The Myth of the Start-Up

Chris Dixon has posted a thoughtful analysis about the Myth of the Overnight Success on his blog. He writes:

You tend to hear about startups when they are successful but not when they are struggling. This creates a systematically distorted perception that companies succeed overnight.

Similarly, there is a general Myth of the Start-up that makes starting a company look easy. Many companies that people commonly refer to as a Start-up are not in fact start-ups in the most basic definition of the word. For example, Priceline was developed in house at Walker Digital and MySpace was a project of an existing marketing company. Neither company struggled through the early stages because they were incubated within larger organizations that provided for their care and feeding. Twitter is another company commonly referred to as a start-up that was incubated within a well funded organization.

Starting a company is hard! Building a company requires patience, perseverance and hard work. Don’t fall for the Myth of Overnight Success OR the Myth of the Start-up!

Posted in start up, Uncategorized | Tagged , , , , | 1 Comment

Ideas and the Law: What every Entrepreneur & Inventor Should Know, and Do

People start companies because they have an idea. Whether it’s an idea for something new, something better, something unique, it all begins with an idea. Not only are ideas the foundation for great companies, ideas may also be the company’s most valuable asset. This post is the first in a series about strategic practices for intellectual property protection for entrepreneurs and inventors.

Ideas, regardless of how great they might be, are of little value on their own because the law does not grant much, if any, legal protection to them. Therefore, it is necessary to take steps to protect ideas to retain their value. The easiest way to protect an idea is to not tell anybody the idea. However, founders and inventors must be able to share their ideas. Sharing ideas is necessary for research and development, raising funds, market research and team building.

Courts have recognized some protection where ideas have been shared where there is either a contractual duty to not use an idea or a confidential relationship between the parties. Therefore, it has become common practice for people to execute confidentiality and non-disclosure agreements when discussing their ideas with third parties. A confidentiality and non-disclosure agreement is a contract between parties in which one or both parties agree to protect confidential information and not use the information in a competitive manner. Additionally, the agreements are necessary to protect the disclosers’ interest in the underlying idea if it qualifies for patent protection.

Confidentiality and non-disclosure agreements generally provide the person receiving the information will:

*Hold the information in confidence;
*Not use the information in a manner
*Not disclose the information to third parties except in certain defined circumstances.

While confidentiality and non-disclosure agreements have become commonplace, with forms and templates available across the Internet, not all versions are the same. In fact, some language can be used in the agreements to negate the purpose, allowing the receiver to use the information for its own purposes. Additionally, many people, including investors, will not execute the agreements because it could expose them to liability down the road. Regardless, even if the receiver has executed the appropriate agreement, it costs money to litigate to enforce the contracts and such enforcement may be too late for a founder to get to market first.

Therefore, from the outset founders should consider what intellectual property rights could be available to protect their ideas. Technically intellectual property does not “protect” ideas. However, patent, copyright, trademark, and trade secrets each provide founders, inventors and creators a different basket of rights which can protect the manifestation of their ideas. Some rights are automatic, while others require the person claiming the right to take some action.

Strategic Practices:

1) Share your ideas sparingly, with people on a need to know basis;
2) Have your own Confidentiality/Non-Disclosure Agreement form which you understand ready to be executed; and
3) Consider what intellectual property rights are available to protect your interests.

Posted in copyright, entrepreneurs, ideas, Intellectual Property, inventors, NDA, Non Disclosure, Small Business, start up, Trademark | Tagged , , , , , , , , , , | 3 Comments

Right of Publicity, Steve Jobs, Me and You

Contrary to this article in PaidContent, Steve Jobs’ estate likely has an enforceable interest against InIcons, the manufacturer of a life-like action figure of the deceased visionary, in the United States. The Right of Publicity grants people like Steve Jobs, as well as ordinary people like me, the rights in our images, names and likeness. Jas Purewal, who publishes the blog GamerLaw, brought the article to my attention.

In the United States there is no federal Right of Publicity. However, the Lanham Act provides some protection against unfair competition and false advertising. Specifically, the Lanham Act prevents the misuse of an individual’s name or likeness in a manner that falsely implies endorsement, affiliation or connection.

The Right of Publicity is primarily a state based law. Each state takes a different approach to the Right of Publicity. Unlike what the columnist in PaidContent, wrote nearly half of the states statutorily recognize the Right of Publicity, and the courts of the other states recognize the right. However, few states approach the Right of Publicity in the same manner. For example, the courts in New Jersey recognize a perpetual Right of Publicity for its residents. In California and Tennessee the Right of Publicity is statutorily defined and fairly broad, extending the rights postmortem. While in other states, like New York, the statutory Right of Publicity is narrowly defined and available only during the life of the individual to which it applies.

Determining which law applies to a living individual is fairly simple. Generally, you need to know which state the individual calls home. Regardless, most states recognize that living individuals have the Right of Publicity. Next time you go to a sporting event, or other event that may be broadcast live or recorded for later broadcast, read the back of your ticket. It will likely include language similar to the following disclosure:

Holder expressly grants the NCAA and its licensees to use Holder’s image or likeness in connection with any live or recorded transmission or reproduction of such event.

Identifying which state Right of Publicity law applies for a deceased individual is more difficult as there are a number of factors that must be considered. It’s not enough to know where the individual was domiciled at the time of death. Recently, a court held that though Marilyn Monroe died in California she was subject to the Right of Publicity law in New York because her will stated that laws of the State of New York applied to her estate.

Here, let’s assume Steve Jobs’ estate is subject to the laws of the State of California as he died in the state. California has enacted the “Fred Astaire Celebrity Image Protection Act” which provides, among other things, that you must have consent for use of a “deceased personality’s name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods.” The statute defines a deceased personality as “any natural person whose name, voice, signature, photograph, or likeness has commercial value at the time of his or her death” whether or not the decadent made money off his/her likeness while alive. Steve Jobs was the face of Apple, his voice and likeness launched many a product which are now ubiquitous (iPod and iPhone anyone). Steve Jobs may not have been a celebrity in the Hollywood sense of the word but there was a definite “commercial value” in his name and likeness while alive. The Fred Astaire Celebrity Image Protection Act grants his estate the ability to protect his image in death just as Steve Jobs did in life.

Finally, the PaidContent article fails to recognize a fundamental tenet of American jurisprudence. The Constitution of the United States provides that each state shall give the laws of the other states “full faith and credit.” Continuing the assumption that the Steve Jobs’ estate will be subject to the laws of the State of California, the courts in the other states will enforce California’s Right of Publicity law against parties who infringe it. Therefore, contrary to the article, the Steve Jobs doll manufactured without permission from the estate would be illegal in all states.

Posted in Intangible Assets, Intellectual Property, Lanham Act, PaidContent, Personality Rights, Right of Publicity, Steve Jobs, Uncategorized | Tagged , , , | 1 Comment

How to Clear a Song: A quick tutorial

One of the complaints I most often hear about copyright is that it is too hard to identify who owns the rights to a copyright protected work. The challenges are particularly great when trying to track down the owners of the copyrights in a song: the label on which a song originally had been released may be defunct; the band long ago may have retired and scattered to the four corners; or the songwriter may have vanished or died. People often use the difficulty they face to justify using a song without permission, or worse not using it at all.

While I agree that it can be difficult identifying who owns the rights to a song, it is not impossible. With a little bit, okay maybe a lot, of hard work I can generally find out who has the rights to any song under the sun. The resources available on the Internet, from fan sites to performing rights organizations, make the process significantly easier than it used to be.

In anticipation of a panel on which I am speaking during Licensing University at the Licensing Expo, I have prepared “The Who What When Where & Why of Music Clearance”. The brochure provides guidance on how to identify who owns the rights in a song, and what to expect during the clearance process. If nothing else it illustrates why clearing a song is an incredibly complicated, and nuanced, process!

Posted in copyright clearance, Fair Use, license, licensing, music clearance, music licensing, Music Resources | Tagged , , , | Leave a comment

Saferproducts.gov: Unsafe for Businesses at any Speed

The summer of 2007 saw a range of product recalls from jewelry for children to pine nuts. Most of the products involved had been manufactured in China and imported into the United States. The Consumer Products Safety Commission a relatively unknown government agency was thrust into the spotlight due to perceived regulatory failures. Congress responded to the so-called “Summer of Recalls” with a series of hearings that resulted in the adoption of the Consumer Product Safety Improvement Act.

Among the provisions of the Consumer Product Safety Improvement Act (the “CPSIA”) is a requirement that the Commission develop and implement an online database on which consumers may report unsafe and dangerous products. The database, according to the CPSIA, must be publicly available, searchable and accessible through the Commission’s website. Additionally, the data should be “sortable and accessible” by date, consumer product, model name, manufacturer or private labeler’s name, as well as any other element the Commission has deemed necessary in the public interest.

The resulting database is set to launch on March 11, 2011, barring government shut-down or legislative action to delay or stop implementation. The database is accessible through the Commission’s website and directly at www.saferproducts.gov. The Commission held hearings and industry meetings to discuss the database, its role and how it would be developed and implemented.

According to the Commission, however, government databases, already in use, where consumers are able to report safety issues had been used as a foundation for its database. Specifically, according to the Commission, the Food and Drug Administration’s MedWatch, a reporting system for drugs, medical devices and other regulated items, and the National Highway Transportation Safety Administration’s Safercars.gov, a system for reporting safety issues related to automobiles, had been used as guides.

However there are significant differences between the FDA and NHTSA databases and the one the CPSC has developed. On the CPSC database a consumer must input relatively little information to report a claim that a product has either actually caused harm or has the potential to do so. The consumer must define the product and provide a narrative that describes the actual or perceived danger, as well as providing contact information for the Commission’s use.

On the FDA and NHTSA databases, consumers are required to provide a significant amount of information about the products for which a claim has been filed. On the NHTSA database, a report may not be filed until the consumer has specified not just the manufacturer of the car but the make, model and year as well. The FDA requires that a consumer provide a variety of information including product name and lot number.

Unlike the FDA and NHTSA databases, the consumer is not required to provide information that specifically identifies the products about which the complaints are filed. The product/brand names, serial number, manufacturer and place of purchase are optional on the CPSC database.

Even though the Commission has not required that consumers provide information that specifically identifies a product, the CPSIA requires that the reports be made public within ten (10) days of having been filed. Prior to being published, the Commission must notify a named party (a manufacturer, importer or private labeler) that the report has been filed. Considering the consumer is not required to name a manufacturer, importer or private labeler, the Commission is either going to have to research the claim rather quickly to find one or fail to send the required notice.

Regardless, a manufacturer or other entity has limited options for a response to the complaint. It can provide a response to the complaint directly on the database, request redaction if confidential information is compromised or request removal due to “materially inaccurate” information. As of this writing, the Commission has not yet defined what qualifies as “materially inaccurate,” but has stated that the burden is on the manufacturer or importer of the product to prove that the information is not accurate.

Congress has required that the Commission provide notice to the general public that there is no guarantee of accuracy, completeness or adequacy of the complaints. Specifically, a product being included in the database does not mean it is actually defective or unsafe. However, the Commission’s representatives have made public claims that contradict the objective nature of the database. As recently as last week the chair of the Commission, Inez Tenenbaum, told those gathered (me included) at the International Consumer Product Health and Safety Conference that a mother should be able to search the database to find out if there are issues with a product that could harm her child.

Significantly the risks the database in its current incarnation poses to businesses are great:

•There are no safeguards to prevent individuals, competitors, or even investors who want to impact a stock price, from filing false or misleading reports that could result in negative publicity for a named manufacturer. While a manufacturer can take steps to prove a report is materially inaccurate, it will require time and money to do so and until the claim is established to be materially inaccurate it remains on the database.

• It is unclear what companies are entitled to register to receive notices of complaints. That is, consumers may state where the product in question was purchased but retailers are not allowed to register to receive notification of complaints.

•The claims are not verified, and consumers do not have to provide information that specifically identifies the products or the parties involved.

• There is no accounting for counterfeit goods which will be wrongly attributed to a manufacturer until they can prove the product is counterfeit.

However, the Commission could implement minor changes to the database to limit the negative impact on businesses of the public databases:

• Consumers should be required to identify the name of the product or brand, the manufacturer, where known, and provide a serial number, or other information, to sufficiently identify the product and prevent multiple reports.

• Consumers should have to acknowledge a formal notice that lying to the federal government is a crime punishable by imprisonment and civil fines.

• The Commission should collect IP addresses from complainants and flag repeat addresses to discourage competitors and others from filing multiple reports, whether or not false.

•Before accessing the database, consumers should have to acknowledge by checking a box that the database is provided for information purposes only and that the products included are not necessarily unsafe. A link to the recall database should be provided to note the difference between the databases.

The Commission has put a call out for all manufacturers, importers and private labelers to register with it so that they can provide timely notice if any claims are made involving their products. However, you should consult with a consumer product safety attorney before complying with the request to make sure it is in the best interest of your company to do so. Regardless, companies MUST monitor the database on a daily basis for reports involving their company or products.

A focus of President Barack Obama’s 2011 State of the Union, and of his current legislative strategy, is regulatory reform. He has emphasized that the government needs to consider the impact regulations have on small businesses while not sacrificing its duty to protect Americans. The impetus for the revisions to the Consumer Product Safety Act, including the database, were a number of situations where consumer products had been imported into the United States with unsafe lead levels or other issues. While the Commission has been directed to establish a database for consumers to report alleged unsafe products, the current incarnation of the database will have a profound negative impact on businesses, especially small ones.

Posted in Consumer Product Safety Commission, consumer protection, consumer safety, Recalls, regulations.gov, Regulatory Reform, saferproducts.gov | Tagged , , | Leave a comment

Regulatory Reform for the 21st Century: Small and Mid-Size Businesses Matter

On January 18, 2011, President Barack Obama penned an editorial, Toward a 21st-Century Regulatory System, for the Wall Street Journal in which he discussed the need for regulatory reform across the federal government.  The President addressed the importance “common sense rules” have had to protect the American people “without unduly interfering with the pursuit of progress and the growth of our economy.”

However, acknowledging that the the regulatory landscape had become unruly he announced that he had issued an Executive Order mandating an overhaul of federal regulations.  Among the issues he highlighted in the editorial was the toll regulations take on small businesses in America:

We’re also getting rid of absurd and unnecessary paperwork requirements that waste time and money.  We’re looking at the system as a whole to make sure we avoid excessive, inconsistent and redundant regulation.  And finally, today I am directing federal agencies to do more for- and reduce- the burdens regulations may place on small businesses.

The Executive Order – “Improving Regulation and Regulatory Review” – sets out the basis for the regulatory reform:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science.  It must allow for public participation and an open exchange of ideas.  It must promote predictability and reduce uncertainty.  It must identify and use the best, most innovative and least burdensome tools for achieving regulatory ends.  It must take into account benefits and costs, both quantitative and qualitative.  It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand.  It must measure, and seek to improve, the actual results of regulatory requirements.

To reach the goals President Obama has to reform the regulatory system in the Federal government, the Executive Order provides that each agency (e.g. the Food and Drug Administration, the United States Patent and Trademark Office, and the Environmental Protection Agency) develop and submit a plan to the White House within 120 days of the date of the order that addresses how its regulations “should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective and less burdensome in achieving the regulatory objectives.”

The Executive Order also provides significant reform to the process Federal agencies currently follow to adopt and implement regulations.  The current process is fairly tedious and difficult to participate in unless you have regulatory counsel or lobbyists on retainer who spend significant time with the regulators and reviewing the Federal Register.  Moving forward Federal agencies will have to make the process more accessible to the general public to allow for an “open exchange of information” and a variety of perspectives.  To accomplish the goal, agencies will have to use the internet as a platform to communicate with the public on proposed regulations, and offer the public at least 60 days to comment through the website http://www.regulations.gov.

Finally, the Executive Order recognizes that the jurisdiction of agencies often overlap resulting in “redundant, inconsistent and overlapping” regulations.  Therefore, the Executive Order provides that agencies coordinate with one another to simplify and harmonize the regulations.  In his editorial in the Wall Street Journal, President Obama highlights the different treatment saccharine receives from regulators (the FDA has deemed it safe while the EPA treats it as a toxic material).

A more robust and accessible regulatory landscape will allow for more voices to be heard during the rulemaking process.  Additionally, trimming the unruly regulatory landscape that has developed over the past 75 years will allow small and mid-size businesses to innovate without concern that dormant regulations may have a negative impact.  Finally, the government will have the benefit of hearing from a variety of experts and not just big companies and special interests.

So small and mid-size companies, and individual experts too, keep an eye out for regulations that directly impact your businesses or issues.  There should be many opportunities for you to participate in the regulatory reform process.   Your voice is key to creating the 21st Century Regulatory System President Obama has announced.

Posted in lobbyists, Mid-Size Business, President Obama, regulations.gov, Regulatory Reform, Small Business | Tagged , , , | 2 Comments

That Piece of Paper, Those Terms of Use: Do They Really Matter?

May I share a secret with you?   I don’t always read the Terms of Service on the websites I visit, or the Terms & Conditions for services I use either.   When I open the boxes for new software or gadgets I don’t generally read the license agreements.

But, you know that old adage “do as I say, not as I do?”  There is some truth to it.  I don’t feel compelled to read Terms of Service, Terms & Conditions or License Agreements because I draft them on a regular basis for clients and have an idea of what I can, and cannot, do on websites, online services, with devices and software too.  I know there are limits on my use, things the companies can do with my data, and so on.

And I am generally okay with the rules.  When I am not I do not use the services, buy the software or visit the sites.  For example, I limit my use of Google products because I disagree with its privacy policy.

As thousands, upon thousands, of law students begin their careers let me share one of the first things they will learn in law school:    Contracts are generally enforceable and binding on the parties to them.  Even “contracts of adhesion,” a contract where one party has no bargaining authority,  like website terms and software licenses.  (When I was in law school the example professors used were the contracts auto repair shops used… oh how time flies.)

Contracts are enforceable whether or not I read them before using the product, website or service.  Similarly, contracts are enforceable even if you don’t “believe” that you are bound by their terms.

Whenever you buy software for your computer, or download an application for your smartphone, you are not buying the software.  If you read the terms and conditions (note to self: do that more often) you will likely see language similar to, or the same as:

“Subject to the terms of this Agreement, Skype hereby grants You a limited, personal, non-commercial, non-exclusive, non-sublicensable, non-assignable, free of charge license to download, install and use the Skype Software on Your computer, phone or PDA for the sole purpose of personally using the internet communication applications provided by Skype and any other applications that may be explicitly provided by Skype.”  Skype End User License Agreement, updated August 2010

In Vernor v. Autodesk, Inc., the plaintiff purchased used software which was subject to an End User’s License Agreement (a “EULA”).  The EULA imposed a variety of conditions on the licensees of the software including one that required that they destroy the original software when it has been upgraded.  The plaintiff decided that the provision did not apply to him because he had purchased the software from a company that had never installed it on a computer, because it upgraded before it could.   The plaintiff then tried to sell the software on eBay but having received cease & desists for similar actions in the past also brought an action against Autodesk to have a court declare that his actions did not violate the EULA.

Significantly, Mr. Vernor argued that the EULA did not apply to him, or any purchaser of software, under what is commonly called the “First Sale Doctrine.”  The First Sale Doctrine refers to a provision in the Copyright Act of 1976, as amended, that allows the “owner of a particular copy” of a copyright protected work to be able to sell that particular copy of the work without infringing on the exclusive rights of the underlying copyright owner.  Mr. Vernor and his lawyers argued that he owned the copies of the software, and could therefore sell it.

Relying on existing case law, the 9th Circuit considered the following three factors to determine whether Mr. Vernor had a license to the software or owned it outright:

  1. Did the copyright owner specifically grant the user a license?
  2. Did the copyright owner significantly restrict the user’s ability to transfer the software?
  3. Did the copyright owner impose notable use restrictions?

Here, Autodesk includes a EULA with every copy of software it sells that specifies that the user is a licensee not an owner, as well as restrictions on the user’s ability to transfer the software.  Additionally the EULA limited the user’s ability to use the software in a manner that violated the EULA (i.e., could be used only on a certain number of machines, had to be destroyed upon upgrade et al). Therefore, the 9th Circuit held that Mr. Vernor was a “licensee” and not an owner, so the First Sale Doctrine does not apply.

What is the Takeaway from Vernor v. Autodesk?   Contracts are enforceable even when they have not be negotiated between the parties so should be read with care.  If you do not agree with terms opt not to use the goods or services to which they attach.

Posted in contract, copyleft, copyright, copyright infringement, End User License Agreement, license, licensing, Vernor v. Autodesk | Leave a comment