Execs have gone to jail

Sometimes it might seem tempting to agree with a competitor to divvy up customers, or to keep your prices at an agreed level, or to take turns submitting the winning bid in response to RFPs. Those activities, though, can lead to indictment and prosecution by federal- or state authorities for violation of the antitrust laws.

True story: In 2011, two executives of a Japanese auto-parts manufacturer pled guilty to participating in a scheme to fix prices of parts sold to U.S. auto makers; the executives agreed to serve 12- and 15-month prison terms and to pay fines. [link]

True story: In 2005, the German airline Lufthansa and the British airline Virgin Atlantic blew the whistle on a price-fixing scheme by a total of 21 non-U.S. airlines, including British Airways, Qantas, and Korean Air. The U.S. Department of Justice prosecuted, resulting in a total of some $1.7 billion in fines, and in four airline executives being sentenced to prison terms in the U.S. [link] [link]

Cover-ups can get you, too

Keep in mind that prosecutors might not bother trying to prove up an antitrust violation. Instead, they might reach for the low-hanging fruit by bringing charges of obstruction of justice, which can be much easier to prove. (It’s not unlike putting Al Capone in prison for tax evasion instead of murder, or prosecuting Martha Stewart for making a false statement to the SEC instead of insider trading.)

True story: : In December 2010, a British executive, who had been extradited to the U.S., was sentenced to 18 months in prison and a $25,000 fine: not for price fixing itself, but for conspiring to obstruct a price-fixing investigation. [link]

Additional reading

For more information about unlawful collusive practices, the Department of Justice has a useful antitrust primer that explains many of the relevant concepts.

Feed enhanced by Better Feed from Ozh

The conventional wisdom always seemed to be that agreeing not to hire your business partners’ employees could be an antitrust problem, but that it was OK to agree not to solicit them. That still seems to be permitted — albeit with significant restrictions and new recordkeeping- and reporting requirements — by the proposed five-year consent decree in the case the Justice Department brought against Adobe, Apple, Google, Intel, Intuit, and Pixar.

Section V of the agreed proposed final judgment allows “no direct solicitation” provisions for the following types of agreement — if they • have a stated sunset date, • are “narrowly tailored to affect only employees who are anticipated to be directly involved in the agreement,” and • identify the affected employees with reasonable specificity:

1. employment- and severance agreements for one’s own employees;
2. as reasonably necessary for mergers and acquisitions, investments, divestitures, and related due diligence;
3. reasonably necessary for contracts with consultants or recipients of consulting services, auditors, outsourcing vendors, recruiting agencies or providers of temporary employees or contract workers;
4. reasonably necessary for the settlement or compromise of legal disputes; or
5. reasonably necessary for (i) contracts with resellers or OEMs; (ii) contracts with providers or recipients of services other than those enumerated above; or (iii) the function of a legitimate collaboration agreement, such as joint development, technology integration, joint ventures, joint projects (including teaming arrangements), and the shared use of facilities.

Links:

• [Proposed] Final Judgment
• DOJ press release
• Apple, Google, Intel, other tech firms admit secret agreements to not poach employees, Silicon Valley MercuryNews.com

Feed enhanced by Better Feed from Ozh

“If the other side doesn’t know what to ask for, it’s not my job to educate them.” That’s one reason a contract drafter might not want to use a short-form contract that references a “standard” form book, or to use a fill-in-the-blank form such as a PRECUT baseline contract form: the other side could see what other options were available, which would give them a good idea of what they might want to demand for in negotiations. But consider these points:

• Your notion that you’re the one with superior knowledge might be wishful thinking. The other side could bring in an expert who knows exactly what changes to demand. You might be better off setting the tone with a demonstrably-reasonable contract, and then standing on principle to reject unreasonable change requests.

• Suppose you’re right, and the other side doesn’t really know what they’re doing. Chances are you’ll get them to signature faster — and you’ll be laying a foundation for a trusting re­la­tion­ship — if the draft you’re proposing seems fair and balanced.

• It can be dangerous to have a clueless contract reviewer on the other side. The reviewer might make un­rea­son­able demands, but being clueless, s/he won’t know that, and can’t be convinced otherwise. That could drive the negotiation right into the ditch.

See also: (list is automatically generated)

• Leading off with a “hardball” contract form document might be a bad idea

Feed enhanced by Better Feed from Ozh

Some say it’s best to start a contract negotiation by sending the other side your “hardball” or “killer” contract form that’s extremely biased toward your side. By doing so (the theory goes), you set the other side’s expectations, and increase the odds that you’ll eventually get more of what you want. Doing so also gives you a batch of potential concessions that you can use for horse-trading.

Certainly there are transactions in which it makes at least some sense to do this. And of course it’s always fun to play “the art of the deal”; it feels just plain good to come out on top when negotiating the legal fine points.

But don’t underestimate the price you’ll pay for these putative benefits. You’ll spend more business-staff time. You’ll spend more in legal expenses.

And you’ll incur opportunity costs: As the ‘shot clock’ runs down at the end of the fiscal quarter, you’ll be spending time on legal T&Cs instead of on closing additional business.

So when negotiating a deal, you might want to ask yourself whether “hardball” legal negotiation is really what you want to be spending your time doing.

It might make sense instead to lead off with a balanced contract form that represents a fair, reasonable way of doing business — one that, in an ideal world, the parties could “just sign it” and get on with their business.

Feed enhanced by Better Feed from Ozh

A couple of hours ago the U.S. Supreme Court handed down its much-anticipated Bilski decision. The Court seems to have left the door open for patenting at least some business methods, but the justices were pretty divided:

• All nine justices agreed that the particular claimed method of hedging risk was not patentable — but that contrary to the Federal Circuit’s view, the machine-or-transformation test was not the exclusive test of potential patentability.
• Justice Kennedy (joined by Roberts, Thomas, and Alito) said in essence that business-method patents were entirely appropriate for a modern information-based economy.
• Retiring Justice Stevens (joined by Ginsburg, Breyer, and Sotomayor) disagreed completely, saying in essence that business methods should be per se unpatentable.
• Justice Scalia didn’t join either of these two sides.

Unfortunately, Justice Kennedy’s opinion didn’t offer much guidance about what distinguished a potentially-patentable business method from an unpatentable one.

The Court’s decision doubtless means more billable hours for lawyers who write and litigate business-method patents.

I’m not sure businesses will be quite so thrilled about the uncertainty left by the decision.

See also: (list is automatically generated)

• Courts should compete for business, redux
• Prediction: Spam-filtering patent lawsuit against Apple, Google, etc., will be knocked out early on Bilski “abstract idea” grounds

Feed enhanced by Better Feed from Ozh

If you’re an employee of a company, and you sign a company contract as just “John Doe,” you might end up being held personally liable for the company’s obligations. (If you’re the owner of the company as a sole proprietor, or the general partner of a partnership, you probably will be personally liable in any case.)

A better way to sign a company contract is to have the signature block:

• clearly indicate that it’s the company, not you personally, that is agreeing to the contract, and that you’re simply signing on its behalf; and
• stating your title.

The wrong way to sign a company contract

A better way

Further reading

• Protecting the Deal Professional from Personal Liability for Contract-Related Claims, by Glen D. West, of the Weil Gotshal firm.

See also: (list is automatically generated)

• Note-taking in meetings and phone calls: Three easy habits your lawyer will love you for
• Signing a business contract? Be sure your company title is in your signature line
• Clients seem to like Webcam video conferences, with on-line document sharing, better than traditional on-site meetings

Feed enhanced by Better Feed from Ozh

Chances are that at some point in your career, a lawyer — yours, or someone else’s — will want to review notes you took at a meeting or during a phone conversation. So thinking ahead to that possibility, whenever you take notes, you should routinely do as many of the fol­low­ing things as you can remember, especially the first three things, to increase the odds that a later reviewer will get an ac­cur­ate picture of the event. It will help you stay out of un­de­served trouble and save money on legal fees

1. Indicate who said what you’re writing down.  Unless you want to risk having someone else’s statements mistakenly attributed to you, indicate in your notes just who has said what.  EXAMPLE:  Suppose that John Doe says in a meeting that your company’s off­shore oil-well drilling project can skip certain safety checks. Re­mem­ber­ing the BP drilling disaster in the Gulf of Mexico, you don’t want anyone to think you were the guy who sug­ges­ted this. So your notes might say, for example, "JD: Let’s skip safety checks,"; if you omitted John Doe’s initials, it wouldn’t be clear that you weren’t the one who made his suggestion.
2. On every page, write the meeting date and time, the subject, and the page number. The rea­son: Your lawyer will probably want to build a chronology of events; you can help her put the meeting in­to the proper context by “timestamping” your notes. This will also reduce the risk that an unfriendly party might try to quote your notes out of context.
3. If a lawyer is participating, indicate this.  That will help your lawyer sep­ar­ate out documents that might be protected by the attorney-client privilege. EXAMPLE:  “Partici­pants:  John Doe (CEO); Ron Roe (ABC Consulting, Inc.); Jane Joe (general counsel).”
4. Start with a clean sheet of paper.  When copies of documents are provided to opposing counsel, in a lawsuit or other investigation, it’s better if a given page of notes doesn’t have un­re­la­ted in­for­ma­tion on it.  This goes for people who take notes in bound paper note­books too: It’s best to start notes for each meeting or phone call on a new page, even though this means you’ll use up your note­books more quickly.
5. Write in pen for easier photocopying and/or scanning, and also because pencil notes might make a reviewer (for example, as an opposing counsel) wonder whether you might have erased anything, and perhaps falsely ac­cuse you of having done so.
6. Write “CONFIDENTIAL” at the top of each page of confidential notes. That will help preserve any applicable trade-secret rights; it will also help your lawyer segregate such notes for possible special handling in the lawsuit or other investigation.
7. List the participants. Listing the participants serves as a key to the initials you’ll be using, as discussed in item 1 above.  It can also refresh your recollection if you ever have to testify about the meet­ing. If some people are participating in an in-person meeting by phone, indicate that. Indicate each participant’s role if isn’t ob­vi­ous or well-known – remember, you might know who someone is, but a later reader likely won’t.  EXAMPLE:  “Partici­pants:  John Doe (CEO); Ron Roe (ABC Consulting, Inc.); Chris Coe (marketing).”
8. Indicate the time someone joins or leaves the meeting, es­pe­ci­al­ly if it’s you (so that you’re not later accused of having still been there if something bad happened after you left).
9. Write down the stop time of the meeting. This usually isn’t a big deal, but it’s nice to have for completeness.

See also: (list is automatically generated)

• Clients seem to like Webcam video conferences, with on-line document sharing, better than traditional on-site meetings
• How to sign a company contract without incurring personal liability
• An oral understanding might not get you off the hook for a written contractual obligation

Feed enhanced by Better Feed from Ozh

In one of those smack-your-forehead moments, I realized that there’s an obvious fifth ques­tion to be added to yesterday’s list of four ques­tions that should be asked at every business meeting (which as a re­sult would now have the acronym GPPPA):

• Goals: What are we trying to achieve in this project or relationship, and why? [In some circumstances, Toyota's Five Whys drill-down analysis might be helpful.]

I’ve updated the original posting accordingly.

See also: (list is automatically generated)

• G-PP-AA: Five questions to ask at every business meeting you ever attend

Feed enhanced by Better Feed from Ozh

[Updated 2010-08-19] It’s been my impression that many business-contract disputes could be avoided if the participants would just talk with each other regularly about five things. This makes me think that in almost any business meeting concerning a project or re­la­tion­ship, it’s a good idea to ask about those five things, with the acronym G-PP-AA:

1. Goals: What are we trying to achieve in this project or relationship, and why? [In some circumstances, Toyota's famous Five Whys drill-down analysis might be helpful.]

2. Progress: What have we accomplished so far in achieving the goal(s)?

3. Problems encountered or anticipated: What if anything has gone wrong,and why? What could go wrong in the future? [The Five Whys might be helpful here, too.]

4. Action plans for the future: What is going to be done, by whom, when, to continue progress, and/or to address problems?

5. Assumptions: What are we implicitly or explicitly assuming, that might not be true?

This is just Management-101 stuff, to be sure. But it’s often over­looked, especially when things get busy or stressed.

That’s why, when I’m helping to negotiate contracts for on-going projects or re­la­tion­ships, I like to ask for a provision for periodic status-review con­fer­en­ces, with a reminder that these five G-PP-AA factors should be part of the agenda.

Here’s one version of such a contract provision, with extra para­graph­ing added for readability:

Notes:

• Some of this language isn’t strictly required, but is included to re­assure the parties that the provision isn’t going to be expensive or burdensome.  For example, under this language, if neither party ever asks for a status-review conference, none is required.  As another example, under clause 1, all conferences are by phone unless the parties agree otherwise.
• Clause 2 intentionally doesn’t require the G-PP-AA factors to be dis­cussed; the reminder of those factors should be helpful.
• Clause 4 provides for written minutes if requested. Meeting minutes can be especially important in documenting specific to-do as­sign­ments. Meet­ing minutes can can also help litigation counsel re­con­struct "what hap­pened, when, and why," if things go wrong.
• In clause 4, the term seasonably is taken from section 1-204 of the Uniform Commercial Code, which defines the term thusly: An action is taken "seasonably" when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.

See also: (list is automatically generated)

• A fifth question to ask at every business meeting you attend

Feed enhanced by Better Feed from Ozh

In making a sales pitch, it’s not uncommon for a software vendor to put together a non-working demo or mock-up of what the customer might see in the final, customized software imp­le­men­ta­tion.

Such demos can be great sales aids. But they can also give rise to fraud allegations if the customer later claims, "you never told us it was just a demo!"

Strange as it may sound, this does happen in real life; when tech proj­ects blow up, customers’ lawyers almost always look for op­por­tu­ni­ties to make fraud claims against the vendor. As Chris Kanar­a­cus reported in 2008 about the recently-settled Waste Man­age­ment, Inc., vs. SAP lawsuit:

"At that meeting, SAP AG executives and engineers represented that the software was a mature solution and conducted a dem­on­stra­tion consisting of what they represented was the actual SAP Waste and Recycling software," the complaint states.

The company later discovered [sic] that the software was a "mock-up version of that software intended to deceive Waste Management," according to the complaint.

SAP has admitted to this in "internal documents," the complaint states.

SAP also demonstrated the "fake software" at subsequent sales presentations, according to the complaint.

[Emphasis and extra paragraphing added.]

If you’re a vendor, you can easily give your lawyers ammunition to shoot down this particular type of fraud al­leg­a­tion: Clearly label every screen of your demo as such.

The label could read something like this, in a footer: Note: Some significant features shown in this demo are not currently implemented.

That kind of label could help dissuade the customer from making a fraud claim at all, or perhaps allow the vendor to move for summary judgment dismissing the claim without a trial.

Related posts

• Why the fraud claim is the lawyer’s weapon of choice in lawsuits over failed technology projects
• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation

Feed enhanced by Better Feed from Ozh