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AN INTRODUCTION TO LEGAL ASPECTS OF CUSTOMER ACQUISITIONS FOR STARTUPS

Presented by: Gal Smolar Twitter: @FMC_Technology December 17, 2012

The presentation contains examples of the kinds of issues companies looking at entering into

agreements in connection with new customers could face. If you are faced with one of these

issues, please retain professional assistance as each situation is unique.

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CUSTOMER ACQUISITIONS

• The processes and procedures used in acquiring the business of new customers.

• Who are your customers? What legal terms should govern your relationship with them?

– Individual Online Users / Terms of Use and Privacy

– Agents / Resellers / Distributors/ VARs /JVs

• What challenges are you faced with each type of customer?

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TYPICAL ACQUISITION CONTRACTS

• General Terms and Conditions (Web) – Typical online terms of use accepted by continuing use of site / service

• Subscription Agreement (e.g. SaaS) – Based on providing access to proprietary software hosted by a third

party

• License Agreement (Software) – Traditional software license terms

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TRENDS

Right to Data Data as an IP asset

Restrictive Covenants On the path to a M&A transaction

Non Compete / Exclusivity What does this mean to your company?

Joint Developments Who owns what?

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RIGHTS TO DATA

• End User:

• End User Data:

• Rights to End User Data:

"any individual or legal entity who has been registered via the Platform

either through: (X) an unique API provided to Subscriber, or (Y)

registration through Subscriber’s Web Site“

The term “Subscriber” refers to the user of the SaaS platform.

"any data of any type which is provided by an End User in connection

with the use of the Platform"

"Subscriber shall retain all right, title and interest (including any and all

intellectual property rights) in and to the End User Data, and hereby

grants to Vendor an indefinite, non-exclusive, worldwide, royalty-free

right to use, copy, store, transmit, modify, create derivative works of

and display the End User Data as required by Vendor from time to time

in connection with the Platform."

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RIGHTS TO DATA (Cont.)

• No Rights:

"Vendor shall, to the extent consistent with and in accordance with

applicable Privacy Laws in the applicable territory, collect and internally

utilize the End User Data solely to meet its obligations under this

Agreement and for no other purpose."

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RESTRICTIVE COVENANTS

• Participation Right:

• Buy Out:

“Licensee has the right to purchase, acquire or otherwise participate in

X% of all or any part of any New Offering that Vendor or any of its

subsidiaries or affiliates or any of their respective successors may

consummate from time to time during the Term of this Agreement."

"If at any time during the Term, Vendor receives a bona fide offer from

a prospective purchaser (“Prospective Purchaser”) to purchase any or

all of its assets (“Subject Assets”), within seventy-two (72) hours of

such receipt, Vendor shall provide a written notice to Licensee of such

bona fide offer (the “Offer Notice”). Licensee shall have fifteen (15)

Business Days after receipt of the Offer Notice (“Exclusivity Period”) to

deliver to Vendor a term sheet proposal for the acquisition of the

Subject Assets. Vendor shall refrain from further negotiations with the

Prospective Purchaser during the Exclusivity Period."

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RESTRICTIVE COVENANTS (Cont.)

• Rights in New Technologies / Right of First Negotiation (ROFN):

"If Licensor develops a New Product, then during the period commencing from the Effective

Date and ending on [ date ] ("ROFN Period"), Licensor shall give written notice to Licensee

which shall include a description of the New Product and Licensor shall not during the period

commencing from the Effective Date and ending upon the End of ROFN Period engage with

any third parties regarding the opportunity to evaluate, license or acquire the New Product

unless Licensee fails to timely deliver a Right of First Negotiation Notice. If Licensee shall within

twenty one (21) days of such notice deliver a written notice (the “Right of First Negotiation

Notice”) to Licensor that Licensee desires to obtain certain rights to the New Products, then

Licensor and Licensee shall negotiate exclusively and in good faith to effect such license for a

sixty (60) day period following the Right of First Negotiation Notice."

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NON COMPETE / EXCLUSIVITY

• Be aware of any restrictions on your ability to compete or offer services or products to third parties.

• Look out for Confidentiality provisions as they may suggest a non-compete obligation (NDA, MNDA, CDA, etc.)

• Exclusivity – Territory, Products, Markets.

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JOINT DEVELOPMENT

• Information Sharing: Customer Ownership:

• Splitting Ownership:

• Customer Ownership:

"The parties may from time to time engage in joint development of new products for [ omitted ] (the “Joint Development

Products”) pursuant to a written and executed joint development protocol which shall, amongst others, define the Joint

Development Product and each of the party’s responsibilities (the “Joint Development Protocol”). Developments jointly

made by Licensor and Licensee, as proven by competent evidence and the Joint Development Protocol, that are related

to: (x) the [ omitted ] of any Joint Development Products shall be owned solely by Licensor; provided, however, that

Licensor grants Licensee a non-exclusive royalty-free license to make, use, sell and/or import the Joint Development

Products; and (y) the [ omitted ] developed for dispensing Joint Development Products shall be owned solely by Licensee;

provided, however, that Licensee grants Licensor a non-exclusive royalty-free license to make, use, sell and/or import

such joint development only with respect to dispensing Joint Development Products."

"Licensor will, during the term of this Agreement, promptly disclose and describe to Licensee all Technology and

Intellectual Property Rights developed, conceived, made, and reduced to practice by Licensor related to the Technology,

including all new Inventions and all improvements related thereto."

"The Parties further agree that Licensee shall solely own and have exclusive worldwide right, title and interest in and to: (1)

all Updates created by Licensor and (2) any Extensions, Content or modifications to the Tool that are jointly developed by

Licensor and Licensee, and to all Intellectual Property Rights related thereto"

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Customer Acquisition - Tips

• Strategy – What to license? Should we own the data?

• Relationship – Pre-contractual matters

• Expectations – Clarity on terms and conditions

THANK YOU! Gal Smolar 20th Floor, 250 Howe Street Vancouver, British Columbia V6C 3R8 Direct Line: (604) 622-5161 Email: Gal.Smolar@fmc-law.com Twitter: @FMC_Technology