Know the Fine Print – Dispute Resolution

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Every contract needs a dispute resolution clause – every contract. It’s something you should look for in every contract you read. If you’re given a contract to sign that doesn’t have one, I strongly recommend adding one in. That’s what I would do.

The dispute resolution clause in a contract is the how-we’re-going-do-deal-with-problems provision. It lays out how and where problems will be resolved when they occur.

How Problems will be Resolved
There are three main ways people general resolve problems in a contract:

  • Mediation: Hire a mediator to help you resolve the problem – more likely to results in “splitting the baby” and not a winner and loser.
  • Arbitration: Hire an arbitrator (or panel of arbitrators) to hear/review your arguments and make a decision. (This is what they used in Erin Brockovich.) Sometimes arbitration is faster and more cost effective than litigation, but not always.
  • Litigation: This is the traditional civil lawsuit. This is what I recommend for most contracts I write for clients.

You’re not limited to only these three options. You can have anything in your dispute resolution clause as long as it’s legal. So if you want to resolve disputes by throwing darts or Rock-Paper-Scissors-Lizard-Spock, you can.

Where Problems will be Resolved
The dispute resolution clause should specify in which county and state disputes will be resolved. If you’re writing the contract, you want the opposing party to have to fight you on your turf if there’s a problem. This is why most contracts I write for clients require them to resolve all disputes in Maricopa County, Arizona and that all parties agree to that jurisdiction. Without such a provision, you may find yourself having to travel to fight disputes in the opposing party’s state, and possibly needed to employ a local lawyer for additional assistance.

Which Law Applies
The laws in each state are slightly different. This is why it’s imperative that your contract state which state’s law will govern the contract for all non-federal claims. Federal claims (like many intellectual property issues) are governed by federal law. You don’t want to have a dispute within the dispute about which law applies to the state-law claims.

There may be other provisions in the dispute resolution clause like a requirement to notify the other party in writing if you believe they’ve breached the agreement and a set time in which they have to cure/fix it before you can take further action against them. Another clause to look for is a provision that requires the loser in a dispute to pay for the winner’s attorney’s fees. I like to add this into contracts I write. It makes people think twice before going after the other.

Next time you buy a ticket for a show, professional sports, travel, or sign up for an account on a website – read the fine print. See what the dispute resolution clause requires. You’ll quickly see that whoever writes the contract, does so with their (or their client’s) best interests (not yours) in mind.

If you need help writing or reviewing a contract, speak to a business lawyer about your needs and options. If you have questions about contracts that you want to discuss with me, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Kesha v. Sony – Cautionary Contract Tale

Microphone by Photo Cindy from Flickr (Creative Commons License)

Microphone by Photo Cindy from Flickr (Creative Commons License)

Last week, a New York Court refused to nullify the contract between recording artist Kesha and Sony, despite Kesha’s allegations that she was drugged and raped in 2006 by her producer, Luke Gottwald (a.k.a. Dr. Luke). Gottwald has not been charged with this crime. Kesha admitted she’s afraid of Gottwald, but she said if she doesn’t work with him (even though Sony offered to give her another producer), she’s worried Sony won’t promote her music properly. If everything Kesha said is true, she is trapped in a situation where she has to risk her personal safety for professional success.

Why Sony Won
The reason Sony won this case appears to be basic contract law – the verbiage of the contract wouldn’t allow for the change. When it comes to creating a contract, it’s a relatively low bar to clear to have a legally binding contract. And if the parties want to change the provisions later, they may only be able to do so under limited circumstances, such as by mutual agreement. If the contract is valid and the other side is not open to making changes, you’re stuck with the verbiage and the commitments of the original agreement. I suspect that’s what happened in this situation; Kesha signed 6-album deal, and her allegations that her producer raped her isn’t sufficient to force Sony to change the terms or release her from the contract entirely.

Personally, I believe Kesha. It’s rare for a person to lie about being sexually assaulted. However, the law doesn’t have this luxury. The court can only make decisions based on what the parties can prove, so without a conviction or a confession, the court can’t determine if her allegations is sufficient to release her from this contract.

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Ke$ha by Becky Sullivan from Flickr (Creative Commons License)

Turn Back the Clock
Given that hindsight is 20/20, what might Kesha have done differently when negotiating her contract with Sony? I am not sure it was wise for either party to commit themselves to a 6-album deal. Perhaps it would have been better for the artist to only commit to 2 albums and then renegotiate. Given Kesha’s young age when she signed with Sony, perhaps she, and other young artists, should have provisions geared towards their personal safety such as cameras that record all meetings and security or at least a personal representative all times that she’s working as well as provisions that address physical and emotional abuse. I also wonder if it wouldn’t have been prudent for both sides to have a provision that required regular drug testing to help prevent artists from getting into trouble and from being taken advantage of by people who should be protecting them.

What Could Kesha do Now?
Since a Kesha appears to be legally obligated to work with Sony and her alleged rapist, what should she do now to protect herself? Her safety should be the top priority. In regards to Gottwald, Kesha should never be alone with him. She should have security at her side at all times when he’s present. Gottwald should not be permitted to be within 10 feet of her, be able to contact her directly by phone or using any electronic means, or for any reason except as professionally necessary. I’m also not opposed to Kesha being legally armed (pepper spray, stun gun, etc.) if that makes her feel safer for the duration of her contract.

Contracts are a beautiful thing when they are written properly. However, we can see from this case how it can be a disaster when parties don’t plan for the worst-case scenarios. (I agree that it is an incredibly sad that artists have to consider the possibility that they will be physically harmed by their business partners, but this case shows that it is something that should be discussed at the negotiation table.) If you have a question about writing effective contracts, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

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How to Move a Business from California to Arizona

Arizona - The Grand Canyon State Welcomes You by Peter Zillmann from Flickr (Creative Commons License)

Arizona – The Grand Canyon State Welcomes You by Peter Zillmann from Flickr (Creative Commons License)

California is so weird. (I grew up there. I can say that from experience.) It’s a weird state with weird laws.

I recently helped a client move their business from California to Arizona. Arizona law allows you to simply transfer your company from your old state to your new one with a Statement of Domestication, if the state you’re leaving permits this.

California doesn’t.

Instead of it being a simple process, moving a business from California to Arizona is much more complicated, expensive, and time consuming. The easiest way to do it was to form a new company in Arizona and merge it with the California company, where the Arizona company was the surviving entity.

Here’s how it’s done:

  • Create a new entity in Arizona through the Arizona Corporation Commission and pay the corresponding filing fee.
  • Create and sign a Merger Agreement.
  • Submit the Statement of Merger to the Arizona Corporation Commission and request a Certified Copy of the Merger Certificate. Pay the corresponding filing fees.
  • Once you receive the Certified Copy of the Merger Certificate, send it to the California Corporation Commission with their required filing fee.

The total process took a little over a month – and we expedited the Arizona filings – and the client spent over $300 in filing fees between the two states. Had they been able to file a Statement of Domestication, the Arizona filing fee would have been only $100 ($135 if expedited it).

Dealing with the California Corporation Commission wasn’t the easiest adventure. If I ever have a question and need a crystal clear answer from the Arizona Corporation Commission, I can go down there and talk to the clerk. I don’t have that luxury with California. One day it was impossible to get anyone at the California Corporation Commission on the phone and I ended up using their online contact form to get a call back 2-3 days later. That was a frustration that I’m glad I got to handle instead of my client.

Moving a company from one state to another can be confusing and stressful – especially when you’re trying to sort out which process you have to use and which forms and filing fees you need to submit to each state. It’s not something I recommend doing by yourself. If you have a question about starting a company in or moving a company to Arizona, please contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Working with People who Don’t Understand Copyright

Sentinel vs. Jawa (88/365) by JD Hancock from Flickr (Creative Commons License)

Sentinel vs. Jawa (88/365) by JD Hancock from Flickr (Creative Commons License)

Here’s the scenario: You are a newly hired third party content creator for a company. You learn that your client has a habit of copying pictures from Pinterest or Google Images searches without verifying that they are allowed to use the images on their website and/or social media posts. They want you to do the same. What should you do?

Option #1: Your Client Needs an Education about Copyright
Some people truly believe they can use any image they find on the internet, particularly if they give an attribution and a link back to the original. There are so-called “gurus” who will tell you this is ok. It’s not.

What your client is likely doing is committing copyright infringement. Inform your client that he/she is running the risk of getting a cease and desist letter, a bill with a license, or a lawsuit. In the worst-case scenario, they could face a lawsuit for $150,000 per image they use, plus attorneys’ fees. Tell your client to thank their lucky stars they haven’t faced one of these consequences yet and advise them that the prudent thing to do would be to replace all images on their site with pictures they can legally use.

Use this an a teaching experience to educate your client about the importance of asking permission, using Creative Commons, and possibly exploring whether what they are doing in some situations qualifies as fair use.

Option #2: Your Client Understands but Disregards Others’ Copyright Rights
Fire your client.

This person is obviously an idiot. No money is worth being affiliated with this company. Run away as fast as you can.

Footnote: Every company should have a “No Jerks” rule when it comes to employees and clients. If you find someone violating this rule at a genetic level (not just having a bad day), cut all ties with them immediately.

The same rules about copyright that apply to your website also apply to your social media posts:

Whenever I work on a contract for the relationship between a company and an outside content provider, I always recommend that my client require an indemnity clause that will protect them if they are accused of intellectual property infringement based on material provided by the other party. Your contract is the master document for your working relationship. It should clearly define the parties’ obligations to each other which should include deadlines and deliverables and also how you will resolve problems when they occur.

If you want to know more about the complex issues related to copyright and the internet, please check out The Legal Side of Blogging: How Not to get Sued, Fired, Arrested, or Killed. If you want to chat with me about this topic, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Choosing a Business Partner – Bet on the Jockey, not the Horse

Lone Star Park by Travis Isaacs (Creative Commons License)

Lone Star Park by Travis Isaacs (Creative Commons License)

When it comes to deciding who will be your business partner or a business investor, choose your associates with as much care as you would a romantic partner. When it comes to selecting these people, don’t you just look at their reputation, their track record, or their wallet. Look at who they are as a person. Look at how they work in relationships with others, their values, and their personality. If you are going to be intimately involved with this person from a business perspective, it should be someone you enjoy being around and who has values and goals that are compatible with yours.

When Gary Vaynerchuk evaluates startup owners and businesses for investment purposes, he says he bets on the jockey, not the horse. That makes perfect sense because there are times of great ideas out there but a much smaller group of people who can take one of these ideas and execute on it in effectively. As Gary would say, “Ideas are shit. Execution’s the game.

Think of your business relationships as a “business marriage.” These are people with whom you will be legally connected and have fiduciary obligations to each other. And if things don’t work out, you will need to get a “business divorce” where one partner buys the other out or when the partners decide to shut down the business and divide whatever assets are left. I’ve worked on collaborative divorces where the owners realized that they could no longer work together on a business but they could agree on what terms they wanted for their separation. I’ve also worked on contentious business divorces where each side has legal representation and the contract negotiation is longer and the parties are much more antagonistic.

In many cases, many problems in a business relationship or the business divorce could have been avoided had the parties verified that they were on the same page from the beginning of the relationship regarding their goals, how they were to run the business, and how they will resolve problems. Unfortunately, too many people use poorly written contract templates they find on the Internet or proceed without one at all. They don’t understand that it is cheaper and easier to write an effective contract with a lawyer at the big getting of a business relationship then for each side to have to hire someone to negotiate their business break up when things don’t work out.

Choose your jockey (business partner) with care. If they treat other people poorly, they will treat you poorly. If you think you can manage or manipulate a person’s behavior, you are already asking for trouble. If your prospective partner balks at the idea of solidifying your relationship with an operating agreement or investor agreement, turn and run away. No one’s money is rich enough to make up for the headaches and heartbreak that result from not having a proper contract in place. In fact, the appropriate response to a request for a contract should be something along the lines of, “Duh.”

If you want to chat more about the importance of business contracts or how to write one to accommodate your needs, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Entrepreneurship, Business Contracts, & Self-Awareness

Meditation by Moyan Brenn from Flickr (Creative Commons License)

Meditation by Moyan Brenn from Flickr (Creative Commons License)

As a lawyer I am in a problem-solving industry. I much prefer to be on the problem prevention side than having to help my clients clean up the mess they find themselves in, but I try to help when and where I can.

The last few months have been particularly frustrating. I’ve seen multiple situations where problems could have been prevented if the people involved had fully thought the situation through, called a lawyer to help them record their agreement in writing (and had the provisions they didn’t think about in advance), and signed their contract. Let me be clear – I’m not mad at my clients or prospective clients. I give them credit for realizing they are in over their heads and asking for help. The frustrating part is knowing that they are in difficult situations that could have been prevented.

Well written contracts are business gold. They put everyone on the same page from the beginning of the relationship and they outline how the parties will deal with problems when they occur.

I wonder what some people are thinking when they work without a contract or with a poorly written contract.

  • “We were too excited about the project to worry about a contract.”
  • “We were on a deadline.”
  • “I didn’t think we needed a contract.”
  • “The template I found online looked good enough at the time.”
  • “Hiring a lawyer is too expensive.”

All of these are crappy excuses not to have a contract or to have an ineffective one. A responsible entrepreneur is thoughtful enough to know what their needs are including an awareness that they will be dealing with more pain if they have to clean up the mess compared to doing it right the first time. And if the person you’re working with doesn’t understand the value of having a legally sound contract written by someone who knows what they’re doing, I would have serious reservations about working with that person. I thoughtful entrepreneur knows it is a better use of their time and money to hire someone to draft a contract at the beginning of a project than to try to do it themselves and have to hire a lawyer later to clean up the mess they created for themselves.

More entrepreneurs need to hear and to realize, that even though they might be running a solo shop, they never have to deal with a situation alone. They don’t have to have all the answers all the time. It’s ok to ask for help. In fact, it’s a sign that you are a good entrepreneur when you play to your strengths and you let other people use their best skills on your behalf. This requires a high degree of self-awareness and humility.

Gary Vaynerchuk and his team made an awesome video about self-awareness as an entrepreneur. I regularly watch it as part of my journey as a business person.

This is an area where I have substantial interest – both as a lawyer and an entrepreneur. If you want to chat more about this topic, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

When “I’m Sorry” Isn’t Enough

Sorry Bout That! by Anne-Sophie Ofrim

Sorry Bout That! by Anne-Sophie Ofrim

I’ve encountered a significant number of people in my short legal career who were under the impression that they could absolve themselves from legal wrongdoings by simply apologizing. Unfortunately for them, that is often not the case.

When I first meet with a client, especially in situations where they suspect their intellectual property has been infringed, I start by asking, “How do you want this to end?” Their answer will inform me what I need to do to try to get their desired result (and if that result is available).

Sometimes my client simply wants the alleged infringer to stop using their work. That requires a cease and desist letter from me and the recipient to cease and refrain from using the material in question. An apology isn’t even required. However, if my client wants money, and my evaluation of their case shows that they are eligible to collect, “I’m sorry” will not be enough to resolve the situation.

In general, once lawyers are involved, “I’m sorry” is not going to be enough to fix the situation. If a person hires a lawyer, they are usually investing hundreds of dollars in an attempt to seek their preferred resolution. Very few people are willing to pay that amount just for an apology.

In my experience, when one side gets a lawyer the other side should get one too – if only for a consultation to understand the totality of the situation. They need to understand their options for responding to a cease and desist or a demand letter and the likely consequences of each potential course of action. In a perfect world lawyers talk to lawyers when there is a dispute. They know the law best and can often speak more candidly about the situation and achieving a resolution.

Every entrepreneur should watch Mike Montiero’s “F*ck You, Pay Me.” It’s an outstanding talk that shows how the legal system helps entrepreneurs protect their rights.

If you believe your rights have been violated or you’ve received a notice from someone’s lawyer accuses you of intellectual property infringement, breach of contract, or the like, contact a lawyer in your community who can analyze the situation and advise you on your options. If you want to chat more about this topic, you can contact me or connect with me on TwitterFacebookYouTube, or LinkedIn.

Creator Rights | Phoenix Comicon Recap

Photo by Scott Adams for Phoenix Comicon - sorry I had to crop out the Phoenix Comicon logo to fit the dimensions of my site. View the original here: http://bit.ly/1QqlW48.

Photo by Scott Adams for Phoenix Comicon – sorry I had to crop out the Phoenix Comicon logo to fit the dimensions of my site. View the original here: http://bit.ly/1QqlW48.

I had an awesome time presenting on Creator Rights at Phoenix Comicon this year with Javier Hernandez. His comic book series, El Muerto, was recently made into a movie and a fan created a fan film that was shown at the Con. It was really interesting to hear his story as an artist trying to muddle through the legalities of working in the arts with the help of his lawyer.

I don’t prepare much for my talks at Phoenix Comicon. I feel like it’s my job to be there to explain legal concepts in plain English and answer the audience’s questions about copyright, trademarks, contracts, and fan art. There’s always a fun smart audience with thoughtful questions. It’s a privilege to be invited back multiple times. Here are some of the highlights from this year.

You have Rights in your Original Creations
There is no legal protection for ideas but there is for original works of authorship once you’ve captured your ideas in a tangible medium such as paper or a digital file. The copyright laws were designed to protect original storylines and fully-formulated characters. I often recommend that artists at least register their “story bible” with the U.S. Copyright Office to maximize their legal rights related to their work.

Once you create a comic, you have the exclusive right to copy, distribute, display, perform, or make derivative works from your original work. That’s why the movie studio had to get the option (aka license) from Javier to make a movie from El Muerto, because a movie is a derivative work. Javier didn’t authorize the creation of the fan film and so when he went to see it, part of his motivation was to see if he wanted to exert his legal rights to stop the creators from showing it in other forums.

Protect your Trademarks
Someone in the audience shared a horrific story. He created a comic and after he started sharing his work with others, someone else started a similar comic – with the same name. Here’s the kicker, the second guy registered the name with the U.S. Patent and Trademark Office. What a nightmare. I told him to call a lawyer to try to sort out this mess.

A lot of beginning artists and people who create art as a hobby don’t understand their rights and how they can avoid problems like this by registering their trademark before their competition does. Or if they understand their rights, they don’t invest the money to file the proper applications with the federal government. These types of problems happen all the time. Check out what happened when two restaurants decided to call themselves “Burger King.”

When Contracts are Involved, Call a Lawyer
If you are lucky enough to create art that someone wants to buy or license, call a lawyer. The other side is going to present you with a contract that was written solely based on their interests. You need someone who is equally versed in entertainment contracts to represent you. Lawyers talk to lawyers – so hire someone who can explain the process, understand your priorities, and advise you of your options.

Javier and I had a fantastic time doing this panel – sharing our experiences and knowledge from the creator’s and lawyer’s perspective. It was a wonderful juxtaposition for the audience. I also did a panel at Phoenix Comicon on Fan Art/Fiction and Copyright. If you want to know more about that specific topic, check out this post I wrote last year with a handy mnemonic device.

If you have questions or want to chat more about creator rights, please contact me directly or connect with me on social media via TwitterFacebookYouTube, or LinkedIn.

Lawyers Protect you during a Business Divorce

Pareja (Couple) by Daniel Lobo from Flickr (Creative Commons License)

Pareja (Couple) by Daniel Lobo from Flickr (Creative Commons License)

Over the last six months I’ve worked with a handful of companies that were experiencing major changes in regards to how the company is operating and who the owners are – usually resulting in one or more owners buying another one out. Sometimes the owners realize that they no longer have a shared vision and can work together amicably to resolve the situation so they can each move forward in their professional lives and sometimes it’s quite contentious. I often call the situations “business divorces.”

When these situations happen, it’s helpful to get a business lawyer involved early in the process. You may only need in our consultation to discuss the situation in your proposed plan of action. Your lawyer can act as a neutral third party who doesn’t have invested ego in the outcome of the situation. Invite your lawyer to review your company’s operating agreement or bylaws (hopefully you have these) and remind you of what courses of action you previously agreed upon in this type of conflict (assuming you made these decisions when you started the company) and how to change the status of your business with your state’s corporation commission.

Most business owners I know don’t want to think about the worst case scenario when their businesses are just getting off the ground and everyone is optimistic about the future; however, this is the best time to have this conversation and document it because this is when you are most likely to be thinking about what is fair and what is in the best interests of the company. If you wait until there is a conflict to try to have this conversation, you’re more likely to get into a battle of wills where people are more interested in what they want and/or hurting the other person.

Additionally, if you are going through a “business divorce” expect it to take longer than you’d like. There may be valuations that need to be performed on the company, documents that need to be reviewed by your lawyer or accountant, and a custom contract drafted between you and your future-former-co-owner. This may involve a significant amount of negotiation and revisions.

I actually enjoy drafting these documents to shift the ownership of the company, especially when both sides are represented by counsel. Each lawyer is an advocate for their client’s concerns without it having to be a combative situation. And we can shield our clients from the tribulations that would likely result if they tried to reach a resolution on their own. Ultimately we both want the same thing – a change in business ownership and clients who are satisfied with the outcome.

If you are in a situation where the arrangement with your fellow business owners is no longer effective, please contact me or a business lawyer in your community. If you want to connect with me on social media, you can find me on Twitter, Facebook, YouTube, or LinkedIn.

Does Your Business Need Cyber Liability Insurance?

Guilty Viewing Pleasures: Hackers by Ingrid Richter from Flickr (Creative Commons License)

Guilty Viewing Pleasures: Hackers by Ingrid Richter from Flickr (Creative Commons License)

Anthem Health Insurance was victim the latest cyber attack to hit the news. Approximately 80 million customers’ health records were compromised by this security breach. When you hear about these hacking stories, do they make you wonder about your company’s security system? Do you assume that you probably have nothing to worry about because hackers are only interested in big companies like Target?

I attended a workshop last month about cyber liability insurance where the presenter said that a 2011 study revealed that 95% of all credit card breaches were against small businesses. We only tend to hear about the security breaches involving bigger companies but any size company could be at risk. Data breaches can occur through hacking, theft by unauthorized access , employee errors, and stolen or lost paper or electronic files, laptops, smartphones, flash drives.

Any business that handles or stores private business, customer, or employee data should consider getting insurance to cover them if a data breach occurs. This data includes social security numbers, bank account information, credit card numbers, driver’s license numbers, and email address. Additionally, you should take a look at your company’s policies and procedures related to data security. Are you taking the following precautions?

  • Secure sensitive data
  • Restrict access to data
  • Dispose of data properly – i.e., wipe laptops before donating them, shred paper files
  • Use effective passwords
  • Use encryption and secure remote access
  • Make sure your employees understand how to protect data and why it’s important

There are many benefits of having cyber liability insurance. Your provider should offer risk management services to help prevent a data breach from occurring. If a breach occurs, they will can professional assistance for damage control and regulatory compliance as well as cover the response expenses for mailing notification letters, credit monitoring services, and public relations. Your cyber liability insurance policy can also cover your defense and liability expenses if you are sued because of the breach.

This is a serious issue that can affect any company that uses the internet for business or commerce. If you have a traditional business liability insurance policy, read the terms carefully; it may not cover cyber liability. If you need a cyber liability insurance policy, contact a cyber liability insurance specialist to discuss your needs and options.

If you have questions or want to chat more about these issues, feel free to connect with me on TwitterFacebookLinkedIn, or you can send me an email.