The financial crisis of 2008 led to the “meltdown” that brought on “the Great Recession.” Faced with immediate economic failure, large businesses were bailed out by the government, with the justification that they were Too Big To Fail (TBTF) — Because these businesses were so large and integrated into the rest of the economy, their demise was predicted to have a catastrophic effect.
This policy approach is a potential threat to free market capitalism, and therefore one that businesses must make sure they do not count on in the future.
Smart Business spoke with Walter Simmons, Ph.D., professor of economics and chair of the Department of Economics and Finance at the Boler School of Business at John Carroll University about the dangers of TBTF.
Why is TBTF a bad practice for society?
Government should not be in the business of selecting which businesses succeed; the market does a much more efficient job and avoids an outcome in which profits are privatized and loses are shared by taxpayers.
The inherent instability of the free market is the very catalyst of its survival and sustainability. Business cycles are an innate feature of the market and provide the dynamism and motivation for individuals and firms to innovate and invent. Those pursuing their own self-interest behave in a socially responsible manner in competitive markets, and thus outcomes are determined by competition and not by government selection. The free market encourages resources to be used in the most efficient manner, creating a situation in which no one may be made better off without anyone being made worse off.
Why is TBTF a bad policy for big businesses?
The expectation that a firm should not be allowed to fail because it is very large and embedded in society creates a moral hazard and weakens market discipline. If companies and their affiliates believe that the government will bail them out from losses, they have less incentive to monitor risk because they are protected from the negative consequences. Thus, businesses that benefit from TBTF policies may be tempted to exploit their advantage and engage in high-risk behavior because they are able to leverage the risk against the governmental protection.
Why has free market capitalism succeeded while socialism has failed?
Big, inefficient governments; bureaucracies that maintained a bloated system built on pseudo-patriotism and subsidized welfare; and the limitations and subversion of rights led to the disintegration of socialism. Of course, the free market is not perfect and is subject to situations of market failure, but it is generally believed to be the best economic game we have in town. Even communist countries such as China realized and have adopted it on their path to economic growth and prosperity.
Why is TBTF a threat to free market capitalism?
Economic stability is not an enduring characteristic of the free market. And the life of a company in a capitalist economy is one of struggle. Any competitive advantage is relatively short lived. Companies must adapt or die. Barnes and Noble and Netflix have succeeded while Borders and Blockbuster have failed.
The difficulty with a ‘bailouts’ approach is that one can only learn whether a firm’s failure would tend to be disruptive if it is allowed to fail. Once a firm has been rescued, there is no way of knowing how disruptive its failure would have been.
What does the future hold?
The government had no explicit policy to rescue TBTF entities and it only became an issue for policy makers after the financial crisis. Systemic risk mitigation polices, such as the Dodd-Frank Act, limited the size and scope of activities of financial institutions that were already in place. They recognized the desire to avoid potential or moral hazard issues. This implies that ultimately it is the responsibility of companies to manage the inherent risk within the free enterprise system. Companies should have a strategy to benchmark their ability to take risk. In general, for the free market to allocate resources efficiently, companies must be financially rewarded for making good use of resources and, although they may not like it, punished when they do not. •
Walter Simmons, Ph.D., is a professor of economics and chair of the Department of Economics and Finance at the Boler School of Business at John Carroll University. Reach him at (216) 397-4659 or firstname.lastname@example.org.
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There are very few written policies that are required by law to be provided to employees, but there are certain policies companies can adopt to protect themselves and reduce their liability exposures. This can either be done though a company handbook or by distributing individual policies to employees.
“Courts have said that by advising employees of certain information, the burden shifts from the employer proving something didn’t happen to the employee proving something did. That can be a significant difference in an employer’s ability to defend itself both in terms of success and cost,” says Jeffrey Dinkin, a shareholder at Stradling Yocca Carlson & Rauth.
Smart Business spoke with Dinkin about key policies that should be included in employee handbooks and what other options exist.
What are some required policies suitable for an employee handbook?
All employers are required to have sexual harassment policies that clearly state to whom employees should report complaints. More than one person should be designated, but if that’s not possible, there are outside resources to which you could direct them.
For companies with five or more employees, if the company has leave policies, policies regarding pregnancy disability leave must be included. As a note, under recently enacted legislation there must be continued employer health insurance contributions during the period of pregnancy disability leave for up to four months. The California Family Rights Act also allows 12 weeks of baby bonding leave, with continued employer health insurance contributions now also being required.
Employers with 50 or more employees are covered by the Family and Medical Leave Act, which must be honored when you learn an employee is eligible for family medical leave, and requires a related employer policy.
Also, a new law dictates that employees paid commissions need to be provided a clearly written commission agreement that describes how commission is calculated, earned and paid. It needs to be signed by, and a copy given to, the employee.
What else should an employer include in an employee handbook?
Employers should have a policy that requires employees to accurately record all time worked (the start and stop times), as well as the start and stop time for meal periods. The policy should clearly prohibit off-the-clock work. It is important to also address meals and rest periods provided by the company.
Technology and communications policies are increasingly necessary. It’s important that an employer indicate that the materials stored and communicated on devices owned by the employer belong to the employer, and it has the right to review and monitor those communications at its discretion.
There’s a lot of attention on bring-your-own-device workplaces. Employers need to communicate that work-related mobile activity is not private and information can be retrieved from a personal device including when the employee exits the company.
Is an employee handbook required?
Companies don’t need to have a handbook, but having one allows them to set forth some essential policies and employee rights and obligations that should be observed. Handbooks enable everyone to have a reference to their rights and obligations.
What will suffice as notice in place of a handbook?
You can provide individual policies. Employers often provide new hires with the policy regarding sexual harassment, or there can be a separate meal and rest period policy. There is other information that must be provided to employees through permanent postings at the workplace or handouts.
Who should assemble the handbook?
An employment attorney is a good resource. He or she will typically have a model handbook that can provide a starting point that’s then customized to suit the employer’s needs. The chamber of commerce or an HR consultant have similar resources.
However, a big part of employers preparing a handbook is for them to become aware of their obligations and rights so they might better order their employment policies to protect themselves. It’s a good education tool and a chance for an employer to order its thoughts on how it wants to treat its workforce. ●
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There’s a lot of opportunity for investors in Cleveland to fund up-and-coming technology companies.
“There’s a growing sense of entrepreneurship and innovation,” says Steve Haynes, managing partner at Glengary LLC. “It has become the norm for colleges, universities, hospitals and other institutions to think about monetizing the technology developed in their facilities. They’re getting research dollars and they’re trying to convert science into something commercial. In addition to institutional technology transfer, incubators, accelerators, etc., are being formed to drive economic development.”
Patrick R. Roche, a partner at Fay Sharpe LLP, adds that there are many companies in the area looking to assist the right companies with capitalization.
“It’s very competitive — there are a lot of deals to be looked at,” he says.
While the market is fertile with both investors and entrepreneurs, Roche and Haynes say there are many things entrepreneurs fail to account for when seeking funding, including the viability and strength of their intellectual property (IP).
Smart Business spoke with Roche and Haynes about what investors look for in entrepreneurs’ IP before a deal can be done.
What does an investor look for in the IP of an entrepreneur seeking funding?
From an investor’s perspective, when an entrepreneur approaches with an idea the investor has to ask, ‘Will this idea have value in the marketplace?’ If yes, then one of the next questions is whether it can be protected, from an IP perspective. Otherwise, releasing it into the public creates a marketplace for anyone who can reproduce it. Then it becomes a marketing game, and early-stage companies don’t have the money to compete with well-capitalized competitors.
From an IP attorney’s perspective, basic due diligence dictates that a business owner or entrepreneur should present to the attorney what he or she thinks is the IP, so it can be analyzed.
It’s important to know when a patent application was filed and whether foreign rights have been preserved. The IP attorney, working on behalf of the investor, will examine in detail what the U.S. Patent and Trademark Office has done with the application and conduct his or her own research to try and predict what the patent office might do with it, called a patentability study. If it’s determined the patent application has little chance of being granted, that will likely kill the deal.
Patent attorneys also are looking at whether the invention can be designed around. Can noninfringing copycat products be created that could hurt the market?
What commonly turns an investor away from a fund applicant?
At an early stage, many of the potential obstacles for investors relate to whether or not there’s IP protection, both legal and otherwise. The strength of that protection is determined by identifying the difference between the applicant’s invention and prior art — the new invention has to be a nonobvious improvement over the state of the art.
Another part of the due diligence analysis is to determine if there’s an obstruction to the right to practice or use the invention freely in the market. It’s dangerous if it’s necessary to get a license from another party to sell a product in order to avoid infringing.
How can entrepreneurs best prepare before pursuing funders?
Entrepreneurs should check their IP ahead of time. Patent applications need to be filed, research should have been conducted, and their novelty and any likely obstructions identified and clearly understood. Investors need to see a thoughtful canvassing of the principal issues that an investor needs cleared. If the efforts of the entrepreneur are consistent with the IP attorney’s findings, and the entrepreneur is honest and truthful with the potential investor, the momentum carries through to a deal.
There’s not much worse than when an entrepreneur says they have a patent and it’s just a provisional application; the person hasn’t done any research and is just hoping everything works out.
It’s understood that every nickel is precious when a company is in the early stages, but it’s important that a company conducts thorough research on its IP before seeking funding. •
Insights Legal Affairs is brought to you by Fay Sharpe LLP
A flight to quality during the recession saw businesses move to more modern warehouse and distribution facilities. In some cases, companies relinquished functionally obsolete buildings that have the potential to be modernized.
Bob Brehmer, CCIM, SIOR, principal at NAI Daus, says when businesses can’t find what they want in an existing facility, they’ll build. However, there’s a substantial cost difference between modernization and new construction.
“The lack of amenities in their current facilities or lack of suitable options on the market must be sufficient enough to warrant new construction,” he says.
Smart Business spoke with Brehmer about how businesses can take full advantage of real estate trends affecting warehouses and distribution centers.
What’s driving the changes with warehouses and distribution centers?
Facilities are becoming more efficient, leveraging speed enhancements and space optimization to reduce costs. Warehouses and distribution centers are maintaining their existing footprint but adding volume by building up — incorporating higher ceilings — and implementing cross docking, myriad material handling systems that reduce storage times and improve shipping efficiencies, and improved racking systems.
How is this affecting the physical building?
Businesses are implementing racking, conveying systems and automated case picking using robots, which has necessitated changes in the physical construct of warehouses and distribution centers. These optimizations are driving out the uncertainty of human costs to a more fixed-cost, predictable model.
Some warehouses also are incorporating high-efficiency lighting in the form of LEDs, which burn longer, saving money. These cost more upfront, but they’re being mass-produced as demand rises, so prices are dropping. Federal energy policies have incentivized companies to utilize these energy-saving bulbs through rebates.
In the same vein, better-insulated walls and improved dock seals are saving companies money on their energy bills.
It might cost more to construct or retrofit a hyper-efficient warehouse or distribution center, but operating and occupancy cost savings are tangible. If a company is handling millions of stock keeping units per year, it can result in major long-term savings.
What’s key to know in terms of location?
Businesses are building or buying warehouses and distribution centers nearer their customer base, primarily, as well as within a favorable distance to their modalities of transportation.
Transportation costs are a significant determinant. Existing facilities, particularly in the Midwest, are ideally situated in industrial parks and in areas that feature wide boulevards, adequate land, close proximity to a highway, near or in a foreign trade zone, and where labor is available.
While there is an adequate supply of land in Northeast Ohio, there is a limited supply of land sufficient to site larger distribution centers, such as those required by e-commerce firms.
How can companies find properties that align with these trends?
Consider seeking a qualified real estate expert who understands these issues and the inventory in the market. Find someone who specializes in warehousing and distribution centers with knowledge of your industry. Then engage a qualified facilities planner or engineer to analyze your current facilities to diagnose their shortfalls and provide options.
This team will help you identify land or properties, the costs associated with modernizing, redevelopment or new construction, and potential tax and financing incentives. It takes a special set of skills to navigate all the possibilities because each involves many moving parts.
However, if you decide to move forward with new construction, consider your exit strategy. You need to know the facility you build is suitable to sell to a broad spectrum. An overspecialized facility naturally limits the market for potential buyers.
You don’t have a plan unless you have a backup plan. Try to envision the building’s use, and your needs, far into the future, so you don’t get stuck with an unsuitable property. ●
Insights Real Estate is brought to you by NAI Daus
Rules added through the Jumpstart Our Business Startups Act eliminate the prohibition on using advertising and general solicitation to court investors to buy securities in certain unregistered offerings. While this has created possibilities, it has also imposed conditions.
The Securities and Exchange Commission (SEC) requires companies that generally solicit investors to take “reasonable steps” to verify that all purchasers in the offering are accredited. But there’s no bright line test to verify accreditation, says Michael Lawhead, an attorney at Stradling Yocca Carlson & Rauth. “Reasonable steps” are objective determinations made by the company in the context of each offering and each buyer. The SEC has, however, provided vague, but important, guidelines.
Smart Business spoke with Lawhead about vetting investors.
How should companies conduct due diligence on potential private investors?
For an individual to be accredited, he or she must have an individual net worth, or joint net worth with spouse, of $1 million annually, excluding the value of the investor’s primary residence. The investor’s individual income must exceed $200,000 in each of the past two years, or $300,000 in the past two years with a spouse, and have a reasonable expectation of reaching that in the coming years. One way to verify income is to examine the two most recent years of IRS reported income, which can be obtained from the individual. Certification from the individual about future income is acceptable.
To verify net worth, look at bank statements, brokerage statements or similar documents that would show net worth for the past three months. Companies should also acquire written representation from the individual that discloses his or her liabilities.
A company could also obtain written confirmation from a registered broker/dealer or other service provider who can verify the purchaser is accredited.
A certification of accredited investor status can be obtained from an individual who invested in the company’s 506(b) offerings prior to this new rule being enacted.
What constitutes reasonable steps?
The SEC has laid out three factors companies should explore to qualify investors. One factor is the nature of the investor. Public information can be used to qualify investment companies, such as venture capital funds. Qualifying individual investors can be done by attaching a high minimum investment amount to the offering. A company could conclude that the buyer is accredited if he or she can pay it.
Another factor is the type of information available. Public filings and information from reliable third parties can be used.
The last factor is the nature of the offering. Investors gathered by third parties, such as placement agents, are likely to be accredited since the third party has screened them.
What’s a ‘bad actor’?
Essentially, a company will not be able to rely on Rule 506 if certain covered persons purchasing securities have been subject to disqualifying events.
Covered persons include the company making the offering, its predecessors, affiliates, shareholders invested at 20 percent or greater, directors and officers, and any person who has or will receive compensation in connection with the offering.
The list of disqualifying events includes criminal convictions, court injunctions and restraining orders in connection with securities offerings.
Companies are looking to law firms to develop questionnaires to investigate individuals. If using a placement agent, verify the agency has done due diligence.
What happens if there’s an oversight in the verification process?
A company won’t lose the benefit of the 506 safe harbor as long as it can demonstrate that it attempted a thorough investigation of potential investors. Not following the steps results in the loss of the safe harbor, but not the ability to conduct a private offering.
General solicitation is not as easy as placing ads and waiting for money to roll in. The burden of complying with these rules is the responsibility of the company making the offering. An improperly conducted private offering could, among other things, give investors a right of rescission, which means they could take their money back. ●
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
An infringement on your trademark by another entity through its domain name can affect the strength of your brand. In some instances, a company may benefit from stopping an infringer and seeking damages.
“Ultimately, it all comes down to dollars and cents, and whether a business wants to truly invest and strengthen its brand to prevent others from capitalizing on its goodwill,” says Mark J. Masterson, an associate at Fay Sharpe LLP.
Smart Business spoke with Masterson about the intersection of trademarks and URLs, and what protections are available to help prevent costly trademark infringements.
How might a domain name or URL infringe on a trademark?
A trademark owner can enforce trademark rights against a domain name that is likely to create source confusion with the trademark owner’s brand or if a domain name dilutes that trademark. However, in some instances, a domain name registrant would not be prevented from exercising its First Amendment rights by registering a domain name that is similar to the trademark. As such, third parties have a right of fair use as well as the right to parody and satirize others’ trademarks. Regardless, domain name registration does not provide a right to violate trademark law or to engage in cybersquatting.
The U.S. Patent and Trademark office (USPTO) and domain registrars operate separately from one another. Generally, registering a domain name is done on a first-come, first-served basis, with the idea that the registrant has a good faith and a legitimate interest to use the name. On the other hand, the USPTO must examine a trademark application for conformity with federal law and trademark rules prior to formally granting a registration.
What’s the recourse against cybersquatters?
The Anti-cybersquatting Consumer Protection Act provides a private right of action for trademark owners to bring suit in federal court against the holder of a confusingly similar domain name. Additionally, trademark owners may initiate arbitration procedures under the authority of the Internet Corporation of Assigned Names and Numbers (ICANN) to transfer control of a confusingly similar domain name to the trademark owner without having to go to court.
A trademark owner can avoid federal court by filing a grievance through ICANN, following the Uniform Domain Name Dispute Resolution Policy’s procedure for filing complaints. The arbitration process can take as little as three months and is less costly than litigation. However, filing suit in federal court is usually recommended when market share is affected by the infringing use.
How has Internet commerce affected common-law trademark rights?
A URL or domain name registration does not in itself constitute ‘use’ for purposes of acquiring trademark priority. Common law trademark rights are geographic in nature and have caused a bit of judicial confusion with the broad geographic reach of the Internet.
Although some common law trademark rights may exist due to the creation of a website, the strength of these rights is generally dependent upon market penetration, the nature of the business, and the actual geographic reach of the business’s products and services. However, even in situations that appear to be a strong case for granting broad protections to a common law trademark, the courts have raised various questions and developed fact-based tests that can be expensive to prove and tend to favor a registered trademark holder.
Therefore, it is in the best interest of a common law trademark user to register his or her trademark with the USPTO to take advantage of the strongest commercial protection afforded by law.
How can companies ensure their marks are protected in the market and online?
Fundamentally, companies should select a name or logo for their products and services by keeping such variables as domain name and trademark registration in mind. The key is selecting a mark that can become a federally registered trademark with the USPTO and is marketable to a desired consumer. The trademark prosecution process can take up to a year or more, but it is the best way to ensure that trademark rights are protected, online or otherwise.
When selecting a mark, the company should conduct an informal trademark search online or hire a trademark attorney to conduct an in-depth trademark search. Usually, in-depth trademark searches cover USPTO files, state trademark listings and domain name registries, as well as online and other common law uses.
Selecting a domain name should become a priority only after selecting a trademark that can be validly enforceable. Once granted, it is the responsibility of the trademark owner to actively police his or her mark in commerce to prevent unauthorized uses that would otherwise reduce its strength and value. ●
Insights Legal Affairs is brought to you by Fay Sharpe LLP
While California has adopted the Uniform Trade Secrets Act, there is no state or federal registration process for trade secrets like there is for safeguarding other intellectual property. However, companies can and should protect themselves by identifying, valuing and guarding their trade secrets. This allows them to seek remedies under the act if a closely held secret is misappropriated.
Smart Business spoke with Tom Speiss, shareholder and intellectual property attorney at Stradling Yocca Carlson & Rauth, about establishing a trade secret team and conducting an intellectual property audit to determine and protect valuable proprietary information.
What protection does the act offer?
Trade secrets garner special protection based on that state’s adaptation of the Uniform Trade Secrets Act. In California, to qualify as a trade secret, a secret has to derive independent economic value, whether actual or potential; must not be generally known to the public or to other persons who can obtain economic value from its disclosure or use; and must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Companies should not file patent or copyright applications for subject matter it considers to be secret because, for patents, the subject matter of the patent application is made public 18 months after filing and, for copyrights, the subject matter is immediately made public. The law offers remedies if subject matter that qualifies as a trade secret is misappropriated.
Who is responsible if a trade secret is misappropriated?
The individual and, potentially, his or her new employer are both potentially liable for trade secret misappropriation. A company has a responsibility to ensure it’s not using another entity’s trade secrets, and can be liable for doing so whether it actually knows it has taken a trade secret or not — because the standard is lower: it is ‘reasonably should have known’ rather than ‘actually knew.’ Companies should conduct entrance interviews to determine the nature of the person they’re hiring. For instance, if the new hire brings with him or her a recipe or construction blueprints from a prior employer, it’s up to the hiring company to ask if that’s a trade secret.
Similarly, an exit interview can protect a company when an employee leaves. An exiting employee can be asked to sign an affidavit saying he or she is not taking anything. That puts the former employee on the hook whether they sign or refuse to sign, because they have either attested to their honesty, or, by refusing to sign, appear dishonest, raising suspicion.
In a recent case, an individual took a cookie recipe that was subject to reasonable efforts of protection to a rival company, which replicated it. In another instance, a group took construction blueprints it developed while working for a former employer. In both instances, suits were filed against the individuals as well as against the companies that were the recipients of the trade secrets.
Who should be part of a company’s trade secret team and what should they do?
While implementation varies by company and circumstance, the team should comprise a key person from each department within the company. That team member should pull together things they consider important to that department. Trade secrets aren’t always obvious, so you need to mine for them. The key questions in the search are: Why are we successful? What information, if in the hands of a competitor, would harm the business?
Next, determine the economic value of each item identified and rank them. The higher the value the more important it is.
Then develop a protection scheme for each level of value. For those items that have the highest economic value, set up protections adequate for their importance.
Lastly, once the list is created, review and update it on a regular basis.
How can a company know whether its trade secrets are trade secrets within its industry?
If you think your company has developed something unique, research your industry. You’ll have a good sense of what could be a trade secret based on your knowledge of your industry, and your evaluation of what makes your company a market leader.
Then, seek to protect your ‘special sauce’ — that is, your trade secrets. ●
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
It is a little known fact that there’s a strong connection between the success of a deal and the team assembled to get it done.
“Management needs to be very diligent about selecting members of its internal and external deal team; it’s critical that the teams have the right fit, experience and industry expertise,” says Goody Agahi, a shareholder at Stradling Yocca Carlson & Rauth.
Smart Business spoke with Agahi about what it takes to assemble a strong mergers and acquisitions (M&A) deal team.
What is a deal team and how is it composed?
A deal team generally consists of key employees at the company, M&A attorneys, accountants and, in certain circumstances, other outside advisers such as investment bankers. The first step in assembling a deal team is to identify the key employees at the company who are intimately familiar with the company’s operations and financial matters. The next step is for the company to identify, interview and ultimately select its M&A attorney and other outside advisers.
In selecting an M&A attorney, the company should be focused on an attorney’s M&A experience, industry expertise, reputation and fit. An experienced M&A attorney will be able to assist the company with identifying other service providers. For example, if the company is considering an auction process to effect a liquidity event, an M&A attorney can refer the company to multiple investment bankers that, based on the attorney’s experience, he or she believes has the right experience and will be a good fit for the company. Investment bankers can assist the company by performing an analysis of the M&A landscape and identifying prospective buyers. The auction process provides the company an opportunity to see how the market values the company and, depending on the level of interest by prospective buyers, gives the company leverage in negotiating definitive transaction documents. An auction process, however, may not always be appropriate.
What qualifications are important to have in each team member?
Extensive deal experience is critical when considering whether or not to hire a particular service provider. An experienced M&A attorney will be able to advise the company on substantive issues, potential exposure and acceptable compromises. An experienced investment banker can help prospective buyers appreciate the investment opportunity, and an experienced accountant or CFO can give a prospective buyer comfort with respect to the company’s accounting methods, policies and procedures, as well as quality of earnings.
Unfortunately, too often we see companies using legal counsel that is ill-equipped to handle an M&A transaction. This is normally the case when management doesn’t fully appreciate the value the right M&A lawyer can bring and, conversely, how costly it can be to use a lawyer with little or no M&A experience.
When should a company begin assembling the deal team?
Once management begins considering strategic alternatives, the company should start the process of assembling a deal team. Even if a sale transaction is years away, it is prudent for a company to engage advisers to position the company for a liquidity event. For example, a company’s M&A lawyer can perform a review of the company’s organizational documents, equity incentive plans, compensation arrangements and third-party contracts in order to identify and address any potential issues. By addressing such issues in advance of a liquidity event, the company can potentially avoid unnecessary delays, valuation adjustments and special indemnities in connection with negotiating a liquidity event. The better organized a company is, the more desirable the company will be to prospective buyers.
Why is a strong deal team important to an acquisition?
An experienced deal team will work closely with one another to showcase the investment opportunity, and identify and address potential diligence issues in advance of a transaction. Seasoned professionals have been through the process; they understand the issues and offer solutions that can bridge gaps between the company’s and a prospective buyer’s positions. As a result, the right deal team can maximize the purchase price, minimize the back-end exposure and facilitate a quick closing. ●
Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth
Even well-established companies can inadvertently trigger litigation through a violation of the law made through their Web practices, which include how they employ their website and social media strategies.
“Companies don’t get into trouble just while constructing their initial website. The troubles evolve as companies, both big and small, and their products evolve,” says Bob Jefferis, an associate at Fay Sharpe LLP.
Smart Business spoke with Jefferis about the legal issues companies can encounter when employing their Web strategy.
What common legal problems do companies face when building a website?
Companies get into trouble when they start copying images, articles or videos from the Web and putting them on their sites for information or to enhance the appearance of the website. Shortly after, the company gets a cease and desist notice from the copyright holder requiring it to remove the infringing property and pay money. Even though a website may say something downloaded can be used free of charge, that’s not always the case.
As companies evolve from a primarily informational website to one that facilitates product ordering or other customer-oriented features, they can run into problems with patents. If you integrate mechanisms for conducting transactions without securing the proper rights, you may get a notice that you’ve infringed someone’s patent. Then, you can’t just take the infringing mechanism down or stop using it. Though that may mitigate damages, it doesn’t make the repercussions go away. The statue of limitations on patent infringement damages in the U.S. goes back six years.
What issues can arise when marketing a business in several countries?
Every country has its own system of protection and use. If, to use a simplified example, you get a patent or trademark in the U.S., it doesn’t carry legal weight in China. You need to protect your intellectual property (IP) by obtaining rights in each country that you do business.
The other concern is how you use the personal information of your foreign customers. In some foreign regions you can only use customer information for the purpose under which you obtained it. You can’t just take client information, and use it or sell it for other purposes.
Further, it’s important to be cautious because, in some cases, if someone in another country uses your website, you could be subject to its laws. Some countries look for a contact or transaction, as evidenced by shipping, which can be electronic or physical. A customer paying to download an item from your site is a transaction, which may be enough to become subjected to that country’s laws.
What’s important to keep in mind when working with Web designers?
It’s amazing how many companies hire a Web designer on a verbal contract. Then it’s not clear who holds title to the designed product, which introduces issues of work product for hire. If the designer is an independent contractor, you may find you only have a license to use the materials as delivered and can’t sell what’s been created. The designer may have rights to modifications that a company makes to the designed product.
Let’s say, you start using what the designer produced on your website and find out the designer didn’t have clear title. You can get pulled into court. That’s why companies should at least put an indemnification in the contract to have recourse against the designer who put them into the position to get sued.
How might using social media channels for commercial purposes create trouble?
Facebook’s rights statement says that when sharing content and information you give Facebook a non-exclusive, transferable, sub-licensable, royalty-free worldwide license to any IP content you post — you upload it and Facebook can do whatever it wants with it. They’re also careful to protect their own rights; you cannot use their copyrights, trademarks or similar marks except under their brand usage guidelines or prior written permission. Further, if anyone brings a claim against Facebook related to your actions, by agreeing to the terms and conditions you’ve indemnified Facebook. It’s not the bargain many companies expect.
Companies are learning that just because you can, doesn’t mean you should. Not to say you shouldn’t utilize social media, but be careful. It’s not a passive pipeline to customers.
Bob Jefferis is an associate at Fay Sharpe LLP. Reach him at (216) 363-9000, ext. 116, or email@example.com.
Insights Legal Affairs is brought to you by Fay Sharpe, LLP
Many enthusiastic and ambitious employees have worked for years aiming for the prized corner office. Well, with the increasing popularity of the ultra-hip, open-office floor plan, the corner office is fading from existence.
Not only do open floor plans eliminate the corner office, in many cases they diminish productivity and engagement. The Scandinavian Journal of Work Environment and Health found that companies with open-office setups reported 62 percent more employee sick days on average than closed-office layouts. But still, the craze continues.
When I embark on office planning with my clients, seven out of 10 originally envision an open floor plan with sleek modern cubicles. That’s consistent with the International Management Facility Association’s latest study that says 70 percent of American employees work in an open-office floor plan.
Why so popular? A few reasons:
Hip Factor: Facebook’s CEO Mark Zuckerberg recently announced that headquarters would be moving into the largest open-office floor plan in the world, complete with moveable furniture to enhance collaboration. When huge corporations make moves like this, it sends a message to other business owners and managers that it’s the best option.
Not having to plan for multiple office spaces means architects aren’t restricted and can more easily create a dramatic and hip space. As a result, open floor plans typically end up looking sleeker, which perpetuates their hipness.
Collaboration: Some studies show the best ideas arise when employees are away from their desks. Other studies point to collaboration inspiring more creativity in the workplace. Office planners have heard the buzz and feel openness stimulates idea exchange and therefore better work.
Cost: Many business owners are under the impression cubicles cost less than walls.
When the economy tanked in 2008, the open floor plan’s popularity increase.
Although open floor plans can work well in some companies — it’s all on a case-by-case basis — I usually aim to redirect my clients when they want to jump on the open floor plan train. Here’s why:
Expense: When negotiating office space, we aim to get our clients’ build-out included in the lease cost — meaning the landlord or seller will pay for office walls. This type of arrangement does not typically include furniture — cubicles/partitions are considered furniture. Yes, you’ll have to purchase desks, but they’re typically more affordable than cubicles and can be re-used if you relocate.
Open plans aren’t as hip as they seem: The reality is, most employees who work in open floor plan offices are unhappy, that’s according to a Journal of Environment and Behavior study — there’s nothing hip about unhappy employees. Some experts say this could be caused because members without their own office spaces may feel transient, replaceable and undervalued — all contributors to poor company culture and lower retention rates.
Productivity: Researchers at Hong Kong Polytechnic learned that noises like ringing phones, overheard conversations and machines were the biggest inhibitors of employee productivity. These sounds are all more rampant and amplified in an open-office floor plan.
Further, Andy Bailey, head entrepreneurial coach at Petra Coach, says it takes anywhere from eight to 20 minutes to regain focus after an interruption. Without walls and doors, interruptions from coworkers are commonplace. Bailey suggests enabling focus and productivity by giving team members the option to close their doors and hang up a do-not-disturb sign.
If you’re relocating or redesigning your office space, think twice before you join Zuckerberg with his mega open-floor plan. What’s right for Zuckerberg may not be right for you. You definitely need a space like a conference room where team members can brainstorm and collaborate, but in most cases, to increase efficiency, productivity and employee morale, preserve the corner office and all the offices in between.
Stephen F. Graw joined Sperry Van Ness/Nashville in 2012 as senior adviser. Prior to his present role, Graw gained six years of commercial real estate experience at Grubb & Ellis where he focused primarily on office and industrial tenant representation. For more information, visit sperryvannessnashville.com.