Hollywood Squares - from WikipediaI’ve been helping a client negotiate a contract. The other side is in another country. The other side’s lead lawyer and I have been doing our markup sessions using GoToMeeting‘s screen-sharing capability — I edited the document on my computer as he “looked over my shoulder” in real time. (Zoom.us has similar capabilities, which I’ve used extensively in working with another client.)

Yesterday we had a similar screen-sharing conference call, but this time with the business people on-line as well. We knew we had some knotty issues to discuss.

I started the GoToMeeting session. All but one participant logged in.

As the rest of us were waiting for the last participant, I turned on my Web camera, more playing around than anything else.

I asked everyone else to turn on their cameras, too. They did.

So now everyone could see and hear everyone else, in four different physical locations. The video images on my screen looked a little bit like the famous arrangement on Hollywood Squares.

We smiled and made small talk. Some of the participants seemed intrigued by the novelty of seeing everyone “face to face.”

A few minutes later the last person dialed in. We turned off the cameras. All hands focused on the draft contract on my screen and discussed the parties’ remaining issues. The discussion went pretty well.

Afterwards, something occurred to me: It might have helped that we were initially able to see each other as we made small talk. Seeing facial expressions and body language helped reduce the uncertainty (and the accompanying low-grade anxiety) of dealing with comparative strangers.

SurgicalTeam-iStock_000015178379XSmallIt seemed to me that we were no longer mainly just a collection of isolated, faceless voices in a telephone earpiece. Instead, we seemed to be at least a little more like an ad-hoc team that was trying to achieve a common goal, namely to get the deal done.

As I write this, it reminds me of one of the things that famed surgeon Dr. Atul Gawande says in his best-seller, The Check­list Manifesto. Gawande strongly recommends that when a surgical team starts an operation, each team member should introduce him- or herself and identify any concerns he or she has. He says that this practice helps bond the team together; he recounts an anecdote of how it saved the life of one of his patients when things started to go catastrophically wrong during a surgery.

I’m going to try this kind of preliminary video small talk — and perhaps a round of Gawande-style self-introductions — in future screen-sharing negotiations.

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More and more, companies negotiate international transactions that involve technology transfers. The challenges can be numerous. These deals often involve people for whom English is a second language. The contracts might have to be drafted in two languages — and the two parties might not fully understand the other’s contract version.

Want to learn more? Come to the April 25 meeting of the Licensing Executives Society’s Houston chapter: Licensing expert Tom Pruitt will explore:

  • selection, training and use of translators
  • a ‘checklist’ of possible alternatives to help mitigate risks
  • what could happen if the parties don’t properly agree on governing language and on a choice of law
  • trends in international dispute resolution

Check it out (and register) at the LES Houston chapter’s announcement page.

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If your company has significant market share, and you put certain provisions in your contracts, you might be risking having a court (or the FTC or the Justice Department) conclude that you’re engaging in “exclusionary conduct” and thus monopolizing or attempting to monopolize your market, in violation of the antitrust laws (specifically the Sherman Act). Vinson & Elkins lawyers Alden L. Atkins, James A. Reeder Jr. and Nicholas N. Shum go into this in What Companies Don’t Know Can Hurt Them: Monopolization Offenses. Some examples from part III of the article:

  • Exclusive dealing
  • Tying the sale of one product or service to another
  • “Loyalty” discounts
  • “Bundled” pricing
  • Most-favored-nation clauses

Read it all.

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The thought isn’t original to me that legal “expert system” computer programs like those of Neota | Logic will eventually be disruptive to the law firm revenue model. And that disruption will raise the question: Where will expert senior lawyers get their training in the future, when junior lawyers can’t get hired to do the work by which they traditionally learned the ropes?

The answer may be that junior lawyers will increasingly be trained in legal “flight simulators,” powered by descendants of the very computer programs that took their learning-the-ropes work away from them.

We’ve seen this movie before, in BigLaw litigation: These days, the vast majority of disputes settle or are forced into arbitration. As a result, there just aren’t that many smallish trials anymore, which means that BigLaw junior lawyers have a hard time getting meaningful trial experience.

(I’ve known fifth-year lawyers who had never even taken a deposition, let alone tried a case. In contrast, I first-chaired my first trial — in a small case, of course, with a partner holding my hand — when I was a third-year associate.)

All this presents the legal community with a chicken-and-egg problem: Companies’ general counsel, for career-protection reasons, understandably want to hire trial lawyers who have already tried X number of cases to verdict; they don’t want to take a chance on a young partner who spent his or her first few years mainly reviewing documents. As a result, the young partner might well have a hard time attracting client work, which these days is the sine qua non of even a modestly-successful law firm career.

Certainly there are well-regarded trial training programs, such as those offered by the National Institute of Trial Advocacy (NITA). But those training programs are necessarily expensive in terms of money and opportunity cost.

That’s where legal expert systems might find another market: In serving as “flight simulators” to help train — and even certify  junior lawyers.

Who might pay for legal flight simulators? Law firms; big in-house departments; law schools; perhaps state bar associations.

It’ll be interesting to see whether anything develops along these lines.

(Hat tips to DiligenceEngine, via Jason Wilson.)

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This page started out as the equivalent of a hand-out for the “Legally Lean” presentation I did in December 2012 for the Houston Lean Startup Circle meetup; I’ve updated and added to it occasionally since then. Thanks again to moderators Javid Jamae and Glenn Gutierrez for inviting me to present, and of course to Greg Wright and the Houston Technology Center for hosting the meetup yet again.

A few resources

Here’s a list of the resources I mentioned last night, with a few extras thrown in. I don’t necessary endorse everything in them. A given document might not be right for your particular needs without editing. Remember that small changes in your factual situation could have a significant effect on your legal position; see also the Cautions page.

Web site terms of service and privacy policy

Automattic, which makes perhaps the most-widely used blogging software (and hosts blogs on its own site), has made its terms of service and privacy policy available for re-use by others under a Creative Commons license. WARNING: In my view, there’s a huge flaw in the terms of service that could cause serious legal problems; if you use them, you should consult a lawyer about modifying the TOS language, as I discuss in more detail in a a May 2010 blog post.

Incorporation and investment documents

Renowned startup accelerator Y Combinator and the equally-renowned Wilson Sonsini law firm have posted a set of organizational documents for an angel-investor round.

The Orrick law firm has a large collection of contract forms for startup companies.

The Gunderson Dettmar law firm’s document collection is posted at the Docracy Web site.

Employment agreement form

See this working draft of a set of model provisions. Suggestions and other feedback are welcome in the comments on that page.

Nondisclosure agreement form

If you’re going to talk to someone about your product or service before you roll it out, you might want to ask them to sign a confidentiality agreement, a.k.a. a non-disclosure agreement or “NDA.”

NOTE: Potential investors might be reluctant to sign an NDA. Venture capitalists in particular often flatly refuse to do so. With folks like that, you basically have to take your chances that they won’t “steal” your idea. As a practical matter, though, that might not be a bad bet, because:

  • First, investors and others generally do have one or two other things on their minds. They generally see lots of entrepreneurs who are convinced they’ve got a world-beating idea. You’ll probably be lucky to get these investors to pay attention for two minutes. Ask yourself how likely it is that they’ll want to take your idea and spend time and money building a business around it without you.
  • Second, contracts aren’t the only thing that discourage bad behavior. If an investor stole someone’s idea, and word got around, then that investor might later find it hard to get other people to talk to him.
  • Finally, you have to decide what risks you want to take. Your business might fail because an investor steals your idea and beats you to market. Or it might fail because you can’t raise the money you need to get started. It’s sort of like having to take a trip across the country. You have to decide whether to fly or drive. Sure, there’s a risk you could die in a plane crash flying from one side of the country to the other. But if you drove the same route, your risk of dying in a car crash has been estimated as being something like 65 times greater. As the old saying goes, you pays your money and you takes your choice.

If you decide you do need a confidentiality agreement, you can consider using an NDA form I posted in 2010.

Contract negotiation tips for consultants

Here are some basic points to keep in mind.

General business resources

Would-be entrepreneurs should read the writings of Patrick McKenzie, a.k.a. patio11, on his Web site and in his comments at the invaluable Hacker News site (where at this writing he is #2 on the all-time karma list). Two especially-good comment for beginners are here and here.

If you’re in the Houston area, you should definitely check out the Houston Lean Startup Circle.

Intellectual property tips

IP ownership claims by former employers / clients

  • Check everyone’s previous contracts [employment agreements, severance agreements, consulting agreements, NDAs, etc.]
  • Check the facts to see whether an employer might owns someone’s IP work product by default
    • Hired to invent?
    • Set to experimenting?
    • Corporate officer?
    • Copyrighted work created “within the scope of employment”?
  • Get a waiver from the employer?

Copyright

  • Can existing Web content be “re-purposed” for your site? It depends.
    • Just because there’s no copyright notice doesn’t mean it’s up for grabs (but a copyright notice is definitely a good idea for your own stuff)
    • All kinds of things can be subject to copyright ownership — text, graphics, sounds, videos, sound recordings, data compilations, etc.
    • Damages for infringement can include “indirect profits” — MGM Grand Hotel had to pay 2% of its casino profits for unauthorized use of Kismet musical material in its Hallelujah Hollywood floor show.
  • Put copyright notices in your code, etc., early
    • Form: Copyright © [year of first publication] [owner's name]
    • Example: Copyright © 2012 D. C. Toedt III

Trademarks

  • Check USPTO and Web for possibly conflicting marks. The test is whether a “likelihood of confusion” exists — it doesn’t need to be a certainty of confusion, but it does need to be more than a mere possibility
  • Consider engaging a professional trademark search firm to clear a mark before making big investments in promoting the mark — you don’t want to have to change the name after you’ve started getting traction, and it might cost a lot of money to pay off a senior user. (On the latter point, Apple found that out the hard way with its Mac trademark.)
  • Watch out for possible dilution of others’ trademarks, either by blurring or by tarnishment — see, for example, the Victoria’s Secret example
  • Check whether you need to file any assumed-name certificates (a.k.a. DBAs) if your corporation or LLC is using a name other than its “legal” name.

Patent applications

Consider filing a provisional patent application, which in essence is a one-year placeholder (with no extensions and no renewals).

A provisional application doesn’t have to conform to formal patent application requirements. It does, though, need to contain an “enabling disclosure.” I sometimes describe enabling disclosure as a  hand-off package of written description and drawings that you could give to a competent colleague or team to have them build the invention without “undue” experimentation. (The application must also disclose the best mode subjectively contemplated by the inventor or inventors.)

You can get a head start by doing your own first draft. You can also file a provisional patent application yourself at the USPTO Web site if you prefer not to use a patent attorney. Do that at your own risk, though; it can be useful to have another pair of eyes look at your application.

Watch out for filing deadlines, which are normally drop-dead dates, with no extensions possible. U.S. law provides a one-year grace period in which to file a patent application after the first “disclosure” of the invention. The term “disclosure” has a  very specific meaning; see 35 U.S.C. § 102. Most foreign countries are “absolute novelty” jurisdictions for patent filings and have no grace period.

Infringing someone else’s rights

Just because you have a patentable invention, or a copyrightable work of authorship, or a protectable trademark, doesn’t automatically mean you don’t infringe someone else’s pre-existing rights.

For more information about patent infringement, see this 2010 post I did.

Initial tax-related information

Tax status?

If you create an LLC, or a corporation that qualifies to be taxed under subchapter S of the (U.S.) Internal Revenue Code, you’ll need to decide whether, for tax purposes, the company’s income and losses are going to be passed through to its members (the default for LLCs, like a partnership) or whether instead you want to file an election to have the company taxed as a C or S corporation. This is something to discuss with someone who knows tax law.

I found a Nolo article that looks quite useful in discussing the pros and cons of various approaches: http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29675.html.

Employer identification number (EIN)

The company will need to get a federal tax ID. If the company applies for bank financing, or even to open a checking account, the bank will almost certainly require the company to provide a tax ID. You can get a tax ID, or “EIN,” on-line at https://sa2.www4.irs.gov/modiein/individual/index.jsp.

Unemployment tax registration

(For Texas companies, and probably for other states as well:) When you hire your first employee, you’ll need to register with the Texas Workforce Commission and make quarterly unemployment tax payments. See http://www.twc.state.tx.us/ui/tax/unemployment-tax-registration.html and https://portal.cs.oag.state.tx.us/wps/portal/employer.

Sales tax

When you’re ready to start making sales, you’ll need a sales-tax permit. You can get one on-line at http://www.window.state.tx.us/taxpermit/.

Employee tax withholding

The IRS is pretty fierce about the need for employers to withhold (and remit) employees’ income taxes, Social Security taxes, and Medicare taxes. (In some circumstances an officer, director, or manager could be personally liable for a company’s failure to withhold the required taxes, and possibly for up to a 100% noncompliance penalty.) See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employment-Taxes-2 for more information.

State franchise taxes

Check your state’s requirements for filing franchise tax reports and payments.

Also, if you’re doing business in other states, check the requirements of those states. You might have to officially qualify to do business there and pay franchise taxes, income taxes, sales taxes, or all of the above.

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