Startups and Commercial

Our firm advises entrepreneurs and startups on setting up a company and drafting various agreements, emphasizing the importance of protecting the company’s intellectual property even in its early stages.
Below are the main early-stage agreements and legal instruments included in our consultation and guidance.

Founders Agreement

Whether the new venture is a partnership or a newly established company, a founders’ agreement is necessary for regulating the entrepreneurs’ legal and business relationship. The founders’ agreement specifies the partners’ rights and obligations and should concern the following issues: division of powers and roles, decision-making mechanisms, financing and funds, intellectual property (particularly patents), division of shares among the company’s partners, and various arrangements regarding liquidation or separation. Without a founders’ agreement, the entrepreneurs/partners could find themselves in a series of legal disputes that would impair the joint venture’s proper management to the point of liquidation or violate the founders’ rights upon the new partner’s or investor’s entry. The founders’ agreement and the decisions pursuant to its signing, can have tax implications that must be considered when launching the venture/company.

Company Charter

A company’s Articles of Association (AOA) are an agreement between the company and its shareholders and between the shareholders and themselves. It regulates various company-management issues. To register a company in the Company Registry, one must submit the company’s AOA signed by its founders and certified by a lawyer. These initial AOA must include the following sections: company name, its business purpose, shareholder liability and registered and issued share capital in the company. Besides this basic information, the AOA should also include provisions regarding the company’s management mechanism and decision-making process, profit distribution policy, shareholder employment, protection against dilution, conditions, a mechanism for liquidating the company, and conditions for transferring shares. These bylaws are binding not only on the company’s founders at the time of their drafting but also on all future company shareholders and officers. Future decisions pursuant to the AOA are binding on all shareholders; so, it is important to formulate what the founders’ rights are in the business’s advanced stages. The company’s founders’ arrangements as per the founders’ agreement should also be anchored in the AOA. Under Israeli law, a company’s articles of incorporation can be changed only with general assembly approval and any such change must be reported immediately to the Companies Registrar. The majority required to make such changes can be stipulated in the AOA.

Company Registration

Registering a company as a limited liability company makes it an independent legal entity, which carries with it several advantages. The main one is the entrepreneurs’ immunity from a personal claim in case of debts and losses or any other claim against the company (so long as they acted in good faith under reasonable discretion). Second, the taxes imposed on a limited liability company’s profits are lower than those imposed on an independent entrepreneur. Before applying for a company’s registration, one must choose a name for the company, draft the company’s AOA (see Company Charter above), set up a board of directors, and pay registration fees. A list of several possible names for the company should be prepared and then reviewed by a lawyer specializing in trademarks in order to make sure the company name does not infringe an existing trademark and can be trademark-protected. The company’s registration application form must then be submitted to the company registrar together with the following accompanying documents, certified and signed by a lawyer: shareholders declaration, first directors’ statement, company AOA, submission form, and payment confirmation of registration fees. At the end of the registration process, the company will receive a certificate of incorporation and a registered number (company number).

Engagement Agreement (Customer/Supplier)

As a startup, you will most likely find yourself on both sides of the aisle, both as suppliers (of the product or service you provide) and as customers of service providers or sellers of goods. An engagement agreement regulates both parties’ obligations and rights and must be signed before the engagement begins. Once an agreement is in place, it increases the commitment to execute the transaction and assists in the event of a dispute, whether the dispute reaches the court or not. The agreement should include reference to the type of services or goods and their scope, date of delivery, duration of the contract, costs and terms of payment, liability, definition of the ownership of the product or works created thereunder, terms of cancellation of the contract and remedies for breach of contract.

Employment Agreement

The employment contract defines the parties’ agreements regarding the employee’s/employer’s rights and obligations beyond what is stipulated in law or in an applicable collective agreement, when such exists. The contract sets forth employment duration, position, employee supervisor, working days and hours, compensation, social rights, and more. For startups, there are two issues to consider in this agreement: employee inventions (service inventions), a clause designed to ensure that the intellectual property rights developed by the employee on the job belong to the employer; non-compete, a clause designed to prevent the employee from using the company’s trade secrets, such as products under development, a list of unique customers and suppliers as well as other intellectual property rights.

Confidentiality Agreement (NDA)

A confidentiality agreement is usually signed before the start of pre-engagement negotiations. This agreement obligates signatories to keep the sensitive and confidential information transmitted to them in full confidence and not to use such information except for the defined purpose of the contract. The agreement is intended to allow the disclosure of ideas, technology, data, or any other confidential information in various business scenarios, such as attracting investors, examining collaborations, and working with suppliers in a manner that ensures that secrets are not leaked. In general, a confidentiality agreement defines the type of information transmitted, the purpose of the transfer, the limits of its use, the duration of the confidentiality period, and what ultimately happens to the information, which should be determined on a case-by-case basis. This agreement is especially important in cases where a patent or design application has not yet been filed, or in cases involving a trade secret, method, or product that cannot be protected by registration.

Terms of Use

Websites and apps have become more common in recent years, and today nearly everybody has a website and many even an app. Whether the sale of the product or service is done through the internet or whether it is only a branded site or a content site, the terms or regulations of the site’s use are an important document that reduces the business’s legal exposure. The terms of use define the rules for using the site or application as dependent on the business and its specific activity. Businesses that provide products through the Internet will want to limit the liability they have regarding product supply, product defects, and more. Many businesses will want the terms of use to include where and how disputes regarding the service they provide online are resolved. Businesses that collect information about users and are required to comply with privacy laws will want to stipulate provisions on privacy in the terms of use (sometimes on a separate page under “Privacy Policy”) and more.
Terms of use are an agreement drafted by only one party (the owner of the site or app) and often do not require the user’s active approval. Therefore, in order to increase the chance that they will be recognized as a valid and binding agreement, it is worthwhile to formulate them with legal assistance.

IP Transactions & Licensing

The value of intellectual property has risen dramatically in recent years, such that it has become a commercial currency in its own right. New players have emerged in the field, including companies that specialize in acquiring patents and other intellectual property rights for registration for others or to use them to enforce rights and therefore accrue benefits. Additionally, in lieu of self-development efforts, there is an increasing trend for technology developers to acquire patent rights and use them for their business purposes.
Intellectual property in general, and patents in particular, have therefore become commercial goods, and the international trade of these assets, including sale or grant of license, has grown significantly.

Realizing the importance of such trade and the potential benefits for our clients, Reinhold Cohn Group has become a very active player in this field.  Our intellectual property commercialization services include brokering intellectual property transactions between clients and buyers, sellers, licensees, and license holders. Reinhold Cohn Group’s activity in the commercialization of intellectual property supplements our clients’ business development activities by providing another method for reaping the benefits of intellectual property.

The in-depth expertise of our patent attorneys, combined with the collaborative efforts of our legal professionals at Gilat, Bareket & Co., creates a unique and optimal platform for our clients’ intellectual property transactions.

Open Source

Open source is a software whose source code is open for public use. The code is freely available on the internet for anyone to download, review, and use. Open-source software can also be integrated into commercial products. Companies today use open-source code for cost reduction, code quality, and time-to-market, among other things.

Using open-source code commercially can entail legal risks since some open-source licenses require companies to make their proprietary code public. Before using open-source software commercially, companies must review the license terms along with their objectives to better understand when their proprietary code requires public disclosure.

Each open-source software package has a license agreement specifying terms of its use. Some open-source code is published under a dual licensing system, where the code can be used either for free (under certain rules usually requiring proprietary code disclosure upon product distribution) or under a paid commercial license requiring no such disclosure. Courts have ruled that free licensing agreements have a binding nature and therefore companies need to carefully review the license of open-source code they wish to use.

Open-source issues often arise during due diligence before an acquisition. Acquiring companies review the codebase of the acquired company for the code’s origin and licensing status.  It is often discovered during due diligence that a company improperly used or even relied on open-source software as a key part of the company’s codebase, which can sometimes result in canceled deals.

The Reinhold Cohn Group has developed a service package dedicated to assisting organizations seeking to manage the use of their open-source software in a way that minimizes risks. The service is provided by a team comprised of attorneys specializing in copyright and software experts, and is carried out in three stages:

• Assessing the commercial risk of different open-source licenses used by the organization, taking into consideration the particular use cases of the open source software in the organization’s products and services.

• Building an internal organization procedure for control of future inclusion of open-source code in the organization’s code base, and providing tools for managing the issue by the organization.

• Providing continuous assistance in special cases of open-source code use.

Employee Inventions

Our team has extensive experience in the field of service inventions—innovations developed by employees in the course of their employment. In recent years, this area has garnered growing attention from both employers and employees. Key questions arise regarding the ownership of these inventions (whether they belong to the employer or employee) and whether the employee is entitled to additional compensation for inventions owned by the employer.

The attorneys at Gilat, Bareket & Co. have handled numerous cases in this field, including a dispute between the State of Israel and a police bomb disposal expert over patent ownership (heard by the Patents Registrar, the District Court, and the Supreme Court); a case involving a disagreement between an employer and employee over the identity of the service invention’s creator (resolved by the Patents Registrar and District Court); and an employee’s claim for compensation related to a service invention (addressed by the Patents Registrar), among others. The firm also assists in adjusting transaction agreements to align with evolving legal provisions in this area and conducts due diligence on employer practices. Additionally, our attorneys actively contribute to legislative reforms in the field of service inventions.

Beyond our expertise and vast experience, Gilat, Bareket & Co. benefits from close collaboration with the patent attorneys of Reinhold Cohn & Partners. This partnership, combining legal and technological insights, enriches our work and ensures a high standard of service for our clients.