Your friendly neighborhood technology legal counsel here: One of the greatest aspects of our firm is the fact that we, as attorneys, get to partner with our clients to assist in the development of their dreams. Additionally, while we focus on being the general counsel for all business types and sizes, one of my personal areas of passion is seeing new technology based clients develop and partnering with them to see their success.
One such emerging company that I'm happy to say we are partnering with is Den of Deliverabilty (www.denofdeliverability.com) ("DoD"). DoD is a start-up for which we've done SaaS legal consulting. They are focused on assisting their clients in getting their e-mail messages to the end user and drawing the distinction between "ham" (mail that people requested and want to receive) and "spam" (unsolicited commercial electronic mail). This process can be much more arduous that one might initial think, but luckily, DoD can help any business maximize their marketability through the proper use of commercial electronic messaging.
I'm very excited to see this company take off. They have great ideas and really cool software components that I think are going to be essential to any business. And just for fun legal disclaimer (what do you expect, I'm a lawyer) as I mentioned, I, and this firm, have done legal work for them, but we are not otherwise compensated by them.
So if you think this is something that your business might benefit from, check these guys out.
Posted Thursday, February 18, 2010 by
Janet Croswell
Congratulations are in order to Brian Hewitt, the newest parter of Alerding Castor Hewitt, LLP, who was recognized this week as one of Indiana's 2010 top 50 Super Lawyers.Brian concentrates his practice on estate, trust, and guardianship planning, administration, and litigation; and mediation and business law.
He is a Certified Estate Planning and Administration Specialist, a Fellow of the American College of Trust and Estate Counsel, and a member of the Probate Litigation Committee of the American College of Trust and Estate Counsel.
Brian has spoken widely at continuing education seminars on estate planning, business succession, litigation, and mediation.
Congrats Brian!
We are proud that you have chosen to join us as a named partner of Alerding Castor Hewitt, LLP, an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Thursday, February 18, 2010 by
David Castor
A few years back, sometime in the mid 1990’s, while an undergraduate business student at Purdue University, a fellow classmate and I entered the Burton Morgan Entrepreneurship Competition. We were the only undergraduate students chosen as top 10 finalists in the event – an accomplishment for which I am still quite proud. I remember the program as being challenging, informative and humbling. Following rounds of having our business plan reviewed and commented on by professors, we presented to a panel of judges which was made by business owners, private equity investors, and professors. The judges did not hold back on us. They told us exactly where our business model issues were. Most of the issues related to assumptions and implications underlying our financial projections and other business model variables that we had not taken into account.
I remember as a 21 year old being embarrassed by some of the points that we had not addressed in our plan, but the judges’ comments were not degrading – they were taken as a challenge and learning experience. We did not make the top 5, but the experience was invaluable.
It is amazing that I use these same comments today as a business law / funding law attorney with my business law clients. I review somewhere in the range of 75 to 100 business plans a year - either for clients seeking private equity or venture capital funding, for due diligence for clients looking to make investments, or for clients creating operational plans to launch out in their own venture. It is interesting how many of these plans fail to address financial assumptions and implications and business model variables.
Today I am closely connected to two of my three alma maters – Krannert School at Purdue and Butler College of Business where I did my MBA. Both schools have great entrepreneurship programs. Last month I guest lectured at Purdue’s entrepreneurship capstone course. Next month I am serving as a judge in their elevator pitch competition. I also stay tightly tied in with Butler and have worked on business or private equity deals with certain professors at the MBA program.
This week Purdue announced their top 10 finalists for the Burton Morgan Business Plan Competition. Our friends at Inside Indiana Business wrote a nice summary of the finalists. Check out the article.
Posted Thursday, February 18, 2010 by
David Castor
I have taken a few weeks off of blogging. Honestly, I felt like I needed the break, but I am excited about getting back on the saddle and writing again.Since it has been a few weeks, let me give a brief update on what we have been up to. Alerding Castor Hewitt has had an exciting beginning to 2010. On January 1, Bill Boncosky joined us. Bill is a business attorney / technology and SaaS law attorney working with privately held companies, primarily in technology industries. Bill has spent the last seven years as General Counsel at ExactTarget. We all have much to learn from him and are thrilled to have him as part of the team. The IBJ put out a nice article in January on our firm's focus on entrepreneur law and Bill's joining us in this field.
This week Scott Kreider joined our business litigation group. Scott adds to a team headed up by Mike Alerding that handles a difficult and necessary discipline for any full service business law firm – handling business disputes. It is great to have him aboard. Also, Mike made the IBJ's 40 under 40 the other week. Good stuff.
Over the last few weeks our firm has helped four clients through capital funding processes - three from angel investors or private equity firms and one from a venture capital firm. It is always encouraging to see business clients grow, and we count it as an honor to be part of their process.
We have also been involved with many businesses and business owners through customer deals and strategic business growth matters. We will write more on some of those matters in future posts.
I was a guest lecturer the other week at Purdue’s entrepreneurship capstone course. Man I felt old, but I was very encouraged by the enthusiasm, drive and smarts from this class.
So there is the fire hose version of the last few weeks. 2010 is off to a strong start for ACH. I am looking forward to what is coming down the pike.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Tuesday, February 16, 2010 by
Janet Croswell
Keeping up with software clients can be a challenge for technology legal counsel. The software as a service industry evolves quickly, time-lines are condensed, and the playing field yesterday can look decidedly different than it looks today. The name of the game for a SaaS company is to stay ahead of the pack and become known as THE leader in its industry.
I recently read an article in Entrepreneur magazine about Search Engine Optimization titled What You Don't Know About SEO.
What I DO know is that many of our clients could have written this article.
For those of you interested in Internet marketing, here's an excerpt about targeting keywords to help drive search results that our friends over at Compendium Blogware could have written:
"Google, of course, is the web-search alpha dog. But all the others--Bing, Yahoo, Ask.com, Lycos--are sniffing out the same stuff.
What gets their attention? Good, fresh, focused content. Adding a blog is one of the easiest and most straightforward ways to bulk up on content. If you sell hair-removal devices, for instance, start a blog that explores all aspects of waxing, plucking, threading, electrolysis and so on. Over time, your site will accrue searchable heft.
The trick is to be hyper-conscious of your keywords. For example, if you want web surfers on the prowl for "eyebrow waxing" to find your site in search engine results, organically work the exact phrase "eyebrow waxing" into each blog post (maybe multiple times), and use it on all static pages related to eyebrow waxing. Lather, rinse and repeat with every term and phrase you want to rank for.
Before you start writing content, though, research and plan your keyword attack. Is geography important to finding your customers? Then maybe "California eyebrow waxing" is the phrase you want to home in on."
Just a brief example of the world I'm living in by working in the area of SaaS legal consulting, I have the absolute privilege of working with high-tech, fast growing companies. Truly partners in success, I and the other attorneys of Alerding Castor Hewitt, LLP who practice in the area of technology legal counsel welcome the challenge of keeping up with the pace of this industry.
Posted Monday, January 4, 2010 by
Janet Croswell
Alerding Castor Hewitt, LLP is proud to announce the addition of Indiana technology lawyer Bill Boncosky to the firm. The former General Counsel for ExactTarget, Bill has tremendous experience as technology counsel for one of the most successful technology start ups based right here in the heart of Indianapolis. A company that had just over a dozen employees when he joined, Bill has substantial experience in licensing agreement negotiations, ASP Law and Cloud Computing Law serving in that role for over seven years. He will be able to provide significant guidance based on solid experiences to many of our clients operating within this industry.
If you're looking for SaaS legal consulting, the attorneys at Alerding Castor Hewitt, LLP can help. The newest attorney to join the firm, Bill Boncosky, is no exception.
Posted Thursday, December 24, 2009 by
David Castor
Closing in on the end of 2009 I have to say that I am quite pleased with the commitment Indiana showed this year to be a State that supports and promotes innovation, entreprenuership and business growth.This week I had breakfast with Larry O'Connor, Executive Director of Butler University's Business Accelerator. Larry is a former CEO of Bank One Indiana. Following his "retirement", Larry became CEO of The IndianapolisMuseumm of Art, and recently took the position to lead theAcceleratorr program.
On the program's website, Larry describes theAcceleratorr as follows:
Operationally, the Accelerator is a consulting business designed to serve middle market companies in Central Indiana. Teams of professional consultants, faculty and students work directly with these companies - helping them to grow and simultaneously providing a living laboratory in which undergraduate and MBA students learn and experience real business problems and situations.
While Butler is continuing its work with mid-market companies, 2009 also showed growth of incubator programs and the birth of new angel investment groups in Indiana. As an entrepreneurial law / private equity attorney, the health of these groups means a lot to me in terms of support and growth of my clients.
2009 was a strange year for businesses. Private capital was hard to come by due to economic constraints. Lending was tight. The corporateenvironmentt seemed to be mired by corporate fraud (Madoff, Durham). Despite all of this, Indianapolis proved to be a great place for businesses to launch and grow.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Friday, December 11, 2009 by
Chris Stephen
Interesting case (2009 WL 4261214) came across my desk. Not related to Indiana Internet litigation, but interesting conundrum. The basic facts are that client wanted to send e-mail response to his attorneys. In adding the second attorney, he inadvertently sent it to a third party. Through several forwards, it ends up at his opposing counsel's desk. That counsel wants to use it in litigation. Ultimately, the Idaho District Court found that it was an inadvertent production and made the opposing counsel give it back. But, the case still highlights the problem.We use autofill in everyday life without ever thinking about it. But in litigation in general, the attorney-client privilege must be cherished and defended. As a technology counsel, I deal with clients that are more computer and e-mail savvy than some you may find. My clients live on e-mail. Frankly, I live on e-mail. And this creates the needs for an additional level of vigilance that is necessary.
So in the immortal words of Hill Street Blues (and who didn't love that show) "Be safe out there". And remember to double check your e-mail recipients.
Posted Tuesday, December 8, 2009 by
Chris Stephen
A colleague of mine brought to my attention two recent federal cases in which the courts elected to deny motions to compel electronically stored information (ESI). In Kay Beer Distributing v. Energy Brands, Inc., the Eastern District of Wisconsin determined that, among other things, Kay's request for every e-mail with their name in it was too broad. The court also considered in its determination the fact that Energy Brand's counsel had offered to work with Kay to do more directed keyword searching of the e-mail engine, but Kay declined.
In my opinion, these cases are indicative of a trend that you'll see more prevalent in litigation, whether you're talking about technology litigation or run of the mill commercial litigation. When ESI discovery came onto the scene, judges were more prone to let the parties just duke it out and allowed for more expansive discovery requests. In my opinion, as the frequency of requests increase and judges are exposed to more and more decisions related to ESI, they are becoming more educated on technological capacity and will become less and less likely to allow for expansive discovery.
This leads me to the actual point of this post. For the entrepreneur, there can be significant benefits to cooperation in discovery related to ESI. Long before I became involved with Indiana technology litigation, I was fortunate enough to participate in some large scale discovery productions that involved searches electronically stored information. One of the pivotal points of the production involved the necessity to explain to the Court and the opposing party what they search system would and would not do. Much to the chagrin of my boss at the time, I suggested that we allow the opposing party to have direction in their search by doing it in conjunction with us. The Court called this an "organic search" (a term that I hated, but that ultimately stuck to what were were doing). It involve the opposing counsel conducting the searches with us and then directing further searches based on those results. With a limit on the time to conduct the search, we were able to minimize defense cost on the issue, appease plaintiff's counsel, and make the judge happy. And all we, as defense attorneys, had to do was the searches that we would have had to do anyway.
My point is that with technological capabilities comes a necessity to think outside of the box. As a business owner, you may be able to minimize your exposure and costs by simply allowing the other side into your office while you're doing their search. As an attorney, our jobs are to make sure that the appropriate safeguards are in place to protect our client, but also must be willing to effectuate for them the best result. Obviously, some areas of law, like privacy litigation, medical records, etc. are going to be less viable for this type of solution, but overall, there can be an upside to cooperation. Think about it.
In my opinion, these cases are indicative of a trend that you'll see more prevalent in litigation, whether you're talking about technology litigation or run of the mill commercial litigation. When ESI discovery came onto the scene, judges were more prone to let the parties just duke it out and allowed for more expansive discovery requests. In my opinion, as the frequency of requests increase and judges are exposed to more and more decisions related to ESI, they are becoming more educated on technological capacity and will become less and less likely to allow for expansive discovery.
This leads me to the actual point of this post. For the entrepreneur, there can be significant benefits to cooperation in discovery related to ESI. Long before I became involved with Indiana technology litigation, I was fortunate enough to participate in some large scale discovery productions that involved searches electronically stored information. One of the pivotal points of the production involved the necessity to explain to the Court and the opposing party what they search system would and would not do. Much to the chagrin of my boss at the time, I suggested that we allow the opposing party to have direction in their search by doing it in conjunction with us. The Court called this an "organic search" (a term that I hated, but that ultimately stuck to what were were doing). It involve the opposing counsel conducting the searches with us and then directing further searches based on those results. With a limit on the time to conduct the search, we were able to minimize defense cost on the issue, appease plaintiff's counsel, and make the judge happy. And all we, as defense attorneys, had to do was the searches that we would have had to do anyway.
My point is that with technological capabilities comes a necessity to think outside of the box. As a business owner, you may be able to minimize your exposure and costs by simply allowing the other side into your office while you're doing their search. As an attorney, our jobs are to make sure that the appropriate safeguards are in place to protect our client, but also must be willing to effectuate for them the best result. Obviously, some areas of law, like privacy litigation, medical records, etc. are going to be less viable for this type of solution, but overall, there can be an upside to cooperation. Think about it.
Posted Tuesday, December 1, 2009 by
David Castor
New technology businesses usually face two hurdles to get their product to market. The first is proof of concept. The second is proof of scale.
Both are intended to solve the “Ability” stage of the business plan process and move the business into the "Meeting" stage:
Proof of concept is simply the proof that the business can develop a working prototype that solves the market opportunity issue. For a software licensing company this will be development of a bare bones software program, usually without user interface design or additional back end functionality. It solves the most basic questions of whether the contemplated design will meet intended functionality.
Proof of scale is the initial to-market phase that proves the business can scale the technology (or good or service) to satisfy the market opportunity at a profit. Some of the issues to address at this stage include:
After proof of scale is satisfied, a business is usually in a more stable mode with its product (or service) satisfying the market opportunity at a profit.
As an entrepreneurial law / SaaS law attorney, I have helped several clients work through these and many other issues in the “proofs” stages. I find that few business fail to address the proof of concept stage well, but many ignore issues in proof of scale. One of the key issues to address early is quantifiable customer demand for YOUR product as many of the other issues spring from this one.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Both are intended to solve the “Ability” stage of the business plan process and move the business into the "Meeting" stage:
Recognition of Market -> Recognition of Market Opportunity -> Ability to Meet Market Opportunity -> Meeting Market Opportunity at Profit
Proof of concept is simply the proof that the business can develop a working prototype that solves the market opportunity issue. For a software licensing company this will be development of a bare bones software program, usually without user interface design or additional back end functionality. It solves the most basic questions of whether the contemplated design will meet intended functionality.
Proof of scale is the initial to-market phase that proves the business can scale the technology (or good or service) to satisfy the market opportunity at a profit. Some of the issues to address at this stage include:
- Adequate capital
- Quantifiable customer demand
- Number of sales force required
- Adequate supply chain (in terms of cost, quality and time)
After proof of scale is satisfied, a business is usually in a more stable mode with its product (or service) satisfying the market opportunity at a profit.
As an entrepreneurial law / SaaS law attorney, I have helped several clients work through these and many other issues in the “proofs” stages. I find that few business fail to address the proof of concept stage well, but many ignore issues in proof of scale. One of the key issues to address early is quantifiable customer demand for YOUR product as many of the other issues spring from this one.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Friday, November 20, 2009 by
Chris Stephen
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.
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.
Posted Monday, November 16, 2009 by
Janet Croswell
Here at Alerding Castor Hewitt, LLP, often times we work with clients who have software that inherently transcends state and national borders. Not just brick and mortor storefronts, many of our clients have customers nationwide and around the world.
Such is the realm of cloud computing law, and it's up to us as technology legal counsel to answer the inescapable question of what state, federal, or even country's law applies should a lawsuit arise.
Well, if you haven't contracted for this simple jurisdictional provision specifically in the terms of your license agreement or software service level agreement, as a SaaS company you may just find yourself flying over to London someday to deal with a breach of contract under U.K. law and their interpretation of your agreement.
All I have to say is good luck, and I hope you are prepared for those Barristers' premium legal rates.
Even if you win your case, you just wasted a tremendous amount of valuable time and money unnecessarily on SaaS litigation in the "wrong" venue.
I'm all for making the deal, but before you go shaking hands and rolling out your new Software as a Service application with a form agreement and without proper advisement, be sure to consult with reliable technology counsel to help you draft a solid agreement for your company's SaaS product.
Posted Wednesday, October 14, 2009 by
Chris Stephen
WIth the FTC guideline debate firing up the information technology law debates, Eric Goldman had an interesting post on Monday about the possiblity of 47 U.S.C. 230 preempting at least a portion of the guidelines. Here is the text of his post (found at his Technology & Marketing Law blog):
My Comments
If this interpretation is correct, which I think it is, the implications for business law and the technology lawyers is that an other level of insulation will protect entrepeneurs who are interested in using word of mouth blogging campaigns. Protection from liabliity under 47 USC 230 is one of the biggest protections afforded to litigants. The obvious question that I think this poses is: If the FTC is trying to get around 47 USC 230, and is likely going to be unsucessful, how long will the protection of 230 be available before Congress removes it? Of course, these types of questions are why I love being a technology lawyer.
"Last week’s release of the FTC's new Endorsement and Testimonial Guidelines has generated a significant amount of angst online. The resulting commentary has been strongly and almost uniformly negative. Frankly, none of the sources I read have praised the guidelines, but perhaps I'm locked in an echo chamber. Declan has a useful recap/linkwrap.
In this environment of heightened negativity, people have been searching for angles to prove the FTC can't do what it's doing. This has led folks to my post from last week arguing that certain facets of the guidelines violate 47 USC 230.
Despite the general popularity of the post, privately it has attracted some skepticism. Several smart law professors/lawyers disagreed with my post in Facebook profile page comments, and I've gotten some private emails to the same effect. What’s caught my attention is that these disagreements are coming from folks who normally agree with my expansive 230 interpretations. This clearly indicated to me that 230’s application to the FTC’s scenario was not nearly as self-evident as I thought it was.
As a result, in this post, I'm going to describe my analysis in more detail than my previous post. I'm not sure I'll convince the doubters, but they deserve more detail than I initially provided.
The FTC's Example
There are many facets to the new guidelines, but I am focusing solely on Example #5 to §255.1, which reads:
Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. [my emphasis]
The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services. [See § 255.5.]
In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.
The FTC doesn't define what qualifies as a "blog advertising service," but it's fairly clear the FTC is targeting PayPerPost/Izea and its competition. So the example could be restated as:
* advertiser contracts with PayPerPost to get bloggers to write about its product
* PayPerPost makes a match with a blogger. There is no employment or agency relationship between the advertiser or the blogger; this is an ordinary customer-vendor relationship, mediated by PayPerPost
* without any pre-review or kibitzing by the advertiser, the blogger makes a truthful statement about the blogger's experience about the product, but the statement would be impermissible marketing if made by the advertiser
* the FTC treats the advertiser as having made the blogger's statement
Prima Facie Elements of a 47 USC 230 Defense
47 USC 230(c)(1) reads:
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
A successful 230(c)(1) defense breaks down into three prima facie elements:
1) the defendant must be a "provider or user of an interactive computer service"
2) the content generating the alleged liability must be "information provided by another information content provider"
3) the legal claim has to treat the defendant as the "publisher or speaker" of the third party content
230 has a number of statutory exclusions, but I don't think any of them are relevant to Example 5.
Application of 47 USC 230 to Example #5
With this in mind, the FTC's Example #5 satisfies the prima facie elements of a successful 230 defense as follows: the advertiser is the user of an interactive computer service, the blog post is content provided by another information content provider, and the FTC's theory that the advertiser adopts or endorses the blog post treats the advertiser as the publisher or speaker of the third party blogger's blog post.
I received significant skepticism about my characterization of the advertiser as the "user" of an interactive computer service. I can reach this conclusion in two ways. First, PayPerPost provides an interactive computer service, and the advertiser uses PayPerPost. Second, the advertiser is a "user" of some Internet connectivity provider just by getting online.
Admittedly, explanation #2 is expansive, perhaps disconcertingly so. By this reasoning, anyone online automatically qualifies as a "user" of an interactive computer service by definition, thus seemingly expanding the 230 immunization eligibility to everyone without restriction. While this may sound wrong, it’s entirely consistent with how courts have interpreted the term “user.” The leading case on the topic, the California Supreme Court opinion in Barrett v. Rosenthal, never provides a single crisp definition of "user" but seemed to contemplate that merely being online qualified. Some minor cases possibly read "user" more narrowly, but I think the dominant line of cases gives “user” an expansive definition.
From a doctrinal standpoint, I think the broad reading of 230's application makes a lot of sense. The cases over the past 13+ years have taught us that 230(c)(1) can be distilled into a simple syllogism: unless the plaintiff’s claim fits into one of the statutory exclusions (IP, federal crimes, ECPA), A isn't liable for third party B's online content or actions. Period.
In the FTC’s Example #5, A is the advertiser and B is the blogger. Applying the same syllogism as above, the advertiser can’t liable for the blogger's online content or actions. Period.
The fact that the advertiser paid the blogger to write the content doesn't change my analysis one bit. For example, in the 1998 Blumenthal v. Drudge case, AOL got a 230 defense for Matthew Drudge's allegedly defamatory content, even though AOL paid $3,000 a month for Drudge's columns and retained editorial control over the content. I'm pretty sure 230 has applied in other cases where the defendant paid for the content. If you can think of others, I’d appreciate the reminder.
Further, the payment doesn't create a respondeat superior relationship between the advertiser and blogger. There is no credible argument that the blogger is the advertiser’s employee. I don’t think the example indicates an agency relationship because the advertiser lacks the requisite control over the blogger. PayPerPost’s mediation of the advertiser-blogger relationship further reinforces the lack of agency; indeed, the advertiser may not even be communicating directly with the blogger. And even if the blogger were the advertiser’s employee or agent, 230 still might apply for the blogger’s statements that exceed the advertiser’s authorization. See Delfino v. Agilent and the Higher Balance case.
If you don't like the broad reading of "users" (even though I think it is defensible under the case law), then go back to my first explanation that both the advertiser and blogger are "users" of the interactive computer service provided by the blog advertising service provider (e.g., PayPerPost). This argument works just fine too.
Applicable 230 Precedent
Unfortunately, I can’t point to many 230 cases applying the immunization to circumstances where the defendant did not host or republish the allegedly tortious content. Most 230 cases involve a provider's liability for its user's content or actions (the “paradigmatic” 230 case).
In contrast, we don't see many cases interpreting the user defense, but then again, those lawsuits may be so tenuous anyway that they are rarely brought. For example, I could not find any specific cases applying 230 to the linking situation I critiqued in my SEC comments.
Even without any obvious precedent, I think the statute on its face leads easily to the conclusion that advertisers can't be liable for bloggers' independent posts. As I indicated in my initial post, I don't even see that as a close case under 230.
One reasonably close precedent, the Subway v. Quiznos case, hasn’t reached a solid 230 ruling yet. In that case, Quiznos reposted some user-created advertising videos, and Subway contended that the videos constituted false advertising. The court rejected Quiznos' 230 defense solely on the grounds that it was raised in a 12(b)(6) motion to dismiss, which the court said was too early. (This same issue arose in Barnes v. Yahoo, where the Ninth Circuit initially agreed with this court and then withdrew that portion of its opinion). Although 230 didn’t apply at the 12(b)(6) stage, could Quiznos claim 230 for the videos at a later stage of the proceeding? I think it can, even if it "adopted" the user-generated videos by republishing them, unless it actually authored the statements that are deemed false advertising. For examples where a republisher can claim 230 for content is putatively “endorses” through its republication, see, e.g., the Barrett case, the Batzel case, the Tefft case (one of the minor cases narrowly interpreting “user”), the D’Alonzo case and the Furber case. I’m sure I could find others.
I think the FTC's Example #5 is an even easier 230 case than Quiznos’ situation. Unlike Quiznos, the advertiser in Example #5 never republished the blog post or even signaled any adoption of or agreement with the post. With such a tenuous relationship between the advertiser and the blogger, the FTC’s overreaching—and the role 230 plays in preventing that overreaching—is even clearer.
Conclusion
As the old expression goes, when you’re a hammer, everything looks like a nail. So perhaps I’m just such a 230 enthusiast that I’m finding it in places it doesn’t belong.
However, having read many dozen 230 cases over the past 13 years, I’ve formed the strong opinion that courts treat 230 as saying A isn’t liable for third party B’s online content. If you accept that proposition (and resist the temptation to manufacture provisos and qualifications that don’t actually exist in the cases), then it should be clear why 230 preempts Example #5—because that’s exactly what the FTC is trying to do."
My Comments
If this interpretation is correct, which I think it is, the implications for business law and the technology lawyers is that an other level of insulation will protect entrepeneurs who are interested in using word of mouth blogging campaigns. Protection from liabliity under 47 USC 230 is one of the biggest protections afforded to litigants. The obvious question that I think this poses is: If the FTC is trying to get around 47 USC 230, and is likely going to be unsucessful, how long will the protection of 230 be available before Congress removes it? Of course, these types of questions are why I love being a technology lawyer.
Posted Saturday, October 3, 2009 by
David Castor
This is part III of a hilarious article by Robert Ambrogi on the IMS Expert Services blog. I am an Indiana technology lawyer focusing on entrepreneurial law, SaaS business law and technology law. As such, this article hits home as it lies at the intersection of social media and legal process. Enjoy.4. Lawyer's blogging backfires
A California lawyer learned the hard way to watch what you say on your blog. His posts helped earn him a suspension from law practice. But the case has an unusual twist. The lawyer in the felony trial was there not as an advocate, but as a juror. Not only that, but he had not disclosed to anyone that he was a lawyer.
Even though the judge warned jurors not to discuss the case, the lawyer wrote about it on his blog. His posts identified the judge by name and described her as "a stern attentive woman with thin red hair and long, spidery fingers that as a grandkid you probably wouldn't want snapped at you." He gave the first name of the defendant and described his alleged crimes, referring to him as "a stout, unhappy man."
If the defendant was unhappy at trial, he later had reason to smile. When the lawyer's blogging came to light, the defendant's conviction was lifted and he was given a new trial. As for the blogging lawyer, he earned an 18-month suspension from the practice of law.
3. Blogging makes bad medicine
When a doctor decided to blog his own med-mal trial, it was a prescription for trouble. The doctor, known to his readers only as Flea, was already writing his blog when he was served with a lawsuit. As the case progressed, he periodically posted about it, describing his feelings when he was served with the complaint and reported on his own deposition.
When the trial finally got underway, he continued to blog, relaying his impressions of the plaintiffs' lawyer (whom he nicknamed "Carissa Lunt"), describing his "dress rehearsal," and accusing jurors of dozing off. While he may have thought his blogging had gone unnoticed by others in the courtroom, that was anything but the case.
During cross-examination of the physician, the plaintiff's attorney – the very one the doctor had described on his blog – surprised him with the question, "Are you Flea?" Yes, he sheepishly admitted. It was, according to one news account, a "Perry Mason moment."
The next morning, the parties entered into a confidential settlement reported to be "substantial." Ironically, jurors probably had no sense of the import of the question. But it was enough to signal that the plaintiffs' lawyer was prepared to delve into the blog in open court. Given some of what Flea had written there, settlement no doubt seemed the wiser course.
2. MySpace, my downfall
When an attractive New York model sued a high-profile billionaire claiming he had pressured her into sex when she was only 16, the tabloids were in a tizzy. Soon, the story was all over the gossip pages.
But it did not take long before reporters at one newspaper discovered the model's MySpace page. Based on what they found there, the newspaper reported that she was in fact a he. It also reported a graphic description taken from the MySpace page of the model's sexual fantasy involving multiple men and women. Further snooping revealed evidence that the model may have been much older than 16 at the time of the alleged affair.
After the MySpace page came to light, the model's lawsuit against the billionaire seems to have fizzled. But the model filed a second lawsuit, this time against the newspaper that discovered the page. She alleged that the newspaper's description of her fantasy defamed her by portraying her as a "promiscuous slut."
An appellate court disagreed. Because the newspaper reported only that the model had a fantasy – not that she actually engaged in the conduct – it did not defame her, the court reasoned. "The references to the Myspace pages merely served to highlight the ambiguity regarding the sexual identity of the person who sued the billionaire," the court said.
1. YouTube, Your Honor
Nothing, it seemed, could derail the nomination of Sonia Sotomayor to be the first Hispanic on the Supreme Court. Nothing, that is, but the resurrection online of her own long-forgotten words.
First it was that now-famous YouTube video. It showed a 2005 speech by Sotomayor to law students interested in becoming law clerks. The difference between serving in a trial court and in an appellate court, she told them, is that a "court of appeals is where policy is made." Conservatives jumped on the comment, saying it showed her to be a judicial activist.
As if that was not enough of a blow, next came the resurfacing of her 2001 speech, published by Berkeley's La Raza Law Journal, in which she said, "I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life."
Fortunately for now-Justice Sotomayor, neither her comment about judicial activism nor her "wise Latina" remark was enough to derail her track to the nation's highest court. But both serve as reminders that no matter what might be at stake, in the age of social media, the shadow of one's past is never far behind.
A California lawyer learned the hard way to watch what you say on your blog. His posts helped earn him a suspension from law practice. But the case has an unusual twist. The lawyer in the felony trial was there not as an advocate, but as a juror. Not only that, but he had not disclosed to anyone that he was a lawyer.
Even though the judge warned jurors not to discuss the case, the lawyer wrote about it on his blog. His posts identified the judge by name and described her as "a stern attentive woman with thin red hair and long, spidery fingers that as a grandkid you probably wouldn't want snapped at you." He gave the first name of the defendant and described his alleged crimes, referring to him as "a stout, unhappy man."
If the defendant was unhappy at trial, he later had reason to smile. When the lawyer's blogging came to light, the defendant's conviction was lifted and he was given a new trial. As for the blogging lawyer, he earned an 18-month suspension from the practice of law.
3. Blogging makes bad medicine
When a doctor decided to blog his own med-mal trial, it was a prescription for trouble. The doctor, known to his readers only as Flea, was already writing his blog when he was served with a lawsuit. As the case progressed, he periodically posted about it, describing his feelings when he was served with the complaint and reported on his own deposition.
When the trial finally got underway, he continued to blog, relaying his impressions of the plaintiffs' lawyer (whom he nicknamed "Carissa Lunt"), describing his "dress rehearsal," and accusing jurors of dozing off. While he may have thought his blogging had gone unnoticed by others in the courtroom, that was anything but the case.
During cross-examination of the physician, the plaintiff's attorney – the very one the doctor had described on his blog – surprised him with the question, "Are you Flea?" Yes, he sheepishly admitted. It was, according to one news account, a "Perry Mason moment."
The next morning, the parties entered into a confidential settlement reported to be "substantial." Ironically, jurors probably had no sense of the import of the question. But it was enough to signal that the plaintiffs' lawyer was prepared to delve into the blog in open court. Given some of what Flea had written there, settlement no doubt seemed the wiser course.
2. MySpace, my downfall
When an attractive New York model sued a high-profile billionaire claiming he had pressured her into sex when she was only 16, the tabloids were in a tizzy. Soon, the story was all over the gossip pages.
But it did not take long before reporters at one newspaper discovered the model's MySpace page. Based on what they found there, the newspaper reported that she was in fact a he. It also reported a graphic description taken from the MySpace page of the model's sexual fantasy involving multiple men and women. Further snooping revealed evidence that the model may have been much older than 16 at the time of the alleged affair.
After the MySpace page came to light, the model's lawsuit against the billionaire seems to have fizzled. But the model filed a second lawsuit, this time against the newspaper that discovered the page. She alleged that the newspaper's description of her fantasy defamed her by portraying her as a "promiscuous slut."
An appellate court disagreed. Because the newspaper reported only that the model had a fantasy – not that she actually engaged in the conduct – it did not defame her, the court reasoned. "The references to the Myspace pages merely served to highlight the ambiguity regarding the sexual identity of the person who sued the billionaire," the court said.
1. YouTube, Your Honor
Nothing, it seemed, could derail the nomination of Sonia Sotomayor to be the first Hispanic on the Supreme Court. Nothing, that is, but the resurrection online of her own long-forgotten words.
First it was that now-famous YouTube video. It showed a 2005 speech by Sotomayor to law students interested in becoming law clerks. The difference between serving in a trial court and in an appellate court, she told them, is that a "court of appeals is where policy is made." Conservatives jumped on the comment, saying it showed her to be a judicial activist.
As if that was not enough of a blow, next came the resurfacing of her 2001 speech, published by Berkeley's La Raza Law Journal, in which she said, "I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life."
Fortunately for now-Justice Sotomayor, neither her comment about judicial activism nor her "wise Latina" remark was enough to derail her track to the nation's highest court. But both serve as reminders that no matter what might be at stake, in the age of social media, the shadow of one's past is never far behind.
Posted Wednesday, September 30, 2009 by
David Castor
This is part II of a repost of an article by Robert Ambrogi on the IMS Expert Services blog (here is a link to the first post). These are unbelievable stories of actual cases and situations where attorneys, judges and jurors posted blog articles and shared stories on social media sites which got them in trouble. Amazing - and funny.7. When jurors tweet
After jurors in an Arkansas case awarded a verdict of $12.6 million against a building materials company, one juror boasted on Twitter, "I just gave away TWELVE MILLION DOLLARS of somebody else's money." And that was only one of at least eight tweets he posted from his cell phone during the trial. Another said that the company would "probably cease to Exist, now that their wallet is 12m lighter."
Upon learning of the juror's tweets, the company promptly moved for a new trial. The defense lawyer contended that the juror's tweets showed he "was predisposed toward giving a verdict that would impress his audience."
Surprisingly, the trial judge denied the request for a new trial. The judge conceded that the juror's posts were in bad taste, but he ruled that they did not amount to improper conduct sufficient to warrant a new trial. Given that it is otherwise out $12 million, we have to assume the defendant will appeal the case and ask a higher court to weigh in on the twittering juror.
6. Two-faced on Facebook
You never know who may be watching you online. Remember that the next time you give a judge a made-up excuse for why you need a continuance.
A lawyer learned that lesson when she told Susan Criss, a trial judge in Galveston, Texas, that she needed a continuance because of a death in her family. Criss recounted what happened in a recent speech for the American Bar Association Judicial Division that was reported by the legal newspaper Texas Lawyer.
Having already given the lawyer a one-week continuance, Judge Criss was surprised when the lawyer's partner came into court and said that this time she would need a full month. But as a regular user of Facebook, Judge Criss had a surprise of her own up the sleeve of her judicial robe.
"I knew from her bragging on a Facebook account that she had been partying that same week," Criss said of the supposedly grieving lawyer. The judge told the surprised partner about what she had seen on Facebook. You can guess what she said about the continuance.
5. Careful who you 'friend'
While meeting in chambers with the judge during a North Carolina child-custody trial, the conversation turned briefly to Facebook. The wife's lawyer did not use it, but both the husband's lawyer and the judge did.
That evening, the judge logged on to Facebook and "friended" the husband's lawyer. As the trial proceeded, the judge and the lawyer commented about it to each other through their Facebook pages. At one point, the lawyer posted, "I have a wise Judge."
After the case ended, the wife's lawyer found out about the "friendship." She immediately moved for a new trial and for the judge's disqualification. The judge promptly removed himself from the case and the wife got a new trial.
The judge got something too – a lesson in judicial ethics in the form of a public reprimand from the state's Judicial Standards Commission. It seems his Facebook messages violated that irksome little prohibition against a judge engaging in ex parte communications.
After jurors in an Arkansas case awarded a verdict of $12.6 million against a building materials company, one juror boasted on Twitter, "I just gave away TWELVE MILLION DOLLARS of somebody else's money." And that was only one of at least eight tweets he posted from his cell phone during the trial. Another said that the company would "probably cease to Exist, now that their wallet is 12m lighter."
Upon learning of the juror's tweets, the company promptly moved for a new trial. The defense lawyer contended that the juror's tweets showed he "was predisposed toward giving a verdict that would impress his audience."
Surprisingly, the trial judge denied the request for a new trial. The judge conceded that the juror's posts were in bad taste, but he ruled that they did not amount to improper conduct sufficient to warrant a new trial. Given that it is otherwise out $12 million, we have to assume the defendant will appeal the case and ask a higher court to weigh in on the twittering juror.
6. Two-faced on Facebook
You never know who may be watching you online. Remember that the next time you give a judge a made-up excuse for why you need a continuance.
A lawyer learned that lesson when she told Susan Criss, a trial judge in Galveston, Texas, that she needed a continuance because of a death in her family. Criss recounted what happened in a recent speech for the American Bar Association Judicial Division that was reported by the legal newspaper Texas Lawyer.
Having already given the lawyer a one-week continuance, Judge Criss was surprised when the lawyer's partner came into court and said that this time she would need a full month. But as a regular user of Facebook, Judge Criss had a surprise of her own up the sleeve of her judicial robe.
"I knew from her bragging on a Facebook account that she had been partying that same week," Criss said of the supposedly grieving lawyer. The judge told the surprised partner about what she had seen on Facebook. You can guess what she said about the continuance.
5. Careful who you 'friend'
While meeting in chambers with the judge during a North Carolina child-custody trial, the conversation turned briefly to Facebook. The wife's lawyer did not use it, but both the husband's lawyer and the judge did.
That evening, the judge logged on to Facebook and "friended" the husband's lawyer. As the trial proceeded, the judge and the lawyer commented about it to each other through their Facebook pages. At one point, the lawyer posted, "I have a wise Judge."
After the case ended, the wife's lawyer found out about the "friendship." She immediately moved for a new trial and for the judge's disqualification. The judge promptly removed himself from the case and the wife got a new trial.
The judge got something too – a lesson in judicial ethics in the form of a public reprimand from the state's Judicial Standards Commission. It seems his Facebook messages violated that irksome little prohibition against a judge engaging in ex parte communications.
~~~~~~
Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Wednesday, September 23, 2009 by
David Castor
This article is just too good and deserves a repost on the Business & Culture Blog. I am an Indiana technology lawyer focusing on entrepreneurial law, SaaS business law and technology law. As such, this article hits home as it lies at the intersection of social media and legal process. The article is by Robert Ambrogi and posted on the IMS Expert Services blog. I will repost it in 3 parts - all are worth reading.What happens in Vegas stays in Vegas. The same is not true of what happens online. With increasing regularity, litigants, lawyers, witnesses, jurors and even judges are seeing their online activities come back to haunt them in court.
This month, Bullseye brings you the best of the worst – 10 of the most outrageous examples of people caught in the courtroom by what they did on Facebook, Twitter or elsewhere online.
Next month, we will tell you how to participate in social media safely, so that your online activities don't get you in legal hot water.
10. Counting keystrokes
Mary Mack, corporate technology counsel for the e-discovery company Fios Inc., once worked on a personal injury case in which the plaintiff claimed that his injuries left him unable to use his hands for anything but minimal activities. Searching the Web for information about the plaintiff, the defense team discovered that he was a blogger. Not only was he a blogger, but he was a prolific blogger.
Had the defense counsel simply confronted the plaintiff with his numerous blog posts, that probably would have been sufficient to discredit him. But the defense team went an extra step. It downloaded all his blog posts and calculated precisely how many keystrokes would have been required to write them all.
When the defense confronted the plaintiff with that number at trial, the plaintiff's facial expression no doubt said even more than his well-functioning fingers ever could.
9. Texting is a no-no
During a video deposition, the deponent, an executive of the company being sued, was in California. Plaintiff and defense counsel were in New Jersey. The deponent's pro hac vice attorney was in Michigan. The video stream showed deponent and his PHV attorney from only the chest up.
Turned out, deponent and his counsel were busy below chest level, texting each other throughout the deposition. No one might ever have been the wiser, had PHV counsel not inadvertently addressed one of these text messages to plaintiff's counsel.
Needless to say, plaintiff's counsel went straight to court, demanding to see the text messages. The defense fought their release, arguing attorney-client privilege protected them. A federal court in New Jersey sided with the plaintiff and ordered the text messages handed over. Texting was no different than passing notes, it ruled, and violated the Federal Rules of Civil Procedure.
8. Twittering from the bench
A magistrate in England found himself steeped in hot water after it was discovered that he was "tweeting" about his cases. It all came to a boil after another magistrate discovered the tweets and complained.
The tweets came after the magistrate was called in on a Saturday to hear bail applications for defendants arrested the night before. "Called into Court today to deal with those arrested last night and held in custody," he tweeted. "I guess they will be mostly drunks but you never know."
He continued to tweet as he heard the cases of three men accused of robbery. For example, one tweet said, "1st defendant. Conspiricy to rob TSB of £500,000. Good start - wrong previous convictions presented." He later concluded with this tweet: "Finished hearing bail. 3 refused for planning robbery of £480,000 from Tsb in Dawley, Telford."
When the magistrate learned that his tweets were to be investigated by a judicial advisory committee, he chose instead to resign from the bench. But even as he resigned, he maintained he did nothing wrong. Where better to defend himself but on Twitter, where he posted this explanation: "I didn't tweet whilst sitting in court but in the retiring room during the break and at the end of the hearing."
This month, Bullseye brings you the best of the worst – 10 of the most outrageous examples of people caught in the courtroom by what they did on Facebook, Twitter or elsewhere online.
Next month, we will tell you how to participate in social media safely, so that your online activities don't get you in legal hot water.
10. Counting keystrokes
Mary Mack, corporate technology counsel for the e-discovery company Fios Inc., once worked on a personal injury case in which the plaintiff claimed that his injuries left him unable to use his hands for anything but minimal activities. Searching the Web for information about the plaintiff, the defense team discovered that he was a blogger. Not only was he a blogger, but he was a prolific blogger.
Had the defense counsel simply confronted the plaintiff with his numerous blog posts, that probably would have been sufficient to discredit him. But the defense team went an extra step. It downloaded all his blog posts and calculated precisely how many keystrokes would have been required to write them all.
When the defense confronted the plaintiff with that number at trial, the plaintiff's facial expression no doubt said even more than his well-functioning fingers ever could.
9. Texting is a no-no
During a video deposition, the deponent, an executive of the company being sued, was in California. Plaintiff and defense counsel were in New Jersey. The deponent's pro hac vice attorney was in Michigan. The video stream showed deponent and his PHV attorney from only the chest up.
Turned out, deponent and his counsel were busy below chest level, texting each other throughout the deposition. No one might ever have been the wiser, had PHV counsel not inadvertently addressed one of these text messages to plaintiff's counsel.
Needless to say, plaintiff's counsel went straight to court, demanding to see the text messages. The defense fought their release, arguing attorney-client privilege protected them. A federal court in New Jersey sided with the plaintiff and ordered the text messages handed over. Texting was no different than passing notes, it ruled, and violated the Federal Rules of Civil Procedure.
8. Twittering from the bench
A magistrate in England found himself steeped in hot water after it was discovered that he was "tweeting" about his cases. It all came to a boil after another magistrate discovered the tweets and complained.
The tweets came after the magistrate was called in on a Saturday to hear bail applications for defendants arrested the night before. "Called into Court today to deal with those arrested last night and held in custody," he tweeted. "I guess they will be mostly drunks but you never know."
He continued to tweet as he heard the cases of three men accused of robbery. For example, one tweet said, "1st defendant. Conspiricy to rob TSB of £500,000. Good start - wrong previous convictions presented." He later concluded with this tweet: "Finished hearing bail. 3 refused for planning robbery of £480,000 from Tsb in Dawley, Telford."
When the magistrate learned that his tweets were to be investigated by a judicial advisory committee, he chose instead to resign from the bench. But even as he resigned, he maintained he did nothing wrong. Where better to defend himself but on Twitter, where he posted this explanation: "I didn't tweet whilst sitting in court but in the retiring room during the break and at the end of the hearing."
Posted Monday, September 21, 2009 by
David Castor
Next week is the TechPoint Innovation Summit. This will be an exciting event for Indiana-based technology leaders.This year I am pleased to moderate the plenary panel discussion on "Funding Innovation". As an Indiana tech lawyer / SaaS law attorney who helps clients set capital structures and meet capital goals, this is a topic I live and breath and am always striving to see fulfilled. Thus, I am thrilled to take part in this discussion.
The panel consists of venture capital and private equity investors from all over the nation - all with experience in funding innovative companies in Indiana. I have met a ton of technology business owners seeking capital investors to fund their innovation initiatives, but I have met very few who know how to navigate the process well (or even where to begin). This panel will address questions for early-stage, mid-stage, and later stage companies looking for capital infusion.
A bit on TechPoint:
TechPoint promotes technology-based enterprise and economic development through lobbying and government advocacy, educational and networking programs, and strategic economic development initiatives. TechPoint seeks growth in Indiana's emerging technology clusters, including advanced manufacturing, logistics, health and life sciences, and information technology.
The entire summit will be a great event. Many of the topics of the summit are going to be those that I have addressed with my business law / SaaS law clients. Check out the website and the agenda and consider attending.
Posted Thursday, September 17, 2009 by
David Castor
I read an interesting post yesterday on Small Business Trends by Professor Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University. It is a good read for current entrepreneurs and those daring to dream of starting their own company. Here is the post:
Most entrepreneurs believe a bunch of myths about financing new companies that hinder their efforts to raise money. Here are a few:
Myth 1: It takes a lot of money to finance a new business. Not true. The typical start-up only requires about $25,000 to get going. The successful entrepreneurs who don’t believe the myth design their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.
Myth 2: Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and 72 percent of the companies that got VC money over the past 15 or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about 1 in 4,000. That’s worse than the odds that you will die from a fall in the shower.
Myth 3: Most business angels are rich. If rich means being an accredited investor — a person with a net worth of more than $1 million or an annual income of $200,000 per year if single and $300,000 if married — then the answer is “no”. Almost three quarters of the people who provide capital to fund the start-ups of other people who are not friends, neighbors, co-workers, or family don’t meet SEC accreditation requirements. In fact, 32 percent have a household income of $40,000 per year or less and 17 percent have a negative net worth.
Myth 4: Start-ups can’t be financed with debt. Actually, debt is more common than equity. According to the Federal Reserve’s Survey of Small Business Finances, 53 percent of the financing of companies that are two years old or younger comes from debt and only 47 percent comes from equity. So a lot of entrepreneurs out there are using debt rather than equity to fund their companies.
Myth 5: Banks don’t lend money to start-ups. This is another myth. Again, the Federal Reserve data shows that banks account for 16 percent of all the financing provided to companies that are two years old or younger. While 16 percent might not seem that high, it is 3 percent higher than the amount of money provided by the next highest source — trade creditors — and is higher than a bunch of other sources that everyone talks about going to: friends and family, business angels, venture capitalists, strategic investors, and government agencies.
As a business law, SaaS law/ASP law and private equity attorney, I see early stage technology business owners encounter these myths regularly. When looking at developing an early stage technology business, key is to consider market opportunity and your ability to meet the opportunity based on your constraints (including capital constraints and founding team abilities).
~~~~~~
Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Thursday, September 3, 2009 by
David Castor
I read an interesting blog post by Thomas Klein of Sand Hill Group this week on the evolution and future of enterprise software. Klein states that a new wave of enterprise software has emerged and is “pulsating through the economy” and venture capital will soon take notice. The new platform is marked principally by SaaS and cloud computing. The industry visionaries are referring to this new era of enterprise software as Enterprise 3.0.
I found Klein's summary of the history of enterprise software interesting. Here is an excerpt of his post:
Enterprise 1.0 occurred during the great mainframe expansion that began in the early 1950's and ran until the minicomputer revolution in the early to mid 1970's. Enterprise 1.0 was characterized by "Big Iron" mainframe computers with a few thousand dedicated connections to the machine, and once-a-day batch processing. IBM was dominant in this field with several other players that together were referred to as "IBM and the Seven Dwarfs." The dwarfs were Burroughs, UNIVAC, NCR, Control Data, Honeywell, GE and RCA, later after mergers referred to as "IBM and the BUNCH" (Burroughs, UNIVAC, NCR, Control Data, and Honeywell). Operating and application software were initially written in-house by programmers dedicated to their mainframe systems, until mainframe adoption spread into most large enterprises in the late 1950's and early 1960's.
At that time, independent software companies emerged to write specific applications. The Computer Usage Corporation (CUC) was founded by two former IBM employees in 1955, and by 1967, CUC had 700 employees in 12 cities. The Systems Development Corporation (SDC), a division of the RAND Corporation, was formed in 1956 to develop a large air defense system. SDC employed hundreds of programmers and was referred to as "programmer university". The Computer Sciences Corporation was formed with five founders in 1969, and had 68,000 employees by 1990. Most of these early entrants into independent software development were formed by programmers writing custom programs for individual customers. By the mid-1960's, however, independent software companies began developing and marketing software packages that could be used by many different types of customers. One innovator in this era was Informatics, which wrote and sold the hugely popular Mark IV database in the mid-1960's.
Although minicomputers were developed in the 1960's, their widespread adoption in the 1970's marked the flourishing of Enterprise 1.0. Digital Equipment Company, formed in 1964, was the first successful minicomputer maker, but other companies along Massachusetts route 128 joined in the growth of the minicomputer market during the 1970's: Data General, Wang Laboratories, Apollo Computer, and Prime Computer. Tracy Kidder won a Pulitzer prize for his non-fiction book The Soul of a New Machine, detailing the development of Data General's minicomputer. In 1984, there were 91 minicomputer companies in the United States. By 1990, there were less than 10.
The last hurrah of Enterprise 1.0 was the flourishing of software companies developing products for the minicomputer market. Some names were American Software (1970), Tesseract Systems (1970), Walker Interactive Software (1971), ASK Computer and Ross Systems (1972), Compuware (1973), Cyborg Systems (1974), Computer Associates and SAS Institute (both 1976), and Candle Corporation, J.D. Edwards, Oracle Corporation, Softool (all formed in 1977). The most successful enterprise software at the time was Computer Associates, which acquired dozens of software product companies. A well-known pioneer during this period was John Cullinane who in 1968 founded Cullinane Software, which was the first software product company to go public, in 1978.
The PC platform was the death knell for minicomputers as client-server architecture took over the enterprise in the early to mid-1980's, heralding Enterprise 2.0. Enterprise 2.0 was marked by data continuously available and updated, millions of connections to the network rather than mere thousands, and data available from the network almost anywhere, rather than just at a terminal connected to a mainframe or minicomputer. The client-server architecture required entirely new software at the system level, management level, and at the client level. With decentralization and distribution, the advent of networks, and Marc Andreesen's Mosaic user interface to the Internet (later commercialized at Netscape), Enterprise 2.0 was at its height, and another flourishing of enterprise software companies took place. There were not only Netscape, Microsoft, Oracle, Peoplesoft, Sybase, Informix, Platinum Technology, BMC, BEA, and Red Brick, but also Arbor, Aurum, Broadvision, Scopus, Simware, Sun's Java platform, and hundreds of other companies offering platforms, management software (e.g. Remedy's helpdesk software), security software, enterprise applications, and of course even client-level applications. The industry consolidated again in fits are starts over the next decade, accelerated by the recessions in 1990-91, the mild slowdown in 1994-95, and the tech bust of 2000-2002.
Today, the software industry is at the threshold of Enterprise 3.0, where data is continuously updated and available all the time from multiple devices anywhere in the world, with billions of connections to systems and users through online networks that are not tethered to a specific enterprise's system. Saas and Cloud computing are part of Enterprise 3.0, and cloud vendors are capitalizing on the infrastructure needs of the new paradigm. Enterprise 3.0 is characterized by vendors solving highly specific problems and providing highly customized solutions for customers by bringing together just the resources needed for that solution, and doing so on a model where almost all the infrastructure and development are outsourced in one form or another. The hosting of the data may be outsourced to a hosting company, the software development might be outsourced to a development team, other software might be purchased on a Saas model, and storage might be purchased on a terabyte basis from a cloud vendor. The ability to collaborate and affiliate easily are central to effecting these solutions for customers and making money in Enterprise 3.0.
There is a flourishing of SaaS, cloud, and infrastructure vendors filling market spaces in new Enterprise 3.0 sectors. Companies like Cast Iron Systems, Cloudera, Corticon Technologies, Gridapp Systems, Instantis, Kace, Marketo, Mobclix, Nirvanix, SOA Software, SmartVault, Vkernel, Wize, and Zetta are a few of the companies penetrating the multitude of new segments opened up by the Enterprise 3.0 paradigm. Many of these companies have received venture funding, and the venture capital community is once again very interested in enterprise software, albeit looking for specific niches that each venture group perceives as potentially high growth. Fortunately, Enterprise 3.0 offers a superabundance of these niches for investment capital. Accordingly, venture capital is alive and well in the new enterprise software market, and that is reason for optimism in the enterprise software industry.
At that time, independent software companies emerged to write specific applications. The Computer Usage Corporation (CUC) was founded by two former IBM employees in 1955, and by 1967, CUC had 700 employees in 12 cities. The Systems Development Corporation (SDC), a division of the RAND Corporation, was formed in 1956 to develop a large air defense system. SDC employed hundreds of programmers and was referred to as "programmer university". The Computer Sciences Corporation was formed with five founders in 1969, and had 68,000 employees by 1990. Most of these early entrants into independent software development were formed by programmers writing custom programs for individual customers. By the mid-1960's, however, independent software companies began developing and marketing software packages that could be used by many different types of customers. One innovator in this era was Informatics, which wrote and sold the hugely popular Mark IV database in the mid-1960's.
Although minicomputers were developed in the 1960's, their widespread adoption in the 1970's marked the flourishing of Enterprise 1.0. Digital Equipment Company, formed in 1964, was the first successful minicomputer maker, but other companies along Massachusetts route 128 joined in the growth of the minicomputer market during the 1970's: Data General, Wang Laboratories, Apollo Computer, and Prime Computer. Tracy Kidder won a Pulitzer prize for his non-fiction book The Soul of a New Machine, detailing the development of Data General's minicomputer. In 1984, there were 91 minicomputer companies in the United States. By 1990, there were less than 10.
The last hurrah of Enterprise 1.0 was the flourishing of software companies developing products for the minicomputer market. Some names were American Software (1970), Tesseract Systems (1970), Walker Interactive Software (1971), ASK Computer and Ross Systems (1972), Compuware (1973), Cyborg Systems (1974), Computer Associates and SAS Institute (both 1976), and Candle Corporation, J.D. Edwards, Oracle Corporation, Softool (all formed in 1977). The most successful enterprise software at the time was Computer Associates, which acquired dozens of software product companies. A well-known pioneer during this period was John Cullinane who in 1968 founded Cullinane Software, which was the first software product company to go public, in 1978.
The PC platform was the death knell for minicomputers as client-server architecture took over the enterprise in the early to mid-1980's, heralding Enterprise 2.0. Enterprise 2.0 was marked by data continuously available and updated, millions of connections to the network rather than mere thousands, and data available from the network almost anywhere, rather than just at a terminal connected to a mainframe or minicomputer. The client-server architecture required entirely new software at the system level, management level, and at the client level. With decentralization and distribution, the advent of networks, and Marc Andreesen's Mosaic user interface to the Internet (later commercialized at Netscape), Enterprise 2.0 was at its height, and another flourishing of enterprise software companies took place. There were not only Netscape, Microsoft, Oracle, Peoplesoft, Sybase, Informix, Platinum Technology, BMC, BEA, and Red Brick, but also Arbor, Aurum, Broadvision, Scopus, Simware, Sun's Java platform, and hundreds of other companies offering platforms, management software (e.g. Remedy's helpdesk software), security software, enterprise applications, and of course even client-level applications. The industry consolidated again in fits are starts over the next decade, accelerated by the recessions in 1990-91, the mild slowdown in 1994-95, and the tech bust of 2000-2002.
Today, the software industry is at the threshold of Enterprise 3.0, where data is continuously updated and available all the time from multiple devices anywhere in the world, with billions of connections to systems and users through online networks that are not tethered to a specific enterprise's system. Saas and Cloud computing are part of Enterprise 3.0, and cloud vendors are capitalizing on the infrastructure needs of the new paradigm. Enterprise 3.0 is characterized by vendors solving highly specific problems and providing highly customized solutions for customers by bringing together just the resources needed for that solution, and doing so on a model where almost all the infrastructure and development are outsourced in one form or another. The hosting of the data may be outsourced to a hosting company, the software development might be outsourced to a development team, other software might be purchased on a Saas model, and storage might be purchased on a terabyte basis from a cloud vendor. The ability to collaborate and affiliate easily are central to effecting these solutions for customers and making money in Enterprise 3.0.
There is a flourishing of SaaS, cloud, and infrastructure vendors filling market spaces in new Enterprise 3.0 sectors. Companies like Cast Iron Systems, Cloudera, Corticon Technologies, Gridapp Systems, Instantis, Kace, Marketo, Mobclix, Nirvanix, SOA Software, SmartVault, Vkernel, Wize, and Zetta are a few of the companies penetrating the multitude of new segments opened up by the Enterprise 3.0 paradigm. Many of these companies have received venture funding, and the venture capital community is once again very interested in enterprise software, albeit looking for specific niches that each venture group perceives as potentially high growth. Fortunately, Enterprise 3.0 offers a superabundance of these niches for investment capital. Accordingly, venture capital is alive and well in the new enterprise software market, and that is reason for optimism in the enterprise software industry.
As an entrprenuerial law and SaaS business law attorney, I am always on the lookout for trends in US private equity and venture capital in SaaS industries. This area of entrprise software licensing is one area I have noticed interest from private equity firms in the last 18 months or so.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
Posted Wednesday, September 2, 2009 by
David Castor
Congratulations to Kyle Lacy on his recent publication – Twitter Marketing for Dummies. The book is available by pre-order. Check out Kyle’s blog site for pre-order information.Kyle summarized his book on a blog post:
In addition to covering the basics of Twitter, this easy-to-understand guide quickly moves on to techniques for incorporating a Twitter strategy into your marketing mix, combining new and old media, building your network, using Twitter tools, and measuring your success.
- Examines how Twitter’s style for character-count caps and real-time posting allows for unique marketing opportunities
- Analyzes several real-world examples of successful strategies for marketing on Twitter
- Discusses ideas for promoting brands on Twitter, building a following, communicating better with followers, and driving traffic to a Web site
- Shares the top Twitter applications
Kyle is CEO and co-founder of BrandSwag, a branding/marketing business that helps companies companies incorporate new, creative marketing tools that build stronger relationships with existing clients and foster effective relationships with new clients.
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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, probate and business litigation.
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