Your friendly neighborhood technology legal counsel here to discuss with you the hidden dangers lurking in your unassuming (and unread) terms of service agreements.  Janet Croswell, one of our fabulous tech lawyers, posted back on February 10, 2010 about the pitfalls that businesses face related to the clickwrap agreement (here's a link for those playing along at home  blog.alerdingcastor.com/blog/alerding-castor).  Now for those of you scratching your head and wondering what a "clickwrap agreement is", the answer is simply those pesky agreements that we all have to agree to in order to do anything on-line and that none of us actually read.  I'm fascinated by this stuff and I'll probably only read one in twenty that I ever click past.  They are the superfluous hurdle that we fly past in order to enjoy our Internet-y goodness.  But, as Janet so wonderfully pointed out, these hindrances are actually contracts to which we are binding ourselves, or worse, our companies.  "What" you exclaimed under your breath, "You mean this is binding on me?"  And I'm forced to tell you, "yes".  Which leads to the inevitable "so what" question. 

The "so what" in this scenario is that you are likely locking yourself into a venue-selection provision.  I know the phrase sounds like you are making the decision of whether your play Deer Creek or Red Rock during the next summer tour cycle, but actually you are significantly limiting your options from a litigation standpoint.  Venue is the place where a lawsuit can be brought.  Obviously, you would like to bring a lawsuit near where you are located and where there is law that favors your position, but if you agree in contract that it will be brought in Poe-Dunk, North Dakota, well then friend, that's where you are headed. 

Recently, several courts have concluded that venue selection provisions contained within a clickwrap agreement are enforceable.  The most recent cases involve the venue-selection provision in the Google AdWords contract.  In TradeComet.com v. Google, a New York District Court found that the language from Google that

"THE AGREEMENT MUST BE CONSTRUED AS IF BOTH PARTIES
JOINTLY WROTE IT AND GOVERNED BY CALIFORNIA LAW EXCEPT
FOR ITS CONFLICTS OF LAWS PRINCIPLES. ALL CLAIMS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE GOOGLE
PROGRAM(S) SHALL BE LITIGATED EXCLUSIVELY IN THE FEDERAL
OR STATE COURTS OF SANTA CLARA COUNTY, CALIFORNIA, USA,
AND GOOGLE AND CUSTOMER CONSENT TO PERSONAL
JURISDICTION IN THOSE COURTS."

required the dismissal of an action brought in New York court.  The District Court went through a very succinct analysis of the standards for enforcement of a venue-selection provision and then made its determination of both (a) the enforceability of this agreement and (b) the reasonableness of enforcement of this provision in the instant case. 

Another court reached the same decision in Flowbee International, Inc. v. Google, again looking at this venue-selection provision in the Google clickwrap agreement.  In that case, the District Court ordered transfer rather than simply dismissing the action, but it nevertheless did transfer the case to the Northern District of California. 

These two cases illustrate the fact that when you click on that little box, you might be shoehorning yourself into a court that you don't want.  To date, most courts have applied the same analysis to as these courts did to determine that you, my friend, are stuck.  In fact, the District Court for Southern Indiana reached this decision in Appliance Zone, LLC v. Nextag, previously cited by Ms. Croswell.  

Now if you're sitting there wondering, "Ok, Mr. Bigshot at the information technology law firm,  what is a poor web-browser and member of the 21st century to do?"  My only answer is:  tune back in to Part 2. 

Employers invest so much time and effort into (a) finding and hiring the right candidates for the team, and (b) developing those individuals to work at their most efficient levels for the company. 

Let's face it, it can take years to get a company up and running effectively, and certain key individuals play a huge role in making that happen. 

You don't want to lose them.

While I firmly believe that everyone is replaceable, some employees are just harder to replace than others because they add so much value.

Give them an incentive.  One option is to tie their salary to the success of the company.

Instead of traditional stock options (which could make it difficult down the road should the employee leave the company for any reason) business owners may want to consider offering certain individuals profit interests.

Not only would it build loyalty and increase an employee's desire to see the company succeed, but the company owners would retain all of the equity interest.

A bit simpler than stock options, profit interests are typically tied to employment and end upon the employees departure.   This eliminates employers dealing with minority shareholders and the host of issues that may arise from them.

Alerding Castor Hewitt, LLP is an information technology law firm that has helped dozens of start-ups with their business and legal needs, including documentation for profit interest agreements.

As an admitted technophile, I can't help but look into all the newest gizmos and gadgets.  Plus, working at an information technology law firm, I can even bill it sometimes.  Thus, I've recently begun a fascination with e-books.  Jason Wilson has  done a very interesting set of blogs looking at the use of e-books (or lack of use) for lawyers (www.jasnwilsn.com/).  Jason's viewpoint is as a counterpoint to a recent set of blogs by Professor Eugene Volokh (volokh.com/2009/10/02/the-future-of-books-related-to-the-law/).  I find this debate interesting for lawyers in general, but litigators specifically.


While I appreciate Jason's point of the importance of cloud computing and web based interfaces for lawyers, I have to admit that I personally think that e-readers are likely to have increasing presence in courtrooms around the country.  I am genuinely intrigued by the thought of turning to my e-reader to "leaf" through a treatise on privacy litigation or ASP law that I've downloaded while sitting in a courtroom.  This is particularly true when the courtroom that I'm sitting in is located in small town Indiana (or any other small town) that is still working on integrated computer systems and look at you askew when you ask about WI-fi.  Web based interfaces are extremely important to the 21st century attorney, but there are still limitations.  And if technology can allow me to carry treatises and law books that I might need before a court while still using my super sleek briefcase, I'm all for it.

Emerging Indiana technology companies should consider grant opportunities as an alternative to raising private equity.  The benefits are obvious as you are not giving up a stake in the business in order to secure strategic capital. 

A client of mine this past week engaged my technology law firm to assist in an SBIR grant opportunity.  Other grant opportunities include NIH grants and 21st Century Fund grants.

The 21st Century Fund is a "must" to consider if you are an Indiana technology business.  The Fund is described on its website:

In the world of legal technology consulting, it's my job to turn that glossy marketing piece that sold you on new software development into a binding contract that ensures you actually get what you paid for.  When hiring an independant consultant or outside firm to create software or technology for your organization, I have two recommendations: (a) negotiate the terms wisely and (b) get it all in writing.   Nothing is worse than paying a huge consulting and services fee and not get the deliverables that you thought you had bargained for.  Terms to think about should include specific deadlines on project phases and deliverables, acceptancy testing to your satisfaction (especially on the final product), warranties by the developer, indemnifications from liability to any third-parties, and confidentiality provisions for your proprietary data, etc, etc, etc... I could go on and on.  If you are considering purchasing anything that involves software licensing or development,  consult a technology law firm first.

I am very thankful that Alerding Castor has not felt the economic constraints that have affected so many other business law firms.  Within the last nine months or so, four of the largest five firms in Indianapolis have either downsized, been acquired, or both – all due to financial difficulties. 

It is not just in Indianapolis.  The current economic climate has affected large firms with bloated budgets all over the nation.  In January and February, the ABA Journal recorded over 3,500 attorney layoffs nationwide.  One firm, McDermott Will & Emery, a massive 1,100 attorney firm based in Chicago, laid off over 60 attorneys and nearly 90 staff in February. 

Law firms are some of the worst run businesses around.  What makes it worse is that many attorney have no training or experience in running a business or creating a positive business culture.  Our industry takes academics with political science backgrounds and hands them multimillion dollar businesses to run in executive roles.  The following is an article from the ABA Journal’s site this past week regarding McDermott's layoff:

 

Following layoffs announced at McDermott Will & Emery early this month, those in charge of its Chicago headquarters office decided to reduce the scope of its coffee service there in another effort to cut costs.

 

But the economy move isn't going to be good for morale, a partner suggests in an e-mailed response to an internal message about the coffee cutback sent today by the head of the Chicago office. Unfortunately, this partner apparently accidentally hit the "reply all" button, and multiple copies were soon forwarded by McDermott insiders to Above the Law, the blog reports.

 

In his e-mail, the partner describes the coffee cutback as a mistake, saying that it will make only a small difference financially while sending a "message of desperation."

 

As a tangential point here – ALWAYS DOUBLE CHECK YOUR E-MAIL ADDRESS LINES BEFORE HITING “SEND”.  That is E-mail 101. 

 

That aside, and back to the point, you just laid off 150 people (including over 5% of your attorneys), and you are concerned that news of cutting the coffee budget will send a “message of desperation” to your associates and staff!  Umm, just thinking here, but maybe, possibly, firing 150 workers is a bigger sign of financial desperation than cutting your coffee budget. 

Alerding Castor is a business law firm / technology law firm / litigation and probate litigation firm.  Our success is based 100% on our great clients - who have also found success despite the current economic climate.  It is our honor to partner in success with our clients.

If the current economic situation has taught me anything it is that classic economic concepts of supply/demand really do work.  It also has taught me that good Midwest conservatism is not always the same as prudent investment.

 

On the front page of today’s Wall Street Journal is an article entitled “Cash-Rich Oracle Scoops Up Bargains in Recession Spree”.  The article describes how Oracle has closed ten acquisitions in the past year, ranging from a maker of insurance-policy-writing tools to a designer of “plan-o-gram” software used by stores to maximize their use of shelf space.  This all in light of a market where we saw a decrease in U.S. private equity investments in technology companies from nearly $120B in 2007 to approximately $30B in 2008.

 

Key quote from the article… “It’s a buyer’s market”.

 

In the final quarter of 2008 my business law firm / technology law firm, Alerding Castor, handled eight acquisition deals - seven of which were for buyers; two of which were in connection with private equity firms; six of which were for Indiana technology and/or SaaS businesses.  The current economic climate has created an environment for buyers and sellers.  As sellers become despirate and value liquidity over long-term ROI, buyers are stepping up and finding deals. 

 

 

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Private Equity in 2009 – Don’t Give Up
Private Equity VII – More on Angel Investors

Private Equity VI - Raising Angel Capital
Private Equity V - Raising Capital and Not Telling Lies
Private Equity IV - Angel Investors Get Picky
Private Equity III
Private Equity II
Private Equity I