, but it looks very cool. And it’s got a special stripes. If you’re on a bicycle, it reflects light and sort of inside, it’s got a lot of compartment things, but it’s just pickpocketing is a big thing in Europe. So, it’s the way it sits on your back. It’s very difficult to kind of get inside because it’s opening from the inside. That’s so crowdfunding and it’s like a great product. And because of the sort of a semi-hard shell, you can use it for a lot of things. Like if you’re on a plane, you can put it down and use it as a footrest. I mean, I use it a lot of times on a Metro as a stand to do my makeup. I mean, they didn’t put that in a video, but I found, and it’s a great product. And the company has grown and expanded to have more different. They now just backpacks come in different size that have more sort of a fashionable lady, mini apps or products that have things for business. But they did it through crowdfunding, basically went through the crowds or show the product. They said, okay, give us money. They did this as pre-purchase. They did this because you actually have this crowd funding, you have four types and you can do like a, this kind of pre-purchase. Pre-order crowd funding, really general one may say, Hey, I have an idea. Just give me the money because you like me, but you also can do debt crowdfunding and you can do equity crowdfunding. And there is a one company in England. It’s a beer company. Basically, they have the equity crowdfunding. Anthony Verna: (32:37)I think I’ve heard of equity crowdfunding for movies. That movie producers basically say, um, you know, if you’d like to help fund the creation of this movie, then you’ll receive some small sliver of the profits back from the theater. Once. I mean, now obviously we’ve got COVID, so that’s kind of a dead business model, but basically people would, you know, if it’s a movie idea and they like, they buy into it, you get enough people apart from the usual funding, you get enough people to do crowdfunding. And then basically everybody will get some kind of slice of the profits. Little slice, a slice of the profits back when, when it, when the profits do come through Polina Chtchelok: (33:23)Well, apparently the beer company that I was talking about, I don’t remember the name of it, but, the shareholders meeting is just like a weekend long party visit. It’s very fun. Anthony Verna: (33:42)I thought that I thought that those big parties were a passe at this point. Polina Chtchelok: (33:49)But when I mentioning that equity crowdfunding, this is goes back in terms of when you consider, how do you register the business? Because if you receive the money in this, think about it, who’s going to receive this money. You need to have an entity. And when you considering the legal entity, you need to think about it. Can you actually have that split of equity or it’s limited in terms of how many shareholders you can have? So it’s a very important things to consider because when you’re planning for like your funding, and you just think if your registration will actually permit you to receive this funding, or don’t have that type of funding, Anthony Verna: (34:27)But, you know, Polina with, with the crowdfunding, what I like is that people give them money and that’s it. It’s almost just as a simple transaction. It’d be just done at a shifted period of time. Like unlike your angel or venture capitalist, who is now with you the entire time. And basically, they’re also thinking about how to get out of the business. Polina Chtchelok: (34:58)That’s the very important point, because I mean, visit private equity, angel funds, et cetera. People see now a lot of marketing. They see all this sort of photos of happy founders, smiling and saying, I got 10 million, 12 million, et cetera. It sounds very nice. And I mean, private equity does a lot of good jobs. You have a lot of, interesting companies that are coming out, but in order to have this, um, I would call it like a marriage between the startup and a private equity. Anthony Verna: (35:37)You’ve got to date. Polina Chtchelok: (35:38)You have to date. You also have, like, we can go into the topic of that. Okay, you have to sort of deep things, but you have to enter this relationship with the right set of mind, to private equity angels. You’re not going to be in a control, and you need to understand, you will lose the equity because you’re getting money in exchange of equity. You can lose it. And I mean, are you okay with it? Or you’re not okay with it. And you really need to be clear about it. Another aspect to consider is as you mentioned, exit, because when the angels and private equity guys, they give you the checks or do the transfer to you, the first thing they’re thinking about how are we going to exit because they’re not charities. They give you money. They want to make money. They want to have a return on the money, and they will expect you to work your rear off. You can forget to weekends. You can forget the holidays. You only need to them because they want to build your company. Your idea, do the exit. And the exit would be the sales from MNA or IPO, or you are lucky. And they’re really like and are interested in you think you have a potential, they might roll you over too. But the first thing they think is about exit and be prepared. You need to be prepared in a suite of five years time, there will be exit and nothing will be changing it. And this is mistake A lot of people make is they just go, “Oh yeah, they have money. I have time.” But no, you don’t have time. You need to do it. And you cannot change your exit. There will be exit. Anthony Verna:Understood. Polina, any last thoughts as we’re coming up against the coming up against the time limit? Polina Chtchelok:Well, my last thought would be, you need to prepare. You need to think about it, and you need to really understand it. If you decide to create a business, if you decide to create a startup, you’re not going to have a safety net that you have if you’re working for a corporation and you really need to think about it, okay, I’m doing this. I need to be more than a hundred percent vested in it because am I doing it? And what is my reasons for doing this? Am I doing it for money or I’m doing it just for fun? Am I ready to do all the sacrifices? Because in order to do it, it’s a hard work and there will be sacrifices and you need to ready for the sacrifices. Anthony Verna: (38:36)Polina, thanks very much. How can people find you online? Polina Chtchelok: (38:40)They can connect with me on LinkedIn. I’m quite active on LinkedIn. Anthony Verna: (38:45)All right. Very good, Polina. And you know, if you’re on the Verna Law website, we have some other episodes that relate to this. I’ve got a video blog on business plan and intellectual property. And, of course, our very famous Patent Ability is not a Shark Tank Pitch, a blog post. So which you probably should read as well. Read that over on Vernalaw.com. Thank you everyone for listening. Polina, thank you so much for coming on.Polina Chtchelok:You’re welcome. Anthony Verna:We’ll speak to everyone again soon.Polina Chtchelok:Bye-bye.