Commercial property lessees who want to beg off their existing lease have an alternative that can result in minimizing their financial loss: sub-leasing. It’s an alternative that creates a win-win situation for both the lessee and the sublessee.
“The hidden opportunity for the tenant is to get out of an existing lease with a minimum loss,” says Sam L. Hocker, Senior Vice President of the Office Services Group in the Dallas Office of Grubb & Ellis Co. “The hidden opportunity for the landlord is a possible chance to make a more competitive transaction for a new tenant. And the hidden opportunity for the new sublessee is obtaining space at a discount price.”
Smart Business talked with Hocker about the ins and outs of subleasing in the Dallas area.
What are some of the market conditions that have led to the increase in sublease inventory?
Available commercial subleasing space began to trend upward in 2005, when the inventory was about 3.5 million square feet. By the end of the fourth quarter, 2007, about 4.9 million square feet were available.
It’s hard to pinpoint one single reason. Not all availability is because of negative business conditions. Some space has become available because companies outgrow their space. Mergers and acquisitions often end up in either abandonment or consolidation of space. And some companies like financial companies caught up in last year’s credit crisis simply downsize.
The economy which is apparently slowing down is another reason for more subleasing space becoming available.
Where do opportunities lie for tenants?
We used to negotiate over who was going to get the profit on any sublease that occurred, but it’s hardly a profitable venture anymore. I haven’t seen a profit made on a sublease in 25 years.
So the point to subleasing is more to minimize a loss within a reasonable period of time. If you need to sublease some of the space you’re currently leasing, you probably have to sublease it for much less than what you’re paying to lease it. But losing 25 percent of your property investment is better than losing 100 percent.
If the term is less than five years, then the discount is significant because of the inherent expense associated with a move. If the remaining term is less than three years, the space is often unmarketable, so your chances of recovery are not very good. It’s like an icicle. The longer it takes to sublease a space, the less you have to offer.
Where do opportunities lie for owners/landlords?
If the existing tenant hasn’t been successful subleasing, it may be willing to buy out the lease for 50 to 75 percent of its remaining obligation. That transaction could result in a substantial amount of ready cash for the landlord.
Subsequently, the landlord could give a possible new tenant an extended term. Discount shoppers don’t mind moving around at the end of subleases; that’s one of their operational efficiencies, if they get the properties at cheap enough prices.
So the new deal would lower the landlord’s cash burden on the front end, and any other landlord would have to reach into his own pocket for enough money to compete for the new tenant. The landlord ultimately receives money contributed from the departing tenant plus an extended term on the new tenant’s lease.
How does the situation become win-winwin for all parties involved in a deal?
As I said, the opportunity for a landlord is to be more competitive to secure a new tenant. His creditworthy tenant is willing to buy out the existing lease so the landlord can then make a new transaction. Usually, the new lease is for a term that extends beyond that of the original lease. Another advantage is that the landlord has enough ready cash to be highly competitive for new tenants. If another landlord without sublease space is competing for the business, he may not have the ready cash to build out his available space.
Meanwhile, with a buyout or by sub-leasing, the existing tenant gets out of its rent obligation for substantially less than what it would normally owe the landlord.
And the tenant that’s coming into the property would get a discount price, a favorable build-out and the extended term that it wouldn’t get in a normal lease or sublease.
SAM L. HOCKER, CCIM, SIOR, is Senior Vice President of the Office Services Group in the Dallas Office of Grubb & Ellis Co. Reach him at (972) 450-3322 or Sam.Hocker@grubb-ellis.com.
On his first day of work, Aug. 1, 2000, Jeff Morris was given the keys to a company that included 300 employees, one refinery and nothing else. The new enterprise didn’t even have a name.
“We started this company,” Morris says. “We didn’t have a name. We don’t have cards. We don’t have letterhead. We don’t have a payroll system. We have nothing. It’s me and 100 good people (at the corporate office), and we have payroll to make in two weeks.”
Morris had been head of a division that energy company FINA wanted to sell. ALON Israel Oil Co. purchased the division in 2000, creating ALON USA Energy Inc.
Morris was hired by the new company as the president and CEO, and he began to assemble his executive team before the purchase was complete.
“I always had a little bit of an entrepreneurial bent in me, and I thought that was an intriguing idea,” he says.
Morris and his new colleagues had two weeks to cut the first paychecks for the company’s 300 workers. He had 90 days to vacate the FINA office space, meaning he had to find new office space, sign a contract and build it out to the specifications he’d need for his coming staff.
“We went and found an office space in Dallas, built it out, installed a whole new computer system and moved 100 people in 90 days,” Morris says. “And we built and started up a complete new back office in a year. Over the first year, we created a company from fundamentally nothing.”
Morris accomplished all of this by creating a plan and sticking to it. He made a list of things that needed to be done, assigned tasks to each person, gave them a budget and set them loose to do the task at hand. He didn’t have meetings and discuss strategy or ask for daily updates; he simply let them go to work, trusting that they would make good decisions, and he knew that they would come back to him if they encountered problems or needed him to reallocate their resources. If they needed more staff, money or time, he worked with them to smooth it out.
“It taught me at that time the real professionalism and quality of the people with which I worked,” Morris says. “Any one of those tasks would be a challenge for any organization to do effectively. Finding a new office and moving and setting up a new e-mail computer system and moving in 90 days, nobody does that. Nobody builds a whole receivables, payables, back-office accounting system in a year. But the people here did that. It was a great experience but not an experience I want to repeat.”
Those early days set the path for a high-growth approach that is still very much in the style the company operates today.
“I’m a big believer in a disciplined business plan approach,” Morris says. “We have today a business plan that we set for the coming year. We spend a lot of time developing it. It has specific objectives inside of it with deadlines. It has operating budgets and capital budgets. It’s all part of the plan. We all develop it together.”
Here’s how he’s conquered the biggest growth challenges to take ALON USA to new levels of success.
Morris says a CEO’s job is to allocate resources. “You have a certain amount of resources,” Morris says. “You have a certain amount of people. You have a certain amount of money. You have a certain amount of time. What you have to choose and prioritize is how to use those resources. You always have more to do than you have resources to do them.”
Great CEOs know how to delegate resources, especially people, and empower their staff to make decisions. They trust their staff but keep an open door to offer assistance if need be.
That’s been Morris’ job since he built ALON USA from the ground up starting in 2000, and the company reported $3.2 billion in revenue in 2006.
He says there are two keys to getting a high level of performance from a team. The first is hiring great people. The second is trusting them.
“You have to say, ‘Go do the payroll system,’ and you can’t be asking every hour on the hour, ‘How are you doing?’” Morris says. “It’s not a management-by-objectives system. It’s not something where you set objectives, and you have weekly staff meetings to see how people are doing, and you update and have interventions to make sure you stay on course. We didn’t have time for weekly staff meetings. We are a group of doers. We hire doers; we don’t hire watchers. I don’t have anybody around here whose job is to make sure that something happens or that XYZ person is doing their job or following up.
“We have doers. If you are the HR person, you do the HR. If you are the IT person, you do the IT. If you are the top mechanic, you fix the pumps, and we aren’t going to have someone stand over your shoulder and make sure you do it appropriately. That’s really helped our cost structure, but it’s also created a culture of doers. You can trust them if they perform, and they do.”
So what happens if someone doesn’t do their job? It happens, Morris says, but that is a situation that usually doesn’t require his intervention.
“What would happen is that everybody depended on everybody else to such an extent that no one could fail in their assignment because if they failed, everyone failed,” Morris says. “If a person was not carrying their load, very quickly that person would become very uncomfortable if they were not contributing and would likely resign and move on.”
Morris says the company’s swift action keeps it growing. ALON USA approached its need for capital in much the same fashion as its start-up: Company leaders determined a course of action and executed quickly. In 2005, Morris took the company public through an initial public offering of stock, mostly to help the company obtain the capital it needed for growth.
“From the time that we called investment bankers and said, ‘We are ready to start this process,’ to the day we priced the shares was 91 days,” Morris says. “No one does it in 91 days. It was an amazing pace.”
To accomplish this, Morris put together a team of six people and tasked them with focusing most of their energy on the initial public offering. That team included himself, plus the company’s general counsel, the controller, the head of mergers and acquisitions, the head of the supply group, and the chief financial officer. Morris says this kept the rest of the company from becoming distracted by the IPO and losing focus from the things that it was doing well.
“The last thing you need during the process of going public is to have some event or issue occur,” Morris says. “We didn’t want to dilute that focus.”
Morris and his colleagues set up a series of deadlines for tasks that needed to be accomplished to hit those goals, and much like he approached the company’s start-up, he doled out the tasks among the team. And they didn’t waste much time with more meetings.
“Because of the pace we [were] working at, we didn’t have time for spreadsheets and follow-ups and weekly status meetings and things of that sort,” Morris says. “We would know that the S-1 needed to be filed on Friday. Well, the general counsel knew his work had to be done on Friday. He would get it done. He didn’t worry about our controller because he knew our controller would have her information ready by Friday for sure because he could rely upon her and vice versa.”
Quick pace is important when doing an initial public offering because the market changes fast.
“You never know what the market is going to do,” Morris says. “The pricing was right; the environment was right. This is a very volatile business, and you never know what might occur. There have been many, many, many IPOs that have failed or were not priced well because the business environment varied substantially from the time they started until the time they finished. When you can do it, you do it.”
Going public allowed ALON USA to continue to grow through acquisitions and buyouts. Morris particularly likes to buy companies that are what he calls “good steel,” meaning built well, but undermanaged. Poor management is easier and cheaper to fix than the physical structure of a facility.
“When we buy something, we spend dollars, money equity, and we spend sweat equity,” Morris says. “The highest leverage is sweat equity. If we buy something that’s good steel and well-managed, then our sweat equity opportunity is less. It’s easier, but we don’t create as much shareholder value. When we do our best is when we buy good steel that is underman-aged.”
Morris recognizes that the reason ALON USA has been successful is because of his staff. He believes just simply recognizing people for their hard work and saying thank you regularly, goes a long way.
Morris spends some time once a quarter having lunch with the staff of the company, and every month, the company executives choose one event or accomplishment to celebrate as a theme for the luncheon.
After the company went public, for example, Morris recognized the members of the team who put the deal together.
“We had them stand up, and we had a little slide show, and we recognized them,” Morris says.
He also makes sure to individually thank people who are doing good work on a daily, casual basis.
“For high-performing individuals who hold themselves to a high standard, a simple thank you means a lot,” Morris says.
It’s all part of maintaining a culture made of people who “do” instead of observe, and it all starts with Morris.
“Companies have personalities,” he says. “Personalities of companies will be significantly affected by the leadership. That’s a very, very heavy and deep responsibility. It’s a fact that, in reality, the company will never perform any better than I do.”
Morris wants to continue to lead the company forward and has created plans that will continue to help the company grow.
“I’m very optimistic today, but we are at one of those critical transition points for the company,” Morris says. “Our objective is to double the size of the company, and then to double again after that. But to do that, when you grow like that, you have to sustain your essence. It is very difficult to do so, whenever you are growing at a very fast pace. This is where many companies fail. They grow, but somewhere along the way, they lose their essence. That’s my challenge today.”
HOW TO REACH: ALON USA Energy Inc., www.alonusa.com, (972) 367-3600
When Mike Hislop’s famous guitarist friend wanted to celebrate one night, Hislop offered to make him a reservation at the restaurant where he was working. The guitarist said that was fine as long as Hislop got him seated in a certain server’s section. He said that the server was teaching him about cabernets, and he didn’t want to upset the man by sitting in another section. The multimillionaire’s loyalty to a restaurant server made an impression on Hislop, and today, as CEO of Corner Bakery Cafe a $200 million fast-casual restaurant chain he seeks to earn that same kind of loyalty.
Smart Business spoke with Hislop about how he finds the right personalities for the job and how to get employees to embrace change.
Hire great people. The way you grow is people. Have the right people. We have the economic model. We have the concept. Now we can be choosy about who we’re going to bring in, in the future.
When you end up losing managers, you usually end up losing employees.
So how do we hire the right managers? When you’re going through the interview and looking at the kind of experience that they’ve had, do they enjoy working with people? It’s real easy to get at the core of an individual in an interview.
You ask them certain questions. Do they have fun? When you’re asking them to describe their personality and style, you can find out real quick. Are they going to come in dressed and ready to go? Are they smiling? They go through three of those interviews. They start with the assistant manager, move to the manager and then get to the general manager. By then you have a real good idea, and you can tell them a lot about what the expectations are.
Empower managers to hire good people. We have the best manuals and training programs, but you really need to have that personality, starting with management to make sure they’re going to hire the right people. Once you get a person who can smile and really does honestly care about people, it’s real easy to train them.
When you get the right personality it really meshes together. You will see the sales grow.
We’re training our managers exactly what to look for not just questionnaires. We’re looking for personalities. When they come in, do they naturally smile? Do they naturally have that caring attitude that we have? We talk to them about building relationships how are you going to be able to build those relationships?
If someone is coming back every day, how do they like their coffee? Trying to remember their names. People love to be recognized when they come in. When they build the relationships, they’re going to come back more often, and that’s what drives the economic model and allows everyone to make money and grow together within the culture.
Embrace change. It’s making sure you have a culture around and that senior management realizes that, ‘Hey, part of our culture is we’re going to evolve this brand and make sure that we’re going to be on top of research to make that happen every year.’
Go out and talk to your people. If you have a culture that’s been doing it the same way forever, and maybe it’s been good and maybe it’s been OK, you’ve got to go out and just meet with them. Start with your senior management and get buy-in that, ‘Hey, this is how we’ve been doing it, and I think these are some changes.’
You have to be a good listener. As a leader, go out and ask the tough questions, and then really listen to the answers. Some of the people, you’d think they would be afraid to talk to the CEO they’re not afraid to talk to you at all.
Encourage new ideas. Create a culture where people aren’t afraid to speak up respectively and then leave that meeting and all be on the same page. Create an atmosphere where people aren’t afraid to ask questions.
Say, ‘That is a great question, and I don’t know why we do it that way. Maybe we can do it a little bit better.’ There’s nothing worse than being ‘yes’-ed in a middle of a meeting. Some leaders might like that, but I definitely do not. I don’t think you can be successful unless you can create an environment where people aren’t afraid to speak up and let you know some of their ideas.
Be ready to try a few things. You can’t say, ‘This is it.’ You have to go out there and test out some new ideas. You want your leaders, whether it’s general managers or corporate support, to be thinking of ways to make this brand better and knowing if they get a good idea that it’ll be something that we go out and try.
When I was at Il Fornaio [which acquired Corner Bakery in 2005], we had a couple of guys who thought the bar needed some change. The older people said no, but we ended up putting in a whole new bar, and the bar’s doing about 40 percent sales versus about 25. We go back to that guy and said, ‘You nailed it on this one. It was a brilliant idea.’
HOW TO REACH: Corner Bakery Cafe, (800) 309-4642 or www.cornerbakerycafe.com
If your business receives checks on a daily basis from customers and clients, you know what a nightmare it can be to coordinate trips to the bank every day. Sometimes the designated employee who takes the checks to the branch may not be available or cannot make the run until the next day. Meanwhile, cash flow is impeded unnecessarily.
“Remote deposits can make this cumbersome system manageable,” says Nicki Davis, treasury management sales associate for Plano-based ViewPoint Bank. “Remote deposits sending checks electronically to deposit at the bank is like opening a branch of the bank inside your business.”
Smart Business learned from Davis how remote deposits work and when they may be a good option for your business.
Could you explain the process of remote deposits?
Instead of going to a bank branch, an employee loads the checks into a check scanning device, which can be purchased or leased. The check is scanned using software from a desktop, and the image is transmitted electronically over the Internet to the bank. The bank gets the file, inspects it for quality and duplication and then sorts the checks for clearing.
Once the deposit confirmation comes in from the bank, the business can either store or dispose of the paper checks.
Typically, software that is installed on the scanner will tell the bank which account it will deposit the funds into; the scanner will also stamp the check ‘void’ or ‘scanned’ to eliminate the possibility of the checks being scanned more than once.
What kind of businesses can benefit from scanning checks electronically?
Remote deposits are just for check deposits, so any business that accepts checks for payments doctors offices, dentists, retail operations, etc. can benefit. One caveat: travelers’ checks and money orders with their multiple colors and designs can sometimes get distorted in the scanning process. You need to check with your bank to make sure that the scanner supplied with the service is sensitive enough to scan the details of these items.
What are the costs associated with using this service?
The biggest investment is the scanner, which can cost anywhere from $1,000 to $2,000. Each bank has different fees, but monthly maintenance can cost anywhere from $100 to $150. There can also be a per-item fee for each check scanned.
Any disadvantages to using remote deposits?
The upfront costs of purchasing a scanner although you can also lease a scanner often cause businesses to pause. There is also the inconvenience of shredding or storing the scanned checks. When depositing checks manually at the bank, the institution is responsible for discarding the checks. Some businesses are not comfortable with this responsibility.
If a business doesn’t want to make the investment in a scanner to make remote deposits or if the number of daily checks doesn’t justify the service, is there an alternative to physically going to the bank to make deposits?
Yes. You might want to ask your bank if it has a courier service that will pick up checks on a designated day and time to deliver checks to the bank.
However, if you are finding that you’re holding on to large-dollar checks too long because of the inconvenience of traveling to a bank branch, and it is impacting cash flow, you should look into the cost benefit of switching to remote deposits. <<
Many companies’ trademarks are their face to the world. The process of keeping a trademark secure starts at the very inception of the concept.
“A smart CEO starts the process with development, evaluation and screening of potential trademarks,” says Cami Dawson Boyd, who is the head of the Trademark and Copyright Practice of Munck Butrus Carter, P.C. “The process continues with maintenance and enforcement of trademarks and service marks — both in the United States and around the world.”
What is the difference between a trademark, a service mark and a trade name?
A trademark is any word, name, symbol or combination of those things used in commerce to identify and distinguish the goods of one manufacturer or seller from the goods manufactured or sold by another and to indicate the source of those goods.
A service mark is any word, name, symbol or combination used in commerce to identify and distinguish the services of one provider from the services provided by another and to indicate the source of those services.
A trade name is the name by which a business is commercially known.
How does a business know its trademark is unique and enforceable?
A business owner should take the time and invest the resources necessary to evaluate and screen a trademark before the mark is adopted and used in commerce. This process is known as trademark clearance. There are different types of trademark clearance screening available. The scope and depth of the trademark clearance that may be necessary in a particular situation will vary from case to case. At a minimum, a prudent business owner needs to ensure that the business can both adopt and use the trademark in commerce and that it has a reasonable possibility of securing a registration for the mark. Trademark clearance screening can answer those questions.
A good mark clearly distinguishes the goods or services of the owner from those of another. There is a sliding scale of trademark distinctiveness and marks can generally be categorized into the following categories: fanciful or arbitrary [the strongest], suggestive, merely descriptive or generic [the weakest].
How do you obtain a trademark?
The first step is to retain counsel to conduct a clearance investigation to confirm that the trademark is available for adoption, use and registration. Then, the business must act to secure the registration of the mark in the United States and elsewhere in the world.
In the United States, trademark registration is handled by the United States Patent and Trademark Office (USPTO). An application can be made by mail or electronically. The process generally takes slightly longer than a year.
Clearing and registering a trademark typically costs between $1,000 and $3,500 in the United States, depending on the scope of the application to register and whether a trademark clearance investigation is performed. The USPTO charges a filing fee of $325 per class [of goods/services] in which an application for registration is filed. Costs for securing and registering a trademark elsewhere in the world vary widely. In all cases, the costs for securing protection of a mark prior to or at the time that use of the mark commences is a prudent allocation of resources. The costs of securing trademark rights at the outset are far less than the costs a business will incur in developing and promoting a mark that conflicts with another. In the United States, a trademark registration is currently good for 10 years and can then be renewed as needed. Other countries have similar registration terms.
What else must a company do to maintain its trademark?
The prudent business owner adopts standards within the company for the manner in which the trademark is used and aggressively polices the marketplace to ensure the mark is not infringed or diluted.
Is incorporation and/or assumed name filing enough to protect our trademark?
Absolutely not. This is one of the most common mistakes made by new business owners. The fact that a corporate name is available through the relevant secretary of state’s office or that your company has made an assumed name filing does not mean that you have established a trademark, that you are entitled to use your business name as a trademark or that you have done what you need to do to protect your trademark. To establish and maintain strong trademark rights, a company should adopt and use a strong trademark that is not identical or confusingly similar to the marks of any other company, secure U.S. and foreign trademark registration for the mark, and actively police and protect its trademark.
CAMI DAWSON BOYD is a shareholder and head of the Trademark and Copyright Practice at the Dallas Law Firm of Munck Butrus Carter, P.C. Reach her via e-mail at email@example.com.
When Greg Boyd’s ERGEnterprise Resource Group merged with MIS Group in 2006, he became president of the rapidly growing combined group, going from 55 employees to 163. With that kind of growth, it’s easy to become overwhelmed and frustrated, but Boyd has successfully managed the growth at the $17 million software and information technology services provider.
Smart Business spoke with Boyd about how he uses communication to eliminate surprises and how he gets buyin at a company in flux.
Q: How do you successfully lead changes in an organization?
Change really revolves around people, process and technology. It’s setting the right expectations. Set the communication in place so everybody is on the same page to understand that. As long as they know what’s coming without surprises, I think you can manage change a lot better. It’s the surprises that people don’t like.
Some things happen that are unexpected, and obviously, you can’t control everything, but try to set those expectations as far ahead of time as you can, and prepare people that these things are happening. In our case, we did four acquisitions last year, so it’s a matter of communicating with the organization, ‘Look, these things are happening.
These things are going to happen in the future. It’s part of who we are as a company. It’s part of our growth strategy that there will be acquisitions, so that means there will be new people coming and there will be processes that are changing as a result of that.’
There’s always some chaos involved with change, so setting that expectation upfront is critical so that people aren’t just blind-sided by what’s going on. If you weren’t sharing those things ahead of time, then all of a sudden, out of the blue, you come in and say, ‘We just picked up 100 more people, and this is what’s going to happen to your job tomorrow.’ That catches people more off guard than being able to say, ‘This is coming; this is what’s happening.’ You can kind of be prepared for it, attitudewise, to deal with it.
Q: You mentioned that processes change, as well. How do you deal with those changes?
Each year, it’s like you’re a new company. That can frustrate people that aren’t expecting that, but when you’re an organization of 10 versus an organization of 50 versus an organization of 200, there’s just different systems and different processes that have to be in place to accommodate scaling an organization to the next level.
Sometimes, those things are almost harder because people are like, ‘This is how I do my job; this is how the system works,’ but when you have system changes going on continually to support the efforts and methodologies of the companies, those are hard things. All these changes are happening, and it’s affecting everyone, and trying to keep the airplane flying with the wings on fire. You’re trying to change the wings but keep the plane in the air so it doesn’t crash.
Q: How do you get buy-in for those changes and make sure people really understand them?
Communicate calmly and often. Communication and expectations are two big things to be focused on. It’s just setting the expectations so they know what’s coming, and if you’re going to miss deadlines or dates, make sure you communicate those so people at least have an idea what’s going on.
One of the things we started working on is, what are the top three things we should be working on? That starts at the top and works all the way through the organization, so everyone can stay focused on those things. Sometimes those priorities change depending on the direction we’re going. Sometimes crises do come up, and you have to change those priorities in the process.
There has to be communication all the way down to the employee level on a regular basis. Coaching is a big part of that and having metrics for everybody and objectives so they know what to expect How am I being measured on my performance, and how am I performing? And being able to talk about those things on a regular basis.
That’s the time when you’re having those discussions and you’re talking about the vision, and how does what I’m doing as an employee really impact the vision overall and this is what my contribution is to the organization. Once they make that tie-in, it goes from just being ‘in one ear, out the other’ to, ‘I’m really making a difference in the company.’
Ultimately, it gets down to communicating those things and having that collaboration and dialogue all the way down to the team level so people know their expectations and, ‘Have I met those expectations, what are my future expectations going to be, and how am I making a difference in the company?’
HOW TO REACH: MIS Group, www.misgroupusa.com (800) 454-0993
While the law is tied to tradition, it is an ever-changing body of rules and knowledge. Recently, changes were made in the United States Patent and Trademark Office’s (PTO) rules that may be detrimental.
Smart Business asked William A. Munck, chairman of the Intellectual Property section at the Dallas law firm of Munck Butrus Carter, P.C., to update us on PTO’s latest changes and why they may hurt patent applicants.
Why does it seem as though the U.S. PTO is amending its rules all the time?
The PTO continually proposes initiatives that the PTO believes will make its operations more efficient, will ensure that the patent application process promotes innovation and will improve the quality of issued patents.
As with any government entity, sometimes those changes are more effective than other times. One of the most controversial proposed rule changes occurred in August 2007 when the PTO published a ‘final rule notice’ in the Federal Register. This final rule revises the PTO’s rules of practice in patent applications relating to continuing applications and requests for continued examination practices and for the examination of claims in patent applications. Substantially all patent practitioners believe that the proposed final rules, if implemented, will both severely and negatively alter traditional patent prosecution practice.
How can the application of the new rules result in so much damage to the patent applicant?
Under the new rules, the restrictions on patent claim drafting and on continuation practice are both retroactive and fairly capricious. Implementing the final rules will, as a practical matter, cause patent applicants to strongly consider abandoning pending patent claims or, worse, entire patent applications.
The proposed rules include limitations that effectively limit the patent applicant to two continuation patent applications and one request for continued examination per patent family, whereas the current rules have no such limitations. Another fairly oppressive modification limits the patent applicant to five independent claims and 25 total patent claims per patent family, whereas applicants previously have had no such limitations.
If these rules are implemented ultimately, and in substantial part, retroactively, patent applicants will be forced to surrender the existing claim scope without first having adequate opportunity or consideration before the PTO. This is a violation of the patent applicant’s rights.
By way of example, David Kappos, chief patent counsel for IBM, went on record to state that in order for IBM to comply with the retroactive requirements of new rules more than 30,000 issued patents and patent applications would have to be reviewed. Kappos stated that, in addition to the time, IBM would incur over $10 million in legal fees and internal expenses — exclusive of any loss of intellectual property rights.
Several parties filed suit against the Commissioner of Patents, is that correct?
Yes. The proposed new rules were opposed in separate lawsuits filed by GlaxoSmithKline (Glaxo) and earlier by Triantafyllos Tafas, a sole inventor, and supported by amicus curiae briefs from the American Intellectual Property Lawyers Association; Elan Pharmaceutical Corp.; HEXAS LLC, The Roskamp Institute, and Tikvah Therapeutics, Inc.; the pharmaceutical manufacturer’s trade organization; the Biotechnology Industry Organization; as well as a letter from Senator Charles Schumer of New York. Each of these parties uniformly opposed the proposed new rules.
On Nov. 1, 2007, Judge James Cacheris of the Eastern District of Virginia issued what is perhaps the most important ruling in U.S. patent law this year. Judge Cacheris granted Glaxo’s motion for a temporary restraining order and preliminary injunction against the Commissioner of Patents to prevent the PTO from implementing its new continuation and claims rules.
The court found preliminarily that the PTO was not granted substantive rule-making authority under the law. The court voiced ‘serious concerns’ that the new rules are contrary to the Patent Act, citing authority holding that the PTO did not have the power to restrict an applicant from filing a continuation application.
At the end of the day, do you believe that the new rules will be implemented?
The proposed new rules exceed the Commissioner’s and the PTO’s statutory authority, and the rules are contrary to the Patent Act. We feel that retroactive application of the new rules to pending applications is prohibited under the law to retroactive application of agency regulations. Fundamentally, irreparable harm will be in the uncertainty that the proposed new rules create and in the negative impact on investment that would follow from such uncertainty.
WILLIAM A. MUNCK is chairman of the Intellectual Property section at Munck Butrus Carter, P.C. where he concentrates his practice on domestic and foreign intellectual property procurement, exploitation, enforcement and counseling. He emphasizes long-range corporate strategies for private financing, public offerings, mergers, acquisitions and establishing market leadership. Reach him at firstname.lastname@example.org.
Even with 330,000 customers, Christopher Faulkner doesn’t rely on an assistant to answer his e-mails he still answers them himself. With the rapid growth of C I Host revenue grew from nearly $78 million in 2005 to $92.5 million in 2006 the founder, chairman, president and CEO of C I Host focuses on changing his business to keep up with his customers’ needs.
Smart Business spoke with Faulkner about how to keep the roller coaster that is your business from nose-diving straight to the bottom of the hill.
Q: How do you know when it’s time to make changes at a growing company?
Look for any flattened sales or any growth percentage that slows down or plateaus. It’s the roller-coaster effect you get to the top of the hill and the car starts going down; that’s too late to start change. That’s already going straight to the bottom. Be able to forecast while you’re going up the hill, before you get to the top, what is that time frame looking like, and what else can we do.
Figure out in your plan where that hill continues to increase and where you think it’s going to plateau, so always be looking for complementary services that you can bring to your portfolio that make sense for your particular segment of customer.
Drill down into your base and find out what else they need and what else drives them. Most customers, if you have a provider already selling you goods or services, nine times out of 10, they would love to buy more from you because they already have an ongoing relationship.
Q: How do you embrace change?
Realize that what you did last year or five years ago isn’t necessarily what you’re going to do today or tomorrow. Every good business model has to change multiple times along the way if you’re going to be in business any length of time.
Some have a great idea and launch a product, and it takes people by storm for the first five years, but at some point that’s going to age and come to end of life. I would be hard-pressed to find any industry where a company has been successful for five to 10 years and hasn’t changed their model at all.
Q: How do you connect with customers?
My customers are the ones paying my salary and keeping the doors open. If we didn’t have them, we wouldn’t be in business, so they’re it. They’re the ones I have to bow down to.
Every week, we have two things going on. One is my CEO chat. I log into a chat room and customers, press people, prospects can chat with me. The other is every day; every employee is required to make 10 calls to customers. Every day 2,500 [customers] get a call out of the blue to say, ‘Are you happy? We’re just calling to say thanks, and if you have feedback, we’d like to hear it,’ and they’re floored. That is the holy grail of the business.
As CEOs, there shouldn’t be an ivory tower behind a closed door. If customers call, take their call and speak with them. It’s the most frustrating thing a person can do to have an issue with your company and call, and you say, ‘Take a message’ and not return their call or e-mail. It’s a slap in the face.
That’s the biggest factor that a customer will leave a company over, if the executives are too busy to take care of them. It leaves you with such a bad taste in your mouth, and for months, that person is going to be mad and tell 100 people how bad you are versus telling one or two how great you are.
Q: How do you best serve customers?
Everything you do in the business, every idea that you’ve got and every decision that you make you have to apply that thought pattern to, ‘Would the customer want this, and is this in the best interest of the customer?’ A lot of times you find yourself saying no.
A lot of times CEOs say, ‘Well, whatever,’ or, Too bad I’ve got to cut costs,’ and you lose sight of what the customer wants. The customer either gets what he wants, or he goes down the road to someone else. You serve the customer, or someone else will.
For example, should I buy the $200,000 router or the $50,000 router that’s going to cause outages? Most would say the $50,000, but is the cheaper one in the best interest for the customer? No. That’s the litmus test that I use.
It’s a very easy application but not the easy decision to make. You might see short-term profit because you cut costs, but, at the end of the day, if service starts sliding and customers start leaving, that profit quickly turns into a loss. It’s big-picture mentality.
HOW TO REACH: C I Host, (817) 868-9931 or www.cihost.com
A potential client asked Stan Levenson to make his company look so good that it would have a waiting list of people who wanted to work at it. But when Levenson talked to current and former employees, he found the business ran like a sweatshop. The potential client told Levenson that it was only his job to make the man look good, but instead of simply following through on the man’s demands, Levenson told that potential client to clean up the company internally before Levenson could promote it externally. Levenson is CEO of Levenson & Brinker Public Relations, one of three marketing services companies comprising The Levenson Group of Cos., which he co-founded with his wife, Barbara, and it is his dedication to doing things the right way that has helped the couple grow the group to $100 million in billings last year. Smart Business spoke with Levenson about following your instincts and the importance of a positive attitude.
Trust your instincts when hiring. Your instincts are important. When you meet someone, you either are turned off and they don’t have to get into their philosophy it’s an emotionalism that you feel good about somebody or you keep them at a distance because you’re not sure of where they’re coming from.
It’s important to listen and hear their attitudes and reflect certain character, personality not unlike a shrink who does a diagnosis before giving a remedy or a doctor conducting an examination before prescribing a medication.
Focus on benefits, not attributes. When a new employee interviews, rather than telling him how fortunate he’ll be to join us because we’re this, this and this, I’d much rather share with him what some of our folks have accomplished for themselves professionally and personally by being in our family.
The same with products that our clients might have. No longer do we focus on the attributes of the product as it relates to the ingredients. We talk about the benefits that those products and services will instill in the users and consumers.
You see that so often in cosmetics and soap you don’t care about the ingredients in a bar of soap, but you hear how good it will make you feel and the lovely lifestyle you will have and how confidence-building it will be, so we like to focus on benefits.
Hire prepared people. I love to hear someone with a real positive attitude, enthusiastic and also one that does their homework.
To give you an example, for individuals looking for their first entry-level position, if one comes in and says, ‘I want this job so bad. I’ve heard of you all, and I’m wanting to liberate myself from my folks, have my own apartment, have my own car,’ I understand where they’re coming from because we all relate to that, but that person is one scenario.
Another person comes in and says, ‘Mr. Levenson, you’re the kind of company where I think I can really contribute to your success. I read where you worked on this account and how you did this and how come you didn’t do this when their competitor is doing this? I think I can attract new business and strengthen your services.’
Again, benefits selling. I look for that attitude, enthusiasm and preparation. It’s easy to get enthusiastic and just throw out ideas, but today, you have to be very well-informed.
If someone hasn’t done their homework about who we are and who we serve, then it’s incomplete. Every company has its criteria. Some do testing, and that’s all important, but overall attitude and enthusiasm and a caring attitude is so important.
See other points of view. There is more than one way to view a situation. The more informed you are, the sharper your focus becomes. We all wear different lenses in our glasses, and one person may perceive a situation to be one thing and another person another thing.
It’s not so much trusting your folks, but it’s having the confidence in them that they command. They may make a decision that you don’t agree with, but if you can understand their rationale for making it, you can respect it unless that rationale is flawed.
Create balance. When you’re consumed in your work, you can be more productive and successful with balance than just keep grinding, so you need to call time out and on a daily basis have some interest in being with family and not getting into your work.
It really too depends on your work and the type of work you do. We do a lot of retail work for clients, like Zale Corp., so if we’re out on a weekend going to a movie at the mall, and if we see a jewelry store, we’ll always check it out, even if it’s a weekend and leisure.
Your passion for work can be healthy, but certainly, wherever possible, it should be managed.
Understand your clients. It’s important to understand the needs and interests of your clients and what they want to accomplish.
We do a lot of role playing. We anticipate needs and interests of our clients. We dramatize and demonstrate leadership, so if they say, ‘Here’s what we want you to do,’ we want to go way beyond faithfully executing their requests. We want to say, ‘What about this, or let’s think about this.’
Say thanks. The interest in nurturing your folks and being a coach as well as a cheerleader is something we believe in.
Recognition and incentives are an important element to a successful culture. I also think encouragement and extending appreciation for good work we always appreciate someone saying, ‘Nice job,’ or sending a note and saying, ‘We’re really proud of you for what you’ve accomplished.’
We like to do that, and it gives us great pride to applaud the success of our people because it’s the company’s success, but it’s also a stimulant for their own growth and fulfillment.
HOW TO REACH: The Levenson Group of Cos., (214) 932-6000 or www.levensonandhill.com
Electronic communications and computers are supposed to make everyone’s job easier. However, there is great tension in the workplace between firms that want to protect themselves by limiting employee use of the Internet and e-mail and workers’ expectation of privacy.
Smart Business asked Audrey E. Mross of the Dallas law firm of Munck Butrus Carter, P.C. where the lines should be drawn.
What aspects of employee computer usage are most troubling to employers?
The most common worry is ‘cyberslackers’ whose workplace productivity has an inverse relationship to the amount of time they spend visiting Web sites and sending e-mails. Go to www.bored.com for an eye-opening list of ways to waste time on a computer, including virtual Bubble Wrap to pop. Less frequent but more serious offenses include transfer of trade secrets, violation of copyrights, trading in child porn and other illegal activities.
Can a firm prohibit all personal use of its computers?
In most cases, no. Selective enforcement of a ‘no nonbusiness use’ policy will set the company up for an unfair labor practice (ULP) charge under the National Labor Relations Act when the employer attempts to stop protected activity. For most companies, it’s not realistic to prohibit all personal use of e-mail.
What kinds of limits do make sense?
A good policy should expressly incorporate the company’s equal employment opportunity and harassment policies to make clear that images, voice and text that are intimidating, offensive, profane or hostile based upon gender, race, color, national origin, religion, disability, age or any other protected status are off limits. The employer’s systems should not be used to conduct a personal business enterprise, to spam others, to threaten violence or to express views that could be seen as the view of the company.
The systems should be used in ways that are consistent with security measures, which may include prohibiting employees’ access to their personal ISPs (e.g., Yahoo, AOL) from employer-provided systems, where such access would thwart firewalls and similar protective measures. Excessive personal use that monopolizes bandwidth or affects employee productivity is another act that could result in corrective action, up to and including discharge from employment.
Can the company be held responsible for its employees’ bad acts?
Yes. The doctrine of respondeat superior (‘let the master answer’) is frequently used to hold employers responsible for the mis-deeds of employees while in the course and scope of their employment. Negligence theories are used in cases where the misconduct took place outside of the employees’ normal duties.
For example, where an employer had knowledge that a worker was receiving and sending nude and seminude images of his 10-year-old stepdaughter on his work-place computer in order to gain access to child porn sites, the court found negligence and stated that the company had a duty to further investigate and take prompt and effective action to stop the employee by terminating his employment, reporting him to law enforcement or both (Doe v. XYC Corp.). The court remanded on the issue of whether the child could prove harm from the transmitted photos, but the employer withdrew its petition and the parties settled.
Is there any privacy protection for employees using a company system?
This is an area where unrealistic expectations collide. Employers often think there is no privacy, since the equipment used is theirs. Employees often think that there is privacy, especially where they have a secret password to access the system.
A few years ago, the Texas Supreme Court found an employee did have a reasonable expectation of privacy where the employer provided lockers for storing personal items but allowed the employees to bring their own locks (and not provide the combination or a spare key to the employer). The analogy to company-provided computers and employee-provided passwords is not much of a stretch. Employers must advise employees, in writing, that there is no reasonable expectation of privacy in use of the employers’ systems and employers should have written consent. This is normally accomplished by having an electronic communications policy in the employee handbook and securing a signed acknowledgment from each employee. As additional proof of consent (which is an absolute defense to a claim of invasion of privacy), some employers add a ‘no privacy’ reminder to the log-on screen on computers so the consent refreshes on a daily basis. Employers should also ask for and keep records of employee passwords to undercut privacy arguments and for practical reasons, such as accessing needed information when the employee is absent or has quit.
AUDREY E. MROSS is a shareholder at Munck Butrus Carter, P.C. leading the labor and employment group. She combines prior experience as a human resources professional with the current practice of law to provide preventive measures and practical solutions to employers. She authors a monthly e-newsletter, Legal Briefs for HR, which is available on request at email@example.com.