Monday, February 20, 2012
Companies providing SAAS, or software as a service, are different than traditional software providers. The main distinction is that a typical software provider will charge for software that the buyer installs (after download or through a CD or other medium) the software code until their local computer. The purchaser is also granted a license to use the software, usually for a certain period of time. The buyer is buying a product in the software, but they are really getting a license to use that software. For accounting purposes, those software sales are classified generally as purchases of a product, even though there is often no physical product given to the buyer. SAAS is when the provider company generally hosts the software on their own server and provides the software to the purchaser online. The main difference is the delivery method. SaaS is often referred to as software on demand. Each type has its own set of legal and tax characteristics/implications. Software licenses generally book the revenue from the front end costs to purchase the software as a product upon the time of sale. SaaS generally spreads the revenue recognition over a period of time during the subscription period. Tax liabilities therefore accrue at different times in the revenue cycle. There are also different types of agreements that are used as a software license agreement or end user agreement. SaaS agreements are usually setup as a subscription for a certain period of time to use the software and traditional software agreements are a license to use the software code, often also for a period of time but the purchase happens at initial purchase. Some traditional licensors try to limit the use period and require users to pay to renew their license after expiration or limit the number of users or number of computers it can be installed on. The difficulty is obviously that once the person has the software installed locally, it is difficult to enforce any kind of restriction if they fail to renew their license. Some could enforce this through things like only providing support or software updates if the user is current on their license fees (subscription). SaaS gives the company much more control over their code since there is typically no local installation and they retain complete control of their code. Of course SaaS requires online connections to run the service, but the availability of the internet has made that almost a non-issue. Some Saas will provide customers the service for free and earn their revenue from ads on the sites. It is pretty easy to see that the control and flexibility of SaaS make it the preferred method for most software.
Sunday, February 19, 2012
On February 13, 2012, New York Knicks sensation Jeremy Lin, through the law firm of Arent Fox LLP, filed for trademark protection for the "Linsanity" name. According to the filing with the U.S. Patent and Trademark Office, he filed for protection for a variety of uses, such as on backpacks, clothing, water bottles, caps, toys, action figures, and sports drinks. The filing is actually filed after two other individuals from California who filed a few days prior to Lin. There are certain Right to Publicity laws in California that protect celebrities names. California Civil Code Section 3344 states that a person shall not use another's name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without such person's prior consent. Obviously, the term "Linsanity" would have to fall within the definition of his name to qualify for this protection. Often someone who files for the trademark and gets the application approved gains rights if they filed prior to another. However, there are common law trademark rights that can apply if the trademark was used in commerce prior to the filing. It is not just cut and dry of who files first. Lin's counsel will probably be much more willing and able to pursue the trademark application through to the end and can oppose the other trademark applications, so we can't guarantee it, but I would guess that the other trademark filers will not get very far in their attempts to cash in on the "Linsanity." Interestingly, one of the other filers is from Los Altos in California which is right next to Lin's hometown of Palo Alto.
Friday, February 10, 2012
The SEC charged Whitman and Whitman Capital with insider trading for trading on stock tips for material non public information about pre-release earnings for Polycom and Google's quarterly earnings. A brief overview of the complaint is discussed here.
Sunday, February 5, 2012
HR 2930 & 2940- New Access to Capital for Startups, Easier to Raise Money with CrowdFunding, Rule 506 changes, and Use of Intermediaries?
There are definitely pros and cons with both HR 2930 and 2940. Having been in the position of a cash-strapped start-up trying to raise money, I can see the huge benefit of the changes for raising cash from small investors with intermediaries (basically a "finder") and advertising rules. However, the lack of disclosure requirements could allow for fraud on potential investors and not enough oversight. I am a little surprised I don't see more posts regarding these from other corporate, startup, or securities lawyers. Here is a link to a good discussion on HR 2930 by the Securities Law Prof Blog. Given that it appears that both HR 2930 and 2940 may pass the US Senate and be signed by the president and the recent recommendation by the Advisory Committee on Small and Emerging Companies for the SEC to make similar changes to SEC rules for 506 Reg D private placements, it appears these changes may take effect in the next several months. It may have some negative consequences on investors, but I think it will help with small startup companies fund raising abilities. There will be some work for corporate and securities lawyers to interpret and help companies implement these changes in the near future. Stay tuned, I will try to keep track of the progress of these bills and provide updates as available on my blogs. barsnesscohen.blogspot.com and chrisbarsness.tumblr.com Twitter: @BarsnessLaw | www.siliconvalleystartupattorney.com
Wednesday, February 1, 2012
In Facebook's S-1 registration statement, the most recent rounds of funding over the last year or so were sold at a price of $20.85 per share of Series A common stock. This places the valuation used for those raises somewhere in the neighborhood of making Facebook worth $86 billion, without taking into account any convertible preferred shares or option exercises. Some other items of interest are the consolidated financials. Facebook shows that as of 12/31/2011, it has close to $1.5 billion in cash, cash equivalents, and marketable securities. In addition, it also lists net income of $1 billion for 2011. Clearly companies have learned since the dot-com era on how to have real revenue recognition from an online company. We will have to see where the investment community puts for the initial share price, but I have heard rumors of somewhere in the $30 range putting the market cap well over $100 billion. To put that into perspective, that could approach or go beyond the valuations of Google and General Electric. It is funny to see reports on the news about all the "instant millionaires" or billionaires after the IPO. Anyone familiar with securities knows that it is not that easy. There are SEC rules, federal and state laws, as well as contractual restrictions on the ability to sell any stock that someone at Facebook may own. It appears the terms of any lock up and market standoff agreements exempt Mark Zuckerberg, but most executives, officers, directors, and employees will be restricted in when, how, and how much stock can be sold off. In addition, Mr. Zuckerberg still has to comply with securities laws when selling any stock. So, yes, there will be instant millionaires on paper, but someone has to own a large number of shares and be able to sell them to realize the status of a millionaire. That being said, more than likely, some founders, venture capitalists, early investors, and early key employees will do very well off their early involvement in the company.
Today, as was much anticipated, Facebook filed its S-1 registration statement with the SEC. Their proposed ticker symbol for trading is requested to be "FB". For a link to the actual S-1 filing, click here. The filing is for a public sale of up to an unknown number of shares of common stock for a proposed maximum raise of $5 billion. Their listed corporate strategies are: Expand Our Global User Community. We continue to focus on growing our user base across all geographies, including relatively less-penetrated, large markets such as Brazil, Germany, India, Japan, Russia, and South Korea. We intend to grow our user base by continuing our marketing and user acquisition efforts and enhancing our products, including mobile apps, in order to make Facebook more accessible and useful. • Build Great Social Products to Increase Engagement. We prioritize product development investments that we believe will create engaging interactions between our users, developers, and advertisers on Facebook, across the web, and on mobile devices. We continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform apps and website integrations. • Provide Users with the Most Compelling Experience. Facebook users are sharing and receiving more information across a broader range of devices. To provide the most compelling user experience, we continue to develop products and technologies focused on optimizing our social distribution channels to deliver the most useful content to each user by analyzing and organizing vast amounts of information in real time. • Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage is critical to maintaining user growth and engagement over the long term. • Enable Developers to Build Great Social Products Using the Facebook Platform. The success of our Platform developers and the vibrancy of our Platform ecosystem are key to increasing user engagement. We continue to invest in tools and APIs that enhance the ability of Platform developers to deliver products that are more social and personalized and better engage users on Facebook, across the web, and on mobile devices. Additionally, we plan to invest in enhancing our Payments offerings and in making the Payments experience on Facebook as convenient as possible for users and Platform developers. • Improve Ad Products for Advertisers and Users. We plan to continue to improve our ad products in order to create more value for advertisers and enhance their ability to make their advertising more social and relevant for users. Our advertising strategy centers on the belief that ad products that are social, relevant, and well-integrated with other content on Facebook can enhance the user experience while providing an attractive return for advertisers. We intend to invest in additional products for our advertisers and marketers while continuing to balance our monetization objectives with our commitment to optimizing the user experience.