SAM client, Unitas Global, enterprise private cloud provider, has announced that it has joined an industry group called the Cloud Security Group. This collaboration will help strengthen its mission to provide private cloud solutions to its clients.
To read the full press, click here.
Stubbs Alderton & Markiles' client XYPRO Technology Corporation, a developer of cybersecurity software for HP NonStop, has completed a management buyout from the company's founders and previous owners. The company said that Lisa Partridge, Barry Forbes, and Andrew Price bought out the company from prior owners Dale Blommendahl and Sheila Johnson. Financial terms of the sale were not disclosed. XYPRO was founded in 1983.
To read the full press release, click here.
SA&M represented the management/buyers in this transaction. For more information about this and similar buyout transactions, please contact Partner Jonathan Hodes at or (818) 444-4504.
Stubbs Alderton & Markiles Co-Founder and Managing Partner, Scott Alderton was featured in today's Entrepreneur.com article "Find an Attorney Who Will Be in Your Corner With These 3 Tips." Author Adam Callinan of Beachwood VC outlines some of the early questions you should be asking and warning signs you should be recognizing when searching for new legal counsel.
Scott Alderton states that you need “a lawyer with a deep contextual understanding of both the substantive nature of your evolutionary path (i.e. they understand and do the exact type of transactions you are going to be engaging in) and a broad understanding of your industry.”
To read the full article, click here.
For more information on our Emerging Growth practice, and for information about our Start-up Fixed Fee Legal Package, contact Scott Alderton at (818) 444-4501 or
Stubbs Alderton & Markiles client Rdio, a digital music service, and Grupo Bandeirantes, a Brazilian media conglomerate, have announced a joint venture and powerful strategic partnership encompassing marketing, distribution, content and promotions that will significantly expand Rdio's presence in Brazil. This combination of the award-winning Rdio music service with the creativity, power and reach of Grupo Bandeirantes provides music fans in Brazil with the best of both a global and Brazilian digital music service and experience.
Under this deal, Grupo Bandeirantes' various properties will expand their digital music presence using the Rdio platform, and will develop content promotions that cross from on-air radio to streaming. The alliance will also involve media support for Rdio from Metro Newspapers, through an on-going integration with Band.com.br, media placement in out-of-home properties and across Grupo affiliated TV programs.
To read the full press release, click here.
For more information about our Internet, Digital Media & Entertainment practice, please contact Greg Akselrud at (818) 444-4503 or
Leading Business Litigation Group Headed by Michael Sherman Joins Firm
Los Angeles, CA (March 11, 2014) – Stubbs Alderton & Markiles, LLP, Southern California’s leading business law firm, has announced that nationally recognized litigator Michael Sherman has joined the firm as a partner in its Sherman Oaks office. Mr. Sherman will lead the firm’s newly-created Business Litigation practice group.
Michael Sherman is an accomplished trial lawyer in high-stakes, “bet-the-company” litigation, and has represented both large and early-stage companies as well as entrepreneurs in all facets of business and complex commercial litigation. He has evenly split his litigation practice on both the plaintiff and defense side of cases, has first-chaired numerous trials in complex matters in industries as varied as securities, healthcare, environmental, consumer products, technology, project development/finance, advertising, real estate and apparel, and is highly skilled in class actions and unfair competition law. Michael’s trial skills and courtroom success resulted in his having been named to the “Top 100 Lawyers” in California list, published by the Daily Journal newspaper chain.
“Stubbs Alderton & Markiles has been planning to expand our capabilities by creating a vibrant business litigation practice, and we could not be more excited about having someone of Michael’s stature joining us to do so. We have worked closely with Michael for many years, often referring our most important litigation matters to him at Bingham McCutchen. Michael is one of the best litigation attorneys in Los Angeles, and together we are going to build a general litigation practice that is as dynamic, efficient and effective as the transactional practice we have built over the last 12 years.”
The addition of the Business Litigation practice group continues the firm’s strategic expansion in the Southern California market, following the opening of their Santa Monica office and addition of a Brand Development and Content Protection practice in 2012 and 2013, respectively.
“Southern California is one the world’s largest economies. Its business life-blood is entrepreneurs and start-ups that have grown to become many of the world’s leading businesses. The partners of Stubbs Alderton & Markiles know that as well as any lawyers. Managing disputes efficiently and strategically is on occasion the key to success, and that’s what I bring to the Firm. I’m very excited to participate in the Firm’s continued success.”
Michael has been recognized as a leading trial lawyer by his peers and featured in the press for some of his significant victories on behalf of clients. He is a recent past president of the Los Angeles Chapter of the Association of Business Trial Lawyers. He is a frequent speaker and writer on business litigation and trial advocacy, and has consistently been named to “Best Lawyers in America” in the field of commercial litigation.
Also joining the firm is David Gubman, a seasoned business litigation attorney. David will join the firm as of counsel in its Sherman Oaks office. David has big-firm experience and he and Michael have successfully tried cases together.
Please visit www.stubbsalderton.com for complete attorney bios.
About the Stubbs Alderton & Markiles Business Litigation Practice
The Firm’s litigators have significant depth and breadth of resources and a detailed knowledge of clients’ industries and business concerns. In providing the best possible representation, our litigators appreciate that on occasion disputes may need to be tried to a judge, jury or arbitrator, and that in other instances the client is best served with an early resolution that is designed to preserve business relationships and minimize expense and litigation distraction.
Our litigators have a proven track record for analyzing complex legal and business challenges. Our attorneys are experienced, innovative and aggressive in their pursuit of strategic outcomes.
Our litigation clients include household name Fortune 500 companies along with middle market, and emerging growth companies. We seek to make long term relationships with our clients throughout their evolutionary path. We deliver efficiency and value to every client we serve through a well-defined budget and clear communication about their case.
About Stubbs Alderton & Markiles, LLP
Stubbs Alderton & Markiles, LLP is a business law firm with robust corporate, public securities, mergers and acquisitions, intellectual property and business litigation practice groups focusing on the representation of venture backed emerging growth companies, middle market public companies, large technology and Internet companies, entertainment, video games and digital media companies, investors, venture capital funds, investment bankers and underwriters. The firm’s clients represent the full spectrum of Southern California business with a concentration in the technology, entertainment, video games, apparel, consumer electronics and medical device sectors. The firm’s mission is to provide technically excellent legal services in a consistent, highly-responsive and service-oriented manner with an entrepreneurial and practical business perspective. These principles are the hallmarks of the firm. For more information, please visit www.stubbsalderton.com
Contact:
Heidi Hubbeling
Stubbs Alderton & Markiles, LLP
(310) 746-9803
Los Angeles, CA (February 25, 2013) - Stubbs Alderton & Markiles, LLP, Southern California’s leading business law firm, has announced the expansion of its Santa Monica office at 1453 3rd Street Promenade, Santa Monica, CA. This office is located on the corner of Third Street Promenade and Broadway Boulevard. The growth of the Firm and its Preccelerator Program has provided the opportunity for this expansion. The new office opening makes an inspiring statement about the support and involvement that Stubbs Alderton will continue to contribute to the Silicon Beach marketplace. An open house celebration will be scheduled for some time in March.
Scott Alderton, a founder and managing partner of Stubbs Alderton & Markiles, LLP, comments: “Since opening our office in Santa Monica, we have assisted in the growth of a handful of super early-stage businesses, two of which (Fleck and 3Ten8) have moved on to prominent Accelerator Programs. Fleck moved to the Portland Incubator Experiment (PIE) in Portland, Oregon (http://www.piepdx.com) and 3Ten8 moved to The Alchemist in the Bay area (http://www.alchemistaccelerator.com). We have also produced and hosted dozens of “Preccelerator Events” ranging from simple mixers to substantive educational seminars. That level of involvement is vital to Stubbs Alderton & Markiles, given our historical commitment to the start-up ecosystem. Our expansion and growth in Santa Monica is a demonstration of our commitment to be leaders and innovators in this community.”
Company Information
Stubbs Alderton & Markiles, LLP is a business law firm with robust corporate, public securities, mergers and acquisitions and intellectual property practice groups focusing on the representation of venture backed emerging growth companies, middle market public companies, large technology companies, entertainment and digital media companies, investors, venture capital funds, investment bankers and underwriters. The firm’s clients represent the full spectrum of Southern California business with a concentration in the technology, entertainment, videogame, apparel and medical device sectors. Their mission is to provide technically excellent legal services in a consistent, highly-responsive and service-oriented manner with an entrepreneurial and practical business perspective. These principles are the hallmarks of their Firm.
About the Preccelerator Program
The Preccelerator is a novel platform offered to select start-up companies out of the Stubbs Alderton & Markiles, LLP Santa Monica office that provides interim office space and access to sophisticated legal services, with the objective of helping start-ups grow their idea from business concept to funded startup. For more information, visit www.stubbsalderton.com/preccelerator
Media Contact
For further information regarding this press release, please contact Heidi Hubbeling, Director of Marketing – (310) 746-9803 or
Stubbs Alderton & Markiles, LLP client Atomico Ventures announced that it led the $51M investment round to EdTech veteran Knewton. Other investors included GSV Capital, as well as previous backers Accel Partners, Bessemer Venture Partners, First Round Capital, FirstMark Capital and Founders Fund, along with debt financing from Silicon Valley Bank.
Knewton is an education technology company that personalizes digital courses so every student is engaged and no one slips through the cracks. As students progress through a Knewton-powered course, Knewton figures out what each student knows and how that student learns best, then recommends what to study next. Teachers use Knewton-powered predictive analytics to detect gaps in knowledge and differentiate instruction for each student.
Knewton plans on using the funds to expand its company into a global business, including adding 80-100 new employees to strengthen its existing data science and engineering teams, and moving into a new, larger headquarters in NYC.
To read the full press release on Tech Crunch, click here.
About Atomico Ventures
Atomico is a growth stage international investment firm, focused on helping the world’s most disruptive technology companies scale and reach their full potential globally. Founded by Niklas Zennström, the co-founder of Skype, they have become the investor of choice for ambitious entrepreneurs due to their experience of building global companies, unique international network, and ability to help companies operationally, with offices in London, Beijing, São Paulo, Istanbul and Tokyo.
For more information about our Venture Capital & Emerging Growth practice, contact Scott Alderton at (818) 444-4501 or
January 14, 2014 - SAM Partner Jonathan Friedman participated in a roundtable discussion with the Consulate General of Canada, David Fransen and Director General, Foreign Affairs and International Trade Roxanne Dubé, as well as other active members of the LA/Silicon Beach Tech Community to outline the state of the LA Tech Community and how partnerships can be made between Canada and Silicon Beach.
Jonathan is a member of the Executive Committee of the Canadian California Business Council, an entity that was formed to support Canada and California businesses growth. The Council aims to use its membership network to connect bi-lateral opportunities that will result in the job creation, investment connection and trade partnership support. For more information regarding cross-border transactions between Canada and the U.S., please contact Jonathan at (818) 444-4514 or .
This summary can only hit some of the more prominent aspects of the taxation of the development, purchase and sale of intellectual property.
1. What is intellectual property for purposes of this analysis?
a. Copyrights, literary, musical or artistic compositions or similar property are expressly identified under the Internal Revenue Code for special “non-favorable” treatment on sale by the creator.[1] Video games, books, movies, television shows all fall into this category of asset in the hands of the developer.[2]
b. Another class of intellectual property, including trade secrets, formulas, know how and other methods, techniques or processes that are the subject of reasonable efforts to maintain secrecy fall within the general class of intangible assets that may be treated as a capital asset on sale but are subject to special rules on the useful life over which to amortize the cost of the intangible asset, as discussed below.[3]
2. How is the developer or owner of intellectual property treated?
a. In general, self-created copyrights, literary, musical or artistic compositions are not eligible for capital gain treatment on sale.[4] As an example, the Tax Court has held that the concept for a television show was not eligible for capital gain treatment.[5]
b. Purchased intellectual property is generally eligible to be treated as a capital asset on sale unless the owner holds the intellectual primarily for sale to customers in the ordinary course of business, as in the case of a software or game developer selling individual, non-custom programs. The sale of the copyright and the code to the program would not be treated as capital gain in the hands of the developer but could yield capital gain if the copyright and the software had been purchased.
c. The exclusion from capital asset treatment does not necessarily apply to a self-created invention that can be patented[6]. The treatment on disposition of such assets may depend on whether the cost of development was capitalized and amortized or whether the development costs were expensed and deducted in the course of development as well as whether the asset is held for sale to customers (not a capital asset) or is used in the taxpayer’s business (in which case it may be eligible for capital gain/ordinary loss treatment).
d. A transaction in which the developer is compensated has to be analyzed to distinguish a license arrangement from a sale.[7] An agreement cast in the form of an exclusive license may be treated as a sale for tax purposes even if title remains with the grantor. The key question is whether the transferor retained any rights which, in the aggregate, have substantial value.[8]
3. How is the purchaser of intellectual property treated?
a. The purchaser of the intellectual property may capitalize and amortize the cost of developing the intellectual property if the intellectual property is to be used in the creator’s business.[9] Computer software is automatically accorded three year straight line amortization if the developer or purchaser opts to amortize the cost of the software.[10] If the development of the software qualifies as research and development in the laboratory or experimental sense, the costs are deductible currently.[11]
b. The purchaser of the intangible assets used in the purchaser’s trade or business (other than computer software as provided above) is permitted to amortize the cost of purchase allocated to most forms of intellectual property over 15 years on a straight line basis.[12] Section 197 assets include goodwill, going concern value, workforce in place, operating systems, information bases, customer based intangibles, vendor based intangibles, licenses, trade marks, trade names, and franchises.[13]
c. The purchaser of the stock of a company that owns intellectual property is subject to the treatment to which the company is already subject unless the purchaser and seller of the stock elect to treat the stock sale as an asset sale[14].
4. Sales and Use Tax. Of the states that impose sales and use tax, most impose the tax on the sale of tangible personal property. In California, the sale of a custom written computer program is not subject to sales tax.[15] In the case of the sale of a prewritten program to customers, the sales tax is imposed if the software is sold on compact discs or on other media stored in tangible form.[16] Software that the buyer downloads from a website and that is not otherwise delivered on tangible media is not a sale of tangible personal property subject to the California sales tax.[17]
5. Conclusion. The tax treatment of intellectual property is determined by the nature of the intellectual property and how the taxpayer obtained the intellectual property. The cost of developing self-created intellectual property may be eligible for immediate expensing or may have to be capitalized and carried on the taxpayer’s books, not eligible for either deduction or amortization depending on its purpose, the nature of the assets’ development and the assets’ useful life. The cost of purchasing intangible assets used in a business is amortized on a straight line over 15 years except for acquired computer software, which is written off over three years. The cost of other purchased intangible assets may be eligible for amortization using the income forecast method. The sale of intellectual property generally results in capital gain or loss unless the property is a self-created copyright or an asset held primarily for sale in the taxpayer’s business.
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Michael Shaff joined Stubbs Alderton & Markiles, LLP in 2011 as Of Counsel. He is chair person of the Tax Practice Group. Michael specializes in all aspects of federal income taxation. Mr. Shaff has served as a trial attorney with the office of the Chief Counsel of the Internal Revenue Service for three years. Mr. Shaff is certified by the Board of Legal Specialization of the State Bar of California as a specialist in tax law. Mr. Shaff is the past chair of the Tax Section of the Orange County Bar Association. He is co-author of the “Real Estate Investment Trusts Handbook” published by West Group. Michael’s practice includes all aspects of federal and state taxation, including mergers and acquisitions, executive compensation, corporate, limited liability company and partnership taxation, tax controversies and real estate investment trusts.
For more information regarding Intellectual Property Taxation, please contact Michael Shaff at or (818)444-4522.
[1] Internal Revenue Code (“IRC”) §1221(a)(3) (This category of intellectual property is denied capital asset treatment on sale if created by the taxpayer’s personal efforts.).
[2] See Rev. Proc. 2000-50, 2000-2 C.B. 601.
[3] See, e.g., Graham v. United States (N.D. Tex. 1979) 43 AFTR 2d 79-1013, 79-1 USTC ¶9274 (dealing with the formula for Liquid Paper).
[4] IRC §1221(a)(3).
[5] See, e.g., Kennedy v. Commissioner T.C.M. 1965-228, 24 (CCH) 1155 (1965).
[6] IRC §1235 (individual inventor or individual purchaser from the inventor will be able to treat the patent as a capital asset if held for more than a year.)
[7] See, e.g., Weimer v. Commissioner TC Memo 1987-390, 54 (CCH) TCM 83 (1987).
[8] E.I. DuPont de Nemours & Co. v. United States (3d Cir. 1970) 432 F2d 1052, 26 AFTR 2d 70-5636, 70-2 USTC ¶9645 (sale of right to use patents to manufacture nylon while retaining the right to manufacture Dacron with the same patents held a sale of substantially all of the value of the patent sold).
[9] IRC §167(g) (allowing the income forecast method of amortization for many types of intellectual property other than computer software).
[10] IRC §167(f).
[11] Treas. Reg. §1.174-2(a).
[12] IRC §197(a).
[13] IRC §197(d)(1).
[14] IRC §338(h)(10).
[15] Cal. Rev. & Tax. Code §6010.9; Nortel Networks, Inc. v. State Board of Equalization (Cal. App. 2011) 119 Cal. Rptr.3d 905.
[16] Sales and Use Tax Annotation 120.0531 (Apr. 10, 1997).
[17] Sales and Use Tax Annotation 120.0518 (March 11, 1994).
Stubbs Alderton & Markiles, LLP has announced that its Preccelerator Program is now taking applications for the next class of companies to begin on February 1, 2014. Deadline for applications is December 1, 2013. To apply click here.
What is the Preccelerator Program?
Our Preccelerator Program is a new platform offered to select start-up companies out of our Santa Monica office that provides interim office space and sophisticated legal services, with the objective of helping you grow your idea from business concept to funded startup. The Preccelerator Program provides free co-working space and other perks for 5-6 promising young startups. Here’s the total breakdown:
1) Free co-working space on a rolling basis, including free wireless access to the Internet and access to conference rooms for meetings and presentations;
2) Access to real-time legal advice and transactional legal services on site (under our standard engagement and/or startup fixed-fee arrangements);
3) Access to in-house educational workshops and activities; and
4) Potential introductions to our network of investors and other service providers.
For more information, visit https://stubbsalderton.com/preccelerator or contact Heidi Hubbeling at
Stubbs Alderton & Markiles, LLP announced that it advised client Beats Electronics LLC in its definitive agreement to reacquire the minority stake in Beats held by HTC Corp. Stubbs Alderton also represented Beats in a minority investment transaction by The Carlyle Group (NASDAQ:CG), the global alternative asset manager. Carlyle will work with the Beats management team to continue expanding the brand and building the business both domestically and internationally. The transaction is expected to close in the fourth quarter of 2013.
Beats Co-Founder and Chief Executive Officer Jimmy Iovine said, “These transactions represent the evolution of the financial strength and significant growth prospects of Beats. Carlyle is a fantastic investment partner and we look forward to building the next chapter of Beats.”
SA&M Partner Scott Galer advised Beats Electronics LLC in this transaction.
To read the full press release, click here.
Stubbs Alderton & Markiles, LLP announced that it advised client Equipois in its acquisition by Granite State Manufacturing, a leading contract manufacturer of specialized equipment for the defense, medical, semiconductor, and industrial market segments. Equipois is the award-winning developer of zeroG and X-Ar exoskeletal arm technologies.
Equipois' patented technology enables workers to maneuver tools and other objects as if weightless, boosting productivity and eliminating workplace injuries for a wide range of industrial applications. The technology has won recognition for its innovation, including a 2011 Wall Street Journal Technology Innovation Award. Naval Sea Systems Command (NAVSEA) has utilized Equipois technology in their efforts to create a modern-day "iron man", providing sailors with the ability to minimize the time and effort required for labor-intensive maintenance such as preservation work on a ship's hull. Many of the world's largest companies in aerospace, defense, automotive, heavy machinery, and other manufacturing industries are implementing the technology as a significant enhancement to human performance and safety.
Eric Golden, CEO of Equipois Inc., said "Granite State Manufacturing enjoys deep expertise serving the industries where our technology adds the most value. I am delighted that Equipois has found an owner that will invest in the capabilities of the technology and bring the products to the next level."
SAM Partner Louis Wharton advised Equipois in this transaction.
Update:
The Origin Humble Bundle offer has finished, with over 2 million bundles sold and over $10.5 million raised, the majority of which will go to charity.
The Humble Bundle Twitter account confirmed the figures last night. "The Humble Origin Bundle has closed with 2.1+ mil bundles sold & $10.5+ mil in sales! Thanks for helping make Humble Bundle history!"
Congrats HB!
Original Story
SAM Client Humble Bundle, has raised $7.2 million for charity with nearly 1.4 million sales of their Humble Origin Bundle. While proceeds of these sales usually go directly to EA, money will instead be given to charities chosen by both EA and Humble Bundle, including the Human Rights Campaign; Watsi; the San Francisco AIDS Foundation; the American Red Cross; or the American Cancer Society.
To read the full article on this incredible effort, click here.
For more information about our Interactive Entertainment & Video Games practice, please contact Greg Akselrud at (818) 444-4503 or
Los Angeles, August 22, 2013 - Stubbs Alderton & Markiles, LLP has announced that it advised client Morphlabs, Inc., the leader in efficient and powerful OpenStack(R) solutions for service providers and the enterprise, in its $10 million Series D financing. The round, which was led by Tallwood Management and Entropy Research Lab and also included existing investor G2iG, brings the total capital raised by the company to $22.5 million since inception. Morphlabs will use the proceeds from this round to extend the company's leadership position in the Asia OpenStack market through an aggressive training and seminar program, and through its partnership with NEC.
To read the full press release regarding the funding, click here.
Louis Wharton is a Partner of the Firm. Louis' practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters. He counsels clients in the technology, internet/e-commerce, pharmaceutical, apparel and entertainment industries, among others.
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Q. I’m considering engaging a finder to help me complete my capital raise. What issues should I bear in mind when discussing the engagement?
A. The staff of the Securities and Exchange Commission (SEC) has stated that a proposed arrangement whereby a finder provides to an issuer services related to raising funds to finance its operations and development, including making introductions to individuals and entities interested in providing such financing, where the finder’s compensation is based on a percentage of the capital raised from such investors, requires the finder to register as a broker-dealer. The Securities Exchange Act of 1934, as amended (Exchange Act), provides that any broker effecting transactions in securities, or inducing or attempting to induce the purchase or sale of securities, must be registered with the SEC, and defines a broker as any person engaged in the business of effecting transactions in securities for the account of others. The staff has indicated that a person may be ‘engaged in the business’ by receiving transaction-related compensation or by holding itself out as a broker-dealer. A person may ‘effect transactions’ by assisting an issuer to structure prospective securities transactions, by helping an issuer to identify potential purchasers of securities, or by soliciting securities transactions.
The staff also noted that a finder’s intention to introduce only those persons with potential interest in investing in the issuer’s securities implies that the finder anticipates both pre-screening potential investors to determine their eligibility to purchase the issuer’s securities, and pre-selling the issuer’s securities to gauge the investor’s interest. Moreover, the staff has indicated that the receipt of compensation directly tied to successful investments in the issuer’s securities by investors introduced by the finder (i.e. transaction-based compensation), would give the finder a “salesman’s stake” in the proposed transactions and would create heightened incentive for the finder to engage in sales efforts. Pre-screening and pre-selling activities, along with the receipt of securities commissions or other transaction-based compensation, are hallmarks of broker-dealer activity, requiring registration.
Accordingly, any person receiving transaction-based compensation in connection with another person’s purchase or sale of securities typically must register as a broker-dealer or be an associated person of a registered broker-dealer.
Q. What are the consequences of engaging an unregistered broker as a finder?
A. Engaging an unregistered broker-dealer may create a rescission right under federal and state law in favor of the purchasers of the issuer’s securities, potentially requiring the issuer to return the money it received in its capital raise.
Section 29(b) of the Exchange Act provides that every contract made in violation of the Exchange Act and every contract the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of the Exchange Act, shall be void, as to any persons who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract, provided that that no contract shall be deemed to be void by reason of this section in any action maintained in reliance upon this section, by any person to or for whom any broker or dealer sells a security in violation of the Exchange Act’s requirements regarding registration, unless such action is brought within one year after the discovery that such sale or purchase involves such violation and within three years after such violation.
While Section 29(b) directly applies to the finder, with the possibility of voiding the finder’s engagement agreement, the language also refers to claims maintained by investors to whom the finder sold securities in violation of the Exchange Act’s broker-dealer registration requirements, creating the possibility that an investor could assert a claim for rescission of their investment within 3 years after the date the securities are purchased by the investor and one year after discovery of the violation.
California Corporations Code Section 25501.5 also provides that a person who purchases a security from or sells a security to an unlicensed broker-dealer may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages, providing a direct right of rescission to investors.
The use of an unregistered broker-dealer could also result in difficulties subsequently registering the issued securities for public sale. Most registration statements require the issuance of a legal opinion indicating whether the securities being registered will, when sold, be legally issued, fully paid and non-assessable. The issuer’s use of an unregistered broker-dealer and issuance of securities in transactions that violated the requirements of the Exchange Act will prevent the issuer’s counsel from issuing the required opinion. In addition, the unregistered broker-dealer’s contact with unaccredited investors in violation of available federal and state securities laws could result in the loss of exemptions from registration.
Accordingly, given the risks of rescission rights, the inability to subsequently register the issued securities and the potential loss of available securities exemptions, issuers should refrain from engaging finders for transaction-based compensation unless such finders are registered broker-dealers.
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For more information on this or other related topics, contact Louis Wharton at (818) 444-4509 or .
Do you have a question for one of our attorneys? Send your questions to to be featured in future Questions columns.
Canada, because of its geographic proximity to the United States, shared language and similar business culture offers a logical expansion opportunity for companies that have successfully developed, marketed and sold a product or service in the United States. In 2012, bilateral trade between the United States and Canada for goods and services totaled approximately $742 billion, representing more than $2 billion of goods and services crossing the border every day, and Canada is currently the United States’ largest goods trading partner. There are a number of ways to export your products or services to Canada, each of which require differing levels of management, capital commitment and expertise.
Selling to domestic buyers, who export your product
Selling to domestic buyers who export your product offers a simple way to sell into Canada, since the domestic purchaser handles all aspects of export administration and assumes all risk associated with exporting. Examples of domestic buyers that purchase for export include parties who represent Canadian customers, such as Canadian government agencies, distributers or retailers. Another class of buyers includes intermediaries, such as export management companies, who are responsible for finding Canadian purchasers for your products. Better export management companies specialize by product or by market, and because of their specialization and existing networks, can significantly reduce the time and resources required to enter a new territory like Canada.
Direct Exporting
Accessing the Canadian market directly provides a number of significant benefits for a company, including enhanced control over the export process, the ability to gain valuable insight into foreign customers and competition and potentially higher profit margins. Direct exporting, however, can be much more labor and capital intensive as foreign representatives need to be identified, and working relationships established.
One method of direct exporting is entering into an arrangement with a Canadian sales representative, who then locates and introduces your company to potential customers. As an alternative, direct exporting can be achieved by locating foreign distributors who purchase your products (usually at a discount to wholesale prices) and then resell your products to retailers or dealers in the territory. If your company has sufficient resources, it may attempt to locate and sell directly to retailers or to the ultimate end consumer in Canada.
Legal Challenges
In the event your company uses intermediaries to achieve its export objectives, careful thought will be required in the selection of your partners and your agreements with any such party. For example, will your agreement with such party be exclusive in Canada or in certain channels of distribution? If the arrangement is exclusive, thought has to be given to the circumstances under which the arrangement will become non-exclusive—for instance if the party fails to fulfill certain sales requirements over a specified period of time.
When entering into a business relationship with an intermediary, it is also important to think about safeguarding the reputation of your brands. At a minimum, your agreement with a third party representative should include pre-approval rights with respect to marketing strategies and advertising campaigns. To enhance the reputation of your brands in Canada, you may also negotiate that your third party representative incurs minimum marketing expenditures on your behalf to promote your products.
A well structured relationship should also address the resources you expect the third party to provide during the term of your agreement. For instance, how many people will be devoted to the sale of your products in Canada and will the efforts of a particular person in the organization be required? Also, will the third party be required to provide customer support on your behalf, and if so, to what extent?
Perhaps most importantly, it is essential to provide escape clauses in your agreement to enable you to terminate the relationship in the event it does not develop as expected. For example, you may want to limit the term of the agreement to a period of one year, which agreement will automatically renew for an additional specified period unless either party gives notice. This will allow you to evaluate the performance of the third party without getting locked into a long term commitment. Your contract should also specify the circumstances under which you can terminate for non-performance or for breach.
When entering into a relationship with a third party representative, thought also has to be given to your needs upon the termination of the relationship. For instance, will a distributor have the right to continue to sell products in Canada to deplete their existing inventory or alternatively, will you have the right to repurchase unsold inventory? The agreement should also mandate the return of confidential information and other property following its expiration or termination.
Although exporting may seem daunting and fraught with risk, it is possible to export to Canada with minimal resources and capitalize on new growth opportunities for your products. The key lies in carefully selecting third party representatives for your brands and relying on your advisors to help you properly structure your commercial arrangement with such third parties.
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For more information regarding cross border transactions and similar inquiries, please contact Jonathan Friedman, attorney with Stubbs Alderton & Markiles, LLP ( . Jonathan’s practice focuses on venture capital and corporate finance, intellectual property licensing, mergers and acquisitions, securities law and general corporate and business matters. Jonathan, a Canadian citizen, also specializes in Canadian/United States cross border transactions and sits on the board of the Canadian California Business Council. Jonathan received his Bachelor of Applied Science in Mechanical Engineering in 1998, his M.B.A. in 2002, and his J.D. in 2002, all from the University of Toronto.
SA&M Preccelerator company Splash has announced that it has launched it's beta website. To subscribe, visit http://splash.io
Rethinking mobile sharing: following topics, not people.
You love the Ninja Turtles, Scottish Quilting and Extreme Marathoning. But do your friends? There are better sources for your passions that remain untapped by your social graph.
Splash finds it odd that social products source content mainly from who you friend/follow. Splash filters everything based on context, or topics. They determine which posts you see, and who you share with. Splash let's you share and consume content based only on what you are passionate about, and not who you know.
To follow Splash on Angel List, visit https://angel.co/splash-2
For more information about our Preccelerator Program, contact Heidi Hubbeling at (818) 444-4526 or hhubbeling@stubbsalderton, and visit our Preccelerator page.
Important Business News
from
Stubbs Alderton & Markiles, LLP
New U.S. Patent Law Awarding Patents on a First-to-File Basis Goes into Effect
What Every Entrepreneur Needs to Know to Turn the
New Law into a Business Advantage
On March 15, 2013, U.S. patent law will change favoring inventors who first file a patent application over earlier inventors of the same invention who file a patent application later. This is a part of the patent law reform enacted in 2011. With this change, entrepreneurs will need to change the way they think about obtaining patent protection for their inventions. Here are some suggested business practices for adapting to the new law:
Companies should consult experienced intellectual property counsel to ensure their patent protection policies are up to date with the recent changes in U.S. patent laws.
How Stubbs Alderton & Markiles, LLP can help. We are a business law firm with particular expertise in intellectual property law. Our attorneys have extensive experience in developing intellectual property protection strategies to enable businesses to maximize the value of their inventions. We inform our clients how to best update their IP strategies, patent filing procedures and invention assignment agreements and how to use today’s U.S. patent laws to their competitive advantage.
Kevin D. DeBré leads the firm’s Intellectual Property and Technology Transactions Practice Group advising entrepreneurs and companies on how to use technology and intellectual property in building successful businesses. Kevin is a registered patent attorney and has over 20 years of experience in structuring and negotiating intellectual property-driven deals.
For more information, contact Kevin at (818) 444-4521 or .