Silicon Valley Skyline LLP

Corporate law

• Comprehensive experience working on corporate matters with a full spectrum of businesses, including early business formation, high growth enterprises, late-stage and pre-IPO corporations, and public companies listed on US or foreign stock exchange markets.

• Corporate formation, organization and structure, board and executive leadership, equity structures, collaborative negotiation with investors, business growth, employee and consultant engagements, internal processes and practices, HR and legal issues, and other corporate and operational issues.

• Our Integrated Counseling view:  For a successful company, Corporate law also needs business acumen and commercial considerations.  For example, an acquisition does not mean much if the businesses cannot be integrated, or if the key people from the target will cash in and check out.  Are revenue recognition and business models compatible?  Are there overlapping commercial deals between the buyer and the target with MFN obligations?  Is there a realistic path to a successful outcome knowing that most acquisitions do not play out in the long term?  To get it right, corporate law decisions and counseling require considerations of commercial law, IP licensing, employment law, patent portfolio analysis, liability exposure, revenue recognition, SOX compliance, and more.  We have seen many of these and can help you bring it all together. 

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Fundraising and Equity Investments

• Funding rounds and angel investments, Series A, B, C and later rounds, Convertible Notes, and other variations of company funding and equity investments.  We have seen significant corporate funding transactions from the perspective of companies, founders, angel investors, venture capital firms, private equity firms, investment funds, banks, sovereign funds, and strategic investors. 

• Stock Purchase Agreements, Certificates of Incorporation, Investor Rights Agreements, Voting Agreements and Proxies, Rights of First Refusal, and other agreements that arise in funding rounds.  A funding transaction, and each of these documents, can look very different when seen from the perspective of a company, founder, or investor. 

• Our Integrated Counseling view: Companies and investors need to think about the future, beyond the current funding round.  Investors are sophisticated and know that the future may bring more dilution, down rounds, senior debt and equity warrants, delayed IPOs, and the need for additional pro-rata contributions.  Investors are effective at getting the rights they need to protect themselves for the future, but there are often trap doors that are left behind.  Companies need to think about solutions that may allow future cash inflows without the need for investor consent and flexibility in business operations, but these are sometimes hard to implement when the company needs to close a funding round quickly.  Bridging the gap between the needs of investors and companies often requires creativity and understanding of how the future may change.  We have seen cases where investors and companies were widely successful, and we have seen situations in which the outcomes were less favorable to one or both sides.  We can help you think through these issues and implement a forward-looking corporate and investor framework.

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Senior Debt, Secondary Debt, and Convertible Notes

• Debt transactions raise special concerns for both the lender and the borrowing company.  Issues to consider include collateral scope, security interests, interest rates, limitations on operational decisions of the company, subordination of secondary debt, warrants, inter-creditor agreements, minimum liquidity and equity raise covenants, and remedies in the event of breaches.

• Convertible notes are special debt instrument designed to convert into an upcoming equity investment round.  Issues to consider include the risk that the equity round does not occur, conditions precedent and subsequent, covenants, subordination or parity with other existing debt, terms of conversion into equity, and terms of repayment by the company if the equity investment does not occur.

• Our Integrated Counseling view: debt is sometimes scary to borrowers, and secondary debt can appear to be particularly expensive to borrowers.  But in many cases, debt can be an effective way to finance a company if higher valuations are likely to be achievable within 12-18 months.  In the end, raising equity at a higher valuation and repaying the debt can result in less dilution for shareholders, so debt can be an effective tool for sophisticated companies.  Convertible notes can be attractive bridging mechanisms to upcoming equity rounds, but they must be handled carefully and companies and investors should implement contingency plans in the event that the equity rounds do not materialize.

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M&A, Acquisitions, Divestitures, and Asset Purchases and Sales

• Merger Agreements, Divestitures through business sales or Joint Ventures, Asset Purchase Agreements, Asset Sale Agreements, analysis and valuation of patent portfolios, due diligence for commercial agreements and corporate structures, and other corporate transactions.

• Our Integrated Counseling view: corporate transactions could be a good exit for successful companies and entrepreneurs, a strategy for sustaining revenue growth when the organic business is stalling, a way to divest portions of the business with lower business margins, a response to a competitive threat, or another way to unlock business value.  Corporate transactions inherently force change, and thoughtful companies manage the impact on their human assets through careful employee transition agreements, proper handling of stock options and RSUs, and employee retention policies.  Aligning interests between the parties and their employees, safeguarding or dividing Intellectual Property assets, protecting inbound and outbound licenses and commercial agreements, and establishing effective operating frameworks for the resulting businesses post-transaction are critical to achieve the commercial benefits sought by shareholders.  Remember that many, if not most M&A transactions fail to generate the business benefits contemplated initially.  We can help you think through these.

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Payments, Commerce, Omnichannel, Loyalty and SKU-Level Data

• If you operate in the payments space, whether it is local card processing or international inter-bank transactions, you will likely encounter issues relating to gateway integration, compliance with US and international payment regulations (PCI, EMV, etc.), Data Privacy and Information Security, new regulatory challenges posed by block-chain technology and crypto-currencies such as Bitcoin, structural challenges posed to the current payments infrastructure (e.g., SWIFT), cross-referral deals that blur the line between payments and data, and integration of payments and SKU-level data analytics with Point of Sale and omnichannel platforms.

• Payment processing agreements and Independent Services Organization (ISO) agreements are specialized legal agreements that establish an acquirer relationship between a card processor and an entity acting a referral agent.  ISOs are sometimes also known as Member Service Providers (MSPs).  While these agreements are fundamentally referral arrangements, in practice they are full of potential risks and complications.  Things to consider on either side of such agreements include exclusivity (whether express or disguised as a right of first refusal / ROFR), survival of residuals and other payment obligations, minimum quotas and contingent payment obligations, marketing and advertising commitments, and the computation of residual payments (e.g., before v. after interchange fees, inclusive v. exclusive of secondary merchant fees and credits, etc.).  

• Our Integrated Counseling view: PP Agreements and ISO Agreements are important business relationships in the payment processing industry that allow payment processors to expand their merchant acquisition footprint beyond their direct sales forces.  The payment industry is operating on lower margins than an outsider may expect, but it benefits from high transaction volumes that can still generate significant revenue and net profits.  So scale is critical in the payments business.  Whether you are on the processor or acquirer side, remember the points above, stay away from anti-competitive arrangements, and be careful with merchant fee disclosures.  Speaking of disclosures and interchange fees, remember the Heartland lawsuit against Mercury, which probably contributed to Mercury's IPO morphing into an acquisition by Vantiv - you do not want to be pulled into disputes like those.

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Patent Portfolio Development and Patent Brokerage Services

• Offensive and defensive patents and patent applications, provisional patent applications, non-provisional patent applications, continuations, continuations in part, divisionals, patent prosecution, patent portfolio management, inventor relationship management, inventor assignments and cooperation, strategic claim drafting, corporate innovation programs, invention harvesting, invention disclosure management, educational seminars for employees, and other areas of the patent prosecution and management lifecycle.

• Red team patent development, blocking patents focused on competitor product roadmaps, preemptive patenting and public disclosures in First-to-File jurisdictions (now including the US), and other aspects of offensive patenting targeting competitors.

• Identifying interesting patents for acquisition, patent purchases, patent sales, patent valuation, blind patent brokerage, and related transactions involving the acquisition or divestiture of patents.

• Our Integrated Counseling view: it is easy to write patents, but few companies have cohesive patent programs designed to support their business strategies.  Patenting should track R&D and should lead technology deployment by 6+ months for a technology company, but that is just the beginning of a solid patent strategy.  Blocking product roadmaps of competitors with offensive patents, identifying and acquiring patents with offensive or defensive value at good prices, preparing to invalidate and attack patents of competitors, and knowing when to abandon or divest patents to redirect funds towards higher value assets are second order strategies that can take a company to the next level.  We can help you with these.  Remember that your competitors may be doing these already.

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Commercial Transactions

• Commercial transactions are generally the source of revenue (on the vendor side) or a mechanism for obtaining operational assets or services (on the customer side) for most companies.  Sales Agreements and Sales Terms and Conditions (from the supplier's perspective), Master Purchase Agreements (from the customer's perspective), Joint Venture Agreements (which can get pretty complicated and morph into M&A and Divestiture transactions), Software License Agreements, Cloud Services Agreements, and a variety of other agreements in which software is licensed, hardware is sold or leased, or services are delivered. 

• Think about supply assurance, SLAs, indemnification, and performance standards when you are the customer.  Think about payment terms, revenue recognition, SAAS and bundling, operating leases, license limitations, warranty management, liability limitations, and termination rights when you are the vendor.  Don't try too hard for MFN clauses and escrow arrangements when you are the customer, those rarely meet expectations and just create unnecessary relationship strain with your vendors.  It is pretty easy to draft around and blunt an MFN obligation or to sidestep it by recasting products and services. 

• Our Integrated Counseling view: it is usually easy to close a commercial deal if the seller is willing to compromise on issues that are strong requirements from the customer.  But that is not sustainable, and the vendor's business will eventually be harmed by those deals.  It is sometimes necessary to enter into a sacrificial "bad" commercial deal, and if you do have to do it, do it but be smart.  But the secret to a successful business model is finding a way to optimize the outcome even in challenging transactions, within a reasonable timeframe, and without destroying the relationship with the customer.  It takes a good team to do that, and not many companies do it well.  Commercial transactions often have multiple levers that could be adjusted, and Integrated Counseling can help you identify them and adjust them properly.  For example, granting a broad license to your technology may be the worst possible outcome from a competitive standpoint, or could be a good compromise if the other side cannot effectively use it or if you can terminate it at the right time.  Similarly, accepting unlimited liability in a large commercial deal may be an existential threat for your company, or may be an illusory give if the ways in which liability may arise have been carefully limited under the agreement and exclusive remedies have been defined.  Rights, obligations and contingencies that appear significant may in fact be effectively nullified through warranty limitations, termination rights, ability to divest businesses, and other business or corporate maneuvers. 

• If you think that you have a lot of leverage, we may be able to bring together out experience with similar transactions and implement a framework that preserves your advantage into the future and leads to the right outcome.  If you think that you have no leverage but nevertheless must sign on the line, we may be able to help you adjust the framework of the deal and push it to a different outcome in the future, when it will really matter.

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IP and Technology Licensing

• Licensing deals are commercial deals at core, but look different in structure.  In a pure commercial deal, the vendor is selling hardware, licensing software, or delivering a service.  In an IP License or Technology license arrangement, the vendor is delivering a portfolio of IP or a technology platform, and is enabling the customer to commercialize it.  As the vendor, think about license scope and rights, ability to terminate if things don't go as planned, ability for the customer to develop or license a substitute solution and displace you in the future, blocking patents, payment terms and a sustainable revenue model, ability to charge for future improvements and updates, and maneuver around exclusivity requests.  As a customer, think about scope of use, KPIs to determine ROI and avoid overpaying, preserving the license for as long as needed, ongoing maintenance and support with the ability to outsource to third parties, and exclusivity if possible.

• Our Integrated Counseling view: technology and IP licensing arrangements may look easy, but are hard to structure properly for both the customer and the vendor.  The risks are high both parties: the licensor is handing over core IP assets and technology know-how, and the licensee is receiving little more than IP and technology building blocks that need to be developed into a real product.  Regardless of whether you are the customer or the licensor, the key to a successful licensing deal is to start by focusing on the business needs, and then build a legal framework that supports your goals.  Not easy to do, but we can help.

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Services Agreements

• From the outbound services perspective, services can be the main revenue source for a company, or just add-on revenue in connection with a product or solution.  From the inbound services perspective, most companies will receive some form of services, from website development, to marketing support, to consulting services.  In the modern SAAS and cloud economy, services intersect software and cloud functionality.  As the customer, think about SLAs, performance standards, indemnification, and business continuity.  As the service provider, think about liability limitations, sustainable revenue models, revenue recognition, IP ownership, and ability to terminate the engagement.  

• Our Integrated Counseling view: be careful what you mean by "services" whether you are the vendor or the customer.  Is it software, is it cloud hosting, or is it really a service?  The answer to that question will inform the right legal framework: remember that software is licensed, services are delivered, and hardware is sold or leased.  Don't forget about IP ownership, IP allocation when development takes place, and scope and duration of licenses.

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Technology Development Agreements

• Technology development agreements are a specialized form of services arrangement, where some technology and IP are developed and transferred to the customer.  Think about IP assignment and perfection of title, patents and patent prosecution (hard to manage when the inventors don't work for you), noncompetes and non-solicits, international issues when the developer is in a different country and subject to local laws, withholding taxes and other tariffs that could apply to transfer of IP or technology, and the need to license underlying technology and IP.

• Our Integrated Counseling view: technology development arrangements are a critical aspect of many companies, and unfortunately entrepreneurs and BODs do not always understand this from the beginning.  Here is a way to think about this: one day, a sophisticated acquirer, investor or IPO underwriter will do diligence on our technology stack and will check to verify that you own your technology.  That would be a very bad time for you to find out that your developer still owns a portion of what you thought was your technology stack, there is viral Open Source code in your software stack that could require you to release your source code, your developer owns patents covering your products, or your product is not scalable and the code is not annotated or portable.  Take your technology development agreements very seriously from day one, your future actually depends on it.

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Collaboration and Joint Development Agreements

• Collaboration Agreements and JDAs could be simple agreements that align business or technical efforts between two or more parties, or could be a framework of multiple agreements that include complex mechanisms for division of IP, cross licensing of patents, development and division of assets, and commercialization of products and services.  To get this right, think about the current relationship and then try to see where it will be in three years.  Are you competing now with your collaboration partner?  Will you be competing in the future?  Will either of the companies pivot business models?  Should you build in a mechanism for exiting the collaboration in the future?  Should licenses survive termination of the relationship?  Do you want an option to acquire some of the jointly developed technology for a fixed price, even if the price looks too high today?  And so on.  Technology development efforts involving two or more parties poses both unique opportunities to leverage multiple balance sheets and different capabilities to expand business reach, and also significant risks in building a competitor and losing critical IP.

• Our Integrated Counseling view: think through the business synergies and the competitive aspects between you and your collaboration partner.  Let's discuss where your company is today, and where you may be in 1, 2, 3 and 5 years.  Some internal milestones, a thoughtful roadmap, and a set of smart KPIs could help implement a collaboration framework that will maximize the outcome for your company as you navigate the complexities of joint technology development and commercialization.

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Reseller, Referral and Channel Agreements

• Both reseller agreements and referral agreements have a place in your business strategy, but you have to understand well what each of them can and cannot do for you.  Reseller arrangements can allow you to leverage external sales forces and customer relationships that you may not have, but will likely keep the customer away from you and interpose another party between you and your customers.  Referral arrangements allow you to stay close to the customers, manage the sales cycle and control your brand, but will require organic resources to close the sale and support the customers.  A well thought channel strategy can help you expand the footprint of your business beyond your sales and marketing resources, but a poorly managed one can damage your brand and allow your competitors to make inroads with your customers.

• Our Integrated Counseling view: think of your Sales and Marketing costs, break them down by segment and industry (e.g., Enterprise v. SMB, retail v. hospitality, etc.), benchmark against competitors, and then determine where your channel strategy should fit.  A well designed channel strategy will balance organic sales and up-sales with resellers, referrals, cross-referrals, consultants, acquisitions, divestitures and managed customer attrition.

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Patent Licenses, Cross-Licenses and Non-Assertion Agreements

• A patent license or cross-license agreement is different from other agreements that you may see in the course of your normal business.  A patent license agreement can open up technology areas that would otherwise be locked up behind a portfolio of patents, but can also be a minefield that poses significant financial burdens on your business without clearly resolving your patent exposure.  This is one field in which you need competent legal and business advice before you even go into preliminary negotiations.  Which patents do you want to license?  Which of your patents are you willing to cross-license in return?  Which party should be paying a net fee?  Are there patents that should be sold as part of this transaction?  Should the scope or other terms of the licenses vary in some foreign countries?  Should there be some exclusivity?  Is there any know-how that should be bundled with the patent licenses?  What other companies are licensed under these patents?  Are there tax implications for this deal?  And so on.  Before you even think about the legal agreement, make sure you understand the business goals and expected financial implications of the transaction.

• Our Integrated Counseling view: patent cross-licenses are common in the industry and serve as a mechanism for avoiding litigation between both business partners and competitors.  IBM and Intel wrote the book on patent licenses, and the industry has more or less adopted the licensing framework established by IBM and Intel.  But a well crafted patent license can leave subtle holes in coverage that can be exploited in the future.  Imagine this nightmare scenario:  you entered into a patent license, paid significant royalties to the other party, and a few years later find out that an area of your business falls outside the patent license and now you have additional royalties that have accrued and will attach in the future.  Could it get even worse?  Yes, imagine that all of your patents have been fully licensed to the other party so you have no offensive case left, any other patents you may acquire in the future will automatically be captured by the license to the other party, and the other party is threatening to seek an injunction and shut down your infringing activities unless you may a much larger royalty this time.  You do not want to be in this position, so make sure you think through these issues ahead of time with a trusted legal advisor.

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Trademark License Agreements

• Licensing a trademark is a difficult business decision because you are allowing someone else to use your brand for their own business purposes.  This decision requires careful consideration of branding, quality control, ongoing relationship with the licensee, and future organic plans around the licensed trademark.  Think through exclusivity, compensation, and termination rights.

• Our Integrated Counseling view: many companies are careless with trademark licenses, and many agreements include add-on sections granting trademark licenses or cross-licenses without any significant thought on the underlying business implications.  A trademark license is never trivial.  Remember the magic words: you must police your trademark, and you must monitor and manage the activities of the licensee.  If you don't, your trademark license may be considered a "naked" license, and you may lose the trademark if challenged by your licensee or a competitor.

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Data Privacy and Security

• Data privacy and data security are critical issues in today's world of big data, cloud-based commerce services, digital offers and coupons, in-app and online ordering, and SKU-level data analytics optimizing omnichannel offerings.  Remember to check your privacy policies at least twice a year and make sure that thy remain consistent with your products and services.  Be careful with data transfers across international borders.  Make the necessary disclosures to end consumers and merchants if you want to use their data for analytics and monetization.  Better yet, use opt-in processes to make sure that merchants and end consumers are aligned with your use of their data.  Enterprise customers, financial institutions and Government Agencies will particularly care about Personally Identifiable Data (PII), and there will usually be no liability cap for you to backstop liability for PII-related breaches. 

• Our Integrated Counseling view:  Data Privacy and Data Security are very serious issues that have to be addressed carefully on an ongoing basis.  Data monetization is the Nirvana of payments, and the first company to come up with a scalable and comprehensive SKU-level data monetization program across the whole SMB and Enterprise space may be the first to reach the elusive Trillion Dollar valuation.  Data in commerce is one of our favorite practice areas, let us know if we can help with this.

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Litigation and Dispute Resolution

• Companies will invariably end up having disputes with business partners, vendors, employees, shareholders, or even unrelated third parties.  Sometimes you may choose to affirmatively trigger such disputes for strategic reasons, and sometimes you may be the victim of claims initiated against you.  At times, you may be strategically targeted by sophisticated plaintiffs, such as larger competitors initiating claims against you to deflect business competition, non-practicing entities (i.e., patent trolls) bringing patent infringement claims after you announce a large contract or a funding round, or serial plaintiff firms pursuing trendy claims such as technical privacy breaches or employee misclassifications.  Each of these cases requires a different strategy, choosing an optimal approach can make a huge difference in final outcome.

• Our Integrated Counseling view:  a basic rule of litigation is that litigation is almost always more expensive, more complicated and more disruptive than initially thought, for both the plaintiff and the defendant.  On the plaintiff side, please think twice before initiating a dispute, and please consider the full expected ROI and model various probability-weighted expected outcomes.  On the defense side, a counterclaim strategy is often the key to drive down net exposure and to hopefully fully deflect the incoming claims.  Another basic rule of litigation is to avoid it in the first place or to resolve it early if possible, but if litigation is inevitable, then litigate hard and play to win.  Let's talk early about your offensive and defensive dispute strategies.  Things to consider early are buying or licensing patents for counterclaims, finding people or information that could help you or harm the other party's claims, crafting offensive claims that can change the ROI analysis for your opponent, seeking a change of venue to a friendlier jurisdiction, initiating parallel litigation in a better forum, and so on.

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International Transactions

• Cross-border transactions require special legal and business skills.  On the legal side, issues to consider include currency hedging, taxation and tax credits, product clearance and compliance, corporate formation and in-country licensing, local employment and contractor engagements, importation and border clearance,  inventory acquisition and local delivery, product servicing, data privacy and security, IP licenses and local IP right registration, and exclusivity and competitive positioning.  On the business side, establishing a strong relationship with local customers, fending off local competition, avoiding technology and IP leakage, and handling local language and business customers are critical to success.

• Our Integrated Counseling view:  operating in foreign countries, especially in countries where English is not the primary language, requires a comprehensive and sustained effort.  It is also a good idea to rely on a local partner when entering a foreign country, particularly countries in APAC.  But choosing the right local partner is a critical decision that must be considered carefully.  Remember also that in some countries, personal relationships could be more important than legal agreements.  Also, should something go wrong, litigating in a local court could be a very challenging proposition, so resolving disputes amicably, or even better avoiding disputes in the first place, is important.

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Employment and Consulting Agreements

• Tech companies have special employment needs and challenges.  Correspondingly, employees working for tech companies in Silicon Valley and in other tech hubs have unprecedented leverage and demand a good environment.  Employers must find the right employment framework to engage employees and to protect their IP and business models.  Issues to consider include IP ownership, privacy policies, equipment usage policies, BYOD policies, non-disparagement and non-solicitation, severance clauses, vesting schedules for stock options, the decision whether to grant stock options or stock (Restricted Stock Units or RSUs), Change of Control (COC) protection for the executive team, and other employment and benefits-related issues.  Consulting agreements are usually easier to draft, but don't forget about special issues involving NSO stock options, termination, payments, international arrangements that raise special risks for the companies, and the SOWs that need to be updated regularly. 

• Our Integrated Counseling view:  your employees are one of your greatest assets, on par with your technology and business model.  It is important to implement a solid legal and policy framework to cover your employees, which can protect your business and ensure that IP is safeguarded.  But it is equally important to implement the right management processes and hire the right senior management team who can motivate and train employees.  Another secret to success is to be better than your competitors at recruiting, retaining, motivating, training, leading and inspiring your employees.