What it Takes to be a Leader

Friday, August 6, 2010 by Janet Monroe
information technology law firmThis morning I attended the Techpoint event: What it Takes to Lead a Successful Entrepreneurial Venture Today and was reminded of some fundamental leadership qualities that I see in many of the successful business owners we work with as a business, entrepreneurial and information technology law firm.

Speaking today were Daniel DeHayes, a Professor Emeritus of Business Administration with the Indiana University Kelley School of Business and Delphia Croft, the Managing Principal of Solution Revolution Consulting.

In the studies that they have conducted collectively, they have found certain characteristics to be present in the leaders of today's successful companies.  While they found several, in this session DeHayes and Croft discussed the following four traits:
  • Sovereign: trust in yourself, your intuition and judgment
  • Warrior-like: commitment to a greater cause than yourself (though not mercenary)
  • Open: extreme self-awareness
  • Intentional: possessing an intense, pro-active focus (shunning habitual thinking)
Considering these traits, I would have to agree that to be successful you must have the confidence to trust in your own capabilities, the strength to execute (while retaining the ability to quickly adapt to the unforeseeable), the humbleness to know your own strengths and weaknesses, and the determination to achieve the goals you set forth.

Successful companies don't happen on a whim, but are backed by the blood, sweat and tears of driven individuals.  If you are contemplating striking it out on your own, take a moment to reflect on the above traits and decide for yourself if you have what it takes to be a leader.

As an attorney of a business, entrepreneurial and information technology law firm, it is an honor to work with our clients - those individuals who possess the leadership characteristics to build successful entrepreneurial ventures.
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INDIANAPOLIS LITIGATION—COMMISSIONS AND WAGES

Thursday, August 5, 2010 by Scott Kreider

It’s not often that we at Alerding Castor Hewitt, LLP run into issues regarding the payment of commissions for our business law, SaaS law, and Indiana technology clients.  When the subject does arise, however, it usually occurs when an employee separates from employment and makes a wage claim for unpaid commissions.  The debate about whether the commissions are wages centers on whether the employee was entitled to the commission at the time of sale OR when the client pays for the product, service, etc.  Employers often want to argue that the latter applies, and for two obvious reasons:  (1) they want to avoid the penalties for unpaid wages, and (2) it can be economically difficult if not impossible to pay a commission if you don’t have the funds available because you are waiting on the client(s) to pay.

 

A recent decision by the Indiana Court of Appeals this week illustrates the issue.  On Wednesday, the Court issued its for-publication decision in Wells Fargo Insurance, Inc. v. Land, No. 48A02-0911-CV-1099.  The facts are fairly straight forward. Mr. Land sold crop insurance for Wells Fargo.  After Mr. Land separated from Well Fargo to start his own business, Wells Fargo sued Mr. Land for violating a covenant not to compete.  Mr. Land counterclaimed for unpaid commissions.  Wells Fargo argued that the unpaid commissions were not earned until after a farmer paid the insurance premium and relied on a written plan or policy to support its position.  In contrast, Mr. Land presented evidence – including deposition testimony from a manager – that he was never advised of this policy and was unaware that the policy existed.  Mr. Land won at the trial level and on appeal.

 

In addressing the issue on appeal, the Court of Appeals noted the general rule that a party is entitled to commissions right away on business that he/she has secured regardless of when payment is received by the employer.  The Court also noted that this general rule can be altered by written agreement or conduct of the parties.  Ultimately, the Court concluded that Wells Fargo’s policy did not alter the general rule because Mr. Land was neither aware of nor apprised of the policy on commissions.

 

The case illustrates a good point for business law, SaaS law, and Indiana technology clients:  trying to simply rely on a written policy, or worse yet, custom and practice, when sued on the issue of unpaid commissions is a tough row to hoe.  You will have to contend with credibility issues, who said what, and who was advised about what.  A better practice to consider would be a written agreement or signed acknowledgment by your employees that they have received the policy that commissions won’t be paid until after payment from the client is received, and that the employee agrees to be bound by the policy.  Anything short of that could result in you having to face the same hurdle that Wells Fargo did.
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Entreprenurial Law - How Much Should Go To Salaries?

Thursday, August 5, 2010 by David Castor
I read many business plans for early stage companies - most of whom are seeking some sort of seed or early round capital funding from private equity investors.  One of the largest discrepancies I see in plans is in the expense models regarding allocation of salaries. 

Post-revenue, most businesses will find salaries (including benefits) falling somewhere between 30% and 55% of their net revenue.  But what about pre-revenue companies that are looking to use early capital to launch?  I read a plan where a company was looking to raise $2.5MM while allocating $1.8MM to salaries.  I've seen others where the officers are essentially taking nothing and eating ramen noodles until the company begins producing revenue.  In a recent plan, a pre-rev company is using nearly 55% of a small seed stage raise on salaries over the first few months.

There are a few consideration for how much to put towards salaries.  First, you want to consider sources and uses.  There is a major difference on paying high executive salaries with early stage monies verses paying developers or sales force.  When talking uses with private equity investors, most investors want their dollars to go towards growth and scaling - i.e., develop and sell.  Paying high CEO salaries is troubling for most investors.  A CEO who is instrumental in early sales may want to more clearly explain his/her role in the plan and show the expense as related to sales.  Few seed stage companies should be paying salaries for a CFO, COO or CLO - unless they are also master sales people.

Second, officers who are taking a high equity stake need to consider the high stake as part of their overall package.  The high salary should come when the company is successful, but the lower salary in the early days is intended to be offset by the equity position.  Sorry - raising seed capital is not a get-rich-quick deal.

Third, consider tying non-equity employees salaries to incentive compensation.  If they are successful, the company is successful, and they make higher wages.  The common example of this is to tie a sales person's salary into commission or to give a developer a profit interest in the company.  This will reduce the dedicated spend and will reduce the need for capital.

Of course there are other considerations - many depend on industry and supply/demand of employees with necessary skill sets, but a business owner seeking capital should know that this is a major area that investors look at with suspicion - especially when dealing with professional private equity firms or angel investor groups.  In the early stage they want to see their dollars go to growth - not to pay you the big bucks while you work to make the company successful.



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INDIANAPOLIS LITIGATION--AN ETHICS LESSON FOR BUSINESSES AND LAWYERS

Thursday, August 5, 2010 by Scott Kreider

Your friendly Indianapolis attorney and Partner In Success at Alerding Castor Hewitt, LLP here with another post, this time for both business entities and lawyers who find themselves in the trenches of business law, SaaS law, internet laws, and privacy litigation and probate litigation.  Partner and fellow blogger Dave Castor sort of beat me to the bunch by pointing out a great blog post by Michael P. Alerding (ACH’s Mike Alerding’s father) at Alerding & Co., LLC, which Dave re-posted below.  I encourage all of you to read it if you haven’t already.

Mr. Alerding’s blog is not only great for businesses; it’s good for lawyers, too.  We can debate all day long the chicken and the egg analogy about who is to blame for the “downward spiral” Mr. Alerding mentions.  I propose that a better use of our time would be to recognize the problem and all work collectively as lawyers and business people to resolve it.  Indeed, lawyers have a unique opportunity to help guide their clients to a resolution of issues, and they should feel that it is an obligation to work to get the client to do the “right thing.”  Not only that, we as lawyers should take pride in being able to assist with that process.     

Of course, I am one of those people who believe that words mean something.  But I agree with the implications of Mr. Alerding’s post that the world is getting a little “overly-lawyered” with its legalese.  For instance, if you can say something in 10 words, why use 45 to say the same thing?  Do you have to flex your ego or demonstrate your academic prowess, or are you trying bill that extra time to demonstrate your worth to the client or partners?  Likewise, a deal or agreement should remain a deal or agreement.  So, as lawyers, if we tell another lawyer that we are going to look into something, or make a concession, why do we feel that we aren’t bound if we didn’t put it in writing?  Why do some of us feel like we can play games (like “gotcha”) with an opposing party or competitor?  Why do we as lawyers avoid doing the “right thing” and focus so much on “winning” an argument, or fall back on the excuse “well, I have to be a zealous advocate”?     

All that the one-upmanship mentality or reneging on oral promises does is add to an aura of mistrust in a world that, in the modern age of technology, isn’t that big.  Lawyers, i.e., folks engaged in the business and practice of law, can take away a lot from Mr. Adlerding’s message in our practice and in our counseling of our clients.


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Business Law - What Happened to Business Ethics?

Monday, August 2, 2010 by David Castor
The post below is fantastic.  It is by Michael P. Alerding, CPA (my business partner's father) at his accounting firm's new blog site.  He gave me permission to re-post it here (thank you Alerding & Co.).  Check it out:  Alerding & Co. Blog


What Happened to Business Ethics?
By: Michael P. Alerding, CPA

Every time I get a contract to sign, I find it almost impossible to spend the time reading the fine print and trying to understand all of the future implications of the agreement.  As my son, the attorney always reminds me, “Words mean things”.

I made an airline reservation the other day and for the first time read all of the fine print associated with the “contract” to provide me with transportation.  The rules were almost limitless and included some scary matters associated with timing (being to the gate on time), cancellation (flight may be cancelled without notice) and my “rights” as a passenger (not many).  Having traveled quite a bit for over 40 years, I thought I understood that if I pay for a seat on a plane, the airline had the obligation to provide me with service and transportation.  Well, maybe……….

Reading emails is almost as difficult now as signing a contract.  Almost all business emails have the disclaimer, running anywhere from 100 words to 300 words, discussing the limitations for use of information included in the email.  Although I try not to print too many emails, I probably waste one out of every three pages when I do printing the gibberish relating to limitations.  Remember, words mean things.  Does that mean that every time you send an email to someone you are effectively saying that you really don’t mean it and they can’t rely on what you have said?  Words mean things?

We now, and have been for decades, live in a society of mistrust and a CYA mentality.  Whatever happened to business ethics? What happened to the day when a deal was a deal not because my words were better than yours or because some litigation in the Fifth Circuit Court favored my position vs yours, but because it is the right thing to do?  This “gotcha” mentality has become a game for businesses.  The only winners are usually the lawyers and we just keep doing the same thing over and over.  As Michael Crichton said so very well, we have created a “State of Fear”.

Have we forgotten basic business ethics and standards of conduct?  Have we lost sight of the basic concept of doing the right thing because it is the right thing to do?  Do we lack the self confidence needed to judge our own actions and, instead, leave the determination of what is the right thing to do to some judge, a jury or an arbitrator?  When did we lose our innocence about what is right or wrong?

After a heated and long discussion about corporate responsibility in an audit committee meeting a few years ago, one of the elderly and very wise members of the committee sat silently during the discussion.  After all of the give and take on whether it made good “business sense” (aka “profit” sense) to implement a corporate policy that would protect customers in the event of a mistake made by the corporation, there was a lull in the conversation and the old gentleman finally spoke up.  In a very quiet, but direct voice, he simply said, “We need to do this simply and only because it is the right thing to do”.  It was profound and the committee sat silently.  The motion passed unanimously.

Simple and uncomplicated business ethics still has a place in our society and in business in particular, but it continues its downward spiral into the lower rungs of our conscience. Doing the right thing because it is the “right thing to do” needs to make a comeback – and it needs to happen soon.


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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.
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Business Law - Why Is Profit A Negative Thing?

Friday, July 30, 2010 by David Castor
One of my favorite movie scenes is from The Jerk.  Navin Johnson is working at a carnival guessing peoples weight.  He is talking to Frosty, his boss:

Navin R. Johnson: [bleakly] I've already given away eight pencils, two hoola dolls, and an ashtray, and I've only taken in fifteen dollars.

Frosty: Navin, you have taken in fifteen dollars and given away fifty cents worth of crap, which gives us a net profit of fourteen dollars and fifty cents.

Navin R. Johnson: Ah... It's a profit deal. Takes the pressure off. Get your weight guessed right here! Only a buck! Actual live weight guessing! Take a chance and win some crap!
 
It is amazing how easy it is for business professionals to take their eye off of profit.  I see this often in my business law / funding law practice.  Key employees easily ignore profit while focusing on their client projects and immediate incentives – ignoring the fact that company profit gives them long term advancement potential.  Business owners get tied up with client sales and revenue projections – ignoring the bottom line purpose of what they are building – to make profit. 

It bewilders me how many professionals don’t know how to determine whether they are profitable.  A business owner recently told me about a sales reps’ excitement of landing the $50k deal that had already cost $20k to secure and will cost another $30k to $40k to fulfill.  Way to go!

I also find it interesting how profit has developed a negative connotation in so many business circles.  Business cultural goals are considered personal, meaningful and someone enlightened.  Profit goals are considered a “numbers guy” thing.  I am a big believer in creating the right company culture - but fact is cultural goals cannot be met if the company is not profitable. 


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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.

 
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Indianapolis Litigation—Collections And That Pesky Memo Line On Checks

Tuesday, July 27, 2010 by Scott Kreider

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with an issue for those of you who, from time to time, might find yourselves embroiled in collections litigation over business law, SaaS law, or technology law matters.  How often have you seen a debtor issue a check for payment and include on the memo line words to the effect of “as full satisfaction of claim,” “final payment in full of debt,” or some similar words despite the fact that the debtor owes you more than the face amount of the check?  How many of you would go ahead and cash the check, or worse yet not even notice the memo line because you routinely cash every check you receive or utilize an automated system to process checks?

The questions I pose are more than mere hypotheticals.  The savvy debtor, or more likely the debtor relying on the advice of savvy counsel, realizes that by including such words on the memo line of a check he or she could create a potential issue regarding an accord and satisfaction of the debt he or she owes to you if you have to file suit to collect on the debt.  If nothing else, the debtor knows that you will either have to negotiate with them or spend money litigating the issue.  Either way, when it’s all said and done, you will likely lose money collecting on the debt.

The applicable Indiana statute here is Indiana Code § 26-1-3.1-311.  I encourage you to read the provision for yourself; however, in a nutshell, it gives the debtor who utilizes the memo line a possible “out” on the debt.  For instance, the debt can be considered as discharged if you knew that the check was tendered in full satisfaction of the debt and either (a) before tender of the check did not send a conspicuous statement to the debtor that communications regarding disputed debts or instruments tendered as full satisfaction must be sent to a designated person, office or place, or (b) did not tender repayment to the debtor within 90 days.  Those of you who take the time to read the statute might also notice that, technically speaking, the debtor is required to prove that he or she tendered the payment in good faith as full satisfaction and prove that the amount “was unliquidated or subject to a bona fide dispute.”  In practice, however, it has been our experience at ACH that courts either do not enforce the technical requirements or, more often, are reluctant to resolve them because they see the issue as a factual dispute (a case of “he/she says v. what you say”) that requires a trial to resolve.          

So what should you do when faced with this scenario?  The best solution harkens back to the old saw about an ounce of prevention being worth a pound of cure:  we at ACH recommend that you implement some process or system to monitor payment checks and, if you find that a debtor is trying to slip by on what they owe you by utilizing the memo line as I’ve described, do NOT cash the check.  Instead, notify the debtor immediately of the dispute and non-conforming payment.  While the risk is that you might lose out on a payment from a debtor who intends to stop paying you anyway, the benefit of such a practice is that you do not give the debtor a potential defense argument that results in greater collection costs and could result in you being unable to collect on the full debt owed to you. 


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ALERDING CASTOR HEWITT, LLP CLIENT NAMED 10TH FASTEST GROWING PRIVATE COMPANY IN INDIANA FOR THIRD TIME

Friday, July 23, 2010 by Lainey Scheetz

FOR IMMEDIATE RELEASE
July 23, 2010
Contact: Lainey Scheetz
317.403.9012
lscheetz@alerdingcastor.com

ALERDING CASTOR HEWITT, LLP CLIENT NAMED 10TH FASTEST GROWING PRIVATE COMPANY IN INDIANA FOR THIRD TIME

Indianapolis, IN – Iasta, the leading provider of eSourcing software and solutions, was titled as the 10th Fastest Growing Private Company in Indiana for 2010 by the Indianapolis Business Journal (IBJ).  A third time honoree, Iasta boosted its three-year growth rate at 134 percent.

The report profiled Iasta’s founding’s, current offerings and future outlook.

The IBJ ranks companies by their revenue growth over the last three consecutive years, which must exceed $1 million annually.  In 2009, Iasta ranked 17th and in 2008 they ranked 14th.  The award is based on revenue growth of the last three consecutive years.  Iasta has thrived in a market where many others have been forced to make budget cuts and layoffs.  “We’ve established a lot of credibility and there’s a lot of growth yet to be had,” said Bush.

Iasta experienced very rapid growth in its younger years at 80 to 90 percent a year.  These days, the company still grows at 30 to 40 percent annually.  Bush attributes the success of Iasta to flexibility and high quality in both software and services.

Dave Castor has represented Iasta as general counsel since 2002. 

Firm at a Glance:

At Alerding Castor Hewitt, LLP, the attorneys focus on business law, litigation and technology law services.  The firm has unique experience in niche markets such as software and technology licensing, e-commerce and Internet law and international business law. 

For additional information, please visit www.alerdingcastor.com.


 

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Entrepreneurial Law - Don't Raise Too Much Capital

Thursday, July 22, 2010 by David Castor
I read a Guy Kawasaki blog post this week where he walked through six reasons why an abundance of capital can hurt an early stage business.  In my entreprenurial law / funding law practice I work with a lot of business owners through capital strategies and the private equity processes.  Honestly, the drafting of a private placement memorandum is the easy part of my practice.  The hard part is creating the proper capital structure for the long term growth and success and reaching investors who want to invest in the business.

Here is one of the points from the post:

Expenses expand to the level of funding.

Funny how this works: companies create projections that use the money that they have. The availability of money makes them think of ways to spend it, so there’s less emphasis on doing the right things the right way. The logic becomes, “Our investors gave us this money to invest, not to collect interest in the bank. They want us to scale up and go for it, so we should spend it. We know we’ll meet our milestones, and our competition is a joke, so we’ll always be able to get more money.”

 

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Business Law - Morning People

Monday, July 19, 2010 by David Castor
There is a great article in the July-August edition of the Harvard Business Review entitled The Early Bird Really Does Get the Worm.  The article summarizes a study which found a correlation between  "morning people" and career success.  This is based on a number of traits which are commonly found in morning people.  

Traits
Agreeable
Optimistic
Stable
Proactive
Conscientious
Satisfied with Life

Being a morning person, of course I loved this!  Most days I am the first in the office.  I love getting my to-do lists together early each morning and executing on the list throughout the day.  I have found this to be an extraordinarily important practice in building and managing a successful law firm.  

I have never understood evening people.  It seems that they miss out on too much and are always in reactive mode rather than proactive mode.  That creates a stressful life.  Of course that is not always true - I know many who are actually much more organized than me and run great businesses.

The study did find some positive traits of "evening people".  They tend to be more creative and intelligent than morning people.  I fully agree with those points!  The study also found that they tend to be more extroverted.  That is probably true, but I have not noticed that point to the same degree.  At any rate, those are traits that are necessary in any balanced business team.

See also:

Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Keep the Good Ideas Coming but Stay Focused
Business Law - 10 Common Negotiation Mistakes
Funding Law - Presentations to Investors
 


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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.




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Facebook ownership lawsuit results in asset-freezing TRO

Wednesday, July 14, 2010 by Chris Stephen
This one is a fun little piece of pseudo-software litigation.  The basic facts are that Facebook and its majority stockholder Mark Zuckerberg have been sued by Paul D. Ceglia, who claims 84% ownership in the website juggernaut.  The part of this story that has been clogging the Net is that a state court judge in New York actually issued a temporary restraining order ("TRO") prohibiting Zuckerberg and Facebook, Inc. from disposing or selling any of its assets.  This has produced the viral "Facebook assets frozen".  Interestingly, Ceglia has produced a written contract, making this suit slightly more interesting than prior software litigation involving Facebook ownership in which former students at Harvard claimed Zuckerberg stole the idea from them (which a court ultimately found to be "dorm room chit-chat").  

One aspect that the technology legal counsel in me finds interesting is that the Court granted the TRO.  Generally speaking a TRO is an injunctive mechanism that can be used to stop someone from doing something.  In order to get a TRO, you generally have to show that you have a basis for your claim and that you have a likelihood of success on the merits.  I don't know for sure that New York is the same standard as Indiana, but I suspect that it is.  That means that a court looked at the documents and found that there might be something here.  I find that very intriguing.  I will note, however, that Facebook's attorneys filed a motion to dissolve the TRO and noted that it was ex parte, meaning that it was entered without Zuckerberg or Facebook being given the opportunity to respond.  It also sets forth that the only evidence presented to support the TRO was a "scant" affidavit.  But, one must conclude that the Court nevertheless did the appropriate analysis.

Also, having read the documents filed, there might be something to discuss.  However, the biggest issue that I see at the outset is that the contract allegedly happened in April, 2003.  It would seem to me that there are is a statute of limitations issue, which may kill this lawsuit before it gets into really fun electronic discovery. 

Facebook has removed this case to Federal court, which I think is a smart move.  We'll see what develops.  But I would urge everyone to consider the reality that this case poses to the software developer or web-designer.  From the "Zuckerberg" side, be extremely careful what terms you put in your contracts because you may have to rely on or defend them later (after you are a famous success).  In this software litigation, Cegila is claiming 84% ownership in the company based on a damages provision that stated that he would get 1% ownership for each month after January 1, 2004 that the contract was fulfilled.  And, if the case survives the statute of limitations issue, this may become hotly contested.  

Thus, be careful that you hold tightly to your equity in your company.  Don't give it away willy-nilly.  And, above all else, get good technology legal counsel; specifically ones that understand what should be in a well-drafted contract and that have available the expertise to determine how that contract language will play out in court.   
 
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INDIANAPOLIS ATTORNEY—LITIGATION ISN’T FOR THE FAINT OF HEART

Thursday, July 1, 2010 by Scott Kreider

        War at its best is barbarism.

 

Every attempt to make war easy and safe will result in humiliation and disaster.

 

                                    --William Tecumseh Sherman

 

Though he said these words nearly a century and a half ago, General Sherman’s comments apply equally well to litigation, including the world of business law, technology law, SaaS law, and probate law.  Litigation is a serious business, not something to be undertaken lightly.  And it is often expensive – regardless of who has so-called “right” on their side because, just as in warfare, both sides often express to being on the “right” side.

 

Just like warfare, there is an element of risk and chance in litigation.  Further, litigation can entail subterfuge and trying to pscyh out the opposing party.  Sometimes you can achieve victory by making your opponent think that Point A is your objective so that when he or she marshals all of their forces in defense around that position, you pop up over at Point B.  General Sherman employed this same tactic in his march to the sea, and it can be just as effective in litigation.

 

You might wonder why litigation seems to be much ado about nothing at times, why a large amount of energy, time and money is spent sweating over details.  The reason is that the minutiae should not be underestimated.  Those of us who are litigators in business law, technology law, SaaS law, and probate law don’t engage in these skirmishes simply because we want to or love to (though admittedly this might be true for some); we do it because in order to fully represent you our clients we HAVE to do so.  We know that the little details can make or break a case, and we know that those fights over the placement of a comma or definition of a word, though long and tedious, can help stave off those future battles or wars – or at least give you the advantage of the high ground from which to pounce on your opponent later on.

 

Just like warfare, fairness has nothing to do with it.  If you want to be involved in a lawsuit, you have to be willing to go the distance, and no matter how tiring you have to keep your eye on your objective.  It’s a marathon, not a sprint, and you have to be ready for the long haul.  If litigation were easy, you wouldn’t be in a lawsuit in the first place; you could sort out your differences over a couple of beers.  But sadly that’s often not the case.  It takes money, time, and even frustration to flesh out a resolution.  Someone, and probably both sides, will probably bleed before it is over.

 

At Alerding Castor Hewitt LLP, we are ready and willing to go that distance with you, but the process works best if you are prepared to make that journey and are prepared for the cost and risk.  If you stumble during a battle, get back up and remember that it’s warfare and that we will be there for you in those trenches.    


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Cloud Computing: German data police say "Nein!"

Thursday, June 24, 2010 by Chris Stephen
This is one of those great posts that gets to combine cloud computing law with privacy law with political intrigue.  Before I get too far in, I want to set out my own caveat.  In my opinion, there is a data war brewing between the United States, EU, and China and everyone if vying for the top dog spot.  The basis of this is the fact that each faction views the protection of data very differently and they each want to be the best.  To just give you a surface level scratch of the differences I'll simplify (which is one of the things I do best):  US is pro-capitalism / free market and free flow of information, even private data;  EU is much more pro-individual and retention of private data, even at the detriment of businesses; China is much more pro-state and focuses on keeping data managed.  Each entity thinks that they are completely right and they are trying to work together (except for China, who doesn't seem to care what anyone else thinks), but really they each have an ultimate goal of obtaining dominance of their position.  Interestingly, I believe that the EU is seeking its dominance by applying economic pressures (something we've used for generations), and is having the most luck.  Business are being forced to comply and are doing so in order to maintain market share.  It is, nevertheless, very much a "cold war" between US and EU on the data protection front.  And, as was anticipated, it is now entering into the realm of cloud computing law.

Before I delve into the ruling, I need to explain some concepts that I haven't put out here before.  First, is that each member country of the EU has their own Data Protection Administration (DPA) that governs and rules over the access and permission to access private, individual data.  In 1998, EU issued the European Directive on Data Protection that, among other things, prohibits the transfer of personal data to non-EU countries unless they haven't met the EU "adequacy" standards to protect the data.  This directive actually causes great consternation in business as well as the litigation arena, privacy litigation or otherwise, because it limits what a U.S. defendant can legitimately produce.  In a country where discovery in a lawsuit is often viewed as a fishing expedition in which one drains the lake and simply picks the fish up off the bottom, this limitation on access to data has caused and is causing businesses sleepless nights and making lawyers rich.  Enter the U.S. Safe Harbor framework.  This is essentially a compliance mechanism devised (supposedly) through joint efforts between the U.S. and EU that businesses can opt into by self-certifying that they comply.  The main areas of focus are transfer of data, notice to the data holder, transfer to third-parties, access to data, security measures, and data integrity.  If a business properly complies with this self-certification they will be deemed "adequate".

I know you've read all of this and said "What does any of this have to do with cloud computing law, you dolt!".  To which I would reply, "ouch" and then go on to explain that yesterday, Germany's DPA made a ruling on the use of cloud computing and the implications to the European Directive.  Most importantly, the DPA determined that clouds located outside the EU are per se unlawful, even if the EU has issued an adequacy decision in favor of the foreign country.  Thus, if your cloud is based anywhere other than the EU, it is unlawful to store private EU data there (and in case your curious, everything is private data in the EU's eyes).  Of course, the decision goes on to state that you can avoid this result if you apply German rules on data processing and using the EU-approved model contract for controller-processor data transfers.  Basically, if you want to follow our rules and use our contract, you can do it.

What is even more interesting is that the DPA determined that the U.S. Safe Harbor is not adequate to protect information in the cloud.  Thus, these companies that go through the self-certification process, still can't host cloud data (sorry Google).  The reasoning is that even though one entity may have self-certified, the inherent nature of the cloud is that data is accessible to third-parties and those parties are not adequate. 

This leaves the ultimate question of "what does this mean for cloud computing" The obvious answer is that it will force companies that want to utilize the cloud to either (a) adopt the EU rules and contracts or (b) enter a binding corporate rule that complies with the EU rules (which is another option the German DPA suggested).  This will, ultimately, increase the costs associated with using the cloud and will likely have a cooling effect on pushes on that front.  OF course, the developments that I will be watching from the cheap seats as an technology lawyer is what response the U.S. takes.  Will it rely on businesses to police themselves and comply as they choose or will it try to enforce rules to keep the Safe Harbor alive.  And, if Germany makes this type of ruling on the cloud  now, essentially obliterating the Safe Harbor Framework, can Safe Harbor survive?  Or more importantly, should Safe Harbor survive?

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Indianapolis Litigation — Successful Resolution For Saas Law Client During Collections Process

Thursday, June 24, 2010 by Scott Kreider

Your friendly Indianapolis attorney at Alerding Castor Hewitt LLP here with a quick follow up on my first blog regarding collections for our business law, technology law, and SaaS law clients.  A link to that post is listed below for those interested.

One of our Saas law clients recently obtained a favorable resolution in one of their cases to collect on a contract from an out-of-state debtor.  We had obtained a default judgment for the client and were pressing forward with the proceeding supplemental here in Indiana.  I don’t know if the debtor was ignoring the process, moving around the country, or what was going on, but he wasn’t responding.  However, he finally contacted us when he ran into trouble trying to enter into a lease; apparently the judgment popped up on his credit history when the landlord ran a credit check.  To make a long story short, the debtor was more than willing to come forward to settle the claim with our Saas law client.

This success story just bears out the point of my original post:  it’s worth taking some minimal time and expense to proceed with a proceeding supplemental in Indiana on out-of-state folks before undertaking some more involved process.  The result can be surprising.     

blog.alerdingcastor.com/blog/indianapolis-litigation/0/0/indianapolis-litigation-the-collections-endgame
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Imposing the long-arm of the law over the Internet

Wednesday, June 23, 2010 by Chris Stephen
Your friendly neighborhood technology counsel here:  A couple of recent state court decisions are going to start personal injury attorneys frothing at the mouth, and might render some sleepless nights for defense attorneys.  Both Ohio and Florida recently issued opinions in which they applied their state's respective long-arm statutes to garner personal jurisdiction over an out-of-state resident for tortious conduct that transpired over the Internet. 

First, you need to know what a long-arm statute is.  Essentially, it is a mechanism by which a state can obtain jurisdiction over an out-of-state resident for activities or actions undertaken that are related to an in-state resident or citizen.  Without boring you with the legal details, they stem from the concepts of full faith and credit and due process and require a minimum amount of contact within the state to trigger.  And, they have posed a pickle in Internet litigation because the Web allows access from out-of-state residents without actual presence or contact.  At least that was the case until recently.  

In Internet Solutions Corporation v. Marshall, the Florida Supreme Court, addressing a certified question from the Eleventh Circuit, determined that exercising jurisdiction over an out-of-state resident under Florida's long-arm statute did not violate due process.  The basic facts are that Marshall ran a website based out of Washington, where she is a resident.  She had no contact with Florida other than a short business related trip several years ago.  However, she wrote a blog about a Florida based company and then she and some other posters trashed them online in the comment section.  The Florida-based company sued for defamation in federal court under a diversity action (action between two citizens of different states).  The district court found no personal jurisdiction and the Eleventh Circuit certified the question to the Florida Supreme Court.  The Florida Supreme Court looked at two main analysis points:  (1) whether the complaint alleged sufficient jurisdictional facts to being the action within the ambit of the statute, and (2) whether sufficient minimum contacts are demonstrated to satisfy due process requirements.  The Court determined that both were satisfied.  An interesting analysis point is that the Court reasoned that the long-arm statute had been applied to telephonic, electronic or written communications in the past and that the Internet is an extension of those rulings.  Overall, it is a well-reasoned opinion applying a standard long-arm statute to the Internet.

Similarly, in Kauffman Racing Equipment, LLC v. Roberts, the Ohio Court of Appeals reached a similar conclusion when determining if an out-of-state residents comments over an Internet blog about an in-state plaintiff can be grounds for jurisdiction over the out-of-state resident in a defamation action.  The Court utilized the same general analysis as in Marshall.  

The obvious implications to Internet litigation of these opinions are pretty substantial.   Until now, suing for tortious actions done over the Internet has been difficult because of those pesky due process minimum contacts, but that is slowly changing.  These cases are a framework for an enterprising personal injury lawyer to sue someone that has never set foot in their state for tortious activities on the Web.  And, right now we are only talking about defamation, but why wouldn't it extend to other torts.  What about tortious interference with a business relationship, intentional infliction of emotion distress, and assault, to name a few.  This is going to change the face of Internet litigation.  We are going to see more lawsuits based on this.  And, further, you, as a business owner, will need to be aware of what you are putting out on the cyberspace.  You may be inadvertently exposing yourself. 

And think of the other areas of technology litigation that this can be tied into.  Two of the most predominant to me are privacy litigation and cloud computing law.  Imagine that I have posted private information about you on the Internet in contravention to the law.  We've never met and I've never been in your state, but the Internet has.  Under these holdings, I can be hauled into the courtroom to address my actions.  Or I've placed something into the cloud that doesn't belong.  I've now exposed myself to multiple jurisdictions depending on to whom I have shown the material.

The ramifications are mind-numbing, but we'll see what other states start jumping on board.  As I've always said, technology litigation and Internet litigation is in its infancy and we are going to see wide-spread changes from court's making decisions at the federal and state court level.  It should be fun.

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PURE Eatery Delivers Fresh Honest Food

Tuesday, June 22, 2010 by Janet Monroe
Pure Eatery Fresh Honest FoodToday is an exciting day for Indianapolis with the establishment of a brand new local eatery called "Pure" located in Fountain Square at 1043 Virginia Avenue. 

Working with the business owners through Indiana entrepreneurial law, I checked in to see what the place had to offer this afternoon.  I couldn't be more excited about the fresh flavors and the funky atmosphere.  With original artwork and high ceilings, it has a Chicago vibe with a menu focused on fresh honest food.  Perfect.

Today I chose the asparagus salad with the Caponata flatbread panini with eggplant.  Needless to say, it was delicious.

The daily specials are based on local, organic, and seasonal availability.  A healthy alternative for lunch, Pure is green and supports the local economy... I could eat here everyday.  Pure Eatery will definitely be on the regular rotation as one of my favorites downtown. 

I'm glad to help the owners with Indiana entrepreneurial law, and excited to see this dream of theirs come to life.   If you're in the area, you should stop in to see them.  The food is incredible and the service even better.

Check them out at pureeatery.com

Hours:
11-7 Monday - Saturday
12-5 Sundays


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Funding Law – Investor Impatience

Friday, June 18, 2010 by David Castor
I read around 2 new business plans per week – about 100 per year.  Some private equity investors I know read upwards of 10 per week – or about 500 per year.  When you are reviewing that many of anything, you get impatient.  That is why I encourage business owners writing plans for private equity investors or angel investor groups to be succinct. 

Get to the point.  What does your company do?  What pain are you solving in the market?  How will you do that at a profit?

Business summaries should avoid flowery language (e.g., “ABC will offer innovative products in a global market…”) – just say what the business does.  If you have pictures of the product or screen shots of the user interface for software, include it on page one.  Make the product and market opportunity simple to understand in a few sentences.

Clearly define your sources and uses – who are you targeting for investment and what will the funds be used for (not just expenses, but what scaling milestone will the funds help you achieve).

Your revenue projections should never be labeled as “conservative”.  Your projections should be based on what you expect to happen.  You should know within close certainty your expenses for the first couple of years (especially your fixed costs), and you should know enough about your market and target base that you should be able to make a good projection on revenue.  “Conservative” makes it look like you are guessing.

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Social Networking and the Web - So much more than ambulance-chasing

Thursday, June 17, 2010 by Chris Stephen
Be prepared:  I'm going to get on a bit of a soapbox.  I read a recent article at WSJ.com entitled "Using Social Networking as  Legal Tool" (Linked Below).  There is nothing wrong with this article.  It very succinctly and pleasantly explains how certain law firms are using social networking and the Web to find clients for high-value plaintiff cases.  And I don't disagree with that approach.  As an attorney posting on a blog, I too hope to use social networking to get business, and would be foolish to argue otherwise.  Thus, I cannot fault the firms employing such tactics.  And I am glad that a more "mainstream" press outlet would pick up a story of this nature; highlighting the use of technology by lawyers.

The fault that I find, and what, frankly, irks me, is that this article gives no credence to the more innovative aspects of technological use that are gaining hold in the legal community.  The article highlights the practice of "ambulance chasing" for the 21st Century.  But there is so much more happening in the cyberworld.  Legal scholars like Eric Goldman are posting daily with the new and interesting ways that technology litigation and cyberlaw are being explored.  Courts are posting their opinions on-line to further the pursuit of knowledge by the populace.  Courts and communities are moving to on-line activity such as filing and case work to speed up the legal process and reduce our environmental impact.  Technology legal counsel throughout the world are espousing the virtues and pitfalls of cyberlaw.  Property rights are being generated in virtual worlds.  Privacy litigation is defining what can and cannot be exposed in the real and virtual worlds.  Software litigation is defining what can and cannot be done with these wonderful bits and bytes of information.  Cloud computing law is going to dominate the future courtrooms of the world as more and more data is put into the cloud.  All of these things are happening now.  

Our world is becoming a smaller place as we all become more connected, and lawyers are at the forefront of those debates and discussions.  Yes, I think it is very interesting that Law Firm X has 25 people on staff twittering and establishing domain names so that sufferers of acute hypersensitivity can find a law firm willing to represent them.  PLEASE don't misunderstand me because I believe that allowing those people to easily find representation IS IMPORTANT.  But it is not the only thing that is happening out there in the cyber-ether.  Instead of focusing on the new and novel way that lawyers are getting business, let's shine light on how those in the legal community are using the Web to define, explain and expand our world.

WSJ article: (online.wsj.com/article/SB10001424052748704324304575306581598351428.html

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Radical Innovation - Searching for the new frontier

Wednesday, June 16, 2010 by Chris Stephen
I'm going to cheat a little on this.  I read a great blog post by Jeff Ready over at the McStartup blog (www.mcstartup.com).  The blog post is all about the importance of radical innovation.  I have a place in my heart for radical innovation because I believe that in the legal community, we are the radical innovators.  ACH strives after its goal to be an information technology law firm, a venture capital law firm and a business law firm, but we go about it in a way that is radical to many other attorneys, because we are business-minded first and we are looking at the areas of business that others are overlooking.  So, rather than re-capsulate Jeff's thoughts, here they are in full quoted glory:

The Art of Radical Innovation

Following up on my post about Tom Mason and Rose-Hulman, I wanted to touch on something that Tom is a big believer in and used as the focus of his retirement speech:  radical innovation.Radically innovation refers to that type of innovation so powerful and different that it can completely change the profession, institution, industry, business, or person in one fell swoop.  Thinking about how radical innovations come about and how they impact the world around us is a favorite subject of Tom.

I bring it up here, because I believe that radical innovation is the key to success in whatever you do – and not just radical innovation, but, as Tom puts it, “continuous radical innovation” – the constant search for those things that will turn your world on its head.

It is true that most businesses are looking to innovate, but to think about radical innovation really changes the way you view things.  It’s very different from thinking about “constant innovation” or “continuous improvement” which is the mantra of many businesses today.  As Tom quipped during his speech, “General Motors followed the mantra of continuous improvement all the way into bankruptcy.”

 Put another way, and to borrow from the world of academia, continuous improvement gets college campuses wired, installs the latest lab environments in the buildings, and creates a campus environment more rewarding for the students.  Radical innovation moves the entire university experience online and does away with the campus altogether.
Continuous improvement puts shocks on your carriage.  Radical innovation replaces the horse with an engine.  Continuous improvement accelerates the reload speed and accuracy of your rifle.  Radical innovation gives you a machine gun.   You get the idea.

The challenge is to continuously seek the radical innovations in your business – to look for and to go after the very technologies that, if developed elsewhere, would bring a swift and painful end to your business.  In the mean time, of course you need to look for ways to improve your business, your products, and your practices.  However, time and resources need to be spent going after the radical, not just the better.

This probably sounds a lot easier than it is.  Radically innovation is an unpredictable, expensive, and messy business.  With limited resources, the temptation will always be to direct those resources toward the projects that will have the most immediate and predictable impact.  Just as you would imagine the mad scientist to find himself surrounded by doubters (right up until the invention actually works), you’ll find that investors, employees, partners, and competitors will view resources directed to these “rogue projects” as wasteful, silly, and distracting. 

Thus is the challenge of going after radical innovation within an ongoing enterprise.  The near term benefit sits squarely on the opposite, and in a world of business that’s often driven by quarterly numbers, high rates of employee turnover and movement, and a desire for immediate satisfaction, it can be extremely difficult to manage the balance of resources between what is today’s reality, and what might change that reality. 

The pressure will be on improving today’s reality.  But if you’re not careful, you’ll have the world’s greatest carriage company – right up until Henry Ford hands you your lunch – just ask GM.  

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Random Thoughts On Private Equity

Tuesday, June 15, 2010 by David Castor
2010 continues to prove successful for many of our clients.  In the area of business law and private equity we continue to see many of our clients receive funding and meet their capital goals.  That is exciting.  We are up to 9 clients that have done so this calendar year.

We have several other clients who are still pursuing capital under a Red D exemption / private placement offering.  We are very cautious about who we take on as clients, and I am hopeful that each will be funded in full soon.

I had a couple of interesting observations recently - one from a meeting with a potential investor and one this week while reviewing a new business plan.  These are random comments, but worthwhile for folks seeking funding from private equity investors.

1.    Where the business model is centered around a disruptive technology, you must prove that the technology will be sticky.  This should be key to your market opportunity discussion.  Also, the concept should be easy to describe.  An investor who knows nothing about the market should understand the key need for your technology and stickiness of the market within 60 seconds of reading a summary.  If you are not familiar with the disruptive innovation concept read Clay Christensen's book The Innovators Dilemma.

2.    Watch your sources and uses carefully – especially uses.  I read a plan for a $2.5MM raise with the plan allocating $1.3MM to executive salaries in the first 24 months.  That is ridiculous.  I don't care what doctorates or experience the C levels have - this is a pre-revenue business.  At best, if you must be paid a lot, tie salaries to metrics with revenue generation.  For any equity raise, best "uses" are sales, sales, sales and development which will lead to more sales.



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