Nondisclosure Agreements (“NDA”) are everywhere: a Silicon Valley Don Juan had an NDA ready for every date. However, NDAs are not created equal — what is good for the discloser is not good for the recipient. The “Silicon Handshake” can become a hangman’s noose for the unwary.

Questions to Ask.

Any potential signer to an NDA needs to answer several questions before signing. Those questions are:

1. Whose secrets are being protected? Is the NDA mutual — does it cover the secrets of both parties? If you are presenting an NDA to protect your trade secrets, you may not want to bind yourself to protecting the other side’s secrets. Alternatively, if someone presents you with an NDA, you may want to make sure your own secrets are protected.
2. What secrets are being protected? Is everything discussed to be considered confidential? This can be a trap for the unwary. If someone mentions something in passing, you could be foreclosing future opportunities for your company. Do documents have to be marked as confidential to receive protection under the NDA, or does it cover everything that the recipient remembers? How will the recipient know what is protected and what is not? Obviously, no NDA can specifically spell out in advance all the details of what is being disclosed. But an NDA that is too broad could restrict the recipient’s future operations. What is good for the discloser is not always good for the recipient.
3. Who is covered by the NDA? Does the NDA allow for independent derivation? If your R&D office is, without your knowledge, working on a similar project, has your signature cut off future development of that project? Is there an option for independent development? Have you bound one of your independent partners? Is the protection limited only to those actually signing the NDA?
4. How long does the NDA last? Is the NDA to last into perpetuity? Does it carry over into new companies or ventures that a party may enter into? Is there any way of removing oneself from its provisions, such as returning all documents?
5. What are the exceptions? Are documents otherwise publicly available covered? Is the recipient released from the duty to protect the documents if they later become publicly available? If the recipient receives the information independently, does the duty to protect end?
6. Whose law governs? Jurisdiction and choice of law questions are not excess verbiage designed to keep lawyers employed. They have important consequences, particularly because states often have very different protections. California tends to protect employees’ rights to pursue a livelihood more than other states. If a choice is available, an attorney should review the NDA to see what is best for you.

Advantages v. Disadvantages.

Never is the old saw “where you stand depends on where you sit” more true than when considering an NDA. The discloser’s motives are radically different from the recipient’s: thus, the discloser’s NDA should be different than the one you would be willing to sign as a recipient. An NDA covering mutual disclosures should not resemble that of a one-way disclosure. Good preparation should include having three different NDAs — one for when you disclose documents, one for when you receive documents, and one for mutual disclosure. The mantra to remember is: how does this NDA help me maximize my gains, and minimize my risks?

Strategic Considerations.

NDAs are more than just the latest fashion in attorney make-work, but an integral part of business operations. If someone could use your information to triumph over you, you need an NDA. Alternatively, if you, as the discloser, would not sue someone for using the information being disclosed, an NDA is not necessary. Indeed, by revealing distrust of the other party, it could inhibit the relationship.

A Shield Can Be a Sword. Commonly a shield, NDAs can also be a weapon. An unwary recipient can prevent itself from developing a new line of business that the discloser reveals — and it can even handcuff those in alliances with the recipient. Sometimes two-layered NDAs are appropriate. The first layer is to someone who acts as a gatekeeper, to decide if the information threatens the recipient or its alliances; the second is for a broader, operational distribution.

Keeping Track of NDAs.

Who keeps track of the NDAs your business signs? Does anyone? If your VP of marketing left tomorrow, who at your company would know what NDAs exist that she may have signed, binding the company? Is there anyone at your company who knows enough to gauge whether the NDA your R&D guy is about to sign conflicts with any other project you have? “Gee, I didn’t know . . . “ is usually the prelude to a disaster. With the prevalence of NDAs today, your company needs a firm-wide policy. One person or group should be the gatekeeper of every NDA your company signs. Do not allow your partner — or potential adversary — to dictate the progress of the relationship. Impatience in allowing your general counsel to review the NDA before signing can be a warning signal that you may have more to lose than to gain.

No one wants to repeat the well-known mistake one software company made when it refused to sign an NDA with IBM: IBM instead did business with a young company called Microsoft. However, the more common problem is finding the “silicon handshake” transformed into a noose around your neck.

Roscoe’s Chicken and Waffles used to have a restaurant near the Bay Oak Law offices in Oakland; an assistant used to visit nearly every weekend with her fiancé. Unfortunately, the Oakland branch closed a few years ago, and Roscoe’s is currently only in Southern California.

Unfortunately, Roscoe’s was in the legal news today because it lost a copyright infringement suit. The case itself is fairly standard: after years of ignoring requests to license music to be played, Roscoe’s Long Beach restaurant was caught playing eight songs for which it did not have a license – the house band played several John Coltrane selections and the CD player played several songs by the jazz fusion group Hiroshima. The “good” news is that the court awarded “only” $4,500 per song ($36,000 total) – it could have been far more. Some copyright infringement suits have up to $30,000 in damages per work. The “bad” news is that the plaintiffs were awarded $162,000 in attorneys’ fees, because the works infringed had their copyrights registered within 90 days of being published. This is one of the most important advantages to registering copyrights when they are published – the attorneys’ fee issue can (and often does) dominate the size of the case.

Which is worse – being hit by a “Trane” or having someone go all “Hiroshima” on you? It looks like Roscoe’s got a little bit of both.

2013 H-1B Visa Application Start Date

If your firm is seeking to provide a new H-1B visa on or after October 1, 2012, the application season opens on April 2nd. In past years, the maximum number of visas was reached within the first few days of the period, so it will be important to get your application in early. This period is only for new H-1B visas, not renewals, extensions, or for those involved with higher education, nonprofits, or governmental research organizations.

Bay Oak Law does not do any immigration law, but we are happy to recommend Randall Caudle in San Francisco [ randall@caudleimmigration.com ], at 1-415-596-2845.

By Kim Kennedy

Does your business use interns? Are you thinking of hiring an intern or two in the near future? The economy is still struggling, and hiring more employees is a significant expense in payroll costs, as well as in other costs such as health insurance, and training. There are hordes of unemployed recent college graduates who have found the job market unfriendly, and are willing to spend time interning in order to bulk up their resumes. Although internships are typically unpaid, interns gain valuable skills and experience, which will make them more competitive candidates when they enter the job market again.

Sounds good, right?  Well, maybe. Firstly, remember that unless you are a non-profit, your intern is not a volunteer. If you run a for-profit business (even if you are not profitable), you may not utilize the services of volunteers under the Fair Labor Standards Act (“FLSA”).  So what is the difference between a volunteer and an intern, or an employee?

The FLSA states that to “employ” means to “suffer or permit to work.”  However, the Supreme Court in Walling v. Portland Terminal  Co., 330 U.S. 148, 152 (1947), observed that this definition “was obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.” Based on Portland Terminal, the Wage and Hour Division (“WHD”) has developed six factors to evaluate whether a trainee, intern, extern, apprentice, graduate assistant, or similar individual is to be considered an employee.

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If any of these criteria do not apply, the individual is considered an employee, not an intern. The fourth factor states plainly, “The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.” Maybe that intern does not sound like such a good deal anymore!

The worst result for your business would be if an “intern” who did not meet these criteria sued you for violations of wage and hour laws. Last fall, two unpaid interns who worked on the movie Black Swan filed a complaint against Fox Searchlight Pictures. The suit is awaiting a hearing at a federal court in New York. Two weeks ago, a former intern filed suit against Hearst Corp., Harper Bazaar’s parent company, for failing to pay minimum and overtime wages during her internship with that magazine. Her counsel has indicated that they intend to turn the case into a class-action lawsuit, representing other unpaid interns form Hearst Corp.’s many magazines.

In California, penalties for not paying someone can be ruinous – up to thirty days’ pay for each paycheck that should have been paid. If you usually pay twice a month, that effectively triples the amount the intern would have earned. There are also penalties for back payment of state and federal taxes, as well.

Make sure your relationships with employees, interns, independent contractors, and whoever else is involved with your business are well-defined to avoid this type of liability in the future.

Kim Kennedy is a paralegal with Bay Oak Law.

Just as your body needs annual wellness checkups, your business does, too. Much of the simple matters can be done by your office, without an lawyer – but if issues turn up, it may be time to check with counsel.

Corporate Status

❏ Corporate Status. Is your business in good standing with the state? In California, corporations, limited liability companies (LLCs) and limited liability partnerships (LLPs) should check here to verify that the business is in good standing. Make sure you choose the proper entity.
Why you should care: a corporation, LLC, or LLP not in good standing in the State of California cannot bring suit or defend itself in court, according to Cal. Corp. Code § 2205 and Cal. Rev. & Tax. Code § 23301. If your business is not in good standing, even if you never get sued or sue anyone, interest and penalties are mounting up. If the business is suspended, the time to fix it is now.
❏ Statements of Information must be filed by most corporations annually, according to California Corporations Code § 1502. Previously, the state sent the form; now, it only sends a postcard.
Why you should care: The lack of a form mailed to the business can lead some businesses to forget to make the annual statement – a costly mistake, as filing it late results in a $250 penalty – ten times the cost of the form. The good news is that the form is now online, and even simpler to fill out than before; the filing fee can be paid by credit card. Put an annual reminder in your calendar system for the beginning of the month before the business incorporated – if the corporation incorporated in June, select May 1st.

Employees

❏ Wage Protection Act. When you hire new employees that are subject to the overtime rules, California now requires that employers give the new employees forms. Read here for more important information.
Why you should care: Eventually, there will be penalties associated with the failure to provide these documents to employees.
❏ Independent Contractors. Are the independent contractors the firm uses actually independent contractors, or are they employees?
Why you should care: there are new penalties for intentionally misclassifying independent contractors. Even without such penalties, paying back taxes for someone you thought was an independent contractor can devastate the business.

Employee Handbook

❏ Check your employee handbook. Does it cover important issues like:

❏ At-will employment?
❏ Getting an acknowledgment from the employee that your business handles confidential information for both itself and its customers, and the employee needs to protect that information both during and after employment with the company?
❏ Specifying that the information created by the employee belongs to the employer as part of a work-for-hire agreement, and the employee is not entitled to use that information after the employment ends?
❏ An ethics policy about dealing with customers and suppliers, that does not create conflicts of interest for your business or the employee?
❏ A policy on inspecting offices, lockers and common areas of the business for contraband?
❏ Payday and timekeeping requirements?
❏ Leave procedures, including sick leave, pregnancy leave, leaving to care for a family member, and military reserve leave?
❏ Allowable time off, such as jury duty, visiting children’s schools, and the like?
❏ Job evaluation procedures?
❏ An illness and injury prevention program?
❏ Appearance policies, including casual Fridays (if offered)?
❏ Harassment investigation procedures?
❏ Internet, email and telephone use procedures – including personal usage and ownership of email accounts, web pages, Twitter, Facebook, and other social media accounts [ http://www.bayoaklaw.com/who-gives-a-tweet-about-who-owns-a-tweet/ ]?
❏ Job termination procedures?

Why you should care: a good employee handbook protects the business by specifying procedures in advance. It reduces uncertainty and the potential for trouble down the line.

Insurance

❏ Make sure your insurance is up-to-date, including:

❏ Worker’s Compensation Insurance (required for all employees);
❏ Disability Insurance for officers not covered by worker’s compensation, and which can be broader in coverage than worker’s compensation;
❏ Health Insurance, with the great changes to the health care system occurring during the next few years, it may be a good time to shop around for a better policy;
❏ Life Insurance for Owners, so that should an owner die, his or her estate can be paid the value of the ownership interest without destroying the company’s future;
❏ General Business Liability Insurance – make sure that all locations are covered, as well as all assets in question. Is there enough coverage? Is there too much coverage? When a firm reduces size, sometimes it forgets to inform the insurer, and they end up paying for what the firm doesn’t need.
Why you should care: While many people pay lip service to insurance issues, there is an aspect of “out of sight, out of mind” to worrying about the issues insurance is designed to cover. Few can afford to over-insure these days, but under-insuring can be disastrous.

Contracts

❏ Sales Contracts. Make sure the following is in your customer contracts:

❏ Attorneys’ Fees: It is far more likely that a customer will breach their contract with you, than you fail to do the work – and if you fail to do jobs for clients, you are not going to be in business for very long, anyway. Thus, every contract or invoice that you provide your customers should have an attorneys’ fees clause, so that if the contract has to be enforced, the prevailing party will receive reasonable attorneys’ fees and costs.
❏ Jurisdiction. The contract is to be interpreted according to the law of your jurisdiction. You know, for better or for worse, your jurisdiction’s laws – you don’t always know the other jurisdiction’s laws.
❏ Integrated. The contract is “integrated” – meaning that the written contract is the complete contract. This prevents alleged oral modifications like “she said that we don’t have to pay until . . . “ from easily being incorporated into the contract (good attorneys might know how to get them in).

Assets

❏ Inventory. Has the business inventoried its physical assets? This is especially important for assets that can easily “walk away” like cell phones and laptops. All such assets should be marked with the name of your business and a landline telephone number. Programs are available to track mobile devices by GPS or other means. An inventory should be kept for insurance and tax purposes. Track, at the least, the model of the inventory, purchase date and purchase value.

Why you should care: Cell phones and laptops have confidential business information, and those who lose them are often afraid to mention it. Marking these devices improves the chance they are returned. Keeping an inventory in a safe place can be good for insurance purposes.

❏ Marking Physical Assets. All substantial physical assets – especially those that can easily walk away –should be marked with a non-removable tag with the business name and phone number. Two places among many to buy such tags is here or here. (Bay Oak Law doesn’t endorse or vouch for these companies; their presence is illustrative).

❏ Marking Intangible Assets. It is easy to understand the importance of marking physical assets like computers, but it is also vital to mark as “Confidential” intangible assets like company information. Every balance sheet, every accounts receivable list, every customer list – every document that, if it falls into the hands of your competitors, could hurt or destroy your business, should be marked as “Confidential.” It is easy to add titles and footers to the firm’s regular forms that are regularly used, so that they get copied into future documents. Send a company-wide email quarterly, reminding everyone of the importance of keeping such information secret.

❏ Software. Does the business have licenses to use all of the software on all the computers in the office? Do you have the registration numbers for all the licenses in a safe place, so that should your office burn down, you do not have to buy more software?

Why you should care: If licenses are missing, it is cheaper to handle this now than after a software developer contacts you and demands thousands of dollars.

❏ Trademarks. On a rainy day when people are sitting around, go through your promotional materials, brochures, website, business cards and the like. Have you registered trademarks for your business name, all your logos, slogans and the like? A typical trademark registration costs less than $2500 – should anything have a trademark registration? Even if you decide not to, run a search on an internet search engine using any word mark that you are using – make sure that your firm is not infringing someone else’s mark – and make sure someone isn’t infringing yours. For each trademark, use the proper marking: “®” for registered marks, and “™” for unregistered marks. Tivo has a good webpage on how to use trademarks properly (hint: you can never “tivo” “Desperate Housewives” – or anything else.)

❏ Copyright. If you produce copyrighted works like books, films, video games or the like, you need to register your copyright. It is easy to do, and takes only a few minutes. Even if you do not, every brochure, white paper, or website you have should have “© 2012, [Name of Company]” on it. While the owner of a copyrighted work has rights as soon as it is published, it doesn’t hurt to remind people of that. Also, make sure that you always have the right to use the works of others on your works, like photographs.

Due Process and Trade Secret Misappropriation
Cal. Civ. Proc. Code § 2019.210

by: Andrew K Jacobson
The Fifth Amendment to the US Constitution guarantees due process of law. One type of due process is knowing the details of the accusations in a court of law against you. But in trade secret misappropriation cases, the trade secret owner has a good reason not to put the details of the trade secret in the complaint: as a public document, anyone can see it. Some trade secret owners use this secrecy as a way of bashing former employees, by preventing the trade secret defendants from knowing what they are alleged to have stolen. How do courts balance the interests of the trade secret owner in preventing the trade secret from being generally known, and the interest of the defendants in knowing what they are being accused of taking?

In California, Cal. Civ. Proc. Code § 2019.210

“was enacted to curb unsupported trade secret lawsuits routinely commenced to harass competitors and former employees. The California legislature understood that plaintiffs in trade secret cases are often unable to identify any trade secrets, even after months of extensive discovery. Trade secret claims are especially prone to discovery abuse since neither the court nor the defendant can delineate the scope of permissible discovery without an identification of plaintiff’s alleged trade secrets. By restricting a plaintiff’s ability to engage in discovery until it identifies its trade secrets “with reasonable particularity,”[Cal. Civ. Proc. Code § 2019.210] strikes a balance between a plaintiff’s right to protect its trade secrets and a defendant’s right to be free from the burdens associated with unsupported trade secrets claims.”

Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980, 992 (S.D. Cal. 1999). (Cal. Civ. Proc. Code § 2019.210 was known as Cal. Civ. Proc. Code § 2019(d) before it was renumbered effective January 2005. 33 Cal.L.Rev.Comm. Reports 825 (2004).)

“Reasonable Particularity.” Cal. Civ. Proc. Code § 2019.210 requires that plaintiffs disclose with “reasonable particularity” the trade secrets defendants are alleged to have misappropriated. Until this occurs, plaintiffs cannot start discovery – including written interrogatories, requests for documents, and depositions. Defendants can use this Cal. Civ. Proc. Code § 2019.210 as a shield to slow down the blitzkrieg that trade secret cases often start with.

Background. The roots of what is now Cal. Civ. Proc. Code § 2019.210 date back almost 50 years. In Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 253 (1968), the appellate court recognized the due process rights of the defendant, and held that a plaintiff must “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain the boundaries within which the secret lies.”

The trend in California is far greater particularity than ever before. It is not enough to claim general categories: a Cal. Civ. Proc. Code § 2019.210 designation requires identifying the exact trade secret misappropriated. The case of Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333 (2009) squarely rejects the typical trade secret plaintiff move of making a tremendously overbroad attempt to designate everything a trade secret. In Perlan, plaintiff provided four pages of “trade secrets,” but “[m]uch of the text simply repeats the narrative available in the publicly filed second amended complaint and provides additional technical detail that is nonetheless publicly available. . . . Despite the highly technical language used, it is apparent that this description does not provide specific identifications of the peptides or reagents used in the process.” Id. at 1338-1339. The Perlan appellate court upheld requiring the plaintiff to identify the alleged trade secrets misappropriated with far more particularity.

While Cal. Civ. Proc. Code § 2019.210 is a California state discovery statute, federal district courts have substantively applied the statue in federal actions dealing with misappropriation of trade secrets. See, e.g., Advante Int’l Corp v. Mintel Learning Tech., No. C-05-01022, 2006 WL 3371576, at * 3 n. 4 (N.D. Cal. Nov. 21, 2006) (Cal. Civ. Proc. Code § 2019.210 “provides an appropriate guide in the absence of specific provisions in the federal rules governing trade secret discovery.”)

In Computer Economics, above, the Southern District of California held that federal courts cannot carve Cal. Civ. Proc. Code § 2019.210 out of the California Uniform Trade Secrets Act (“CUTSA”) “without frustrating the legislature’s legitimate goals and disregarding the purposes of [Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)].” Computer Economics, 50 F. Supp. 2d at 992. Failing to apply Cal. Civ. Proc. Code § 2019.210 “would entitle a plaintiff to virtually unlimited discovery, enhancing its settlement leverage and allowing it to conform misappropriation claims to the evidence produced by the defendant in discovery.” Prohibiting these tactical abuses is the precise reason that Cal. Civ. Proc. Code § 2019.210 requires identification of the alleged trade secrets with particularity before discovery of the alleged misappropriator can commence. The Computer Economics court noted that Cal. Civ. Proc. Code § 2019.210 serves several purposes: “(1) it promotes investigation of claims prior to suit and discourages the filing of meritless trade secret complaints; (2) it prevents plaintiff from using the discovery process as a means to obtain the defendant’s trade secrets; (3) it frames the appropriate scope of discovery; and (4) it enables the defendant to form complete and well-reasoned defenses.” Computer Economics, 50 F. Supp. 2d at 985.

The Ninth Circuit’s opinion in Imax Corp. v. Cinema Technologies, 152 F.3d 1161 (9th Cir. 1998) illustrates how Cal. Civ. Proc. Code § 2019.210 transforms into a tool of substantive law. In discovery, the plaintiff identified the trade secrets as, among other things, “the design of the cam unit, including every dimension and tolerance that defines or reflects that design.” Id. at 1166. The defendant moved for summary judgment on the grounds that the plaintiff had failed to specifically identify the trade secrets at issue and, therefore, had not demonstrated that such information constituted trade secrets. Id. The court agreed, holding that plaintiff’s failure to identify the precise numerical dimensions and tolerances of the purported trade secret rendered its claim fatally defective. Id. at 1166-68; see also Universal Analytics. Inc. v. MacNeal-Schwendler Corp., 707 F.Supp. 1170, 1177-78 (C.D.Cal. 1989).

This concern is particularly important where a plaintiff is unfairly trying to claim ownership not of a trade secret, but of former employees’ skill, experience, and general knowledge. See Diodes, 260 Cal. App. 2d at 250. “The concept of a trade secret does not include a man’s aptitude, his skill, his dexterity, his manual and mental ability, and such other subjective knowledge he obtains while in the course of his employment … the right to use and expand these powers remains his property.” SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244, 1255 (3rd Cir. 1985).

Lessons for Defendants: As soon as a defendant is served in a trade secret action, it should serve a demand for identification of trade secrets under Cal. Civ. Proc. Code § 2019.210. Until plaintiff complies, plaintiff cannot proceed with any discovery. Crafty defendants take advantage of the initial delay of discovery by plaintiffs to serve plaintiffs with discovery, for which they are often unprepared.

Lessons for Plaintiffs: Trade secret plaintiffs must avoid being lulled into complacency. While the trade secrets at issue cannot be inserted into the complaint itself in any detail, the plaintiff should prepare a designation of trade secrets under Cal. Civ. Proc. Code § 2019.210 in as much detail as possible, and be prepared to serve it once a protective order is in place.

Trade secret misappropriation cases are usually sprints, not marathons. Plaintiffs hope to catch defendants off-balance, while defendants seek to wear down plaintiffs. Cal. Civ. Proc. Code § 2019.210 levels the playing field.

It depends.

By:  Andrew K Jacobson

You’re a business owner, not a Kardashian. You’ve never tweeted in your life, even if that is all your teenager does. But now the resident young wise@$$ in your office has started tweeting about your business – and shockingly (to you), new clients are contacting you because of it. You don’t care – you’re just happy that the goofball is finally productive. But you may lose your good luck if your business doesn’t protect it.

The New York Times reports that this is just what is happening in the Northern California District Court, as a company seeks to recover the 17,000 followers of a twitter account originally called “@phonedog_noah.” PhoneDog “ is a highly interactive mobile news and reviews resource that attracts a community of more than 2.5 million unique visitors each month. . . . [I]t offers up serious editorial content and video reviews that users rely on to make important decisions about their next mobile purchases.” The South Carolina company features up-to-the-minute news about almost all mobile platforms in the US. PhoneDog hired current Oakland resident Noah Kravitz to be a freelancer in the mobile industry; he soon began appearing on behalf of PhoneDog in various media outlets discussing mobile phones, and operated a free Twitter account called “@PhoneDog_Noah.” The Twitter account soon had 17,000 followers. Kravitz left in October 2010, and soon demanded back pay and a percentage of PhoneDog’s revenue. He renamed the Twitter account “@noahkravitz” and excluded PhoneDog from possession of the account.

[Phone]Dog Bites Man. PhoneDog has attacked with a federal court complaint, claiming that Kravitz took PhoneDog’s secrets – apparently, the Twitter followers – and interfered with PhoneDog’s prospective economic advantage. PhoneDog alleges that there “are many details of PhoneDog’s relationships with . . . its Twitter followers . . . that are not generally known or readily accessible to the public or PhoneDog’s competitors.” (First Amended Complaint, ¶ 13). Kravitz has yet to present his side of the story in court, but one likely avenue of attack regarding the Twitter followers is that they are publicly known; as of the writing of this sentence, 24,382 people follow “@noahkravitz,” along with 969 lists.

If the identity of the followers is not a secret, can PhoneDog lay claim to the list itself, when the “list” is in the possession of Twitter and viewable by anyone? The simplest way of resolving this question is by including in the employee handbook a clear statement that all media created during the employment belongs to the employer – and that includes information like lists, followers, statements, videos, and any other media presentation. The First Amended Complaint, above, does not allege any such statement. PhoneDog can still allege that Kravitz “converted,” i.e., stole, the followers, because they were enticed to follow “@PhoneDog_Noah” with content that PhoneDog paid Kravitz to create, and such intellectual property is a work-for-hire that belongs to the company that paid for it.

How Much Are You Worth, Tweetee? PhoneDog’s complaint (¶ 19) values each Twitter follower at $2.50 a month – for 17,000 followers, that means they are worth $42,500 a month, more than $500,000 a year. PhoneDog cites “industry standards” for the valuation, but does not provide any further details of the value of the followers of a free service. A critical look at how to value social media can be found here. The media revolution of the last 20 years will continue well into the future, and new issues will arise that few will think about in advance. Small businesses can save themselves huge expenses in protecting their media outlets by updating their employee manuals so that it is clear from the outset of employment that these new media channels belong to the employer, not to the employee.

The litigation is still only in the earliest pleading stage, but PhoneDog must realize by now that by not closing the door (with explicit statements in a contract or in its employee manual), PhoneDog cost itself a lot of money. This case is likely one hound that won’t hunt.

by: Laura Koch

California has entered the new year with a new class of corporation—the ‟Benefit Corporation,” or ‟B Corporation.” Governor Brown signed AB361 in October 2011, making California the seventh state to allow corporations to elect an organizational structure that benefits both society and shareholders.

B Corporations are required to pursue the creation of positive impacts and simultaneously meet higher standards of accountability and transparency. Several corporations, including Patagonia, maker of outdoor gear, have already registered as B Corporations in California since the law went into effect on January 1.

Proponents claim that the new corporate structure creates critical changes in two areas. First, traditional corporations are required to operate in a way that maximizes profits for shareholders above all else, which discourages socially responsible decision making. In contrast, B Corporations are required to consider the impacts of their operational decisions on employees, the community, and the environment. Electing B Corporation status allows a company to operate in a socially responsible way, even if doing so is less profitable.

Second, the transparency required of B Corporations helps the public and investors to differentiate between companies with good social practices and those with slick marketing. California B Corporations must undergo yearly assessments using a third-party standard and publish an annual benefit report. The report, which is to be readily available on the company’s website, must describe its efforts to benefit the public and the extent of its success.

B Corporation status allows a company to stand out from those claiming an unsubstantiated commitment to increasing the public good. This is increasingly important to consumers, as well as a growing number of investors who are seeking socially responsible companies for their portfolios. B Lab, a nonprofit organization dedicated to using the power of business to solve social and environmental problems, has certified over 500 B Corporations nationwide. The fact that California, the state with the nation’s largest economy, now allows corporations to elect B Corporation as a legal status is a great way to start 2012.

If you are interested in setting up a new Benefit Corporation or converting an existing entity, contact Bay Oak Law.