How to prepare your company for an initial public offering

Ryan C. Wilkins, Shareholder, Stradling Yocca Carlson & Rauth

Ryan C. Wilkins, Shareholder, Stradling Yocca Carlson & Rauth

With the IPO market heating up, now may be a good time to seriously consider taking your company public. Determining whether your company is a good IPO candidate requires careful thought and professional planning.

“It is important to start planning now because it could take a year or two before your company is ready,” says Ryan C. Wilkins, shareholder in the corporate and securities practice at Stradling Yocca Carlson & Rauth.

Smart Business spoke with Wilkins about the steps companies should take before going public.

What do companies need to consider when deciding whether to go public?

Give careful thought to whether the upside of going public outweighs the downside.  Potential benefits include: better access to the capital markets, the ability to use equity for acquisitions and the cachet associated with being a public company, which can help attract top talent and open doors to new customers or suppliers.

The drawbacks can include: increased scrutiny on your short-term operational results, the public disclosure of sensitive information that may be used by your competitors and the significant ongoing costs associated with being a public company. These costs principally relate to the audit of financial statements, the preparation and filing of reports with the SEC, and compliance with numerous SEC and exchange listing requirements (and extra personnel you may need to hire to manage these requirements).

What comes after the decision to go public?

The first thing you’ll need to do is engage reputable bankers. Retaining the right  team is critical because bankers with an outstanding reputation for leading successful IPOs within your industry can send a strong signal about your company to the market.

Next you’ll want to retain reputable accountants and attorneys. These advisers are also key because of the advice they provide during the offering process, as well as the signals they can send to the market.

What happens after the team is selected?

Once your deal team has been selected, the bankers will set an ‘all hands’ organizational meeting to discuss the proposed deal timeline and allocate responsibilities for key action items.

Next, your advisers will focus on preparing the registration statement, which is the main offering document filed with the SEC. The registration statement provides a detailed discussion of many elements of the company, including its business, management and historical financial information. While recent rule changes under the JOBS Act have made compliance with some of these requirements less burdensome for companies, the preparation of this document is still a major undertaking that will take a period of several months.

The registration statement serves two main purposes. First, it is a marketing document designed to entice investors to make an investment in your company. As a result, the deal team will want to draft the document to position your company in the best possible light. However, it is also a legal document, and misstatements in (or omissions from) the document can result in liability against your company and management team. Because of these competing interests, preparation of the registration statement is a difficult and time-consuming process.

What happens after the registration statement is ready?

Once the registration statement is ready, it is filed with the SEC. It usually takes approximately 30 days for the SEC to review and respond with comments. Depending on the scope of the comments, this comment process can involve multiple iterations over a period of several months.

While awaiting comments from the SEC, it is important to continue to work diligently on completing other elements of the offering. For example, the company and its advisers will need to prepare a stock exchange listing application, adopt corporate governance policies and negotiate an underwriting agreement with the bankers. At the same time, the executive team needs to continue running the business and meeting projections. This will strengthen your case to potential investors — that your company represents a strong investment.

Ryan C. Wilkins is a Shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4115 or [email protected]

Website: Find Ryan Wilkins’ profile at www.sycr.com/Ryan-C-Wilkins.

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How to monetize your trademark cease and desist letters

Tom Speiss, Shareholder, Stradling Yocca Carlson & Rauth

Tom Speiss, Shareholder, Stradling Yocca Carlson & Rauth

Cease and desist letters can be used for more than stopping trademark infringements — they can be invaluable marketing opportunities.

“There are a lot of ways to turn a possible negative into a real business positive,” says Tom Speiss, shareholder and trademark attorney at Stradling Yocca Carlson & Rauth. The letter could be used to initiate  a conversation about a potential acquisition or licensing opportunity.

“You want all CEOs and key decision makers to read your letter and say, ‘This is a company we need to meet,’” says Speiss.

Smart Business spoke with Speiss about how to capitalize on cease and desist letters.
 
What is a trademark cease and desist letter?  

Simply put, if a company owns a trademark and sees another using it in the same space, the letter is intended to get your competitor to ‘cease’ using your mark. Rather than filing suit, which should be a last resort, a well-crafted letter with your position statement and a clear articulation of your rights to the mark may be all you need.

Are certain elements necessary for the letter to hold legal significance?

The best offense is a well-planned defense. First, you must be able to confirm receipt of the letter. If you later file suit, you will have proof that your competitor received the letter, giving you a better opportunity to claim damages, especially if willful infringement can be proven.

Second, the message in the letter needs to be clear. It should state that you have superior rights to the mark, what those specific rights are, and it should include the trademark registration number. Specific is terrific here — there should be no doubt about what you are claiming and how you’d like to remedy the situation.

How can you ensure the letter has the intended effect?

Do your research. Make sure you are well within your rights before asserting a claim. Once the alleged infringer receives the letter they will likely conduct their own investigation about your company, so be prepared.

Then order a trademark search report. The report will give you a more complete picture including: a list of applications and registrations at the U.S. Patent and Trademark Office, a list of abandoned and pending marks, state registered marks, business and domain names, and Web use. You will want to have a solid case for your claims before you draft the letter.

How could it be used as a marketing opportunity?

We all have one chance to make a first impression. This is a terrific opportunity to demonstrate your industry prowess and position your company as a viable suitor or partner. Perhaps you are a prime acquisition target. Or, maybe your strategy includes growth by strategic acquisition. Maybe there’s a licensing deal in your future. Whatever the case may be, if the recipient of your letter sees you as a clean and professional organization, this could be one way to start the conversation toward something much greater.

How would you advise companies considering this strategy?

Think with the end in mind. Before you write the letter, think about your desired outcome and talk about it internally.

You will want to make sure the letter is accurate and viable so you can continue to pursue your desired opportunities in the marketplace. Then, put your best foot forward. Keep in mind, your letter may be read by unintended recipients such as news media or your main customers.

If you write a strident and aggressive letter, your competitor may find a way to use it against you in the marketplace. Don’t let them do that. Make sure you give your recipient a reasonable ‘out’ by not forcing them to mount an aggressive defense out the gate. When done right, you could turn your competitor into an ally.

Tom Speiss is a Shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-­7042 or [email protected]

Website: Find Tom Speiss’ profile at www.sycr.com/thomas-j-speiss-iii.

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How to assemble an employee handbook with essential policies and practices

Jeffery Dinkin, shareholder, Stradling Yocca Carlson & Rauth

Jeffrey Dinkin, shareholder, Stradling Yocca Carlson & Rauth

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 in 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 could 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. ●

Jeffrey Dinkin is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4000 or [email protected]

Website: Find Jeffrey Dinkin’s profile at www.sycr.com/Jeffrey-Dinkin.

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How the CFAA applies to theft, misuse of confidential company information

Travis P. Brennan, litigation attorney, Stradling Yocca Carlson & Rauth

Travis P. Brennan, litigation attorney, Stradling Yocca Carlson & Rauth

The high-profile arrest of computer programmer Aaron Swartz for illegally downloading millions of academic journal articles resulted in federal charges against him for violations of the Computer Fraud and Abuse Act (CFAA), which highlighted its use as a broad tool to combat hacking. However, varied interpretations of the CFAA have left businesses guessing when it comes to deciding how best to pursue employees who have used their access to steal and misuse confidential information.

“Currently, the law can be applied differently depending on your location. A decision in the U.S. Circuit Court of Appeals for the 9th Circuit makes it more difficult to use the law against current employees who have used their access to obtain information for the purpose of misuse. In contrast, courts in other parts of the country have adopted relatively broad readings of the statute, making it a more viable tool in those jurisdictions,” says Travis P. Brennan, a litigation attorney with Stradling Yocca Carlson & Rauth.

Smart Business spoke with Brennan about the CFAA and protecting sensitive information.

What is the CFAA and how is it applied by businesses?

The CFAA is a federal, primarily criminal, statute, though it does provide for civil remedies for private plaintiffs when someone accesses a computer without authorization or exceeds authorized access to obtain information. One of the questions presented in several cases involving the statute is: If an individual is authorized to access a company’s computer network, does that person exceed authorized access by obtaining information to use for unauthorized or competitive purposes? Some courts have said yes, which turns the statute into a tool to help police improper use of company information, in addition to a tool to help protect against outside hacking.

What are the benefits and limitations of this act?

Filing a claim under the CFAA gets the case into federal court, which is more often better equipped to handle complex disputes. Plaintiffs also aren’t required to prove the information accessed rises to the level of a trade secret. However, the remedies under the CFAA are limited. A private plaintiff has to show it suffered a loss of more than $5,000, and in most instances the recoverable loss is limited to the cost of investigating the unauthorized computer access and fixing related data disruption. That’s important to think about when considering if this is a tool that would bring a tangible benefit.

How does United States v. Nosal affect the use of the CFAA?

That case makes it more difficult to use the CFAA against current employees. The 9th Circuit affirmed a narrower interpretation, in April 2012, when it dismissed criminal counts against employees who accessed information through company-issued passwords while still employed. The court reasoned that the phrase ‘exceeds authorized access’ is limited to violations of access, not restrictions on use.

Other counts in the case dealt with access by outsiders using stolen passwords to obtain information. Some of those counts proceeded to trial and resulted in a recent conviction.

What other tools can companies use to protect their sensitive information?

State law governs the protection of trade secrets and other sensitive information. Most states have adopted some form of the Uniform Trade Secrets Act through which companies can get damages and other relief if they can show information taken contained trade secrets.

Ultimately, it behooves companies to limit or segregate access to sensitive information and have employees sign clear, written policies. If the agreements are violated, there are contractual remedies, as long as you can show harm from the breach.

While the CFAA is worth keeping an eye on, particularly in light of divergent court rulings, in instances where companies have information misappropriated, the first place to look for a remedy is through state law, such as those that govern trade secrets or the relationship between employers and employees.

Travis P. Brennan is a litigation attorney at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4271 or [email protected]

Social media: Learn more about Travis P. Brennan.

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How to prepare for the acquisition of your company

Joshua Geffon, shareholder, Stradling Yocca Carlson & Rauth

Joshua Geffon, shareholder, Stradling Yocca Carlson & Rauth

Identifying the intrinsic value of your company is an extraordinarily beneficial exercise, especially when business owners are looking to maximize the sale of their company, says Joshua Geffon, a shareholder at Stradling Yocca Carlson & Rauth.

“The crown jewel of an enterprise may be intellectual property (IP), the management team, key customers or brand recognition, and/or any combination of these ingredients. The key for an entrepreneur is to recognize, exploit and promote these attributes to gain maximum value for the enterprise during the acquisition process,” Geffon says.

Smart Business spoke with Geffon about what business owners should know before engaging in the acquisition process.

What are some mistakes owners make that jeopardize the sale of their companies?

A fairly common mistake is not doing enough to secure the company’s IP. Confidentiality and IP assignment agreements, patent filings and related IP protection should be in place to have clear and strong IP ownership and title.

Broad indemnification by the seller on contracts creates risk that buyers of companies don’t like. Material contracts that allow customers, suppliers, service providers or other partners to easily terminate can significantly undermine a seller’s value proposition.

Also, tax and planning is critical. Overlooking tax-related filings often leads to significant turmoil and financial hardship. Inversely, proactive corporate and personal tax planning for founders and executives also can create real economic benefits.

What’s important to have in order before initiating the acquisition process?

Be sure you are prepared to provide copies of well-organized and complete corporate, capitalization and financial records, as well as material contracts, as part of a due diligence review by the buyer. Being well organized on these matters ahead of time will buy a lot of credibility with the buyer. Messy or inaccurate records will cast doubt on the value of your company.

What legal pitfalls often trip up the sale?

Buyers are always concerned about risk. Risk comes from inside your company in the form of personnel — employees, consultants and others — and outside from lawsuits, warranty and return claims, supplier terminations and limits on business operations.

Employees are often the company’s greatest asset and typically a company’s largest expense. Sellers usually engage in pre-emptive measures to entice employees to stay by offering equity, cash and other incentives that require personnel to work as diligently for the buyer as they did prior to the transaction.

Your company’s value proposition may be significantly weakened, and deals have died, if buyers identify agreements that limit rights to develop, manufacture, assemble, distribute, market or sell products.

How do you determine a realistic price?

Depending on the stage of your business and the industry, there are a few methodologies available. The most common are discounted cash flows and price to sales, but this relies upon a history of revenues and costs and/or sales. Early stage companies have a harder time utilizing these valuation methods.

When traditional valuation models are inapplicable, recent transactions in the sector or the valuation of similar public companies can be used. Gauging your value proposition with board members, advisers and strategic partners can help you solidify an approximate value.

Remember that buyers are valuing your business on your financial statements, projections, business plan and opportunities in your industry, along with synergistic opportunities with the buyer.

Who should help a business owner in a sale?

Secure competent, experienced service providers. These people will help you get a better sense of the market, your company’s value and your risk exposures. Get them involved well before the sale to ensure the process runs as efficiently as possible.

A good merger and acquisitions attorney will lead you through the process, identify and mitigate risks, and explore potential resolutions to issues ahead of the transaction. An independent accountant who can review and audit your financial statements also may be needed.

Joshua Geffon is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7000 or [email protected]

Social media: Learn more about Joshua Geffon.

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How two California law changes could affect your business

Shane P. Criqui, litigation attorney, Stradling Yocca Carlson & Rauth

Shane P. Criqui, litigation attorney, Stradling Yocca Carlson & Rauth

California passed more than 800 new laws in 2012, and Shane P. Criqui, litigation attorney at Stradling Yocca Carlson & Rauth, says, “It’s virtually impossible for any business person to keep track.”

He says among those of interest to businesses are new laws that govern social media in the context of an employee and employer relationship, and broad legislative changes regarding California LLCs.

“That’s why it’s important to have a discussion with your counsel and make sure you understand how these laws may affect your business,” Criqui says.

Smart Business spoke with Criqui to better understand two of California’s law changes.

What is changing regarding social media? 

California has added protections for employees using social media to the state’s labor code, which establishes privacy protections for individuals and limits what employers can lawfully demand of employees. It helps avoid situations where employers demand private social media passwords and take adverse actions against an employee based on the content of his or her account. The law also applies to job applicants.

Specifically, an employer can’t require an employee to disclose username or password information for personal social media accounts; require an employee to access his or her social media accounts in the presence of the employer; or otherwise divulge personal social media information. Further, employers can’t discharge, discipline or retaliate against employees for not complying with such requests.

There are, however, exceptions. An employer can go after information on a social media account that’s reasonably believed to be relevant to investigations of employee misconduct or a violation of law. Employers also may require employee disclosure of passwords necessary for accessing an employer-issued electronic device.

What constitutes social media?

The definition of social media as it applies to this law is very broad and can include any electronic service, account or content such as videos, photos, blogs, podcasts, text and instant messages, and websites.

Further, while the law applies to accessing ‘personal social media,’ the term ‘personal’ is not further defined, which may create ambiguity. For example, an employee’s LinkedIn account could be used to promote his or her employer’s business but is also ‘personal’ to the employee.

What changes are coming for limited liability companies?

A 2012 bill that becomes effective Jan. 1, 2014, repeals California’s Beverly-Killea Limited Liability Company Act and replaces it with the California Revised Uniform Limited Liability Company Act. It will apply to all California LLCs existing on Jan. 1, 2014, and no LLC can opt out.

The new law presumes an LLC is member managed, unless the company’s articles of incorporation and operating agreement specifically provide otherwise. In  member-managed agreements, all members can act as agents of the LLC, where in manager managed arrangements, it’s only the managers.

Other provisions are specific to fiduciary duties. Expressly, the law says managers can’t eliminate the duty of loyalty, which a manager typically owes to the LLC along with the duty of care. However, duties of care and loyalty can be modified ‘in a written operating agreement with the informed written consent of the members.’ For instance, the duty of care can be lowered, although not ‘unreasonably reduced.’

The new act also states that while an operating agreement may ‘eliminate or limit’ a member or manager’s liability for monetary damages with respect to a breach of the duty of care, it cannot do so with respect to a breach of the duty of loyalty.

What should affected companies do?

While prior operating agreements will remain in effect after Jan. 1, 2014, the new act will apply to ‘acts,’ ‘transactions’ and ‘contracts’ entered into on or after that date. Accordingly, it makes sense for LLCs to talk with counsel to make sure the new default rules don’t change an LLC’s understanding of its existing rights and obligations.

Shane P. Criqui is a litigation attorney at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4226 or [email protected]

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How to strategically manage domestic and international brand portfolios

Tom Speiss, shareholder, Stradling Yocca Carlson & Rauth

Tom Speiss, shareholder, Stradling Yocca Carlson & Rauth

Securing trademark protection provides a company with legal rights to market and sell its services or products, and offers this same company an opportunity to stop other companies from marketing or selling services or products that are, or could be, infringing upon its protected marks.

However, each country has different criteria guiding the trademark process, which introduces varied time and cost elements that can be difficult to navigate. Ignoring these laws could mean forever losing legal protection and the opportunity to market and sell goods or services under a valued brand name in key markets.

“There is no such thing as an international trademark, but U.S. copyrights can be enforced internationally,” says Tom Speiss, a shareholder at Stradling Yocca Carlson & Rauth, who works as a business adviser and brand manager.

Smart Business spoke with Speiss about managing domestic and global brand portfolios for companies operating at home and abroad.

How can companies protect their brands domestically?

Companies can protect their brands domestically through both trademark and copyright law. For trademark, the U.S. is a common-law country, which means trademark rights begin to be established as soon as a company starts using a mark in commerce. But it’s important to conduct a trademark availability search and, if the mark doesn’t infringe upon another’s mark and appears to be available as a federal trademark, then file an application with the U.S. Patent and Trademark Office to acquire federal trademark protection.

In addition, companies also can file for federal copyright protection through the Copyright Office. To start this process, product packaging, website material or other advertising material can be used as part of a copyright application. Once a copyright registration issues, the registration potentially can protect a company’s product packaging, Web content and advertising content, as well as the design elements of a trademark. The U.S. copyright registrations then may be enforced internationally, through a treaty known as the Berne Convention Treaty.

If a company has plans to expand in foreign markets, when should management consult an intellectual property (IP) attorney?

A company should bring in an IP attorney as soon as it starts thinking about foreign market expansion, even if the plan’s realization is years away. Companies must be advised concerning all trademark rules for the countries in consideration, including possible infringement issues; whether the brand name is even available; the timelines and costs for applications; how use and non-use might affect the rights being granted; and when a company is required to exercise any rights it has been granted before a mark is vulnerable to cancelation. Each of these steps can be measured in years and have a lot of moving pieces, so — as ideas are generated — counsel needs to be involved.

What are the criteria for foreign market selection?

Companies can point to home successes with their products, including sales and brand equity, as they venture out. However, the mark used in their home country may be unavailable in a foreign market, which means the company won’t be able to transfer that equity even though it’s a proven brand.

The recourse is to develop a new name. But that brings risk because then its history at home won’t translate to the new market. This is another reason to bring in an IP attorney at the onset of brand expansion to assist in successful brand development or expansion.

What should you ask your attorney regarding brand management in other countries?

The most important first step is determining whether the target country’s trademark laws are governed by the principle of first-to-use or first-to-file. IP attorneys also can help companies establish timelines, such as when a company needs to start using or selling a product in the target country. Good counsel will thoroughly search to discover if the mark to be used in the foreign market is already in use for the same or similar goods or services. Along the way, counsel can help clients understand what other regulations might be advantageous or impede selling in foreign markets.

Tom Speiss is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7042 or [email protected]

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How to recognize special challenges in licensing digital content

Stephen T. Kong, shareholder, Corporate and Intellectual Property Groups. Stradling Yocca Carlson & Rauth

Stephen T. Kong, shareholder, Corporate and Intellectual Property Groups. Stradling Yocca Carlson & Rauth

The widespread use and ease of access to digital content has resulted in some of the biggest changes in copyright law — both in terms of new statutes and case law. This can be attributed to the ease with which digital copies can be made and the fact that those copies do not result in any degradation of quality, leading to their widespread distribution — both legally and illegally.

“The nature of digital content makes the license agreement much more important than before,” says Stephen T. Kong, shareholder, Corporate and Intellectual Property Groups at Stradling Yocca Carlson & Rauth. “We as lawyers are always worried about what rights are granted to a client who wants to do something with the digital content because it often is only the specifics of the legal agreement that means the difference between a lawful and an infringing use.”

Smart Business spoke with Kong about licensing digital content to ensure proper legal protections are in place.

What is it about digital content that creates such unique legal issues?

The proliferation of high-speed Internet has made it easy for individuals to create and transmit digital content. Previously, the physical nature of the non-digital good acted as a practical deterrent to infringement. Booksellers couldn’t make illegal copies of books in an efficient and profitable manner for the purpose of reselling them. By contrast, Amazon has many licensing agreements in place to distribute digital versions of books formerly available exclusively on tangible media.

The reality of video streaming paved the way for services such as Hulu and Netflix, which are thriving because people care less and less about owning a copy of a movie as long as they can get a streamed version relatively on demand. All of this adds up to the need for copyright law to adapt.

What does it mean to ‘license’ digital content?

There’s a fundamental difference between licensed and owned content. Many companies are dealing primarily with licensed content, which is owned by someone who has given permission to another to display or distribute their content. Whoever owns the copyright rights can control aspects of the distribution, reproduction, modification and display of the copyrighted content. In the digital world, you generally can’t do anything with digital content that doesn’t involve exercising one of those protected rights.

What drives licensing lawyers crazy is when copyright owners of digital content grant to their licensee the right to ‘use’ digital content. Since ‘use’ is not one of the enumerated rights under copyright law, arguments can arise as to what rights are actually granted.

How is ownership determined?

The general default rule is the creator of a work owns the work; but for companies, there is a key exception. Generally, anything created by employees for their employer in the course of their employment results in the employer owning the copyright rights in the work product. So large media companies employing writers have a large amount of copyrighted works available for distribution in many avenues.

What are some important aspects of licensing digital content?

A licensor can ‘slice and dice’ copyright rights in many ways, usually to preserve markets for other licensees. Certain geographic markets may be set aside for others. The copyright owner may wish to have different licensees exploit different channels of distribution. All of this makes the role of the licensing lawyer very important because the license agreement needs to be carefully reviewed in the context of determining the scope of a licensee’s rights.

Making the licensing lawyer’s task a bit more complicated sometimes is the existence of agreements written before the advent of digital technology. There was no law governing Internet radio royalties until Internet radio became a reality, and older agreements reflect the fact that a freelance writer would not necessarily have thought to grant or explicitly deny rights for republication of an article in different digital formats.

Stephen T. Kong is a shareholder, Corporate and Intellectual Property Groups, at Stradling Yocca Carlson & Rauth. Reach him at (424) 214-7013 or [email protected]

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How smart companies comply with the Foreign Corrupt Practices Act

Jason de Bretteville, Shareholder, Stradling Yocca Carlson & Rauth

Jason de Bretteville, Shareholder, Stradling Yocca Carlson & Rauth

Enforcement of the Foreign Corrupt Practices Act (FCPA), which addresses the bribing of foreign officials, has increased significantly against both large multinational companies and small, private, domestic companies.

“If you’ve been hearing about the FCPA but haven’t addressed it fully, there is a reason to take the concern seriously from a reputational risk perspective and because you could face serious criminal and civil consequences if there is a breach,” says Jason de Bretteville, a shareholder at Stradling Yocca Carlson & Rauth.

There is also reason to be familiar with foreign laws. U.S. legislation, he says, only regulates bribes to foreign officials, which can include any employee of a government-owned or controlled entity. Foreign legislation, including the U.K. Bribery Act, doesn’t maintain this distinction and prohibits potentially corrupt payments to both foreign officials and private counterparties, highlighting the need for due diligence.

Smart Business spoke to de Bretteville about ways to limit FCPA exposure.

What are the highest areas of risk U.S. companies may tend to neglect?

One area businesses often discount is the risk posed by foreign distributors. Companies tend to mistakenly assume that if their title transfers to a foreign distributor, there is no risk posed to them if the distributor engages in corrupt payments, and that’s not the case.

The lack of understanding of a counterparty’s ownership structure is another risk. For example, in China and former Soviet-bloc countries, there is government ownership of what Westerners may assume are purely commercial entities. You may think you’re engaging — having a dinner or entertaining — a private party but, in the view of U.S. regulators, you’re entertaining a foreign official.

One evolving risk area is engaging in cooperative research with academics. They may hold dual positions and privileges at foreign academic institutions that could render them a foreign official.

What else is affecting the need to pay greater attention to FCPA?

The merger and acquisition market is heating up, including more acquisitions of foreign companies. These foreign businesses may not have a compliance culture or the same policies as many U.S. companies. The acquirer may face difficult questions of whether to go through with the transaction, and when or whether to disclose any pre- or post-acquisition conduct to U.S. regulators.

Further, reconciling U.S. policy with those in foreign jurisdictions can be difficult. For instance, the U.K. Bribery Act addresses not only foreign officials but also corrupt payments to private counterparties and does not allow an exemption for minor ‘grease’ or facilitation payments. It has more expansive jurisdictional limits and would appear to allow for the prosecution of U.S. entities with a relatively small footprint in the U.K.

How can companies best address this risk?

First, conduct meaningful due diligence on all business partners. Determine their potential to be viewed as a foreign official, understand who they are, their ownership structure and their shareholders.

Second, determine an efficient and practical means of mitigating risk. Have the party commit to comply with your code of ethics and restrictions on corrupt payments, and have as much transparency as possible regarding what work they’re doing on your behalf that may involve foreign officials. Also, any payments to any officials made on your behalf need to be used for wholly legitimate purposes, and not to facilitate sales to government customers or obtain government approvals — permits, licenses, customs clearances — in inappropriate ways.

How might compliance policies fail?

Too often, companies implement overly complex or one-size-fits-all compliance procedures that don’t address specific risks in a way that allows for meaningful risk mitigation. Policies not designed in a way that is intelligible or useful to people in the field can invite non-compliance.

An effective policy provides for simple ways to deal with concerns that may arise in the field and encourages people to find effective business solutions. Having an overly cumbersome policy on the shelf doesn’t help anyone. In fact, it can hurt.

Jason de Bretteville is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4094 or [email protected]

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth

 

 

Can social media profiles be trade secrets of your company?

Yuri Mikulka, chair, Intellectual Property Department, Stradling Yocca Carlson & Rauth

In the age of social media, it seems everything is transparent. In the case of social media contacts, which can be visible to the public through sites such as Facebook, LinkedIn and Twitter, there are questions as to whether that information can, nonetheless, be deemed a trade secret, and if so, who owns the trade secret.

“It was only a few years ago when businesses began incorporating social media in their marketing strategy,” says Yuri Mikulka, chair of the Intellectual Property Department at Stradling Yocca Carlson & Rauth. “Now, it’s recognized as one of the most powerful marketing and PR tools for companies, whether big or small. In fact, when positioned well, social media data can serve as an important asset of the company, especially for those relying on Web traffic and member lists to generate revenue.”

Smart Business spoke with Mikulka about ensuring social media information receives the highest possible protection and remains an asset even when employees leave.

What constitutes a trade secret?

Generally speaking, a trade secret is information that derives independent economic value, actual or potential, from not being generally known to, and not readily ascertainable through, proper means by the public. A company can enforce its exclusive right to possess and use such information as long as reasonable measures are employed to keep such information secret.

Can you protect your social media profiles as a viable trade secret?

This emerging area of law was preliminarily addressed in two recent court cases. Christou v. Beatport, LLC centered on ownership of a MySpace list used by a nightclub to promote its events. When an employee opened a competitive venture, the club sued him for misappropriating its MySpace profiles. The employee responded that MySpace is public and cannot constitute a trade secret. The Colorado federal court disagreed, noting that ‘Friend- ing’ a business or individual grants . . . access to some of one’s personal information, information about his or her interests and preferences, and perhaps most importantly for a business, contact information and a built-in means of contact . . . ’ and that this information is not necessarily public.

Another case in a California federal court, PhoneDog v. Kravitz, centered on a Twitter account maintained by an employee on behalf of the employer. The departing employee kept the account for his own use but changed its name and erased any reference to his former employer. The employer sued, seeking $340,000 in damages, allegedly based on an industry value of $2.50 per follower. The court rejected the employee’s argument that a Twitter follower list cannot constitute a trade secret.

These recent decisions seem to indicate that even if social media profiles are visible online, they can receive trade secret protection — as long as some portion remains inaccessible to the public and employee passwords and login are required to view the information. Nonetheless, because these decisions were issued during early stages of cases, keep an eye out for new cases in your jurisdiction on these issues.

How do you protect social media information as potential trade secrets?  

Here’s what your company can do:

• Put in place policies, procedures and employee agreements that outline and define acceptable and prohibited use of social media.

• Make it clear in writing that any work-related social media is company property.

• Have employees sign a social media policy. At least one court recognized the importance of the employee’s signature in determining whether the company owned social media contacts.

• Get employee buy-in to effectively enforce your policy by providing training and seeking participation to protect the company’s confidential information.

• Maintain employees’ login and password information to company-related social media, and change it when employees leave.

• Periodically monitor employee online activity because trade secrets lose protection when disclosed. If disclosure is inadvertently made, quickly take down the information.

• Consult an attorney to review your social media policy, agreement and practice.

• Periodically update your policy because law and technology are changing so fast.

Yuri Mikulka is chair of the Intellectual Property Department at Stradling Yocca Carlson & Rauth. Reach her at (949) 725-4000 or [email protected]

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth