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Launch your company like a rock band!

Posted by Chad O'Connor  April 19, 2013 11:00 AM

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[Editor's Note: Governor Deval Patrick and Mayor Thomas Menino have created The One Fund for programs assisting victims of the Boston Marathon attacks. Learn more and donate here.]

What lessons can start-ups and early stage companies learn from an aging rock band?

On March 12, 2013, a federal district court judge in Massachusetts declined to dismiss a lawsuit filed by J. Geils against his former bandmates and management company.

The primary dispute centers on which party has the commercial rights to use the trademarks “J. Geils” and “The J. Geils Band.” Is it J. Geils himself? Or is it the other bandmates and management company?

Some background: J. Geils started playing with Peter Wolf and others in 1968. They created T&A Research & Development Corp. in 1973 to distribute royalties and revenues equally amongst the band members. They did not sign any comprehensive agreement, however, until 14 years (and many albums) later in 1982. According to the judge’s decision, their 1982 agreement addressed some issues pertaining to the authorization by J. Geils to allow the use of “J. Geils” in connection with the band. Although the band members tried to spell out their arrangement, the agreement lacked clarity and created some ambiguity that “could be read, among other ways, as a license to use the mark, rather than a transfer of the ownership of the mark.”

Despite waiting 14 years before signing a comprehensive agreement, J. Geils claims that he had no chance to review the agreement and that he was “coerced” into signing it by Peter Wolf and the others in 1982. Peter Wolf quit the band in 1983, and J. Geils and the others stopped playing together in 1984.

The musicians re-united in 1999 and have played various dates both together and apart during the past few years, which was reflective of their rocky relationship. It seems that another reunion show in 2010 was the final straw for the band, as J. Geils has not been invited to play with “The J. Geils Band” since.

What are some lessons?

Clarify the rights to the IP. The ongoing litigation ultimately will determine whether J. Geils completely assigned the use of “J. Geils Band” to the band or whether it was essentially a license to use during the term of the agreement. This dispute underscores the need for the founders/early stakeholders of a company to cross the “t’s” and dot the “i’s” as early as possible in that company’s lifecycle. It is essential for start-ups/early stage companies to clarify the ownership rights of all of the IP that the company is using or creates. If you ever dream of raising capital from outside investors or establishing a line of credit at a bank, they will want to know that your company’s IP is adequately documented and protected.

Agreement amongst the founders. Yes, the working environment at a start-up can be crazy, but take a breath and a moment to put a comprehensive contract in place that includes the key stakeholders. J. Geils claims that he was rushed and “coerced” into signing their agreement on a particular morning at breakfast…14 years after they started touring and making albums! This is not to dispute that J. Geils actually felt rushed, but this timeline is extreme and mindboggling, and should not be repeated. Of course start-ups/early stage companies are focused on finding customers, improving their beta product, defining their value-proposition, etc. There will always be a more “urgent” priority, but at some point early on, the key stakeholders of a company need to spell out what their arrangement is with each other.

Implement proper processes and controls. One additional claim that J. Geils is making is that, almost since inception and including the time after the band split up in the mid-80’s, T&A Research & Development Corp. never adhered to corporate formalities. As a result, claims J. Geils, T&A Research & Development Corp. has no rights as a separate entity, including as a party to a contract. Many people think that the “piercing of the corporate veil” concept is limited to the law school classroom. Yet, entrepreneurs that have sloppy processes or controls, such as accounting, may risk losing the liability protection afforded by the corporate structure. This is particularly true if company funds are co-mingled with personal funds, even just “temporarily.”

So while it remains unclear as to what prevented them from doing so, if J. Geils and the rest of the band had paid due attention to these issues early on then they likely would have avoided this nasty dispute and have saved themselves an enormous amount of time, energy, and money.

Peter Cahill is co-founder of and an attorney at Cahill Law Group.

This blog is not written or edited by Boston.com or the Boston Globe.
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