Archive for the ‘Contracts’ Category

Got EU Data?

Got EU Data?

Emerging tech companies take note – if you collect the personal data of European citizens from the United States, or otherwise transfer that data to the U.S., your legal obligations may change soon.

Background

Citizens of EU member states have an explicit right to privacy.  In practice, this means companies can transfer EU citizens’ personal data out of the EU only if the destination country has an adequate level of protection.

Historically, it has not been a problem to store EU citizen data in the United States.  Under an agreement between U.S. and EU regulators, which is often referred to as the “Safe Harbor,” a U.S. company could transfer that data to the U.S. by certifying to the U.S. Department of Commerce that it would adhere to European privacy principles.  The U.S. Federal Trade Commission, in turn, could bring enforcement actions against the company if it failed to comply.  More than 4,000 companies took advantage of the Safe Harbor to transfer data to the U.S., from Amazon and Google to emerging tech companies in the upper Midwest.

After Edward Snowden revealed that the US government may have indiscriminately conducted mass surveillance of EU citizens’ personal data, an Austrian Facebook user complained to EU authorities that the U.S. lacked adequate protections. On October 6, 2015, the Court of Justice of the European Union ultimately agreed and invalidated the Safe Harbor framework.

Bad Alternatives

The ruling had an immediate impact on businesses of all stripes that relied on the Safe Harbor, particularly emerging tech companies.  They were left with a handful of bad alternatives –

  • keep the data in the EU – potentially expensive or unworkable;
  • obtain user consent or use model contract provisions – also potentially expensive or unworkable, especially for companies already processing data on behalf of existing business customers with an EU presence; or
  • leverage binding corporate rules – a time-consuming process ultimately requiring approval of EU data authorities.

Worse still, the Court of Justice of the European Union ruling implicitly called into question some of these alternatives.  Recognizing the problem, EU regulators gave themselves and their U.S. counterparts until January 31, 2016 to find an alternative.  This set off intense negotiations among regulators.

Privacy Shield

On January 28, 2016 the U.S. Senate Judiciary Committee approved a bill that would allow EU citizens to sue the U.S. government for privacy violations.  On February 2, the European Commission and the U.S. Department of Commerce announced the outline of a potential Safe Harbor replacement, dubbed the “Privacy Shield.”  According to the releases:

  • U.S. companies will have stronger obligations to protect personal data of EU member state citizens. Among other things, they will be required to comply with the decisions of the EU data protection authorities regarding personnel data.
  • U.S. companies will remain subject to enforcement actions for privacy violations by the FTC, and EU privacy regulators will have the ability to refer complaints of EU member state citizens to the FTC.
  • If an EU citizen lodges a complaint regarding inappropriate activity by U.S. authorities, a new Ombudsperson at the U.S. State Department will review it.
  • Alternative dispute resolution for certain complaints will be made available for free.
  • The U.S. will commit not to indiscriminately conduct mass surveillance of EU citizens. S. guarantees regarding limits and oversight will be reviewed annually by the European Commission and the U.S. Department of Commerce.  U.S. national security agencies will be invited to participate in those reviews.

To Be Determined

The outline lacks many details that will prove vital to providing a meaningful and lasting legal alternative for U.S. technology companies.  Important outstanding questions include:

  • Will free alternative dispute resolution result in an increased number of complaints?
  • Will U.S. security agencies take up invitations to participate in annual reviews, and will those reviews be meaningful? If not, will the Court of Justice ultimately invalidate the Privacy Shield as it did the Safe Harbor?
  • Will the Privacy Shield be suspended if EU authorities conclude that the U.S. failed to comply with the Privacy Shield’s limits?
  • By when will the EU and U.S. finalize these and other Privacy Shield details? EU regulators suggested that final approval could take up to 3 months, but some EU lawmakers and privacy advocates are already arguing the Privacy Shield is not enough.

In The Meantime

While the Privacy Shield winds its way through the EU legislative process, the chair of the group composed of EU data protection agencies said the group will not take enforcement action against U.S. companies that continue to use existing legal alternatives like model contract clauses and binding corporate rules.  While these alternatives may be difficult for many emerging technology companies, they currently remain likely the only legal way to collect data from the U.S. of EU citizens or otherwise transfer EU personal data to the U.S.

by Paul Temple | Permalink | No Comments

 

AlphaTakes – Series A Preferred Stock Term Sheet (part two)

In this second of a two part AlphaTakes video series, Matt Storms discusses the second half of the Series A Preferred Stock term sheet for an emerging technology company, using the Series A term sheet published by the National Venture Capital Association.

Here are the key takeaways from this video:

  1. The three most common alternatives to anti-dilution provisions:
    • Weighted average
    • Full ratchet
    • No anti-dilution provisions
  2. Several provisions are not typically heavily negotiated in Series A financings:
    • Pay to play requirements
    • Attorneys’ Fees
    • Registration rights
    • Participation rights
    • Drag-along rights
    • No shop requirements
  3. Keep an eye on the big picture

by AlphaTech | Permalink | No Comments

 

AlphaTakes – Series A Preferred Stock Term Sheet (part one)

In this first of a two part AlphaTakes video series, Matt Storms discusses the first half of the Series A Preferred Stock term sheet for an emerging technology company.  He provides a summary of some of the key terms of the Series A term sheet, using National Venture Capital Association (“NVCA”) model document.

Here are the key takeaways from this video:

  1. The NVCA documents are great resources for understanding the Series A financing, but are fairly investor friendly.
  2. Typical preferred stock dividend provisions alternatives include the following:
    • If and when paid to the common stock
    • Accruing and cumulative
    • If and when declared by the board
  3. Most common preferred stock liquidation preferences alternatives include the following:
    • Non-participating preferred
    • Participating preferred
    • Participating preferred with a cap
  4. Preferred stock typically includes special voting rights, such as designating one or more members to the company’s board of directors and veto rights over certain company actions.

by AlphaTech | Permalink | No Comments

 

AlphaTakes – Incorporation Process for an Emerging Technology Company

Understanding the incorporation process is important for emerging company founders. In this AlphaTakes video, Macy Stoneback describes the incorporation process for a typical emerging technology company. She explains some reasons why it is important to properly complete the incorporation formalities:

  • Help ensure limited liability protection
  • Avoid delays and expense at the time of financing or sale in fixing matters that were not properly addressed at the time of incorporation
  • Set founder expectations

 

 

by AlphaTech | Permalink | No Comments

 

Announcing AlphaTakes—Videos for Emerging Technology Companies

We are excited to announce that in coming weeks, we are starting a new video series called AlphaTakes. The goal of the initiative is to provide clients and others with background on the variety of recurring issues that emerging companies face through their development, from startup to sale.  Our hope is that the videos will supplement the existing articles for emerging technology companies that is already contained on our website.

Technology Company Startups

For startups, we plan to cover topics such as the incorporation process, allocating founder shares, common mistakes of startups, and calculating the stock option pool.  We have a number of other ideas as well, based on the questions we receive from entrepreneurs.

Scaling Technology Companies

For operating companies that are scaling, we plan to have videos that go over the different types of financing structures, common mistakes of software companies, the Series A Financing term sheet, liquidation preferences, and anti-dilution provisions.  As bringing on employee talent and contracting are important for scaling companies, we also plan to touch on issues related to employees and contracts.

Emerging Companies Considering Sale

For companies considering a potential sale, we plan to cover common sale transaction structures, how to prepare for a potential company sale, letters of intent, and use of investment bankers.  We also will look at some of the commonly negotiated terms in sale transactions as well as recurring issues that arise during the sale process.

If you have any suggestions on potential topics for us to cover in AlphaTakes, let us know!

by AlphaTech | Permalink | No Comments

 

Wisconsin Incorporation Documents

We figured it was about time at least one law firm did it: we are making available publicly sample Wisconsin incorporation documents for an emerging technology company startup: http://alphatechcounsel.com/Wisconsin-Incorporation_Documents.html.  The documents include Wisconsin Articles of Incorporation, Bylaws, Restricted Stock Agreement, initial consents, Invention Assignment Agreement, etc.

Like many of our clients, we have developed a way to use technology to increase efficiency while providing value.  We prepared the suite of sample incorporation documents by selecting from alternatives of a significant number of variables that are available for the automated systems that we have developed internally.  We programmed these variables into our incorporation documents to help us prepare the documents efficiently and accurately. We are making these documents available for informational and reference purposes.

In addition to automating incorporation documents, we have also automated bridge financing documents, employment and consulting documents, equity grant documents, and confidential disclosure agreements, among others.

Hopefully the sample documents will prove to be a good reference source for Wisconsin emerging company startups.

by Matt Storms | Permalink | 1 Comment

 

Who Owns the Rights to Customer Feedback?

Suppose a customer proposes an idea to improve the software or SaaS offering of a company. The company likes the idea so much that it integrates the idea into its next upgrade. The question becomes, who owns the idea that is integrated into the software or SaaS offering?

As a general rule, the person who creates an idea, authored work, invention, or process, owns the related intellectual property.  There are exceptions to the general rule.  But, in the software and SaaS arena involving licensors and licensees, the general rule applies in most circumstances. Read the rest of this entry »

by Matt Storms | Permalink | No Comments