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Graduate Profile: How ILC Has Helped Nikkia Knudsen L’21 Launch Her Health Care Practice Career

By Meredith Wallen

When the Innovation Law Center (ILC) program was established in 1990, it was the first law program of its kind in the country to combine science and technology development with practical legal analysis, research on intellectual property law, and hands-on, applied learning experiences for students.

Today, the program continues to offer the opportunity for students to focus on intellectual property assessment, patent protection, market landscaping, and other commercialization matters for companies of all types and industries. ILC students are supervised by experienced technology commercialization professionals, which allows them an opportunity to learn and grow while creating regulatory and market landscapes that help get innovations from the lab and workshop to market.

As the spring 2021 semester comes to an end, we spotlight one recent graduate. In her time at Syracuse Law, Nikkia Knudsen L’21 took full advantage of the practical experiences ILC offers, as well as the New York State Science and Technology Law Center (NYSSTLC), part of the New York State Innovation Ecosystem which is housed in the ILC.

We take a look back at Knudsen’s time with the ILC and NYSSTLC and a look forward to her post-graduation plans.

ILC: What attracted you to ILC?

NK: It was an opportunity to combine my previous skill set with something in the legal field.

ILC: How has working for ILC and NYSSTLC added to your skill set?

NK: It has developed my client skills, helping me to quickly identify what the client is really asking for as well as steer them in the right direction.

ILC: Where are you planning to work post-graduation?

NK: I am joining Vorys, Sater, Seymour and Pease LLP, in Columbus, OH. I will be joining their health care practice group.

ILC: Did you find that having the ILC experience on your resume helped you find employment?

NK: It did! I think it helped differentiate me in the health care space because I can complete IP work, life sciences work, and regulatory work.

ILC: What ended up being your favorite part of working with the program?

NK: The friends that I have made. I really loved getting to work with the faculty and I loved working with my SRA partner, Sohela Suri L’21. It was also really fun to watch the students learn and build their skills.

ILC: What is one of the most recent projects you worked on and what did you do for that project?

NK: I worked with biotech firm TritonBio. This client was iterating the technology that they were developing and our research helped them determine their best options moving forward. We also helped them narrow down what their technology could look like and then created a report based on potential technological iterations rather than a specific iteration. 

This process helped me learn how to guide a client and help them figure out exactly what research could be helpful to them in addition to what they are asking for and explain why. It also helped me determine what is really important to focus on and what is not.

ILC: Do you have any advice that you would give to a law student interesting in joining the ILC team?

NK: My only advice would be to go for it! Even if you feel like you don’t know what you are doing, we are all here to help and you will get the hang of it.

General Wellness v. Medical Device Considerations

By 3L Kaitlyn Crobar

The development of any health, medical, or medicinal product  involves a decision about whether the FDA has a role in regulating it. However, there are certain products that the FDA recognizes as “wellness products”—these are exempt from FDA regulation. For innovators in the health field, determining whether to proceed to market by defining an innovation as a “wellness product” requires careful consideration. The following article reviews considerations for determining whether an invention is a medical device, or a general wellness product.

What is the difference between a medical device and a general wellness product?

A medical device is defined by section 201(h) of the Federal Food Drug & Cosmetic Act, as any “instrument, apparatus, implement, machine … or other similar or related article, including any component, part, or accessory … intended for use in the diagnosis of disease or other [health] conditions.” If a product meets the definition of a medical device, it is subject to some level of FDA regulation based upon the specific classification and required process for that class.

The overriding purpose of regulation is to assure that regulated products are safe for use and effective for the intended use. As outlined in FDA guidance document—“General Wellness: Policy for Low Risk Devicesgeneral wellness products are those that pose a low risk to the safety of users and other persons in terms of function and are intended only for “general wellness use.” General wellness products are not subject to FDA regulation.

How can status as a general wellness product be determined?

General wellness products have “(1) an intended use that relates to maintaining or encouraging a general state of health or a healthy activity, or (2) an intended use that relates the role of healthy lifestyle with helping to reduce the risk or impact of certain chronic diseases or conditions and where it is well understood and accepted that healthy lifestyle choices may play an important role in health outcomes for the disease or condition.”

Appropriate intended uses for the first category of general wellness products, which make no reference to any disease or conditions, might include maintaining weight, facilitating sleep, relaxation, stress management, physical fitness, or mental acuity exercises. Products may include exercise equipment, audio recordings, and video games. These products are distinct from those that claim to treat a disease or disorder and that are invasive, implanted, or involve technology that poses a risk to other persons if specific regulatory controls are not applied (such as risk of radiation exposure). These products are not “low risk” and do not qualify as a general wellness product.

The second category of general wellness products refers to diseases of conditions, and includes intended uses of promoting, tracking, managing, and encouraging choices that may help reduce the risk of or may help living well with a chronic disease or condition.

These products include certain software functions “intended for maintaining or encouraging a healthy lifestyle that are unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease of condition.” An example of this type of general wellness product is software that monitors and records food consumption to “manage dietary activity for weight management and alert the user, healthcare provider, or family member of unhealthy dietary activity.”

The FDA maintains the webpage How to Determine if Your Product is a Medical Device to help determine the appropriate level of review for devices. This information includes how to contact the FDA if after going through the four methods suggested, the guidance is still not clear.

Why would a developer want to classify an invention as a general wellness product instead of a medical device?

General wellness products are FDA exempt, and therefore an invention can go to market without the 510(k) clearance necessary for Class II devices or pre-market approval required for Class III devices.

General wellness products do not have to comply with annual registration and fees required of all medical device manufacturers. They do not have to register the product in the Registration and Listing Database. These advantages may sound enticing, but before marketing an invention as a general wellness product, the following should be considered:

  • FDA approval or clearance may add value to an invention.

Marketing an invention as FDA approved, cleared, or even registered signals to consumers that it meets a minimum standard of safety and efficacy. FDA compliance is also relevant in designating the product as reimbursable by insurance.

  • If an invention is marketed erroneously as a general wellness device and the FDA believes the intended use does in fact make it a medical device—as defined by Section 201(h) of the FD&C Act (21 USC 321(h))—a company can be penalized, or even be shut down.

For example, the ancestry site 23andMe offers a product that utilizes genotyping to detect select clinically relevant variants in the genomic DNA of adults from saliva for the purpose of reporting and interpreting genetic health risks and reporting carrier status, such as a person’s chances of getting certain cancers or Alzheimer’s. This product was not intended to diagnose any disease. It was initially brought to market without FDA approval. In 2015, the FDA notified 23andMe of concerns about the genetic interpretations it was providing consumers, as several of these health factors can arise from environmental and lifestyle factors as opposed to mere genetics. The 23andMe assessments were therefore deemed misleading and 23andMe had to obtain FDA approval for its health data and “carrier status” reports.

  • FDA Regulatory compliance has an impact when defending tort claims.

Choosing the fastest path-to-market may be shortsighted given the difference FDA approval or clearance can make when defending a lawsuit. A device that is marketed after successfully navigating the FDA Premarket Approval (“PMA”) process has a better ability to defend against tort claims alleging products liability, negligence, or breach of warranty allegations. The 510(k) clearance process for Class II devices also offers a better ability to defend than if a product had not obtained clearance. Even though most Class I devices are exempt from 510(k) clearance, registration and compliance with other requirements—such as good manufacturing practice requirements set forth in the Quality System regulations—may assist in defending against tort claims.

 

Further Reading

 

Fill in the Blanks: ILC Research Reports Give Innovators an Edge

By Meredith Wallen

As of April 2021, faculty and students in the Innovation Law Center (ILC) are finalizing client presentations for the spring semester. Given current coronavirus pandemic restrictions, clients once again will meet virtually with research teams for presentations that will summarize the intellectual property, regulatory, and market landscape findings relevant to the respective technologies.

Spring 2021 ILC clients are developing innovations in green building systems, medical technology, biometrics, streaming media, and infrastructure logistics:

MicroEra Power

This Rochester, NY, team is exploring commercialization options for its inventive solutions for retrofitting existing HVAC systems in commercial buildings to make them more cost effective and energy efficient. ILC research seeks to identify other HVAC improvements in patent and public literature to help assess the improvements that are most likely to obtain patent protection.

In addition, the research facilitates awareness of existing new technology in the market insuring MicroEra does not inadvertently subject itself to liability for infringing on other patents. By understanding what investors and potential licensees might identify in similar searches, ILC clients such as MicroEra increase the likelihood of choosing the best commercialization pathway for new technology.

Organic Robotics

Developed in Ithaca, NY, from Cornell University technology, this platform technology invention utilizes networks of sensors to read body movements. ILC research is helping to explore one of the technology’s applications that will be of interest to big league sports teams. Organic Robotics has developed variations of its technology for a number of applications, and ILC research also will help differentiate where the best opportunities are in light of existing technology developments in their innovation space.

NSION Technologies

NSC3 is a media broadcasting and management solution to provide situational awareness during events and disasters. The NSC3 platform provides integrated media streaming from multiple sources to multiple devices in real-time while optimizing video speeds and allowing live data transfer using secure connections and data encryption.

This technology originated in Finland, and it is being introduced to the US market through a startup located in New York State. ILC research will provide NSION with an analysis of the potential for patentability and infringement based on other developments in the space. Market research is also being conducted to assess industries beyond public safety that the NSC3 technology could be marketed in.

Skip-Line

Skip-Line provides real time information on fleet location, material usage, and application performance for contractors completing road work. This technology is meant to create and utilize navigation trajectories, also known as drive vectors. ILC research provides an analysis of competing intellectual property and its potential effect on patent protection and infringement on other technologies, as well as market information on automotive-related industries and regulatory and liability information. Additionally, regulatory analysis is identifying relevant state and federal level regulations and liability issues.

Optimed

Commercializing University of Buffalo technology, Optimed is working to promote the clinical transaction of fundamental lab research into human clinical treatments to reduce pain and suffering, enhance quality of life, and improve oral health. Specifically, ILC faculty and students have been working on identifying prior art relevant to the assessment of patentability of 3D-printing dentures, as well as performing regulatory and market research.

Triton Bio

Triton Bio creates devices that isolate microbes from biological samples, and it is looking into entering the point of care diagnostics market. ILC research includes the identification of  patents within the clinical diagnostics setting that are considered point-of-care devices and that currently isolate bacteria for diagnostics. In addition, a market analysis on all relevant diagnostics competitors within the current market is being performed.

The research and analysis outlined for the spring 2021 clients is typical of the sort of assistance provided by ILC during the summer and fall sessions. Summer research requests currently are lining up, so now is the time to get in touch if you are interested in increasing your chances of success with an ILC research report.

 

NYS Start-Up Resources Help Vita Innovations Develop a “Smart” Face Mask

By Meredith Wallen

With help from New York State’s “innovation ecosystem,” Vita Innovations CEO Longsha Liu—along with co-founders Ray Wei, Jason Chen, Julia Isakov, Rishi Singhal, and Kristen Ong—have moved at lightspeed in startup terms toward their goal of developing a vital signs monitoring mask for COVID-19-challenged health care facilities.

The impetus for the “smart” mask came one day when a young daycare teacher from Milwaukee went to her local emergency room describing chest pain and tightness of breath, one of dozens of patients Liu had witnessed waiting for hours in the ER where he was volunteering.

However, for this patient an inconvenient ER wait turned to tragedy. Initially, she was deemed a nonsignificant health risk and triaged to the lobby. After waiting two and a half hours in the ER, the patient left without being seen and instead went to an urgent care clinic. The patient collapsed less than an hour later due to a heart attack, dying en route to the same hospital she had left earlier that day.

One objective of Vita Innovations’ new technology—the VitalMask—is to avoid such tragedies by giving medical care workers a simple and convenient way to monitor triaged patients’ vital signs, while keeping them masked against COVID-19 and other airborne infections.

The objective of  VitalMask’s embedded technology is to monitor blood oxygen level (SpO2), pulse, body temperature, breath rate, and the continuous placement of mask. This data will then be sent via Bluetooth to a central monitoring station.

Vita’s multi-faceted smart mask concept won at the NYC Health Hackathon in February of 2020. Urged on by the Hackathon mentors and judges, Liu said he and his team decided to “accelerate our development and potential, and Vita Innovations was established to create the VitalMask.”

Although all four of Vita’s co-founding team had medical device design and development experiences necessary for getting VitalMask off the ground, Liu describes the Vita’s business strategy in terms of the challenge of being full-time students at Cornell University without nuanced knowledge of medical device development. Acknowledging these two facts, the team of four has expanded to eight. By recruiting external talent, Vita has compensated for its specific deficits in knowledge and perspectives while ensuring continual growth and development.

In addition to forming an effective team, Vita has been able to access several New York State innovation ecosystem resources. For instance, the company was selected as a participant in the Medical Device Innovation Challenge (MDIC) at the CNY Biotech Accelerator. MDIC offers an intensive mentorship where experts are assigned to each team based on the participant’s specific goals. In addition, MDIC provides networking opportunities and designs special events for innovators tailored to support its program.

Another benefit the MDIC offers is legal and commercialization research for each team provided by the Innovation Law Center (ILC) at Syracuse University College of Law. Vita worked with ILC to obtain research on relevant markets, information on prior art in the technological space, and regulatory requirements. ILC students—working under supervision—provided a written research report, meeting with the Vita team via Zoom to present the findings.

“It was a great help to us to get free and thorough research done into the extent our intellectual property was protectable, and it has informed our company strategy,” says Liu. “ILC also provided us with market research into the medical device industry, as well as a SWOT and Five Forces analysis.” Liu noted the students working on this project were extremely passionate, diligent, and excited to learn about the subject matter.

Liu and his team described their experience with MDIC and Executive Director Kathi Durdon as “incredibly valuable and eye-opening. Each mentor meeting was well-organized, thorough, and specifically tailored to the needs of our team at all costs.”

Liu adds, “The mentors with whom our team worked, in particular, made the experience exceptionally rewarding because they offered assistance, ingenious ideas, and exceptional feedback at every discussion, showing a genuine interest in our company’s product.”

Liu notes that although not all roadblocks brought to the attention of MDIC mentors were able to be immediately resolved, they offered an abundance of connections and resources. “Our team has been able to achieve many important milestones thanks to MDIC’s help, including the completion of our desktop software application, securing funding for short-term operations, and further securing our IP through a second provisional patent application.”

As Vita has gone through the design and prototyping process, they have worked with potential users both potential VitalMask wearers, and health care providers. Liu admits that obtaining materials to best suit the comfort and wearability of the mask has presented some challenges, but they have been assisted by yet more New York State innovation ecosystem resources, such as the Center for Advanced Microelectronics Manufacturing (CAMM)/Integrated Electronics Engineering Center (IEEC) at Binghamton University. Additionally, their team has sought design assistance from Manufacturing & Technology Enterprise Center (MTEC) and has worked with Hudson Valley Advanced Manufacturing Center for 3D printing needs.

The Vita experience is typical of the relationships being forged among MDIC and ILC participants. Vita was one of five medical device-related technologies that the ILC researched in the most recent round of awards. The other technologies include a wireless fetal monitor, a device to assist developmentally delayed children self-direct early stage exploration, a means to reduce surgeries stemming from problems with prolonged catheter use, and a means for post-concussion monitoring.

Most recently, Vita Innovations has been accepted into the Blackstone & Techstars Launchpad Fellowship, which comes with $5,000 non-dilutive funding. Additionally, two members of the Vita Innovations team, Julia Isakov and Kristen Ong, have joined Liu in being accepted among individuals selected globally to be part of the 2021 Clinton Global Initiative University Social Impact cohort.

Furthermore, Vita Innovations has been accepted for Phase 2 of the Values and Ventures Competition, and the company has officially contracted the professional manufacturing expertise of the Manufacturing and Technology Enterprise Center in New York to help refine a professional version of its hardware.

Applications for MDIC mentorship program are being accepted through April 30, 2021. Selected MDIC teams will again have the opportunity to work with the ILC and receive critical legal and market research to help get important innovations from lab to market.

Has Crowdfunding Become the Best Way for Start-Ups to Raise Funds? Not So Fast!

By Nikkia Knudsen

As founders embark on starting a company or launching a business venture around a new technology, perhaps the biggest consideration is funding. As entrepreneurs’ search for funding resources, many consider crowdfunding. Crowdfunding platforms include Kickstarter, Indigogo, and GoFundMe. Authorized by the Jumpstart Our Business Staratups Act (JOBS)—which became effective in 2016—crowdfunding has grown over the past few years. Sources such as Fundly report that $34 billion were raised through crowdfunding worldwide in 2020 and CrowdCrux reports crowdfunding is projected to be at $300 billion by 2030.

Crowdfunding is a method by which many people—i.e., a crowd—pool money for a specific project, cause, or investment they are interested in. The pooling of small amounts of money result in a large overall funding resource.

There are two general types of crowdfunding. In the first—“exchange-based crowdfunding”—people contribute without receiving an ownership stake in the company, or any expectation for a return on the contribution other than the potential completion of an artistic work, or the advancement of a cause. In the second type of crowdfunding—“equity crowdfunding”—people provide money in exchange for equity, or an ownership stake within the company.

Regardless of the crowdfunding type, the Securities and Exchange Commission requires intermediaries or crowdfunding platforms, to “register with the Securities and Exchange Commission (SEC) as a broker or as a funding portal. The intermediary must become a member of a national securities association (FINRA). The FINRA website provides the names of crowdfunding intermediaries that are registered with the SEC as funding portals.”

Crowdfunding may seem like an easy method for fundraising, but not so fast. Crowdfunding represents a relatively new mechanism for raising funds and should be carefully considered before proceeding. Before launching a crowdfunding campaign, the various requirements for each as well as the advantages and disadvantages of each crowdfunding type should be understood. The regulations are summarized on the SEC website: Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers.

Pros and Cons of Exchange Based Crowdfunding

In the first type of crowdfunding people contribute without expectation or return or for a product sample upon completion. There is no obligation or expectation of financial return or equity share to the contributors.

Advantages of Exchange Based Crowdfunding

The benefits to crowdfunding as a funding source include the following:

  • Crowdfunding is easy and allows entrepreneurs to raise money quickly.
  • Crowdfunding allows entrepreneurs to control messaging that will reach potential contributors and customers. The entrepreneurs are also able to directly communicate with the contributors.
  • As some contributors are likely to become future customers, crowdfunding allows entrepreneurs to build their customer base and receive feedback on the product or business launch.
  • Those that provide money are not traditional “investors” because they will not receive an ownership stake in the company. Rather, contributors can expect a gift in exchange for the contribution, which could be the product they are helping launch, or the advancement of a cause they support. This provides flexibility to entrepreneurs because the contributor does not have an ownership stake and is not involved in the business decisions.
  • Crowdfunding tends to be low risk as entrepreneurs are often not required to pay back contributors if the venture fails.

Disadvantages Exchange Based Crowdfunding

The disadvantages of utilizing non-equity crowdfunding include the following:

  • Crowdfunding, although fairly easy, can be time consuming. There are many ventures participating in crowdfunding, and it can be difficult to develop a campaign that differentiates one business from those of competitors. Thus, it is important for the entrepreneur to strategically market the “ask” of the business venture.
  • Crowdfunds are often, but not always, hosted by various platforms, which have stipulations that entrepreneurs must meet. If not using a crowdfunding platform, a company can establish its own website that seeks investments for special product releases and discounts, or in the example of equity crowdfunding, investors receive dividends or investment appreciation. If using a platform, it is important to consider what the stipulations are and how they impact the ability to fundraise. For example, what are the requirements for an entrepreneur to launch a crowdfund on the selected platform? Are there any compliance issues with the requirements? What does the agreement with the platform stipulate? For example, Investopedia reports that Indiegogo has an additional third-party payment processing fee and Patreon has fees that increase as the crowdfunding campaign is created. Conversely, SeedInvest has a strict vetting process, and not all crowdfunding campaigns are accepted by the company to engage in crowdfunding.
  • It is extremely important to understand the platform fees. Some platforms will not allow campaigns to utilize earned funds until the specified fundraising goal is met. Thus, it is important to consider whether the platform will withhold access to money raised if the financial goal is not met. It is also important to determine how much of the funding will go to pay for platform fees.
  • The information about a venture must be easily accessible and available to potential contributors. This is in part to minimize the risk of scammers taking advantage of crowdfunding. Careful contributors are likely to extensively vet a potential business. Thus, it is important that entrepreneurs take the time to make information on the business readily available to potential contributors and/or be willing to provide requested information. This information includes how the funds will be used, where one is in the development of the business or product, the timeline of the product or business launch, what the product or business aims to accomplish, and what contributors can expect in return for their involvement.

Pros and Cons of Equity Crowdfunding

Equity crowdfunding represents an exception to the previous law that prohibited nonpublic/ non-SEC reporting companies from selling securities unless they met all of the stringent financial disclosure and reporting guidelines applicable to traditional public companies. It creates an exemption under the federal securities laws so that crowdfunding can be used to offer and sell securities to the general public rather than just qualified investors. There are limits on the amount of money companies can raise and investors can invest through this method. If a company would like to offer and sell securities through crowdfunding, they must still comply with federal securities laws.

Advantages of Equity Crowdfunding

The benefits to equity crowdfunding include the following:

  • When raising money with equity crowdfunding, the funds do not have to be paid back to investors. However, because investors have an ownership stake in the company, if the company is sold, the investors would be paid out of the profits.
  • If the venture succeeds, the investor will own part of the successful business.
  • Equity crowdfunding allows average investors, including non-accredited investors, to invest in the company.
  • Regulation Crowdfunding provides an exemption from the registration requirements for securities-based crowdfunding. The exemption allows companies to offer and sell up to $1.07 million of their securities without having to register the offering with the SEC.

Disadvantages of Equity Crowdfunding

Despite the advantages, the potential disadvantages to equity crowdfunding should be considered. These include the following:

  • Equity crowdfunding gives investors an ownership stake in the company, which can result in less flexibility for entrepreneurs.
  • Companies raising money through crowdfunding are required to share some of the profits with the equity funders, unlike exchanged based crowdfunding where the investors receive a product or special discount.
  • Equity crowdfunding is risky for investors because if the business model fails, the investor loses all the money.
  • Equity, or regulation-based crowdfunding must comply with SEC disclosure requirements. These requirements include the reporting of company balance sheets as well as advertising requirements to potential investors.

Overall, the ease and flexibility of securing funding through crowdfunding has resulted in its adoption over the past few years. Although crowdfunding might be a great option for entrepreneurs, it is important to consider the disadvantages and risks before launching a campaign.

Implications of Van Buren v. United States and the Reach of the CFAA

By Sehseh Sanan

The United States Supreme Court recently heard arguments on the reach of the federal Computer Fraud and Abuse Act (CFAA). The case, Van Buren v. United States considers the CFAA’s definition of “exceeding authorized access.” It is the first time the Supreme Court has reviewed the CFAA, which was enacted in 1986 to address hacking but which has been amended a number of times since.

The Court’s decision may have implications for computer use policies in a variety of business situations involving employee and licensee access to computers and databases.

The CFAA aims to penalize anyone who intentionally accesses a computer without authorization or who exceeds authorized access and obtains information stored on that computer.

18 U.S. Code § 1030(a) states:

(a) Whoever—

(2) Intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains—

(A) information contained in a financial record of a financial institution, or of a card issuer as defined in section 1602(n) [1] of title 15, or contained in a file of a consumer reporting agency on a consumer, as such terms are defined in the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.);

(B) information from any department or agency of the United States; or

(C) information from any protected computer;

(6) the term “exceeds authorized access” means to access a computer with authorization and to use such access to obtain or alter information in the computer that the access-er is not entitled so to obtain or alter…

With the text of the statute in mind, Van Buren addresses the CFAA by asking whether a person who is authorized to access information on a computer for certain purposes violates Section 1030(a)(2) of the Computer Fraud and Abuse Act if he/she accesses the same information for an improper purpose.

Nathan Van Buren was a police officer in Georgia who utilized a police database to search license plates in exchange for money, and not in the course of his employment.

Van Buren argued the federal CFAA statute is meant to prevent computer hacking and unauthorized use of electronic systems, and it applies only if the defendant obtains information that he was under no circumstances entitled to obtain. Under Van Buren’s argument, the CFAA was not intended to and should not penalize defendants under federal criminal law when they are authorized to access a computer or database but use it in an unauthorized way.

The government’s argument hinges on the inclusion of “so” in the clause “is not entitled so to obtain or alter” in the definition of “exceeds authorized access.” If the Court accepts the government’s argument, then investigations, prosecutions, and sanctions under the CFAA will broaden significantly.

What does this case mean for entrepreneurs? Businesses that depend on employee and licensee access to computer processes and databases may need to carefully review computer access policies and provide adequate guidance to employees and licensees.

Examples of potential areas of prosecution include:

  • Using a database of customer information to provide customer information to someone outside the company.
  • Accessing a licensed database and using the information for other unauthorized purposes.
  • Using a work computer to download personal programs.
  • An employee modifying system files that are not in the scope of their job.
  • Making files public that are supposed to be private.
  • An employee utilizing a password that does not belong to them.
  • An employee utilizing their own password to access information that is prohibited by computer use policies, confidentiality agreements, and employment contracts.
  • An employee using a work computer to download trade secrets in order to compete against their employer.

However the Court decides the decision is likely to influence computer-based businesses, including users such cybersecurity experts, journalists, and researchers who may have difficulty accessing information.

If the Court rules in favor of the government’s prosecution under CFAA, the scope of what is considered a computer crime will broaden, and the control exerted over users will increase. On the other hand, if the Court does not support the application of CFAA to unauthorized uses of information, there are concerns that privacy rights will decrease.

Considerations For Choosing A Business Entity

By Sohela Suri

Once founders decide to move forward with commercializing a new technology, they will need to choose the business entity they will use to conduct business. Considerations for deciding which business type is best suited to the new entity’s needs and goals include: the number of owners, protection from personal liability, taxation, management structure, and investor considerations. Retaining a legal or tax advisor to review the specific circumstances and make recommendations before making the decision is highly recommended.

There are many resources providing information helpful to understanding the different  business entities. For example, the IRS provides a webpage on corporate structures, and the Small Business Administration hosts a business structure web page. NYS Secretary of State Division of Corporations, State Records, and UCC maintains a website with filing information, and a database to search corporations and business entities in NYS.

The laws of each state govern the creation of business entities. Federal securities laws also apply when securities are issued and sold. This article provides information on New York State business entities. The choice of state to file in is another issue a legal advisor can help decide.

Founders Agreements – pre-business entity formation

While a technology is vetted for its commercial prospects, the focus is often not on the type of business entity to be formed. This makes sense because not all technology is suited for commercialization, and not all founders are destined to work together. However, founders are well advised to take steps to protect the ownership of intellectual property and business assets in the event a business entity is formed. The Founder’s Agreement should define the Founder’s respective co-ownership rights in the intellectual property and other business assets.

Business assets include proprietary technical information, intellectual property, market research/customer information, identification of published materials characterizing markets that are relevant to the product or service concept, design and specifications necessary to transform the product concept into a functional product, the creation of a business plan, and agreement on founders’ roles and responsibilities. A founders agreement is made between the founders in their capacities as individuals before a business entity is formed, and preserve ownership of IP and other business assets that are created before a business entity is formed.

The founders actively involved in evaluating the feasibility of the business should address the founders’ co-ownership rights in the business assets regardless of whether the Founders ultimately determine that the business contemplated is feasible and form a business entity.

As long as founders can enter an agreement that all business assets developed will be assigned to whatever business entity is ultimately decided upon, founders agreements can provide time to make a careful business entity decision. With more time comes more information about whether and how the founders will move forward with a business.

Advantages of Business Entities

When a business entity adheres to the organizational structure provided by law the  limited partners, shareholders, and/or members’ receive protection against personal liability for business debts. This means the amount of money that limited partners, shareholders, and/or members can lose if anything that goes wrong with the business is limited to what they have invested in the business entity. Where a sole proprietor or a general partner is personally responsible for judgments against it, the assets that are available to an injured party from a limited partner, LLC member, or corporate shareholder is limited to the investment made into the limited partnership, LLC, or corporation.

In addition to limiting liability, business entities provide a legally recognized structure for a number of owners or investors to work together with a prescribed understanding about what the law requires with regard to formation, taxation, management, ownership, and exit strategy.

Corporations

Corporations are legal entities separate and distinct from the individual shareholders who own, manage, and operate the corporation’s business. A corporation works well when there are or are expected to be a number of owners, and the owners intend to seek investment.

A Corporation’s liability for the torts, contracts, and judgements of the directors, officers, and other employees of the corporation are limited to the corporation and do not extend to the individual shareholders beyond their investment. (e.g., the number of shares purchased). An exception to the veil of protection afforded by the corporate entity is if shareholders do not follow corporate formalities or intentionally undercapitalize a corporation. Shareholders are then said to have “pierced the corporate veil” such that they may be held liable as individuals.

Corporations are governed on a state-by-state basis, and so are created, managed, and dissolved according to the laws of the State with which it filed. In NYS a corporation is formed by filing Articles of Incorporation with the Secretary of State. A board of directors manages a corporation, which is composed of individuals elected by the shareholders. The board delegates daily responsibilities to others.

With respect to taxation, standard “C” corporation profits are taxed both as part of the corporation’s income tax, and when the shareholders are taxed following a distribution of profits. Corporations can opt to elect to be subject to a “flow-through” tax scheme, whereby the separate legal entity of the corporation is not taxed. These are referenced as Subchapter S corporations based on the federal internal revenue code authorizing them. The caveat is that the corporation must meet certain requirements: 100 or fewer shareholders, all shareholders must be natural persons, and there can only be one class of stock. S corps are not recommended if the corporation is seeking venture capital because it limits stock to just one class.

Exit strategies for shareholders in corporations are relatively uncomplicated because owners can simply sell their shares. However, the cost to dissolve a corporation is relatively high compared to other business entities.

General Partnerships

There are two types of partnerships: general and limited. In a general partnership, the two or more partners – either individuals or business entities – agree to establish and run a business in accordance with a partnership agreement. General partnerships, unlike corporations and LLCs, do not need to be registered with the state or any administrative body. (A limited partnership does need to register.) Although partnerships operate under a partnership agreement between the partners, each partner is responsible for all of the liabilities of the partnership.

General partnerships have flow through taxation so that the tax liability flows through the entity to the partners. The partners claim gains, losses, credits, deductions, etc. on their personal tax returns with the federal government. In New York, the partnership’s income passes to the partners who pay taxes on their individual or franchise tax returns. There are certain instances in New York where partnerships are required to file a separate return for the partnership itself, but that process is not the norm.

General partnerships are fully governed by the underlying partnership agreement. They often involve joint management and ownership, unless some special provisions are put into the operating agreement splitting up responsibilities and stakes in assets of the partnership. Under this structure no one person is the sole owner, since partnerships require at least two people or entities. This entity has the greatest personal liability and least flexibility in structure of the business. Exiting a general partnership can be expensive although less expensive than dissolving a corporation.

General partnerships are easily established by two or more individuals, who co-own the unincorporated business. The partners share in the profits and responsibilities of managing the business, and equally share the losses and liabilities. When one partner dies, goes bankrupt, or withdraws from the partnership, the result is usually one partner buying out the other.

Limited  Partnerships

A limited partnership is formally created when at least one general partner and at least one limited partner file a certificate with the Secretary of State. Authorization for a limited partnership is found in § 91of the NYS Partnership Law. The contributions of a limited partner may be cash or other property, but not services. General and Limited partners are treated differently, general partners have unlimited personal liability for all obligations of the business, and limited partners have limited liability, and do not control the business. When a general partner dies, goes bankrupt, or withdraws, the limited partnership is dissolved. By contrast, when a limited partner dies, goes bankrupt, or withdraws, the partnership is not affected.

Limited Liability Companies

A Limited Liability Company (LLC) is an unincorporated business of one or more people who have limited liability for the contractual obligations and liabilities of the business. The owners are referenced as members. Members can be individuals and/or other legal entities such as a corporation or partnership. Limited Liability Companies are governed by the NYS Limited Liability Company Law and combines the limited liability protection of a corporation with the flexibility of a partnership.  Its’ business structure can utilize pass-through taxation. The LLC is a frequent option for startup companies.

The formation of an LLC in New York State requires filing Articles of Organization and a Certificate of Publication of the names of the partners with the Secretary of State. An Operating Agreement, which is an internal document, establishes the rights, powers, duties, liabilities, and obligations of the members between themselves and with respect to the LLC.

The operating agreement specifies what each member is obligated to perform for example, one partner may complete manufacturing, another marketing, and a third technology development, and IP prosecution and ownership.

In terms of taxation, the IRS treats LLC’s as either a partnership or corporation. The LLC format is favored on an operating level because it limits liability but allows for the benefits of general partnerships. LLCs have relatively simple management and ownership arrangements compared with corporations. LLCs have underlying operating agreements which dictate the terms of the LLC’s operations and which defines the relationships between the members. Dissolving an LLC is not complicated, but does require a filing. It is not as expensive as dissolving a corporation. The members can choose the date on which the LLC ceases to exist and can pre-set a date in their operating agreement on which the LLCs cease.

 

Navigating Intellectual Property Legal Issues—And Life

Brian J. Gerling L’99 Reflects on Learning IP Law Under Ted Hagelin, And Why He Returned to Teach at His Alma Mater

By Meredith Wallen

Every semester, College of Law students in the Innovation Law Center (ILC) benefit from the extensive expertise and broad experience of practitioners who supervise student research projects for real-world clients.

Often those practitioners are drawn from the ranks of alumni who have graduated from the College’s preeminent technology commercialization and intellectual property (IP) law program. One such adjunct professor is Brian Gerling L’99, Senior Counsel for Bond, Schoeneck & King PLLC (BSK).

“I found it fascinating”

At BSK, Gerling’s practice focuses on intellectual property, data privacy, cybersecurity, and economic development in the beverage, environmental, and plastics industries. He also is engaged with the autonomous systems industry, serving as legal advisor to local unmanned aerial vehicle businesses.

As an adjunct professor, Gerling oversees one of ILC’s experiential learning practicums, working with students, as well as ILC clients, to research the technical, legal, and business aspects involved in bringing new technologies to market.

When asked when he first became interested in technology, Gerling says, “Even as a kid, I was curious how or why things worked. Whether it was electricity or the human body, I found it fascinating, and that’s what led me down the path to a degree in biology.”

During that process, Gerling studied medical and laboratory processes and equipment, which are often the result of innovative technological advancements. While studying for his undergraduate degree, he “discovered that I could marry my passion for biotechnology and the law, and that’s what brought me to Syracuse to focus on IP law.”

“A true gentleman”

Gerling’s reason for giving back to his alma mater—and specifically the Innovation Law Center—primarily came from wanting to settle back in Central New York, after living away from the area after graduation. In addition to his local roots, Gerling’s experience learning technology law under the late Professor Ted Hagelin makes Gerling an important asset for any student wanting a career path in this growing area of law.

While at the College of Law, Gerling says that he got to know Professor Hagelin through classes and by editing the Syracuse Journal of Science and Technology Law, and he marveled at not only Hagelin’s brilliant mind but also his character (“a true gentleman,” says Gerling).

“Professor Hagelin started the Technology Law Commercialization Program, the precursor to ILC, and he just left an indelible impression on me,” says Gerling. “I learned from him about navigating through legal issues, and even more about life. I have used the principles I learned while at the College of Law throughout my career.”

After a year or so back in Central New York, Gerling says he met ILC Director M. Jack Rudnick through local business circles. “After meeting Jack a couple of times, I thought to myself he was very much like Ted, a sharp legal mind and just a true gentleman,” says Gerling. “I then learned that he was running Professor Hagelin’s program. I discussed the ILC with Jack and ways that I could get involved, and here we are.”

“Really neat technologies”

When asked about his favorite part of joining the ILC team, Gerling says that his colleagues at the ILC are all accomplished, and it is just a joy to work with them. But he says his favorite part hands-down is working with the students. “Their intelligence and eagerness to learn is kinetic. It is just a different vibe and energy from working with—or against—other attorneys,” observes Gerling. “I look forward to class each week, and I enjoy and appreciate their perspectives on life and society. That is inspirational because it challenges me to be a more rounded educator and person.”

Gerling says the companies that he and his students have worked on recently include technologies ranging from protecting energy grids, to biosensor masks, to unmanned aerial systems operations, “so the students have been exposed to a wide spectrum of really neat technologies.”

As far as adjustments due to COVID-19, Gerling’s team has had to navigate the challenges associated with a hybrid learning environment, but this format worked well in Gerling’s view. That success in this trying time, he attests, is a testament to not only to College and University leadership but also to the students.

Gerling’s advice to law students interested in innovation law is to give Law 815—the Innovation Law Practicum—a try. Primarily an applied learning course, the six-credit practicum is offered consecutively in the fall and spring. Interested students can learn more about the course at this webpage.