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 Andrew K Jacobson

Once again, the turn of the new year brings new laws into existence. The newspapers focus on cross-cultural clashes like the banning of new sources of shark fins or partial bans on checking job applicants’ and workers’ credit reports. California has also created new penalties if a company willfully misclassifies someone as an independent contractor. However, a new California law called the “Wage Theft Protection Act of 2011″ requires that employers give most new employees a form at the beginning of employment. The laudable intent is to give valuable transparency to employees about their wages and about worker’s compensation. However, the form released by the Labor Commissioner has a provision that is not required by the Labor Code and could lay the groundwork for lawsuits attacking at-will employment.

The Wage Theft Protection Act of 2011 is modeled after a similar bill in New York State. Governor Jerry Brown signed the bill into law on October 9, 2011, and it became effective on January 1, 2012. New California Labor Code § 2810.5 requires a non-governmental employer to provide a form to every new employee subject to the overtime rules, in the language commonly used at work, with the following information:
1. Rates of pay (whether by hour, shift, day, week, etc.), including overtime rates;
2. Any allowances claimed as part of the minimum wage;
3. The employer’s regular designated payday;
4. The employer’s name (including dba’s);
5. The employer’s physical address for the main office or principal place of business, including any mailing address;
6. The employer’s telephone number; and
7. Information about the employer’s worker’s compensation insurance carrier.
The Legislature directed the Labor Commissioner to “prepare a template that complies” with the above requirements, and the Labor Commissioner did so. However, the form includes a provision that the Legislature did not require, requesting that the employer identify the “agreement” as being written or oral.

At-Will Employment. Few employees subject to the overtime rules have written contracts – but that does not mean that their agreements are “oral.” Rather, the employment is “at-will” – either the employer or the employee can end the employment without notice or cause; see Cal. Lab. Code § 2922: ”An employment, having no specified term, may be terminated at the will of either party on notice to the other. Employment for a specified term means an employment for a period greater than one month.”

The trouble with marking the box for an “oral” agreement is that then there is the question of what the terms of the oral agreement are – and those terms could include no termination unless for good cause. See, e.g., Foley v Interactive Data Corp., 47 Cal. 3d 654, 677 (1988): “Labor Code section 2922 establishes a presumption of at-will employment if the parties have made no express oral or written agreement specifying the length of employment or the grounds for termination. This presumption may, however, be overcome by evidence that. . . the parties agreed that the employer’s power to terminate would be limited in some way, e.g., by a requirement that termination be based only on ‘good cause.’”

The possibility of oral limits on at-will employment eviscerates employers’ diligent attempts to keep employment at-will. At the very least, the employer is opening itself to the threat of litigation in the event of a termination that requires an expensive severance; the employer could also end up on the losing end of a lawsuit.

The Legislature did not require this information, and it is unclear why the Labor Commissioner added it. The form needs to be modified to make it clear that the employment is at-will – not oral, not written. The “Wage Theft Protection Act” should not be allowed to be used to destroy the presumption of “at-will”" employment; otherwise, a better title would be the “Wage Theft Guarantee Act.”

By Andrew K. Jacobson

In an era of ultra-tight budgets, getting something for less is appealing. One such temptation is hiring someone to be an independent contractor, instead of as an employee. The Legislature and Governor Brown, however, have added to the downside of that calculation.

Hiring someone as an independent contractor instead of as an employee has its advantages: the employer doesn’t have to withhold taxes, and doesn’t have to pay the employer’s portion for medicare (1.45% of a paycheck) or social security (6.2% of a paycheck, up to $108,600 annually). They are also less subject to labor regulations, like minimum wage, twice-monthly paychecks, overtime and the like. The California government discourages independent contracting, because independent contractors are far less reliable in paying taxes, while being far more vulnerable to employer abuses.

The California Labor Commission frequently upholds claims of independent contractors who contend that they should have been classified as employees. This results in back taxes paid by the employer, plus penalties. Businesses required to pay thousands of dollars in back taxes and penalties for each worker are frequently crippled, in some cases, permanently. However, the Legislature and the Governor felt that a heavier penalties were needed, and passed new Labor Code sections 226.8, and 2753, effective January 1, 2012.

Willful Misclassification Prohibited. Cal. Labor Code § 226.8 prohibits an employer from willfully misclassifying someone as an independent contractor, charging civil penalties of $5,000 to $15,000 per violation, and those with a pattern of violating the independent contracting rules can be subject to civil penalties of $10-25,000 each. Further, the Contractors’ State License Board can initiate disciplinary actions, up to disbarment, against general contractors who have been found to have willfully misclassified workers as independent contractors. Cal. Labor Code § 2753 provides that non-attorneys who conspire with an employer to misclassify workers as independent contractors can be jointly and severally liable for these penalties.

What is an Independent Contractor? California common law defines an independent contractor as someone who is responsible to the employer only for the results of the work, and not how the work is done. When Bay Oak Law needs plumbing services, we leap to the phone to call our favorite plumber and let them to the work. We don’t stand over them, telling them what wrench to use, or how deep a hole to dig: we trust their expertise. That is a true independent contractor: temporary assignment, using the contractor’s own tools, doing something that is not the regular business of the employer, but is the specialty of the independent contractor.

Using a set of tests from a case called S.G. Borello & Sons v. Dep’t of Industrial Relations, 48 Cal. 3d 341 (1989), an employer can guess whether a worker would qualify as an independent contractor:

1. Is the worker engaged in an occupation or business different from that of the employer?
2. Is the work different from the regular business of the employer?
3. Does the worker supply the tools, and the place where the work is done?
4. Does the worker have an investment in the equipment or materials required?
5. Are there special skills required in the worker’s occupation?
6. Is the work usually done by a specialist without an employer’s supervision?
7. Can the worker profit depending on his or her managerial skill?
8. Is the work limited in time?
9. Is the method of payment per job, or a part of the job?
10. Do the employer and the worker believe they are not creating an employer-employee relationship?

An answer of “no” to one or two of these questions is not likely to result in a finding that the worker is an employee; plumbers, for example, usually work where the plumbing is, but they are still usually classified as independent contractors. California law recognizes that “individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” Borello, 48 Cal. 3d at 351. However, the more negative answers to the checklist above, the more likely the worker is to be found to be an independent contractor.

A useful rule-of-thumb for California employers is that independent contractors should be the exception, not the rule. The costs of a mistake are much higher come January 2012, as the California government’s addition of penalties of willful misclassification has raised the stakes.

By Laura Koch

Three years after granting review, the California Supreme Court finally held oral arguments last week in Brinker Restaurant Corp. v. Superior Court. I attended the oral arguments in San Francisco because of the importance of this decision to small business owners like our clients. Two important issues that have been awaiting resolution are whether under California law there is a duty to enforce the taking of meal breaks, and how breaks must be timed.

Fired for Working Through Lunch?

Eight years ago, employees of Brinker Restaurant Corporation, which operates Chili’s restaurants, sued the company for depriving them of required meal and rest breaks.
The main issue in Brinker is the interpretation of California Labor Code § 512, which requires an employer to provide a 30-minute meal break for a work period of more than five hours.

The employees, challenging a holding by the Fourth District Court of Appeal, take the position that the term ‟provide” imposes an affirmative duty on employers to ensure that employees take meal periods. During oral arguments on November 8, 2011, the plaintiffs’ attorney acknowledged under grilling by the justices that under the plaintiffs’ interpretation, an employee could be subject to an employer’s progressive discipline policy for not taking a required break. The plaintiffs’ attorney equated this situation with unauthorized overtime, where the employee gets paid but is also subject to discipline.

Several justices appeared dissatisfied, questioning whether the plaintiffs’ interpretation is the most protective of workers. Justice Joyce Kennard also challenged the practical ability of an employer with hundreds or thousands of employees to ensure that they are all taking required meal breaks. When the plaintiffs’ attorney responded that employers have many workable options for scheduling and ensuring the taking of meal breaks, Justice Goodwin Liu jumped in with a concern that this could be ‟kind of coercive.”

Pointing out that the hallmark of a meal period is the employer’s suspension of control over the employee, Justice Liu appeared troubled by the idea that a worker who chose to work through breaks because of loving his or her job could be subject to discipline, or even fired. Justices Carol Corrigan and Marvin Baxter expressed similar concerns. The attorney  attempted to direct the justices to the textual support for the plaintiffs’ interpretation and to analogize to other situations where employers exercise control over hours worked; however, the justices were more focused on the pitfalls of enforcement of breaks.

According to the plaintiffs’ attorney, unless employers are held accountable for ensuring breaks, many of the most vulnerable workers in our state will not get meal periods, despite the importance of these breaks to the health and welfare of workers. Although the justices did not respond to this argument at the time, the written opinion needs to address this issue directly. (more…)

Contrary to popular perception, “consiglieres” date from times long before the 20th century. The term derives from the Latin “consiliarius” – a counselor. Every leader needs an advisor skilled in what the law requires – and what the law allows.

Let’s start off with a few provisos. Bay Oak Law is a “classical” consigliere. It doesn’t arrange for horse heads in people’s beds. So what does it mean for Bay Oak Law to be a consigliere to a business?

It means to be absolutely loyal to the best interests of the enterprise – even if it means that you get cut out of decisionmaking for financial or other reasons. It means giving your best advice, even if it is not the popular advice. Every leader needs someone who will challenge assumptions with absolute loyalty. However, it also means respecting and carrying out the final decision of the leader, even if the leader doesn’t take your advice. That requires a great deal of trust, for both the attorney and the business leader. The trust must arise out of the divergent roles. The attorney-consigliere has a positive duty to look for legal problems, even if – especially if – those laws conflict with the leader’s desires. It does the leader no good to seek an outcome that puts the leader into a worse position. The consigliere has to serve the patron’s interest, even if it is not the leader’s desire – but understand that the patron’s decision is the only one that counts. Too many lawyers misunderstand their role – they are advice givers and

Small businesses have to cope with a confusing cornucopia of challenges: competitors, financial pressure, human resources, having a normal life. A good consigliere helps the patron balance that dynamic mix, while staying in the background.

Bay Oak Law’s Laura Koch provides a timely reminder about the importance of Non-Disclosure Agreements:

NOOK Lawsuit Demonstrates the Importance of Non-Disclosure Agreements

Barnes & Noble, Inc. (B&N) has failed to persuade a federal judge to end a lawsuit regarding its NOOK® eReader. Spring Designs, Inc. claims that the corporate giant used its confidential information to develop the NOOK after the two companies explored possible collaboration in 2009.

It appears that the outcome of this case will be heavily influenced by the fact that the parties signed a non-disclosure agreement (NDA) in advance of their negotiations. According to its complaint, Spring Designs revealed its patented dual screen eReader technology to B&N and its product strategy consultant during a series of meetings and email exchanges from February to October 2009. B&N then released its Android-based, dual-screen eReader on October 20, 2009. Spring Designs filed suit in federal district court a few weeks later, claiming misappropriation of trade secrets, breach of contract, and violations of California’s Unfair Competition Law.

Judge Ware found that summary judgment was not appropriate because there were significant factual issues as to whether B&N breached the parties’ NDA. If the case settles before trial, we may learn little more about the events underlying these claims, but what is clear is that without the NDA, the outcome of B&N’s motion for summary judgment would likely have been very different.

So, what is an NDA, and when do you need one? An NDA is essentially a confidentiality agreement that allows the owner of an idea or invention to engage in negotiations with another entity while protecting the owner’s proprietary rights to the information. If
taking your ideas to the next level requires investors or buyers to take a leap with you, you can’t expect it to be a blind leap. You’ll have to give up the goods before they give up the cash—and an NDA protects your right to take your ball and go home if the game is not to your liking.

A two-page NDA like the one signed by B&N and Spring Designs may not prevent litigation, but it can make all the difference should you need to resort to litigation to protect your rights. So, if you are an inventor or developer with a potentially game-changing idea, an NDA is like a parachute. Don’t think of jumping without one.

A big worry for stockbrokers about 15 years ago was the rise of the day trader, people who would trade stocks on their own account, paying a minimal charge for each trade. Stockbrokers feared this would be a disaster, but it proved to be a boon. Day traders, focused only on the next trade, were consistently behind the curve. Day traders were the ones buying when brokers were selling, and selling when brokers were buying. Investors who had access through their stockbrokers to better analysis and information gathering profited from the ignorance of those without such access.

The same is true in the legal world. Business owners worry about cost, and lawyers are at the top of the list. However, while legal advice may be expensive, it is usually a wise investment. Not getting legal advice in a timely manner can be much more expensive.

Good legal advice cannot always prevent dishonest people from stealing assets like customer lists or formulas. However, a dollop of good legal advice in advance can save far larger costs later on. Having a lawyer review a lease before signing it can point out potential problems to avoid, like responsibility for utility costs, common area maintenance costs, and the like. It may seem cheaper to avoid a lawyer when buying assets from a competitor, but the savings can disappear when there is a dispute over what was bought or sold.

Investors are not traders. Investors see the big picture over time, as good business owners do. Investing in legal advice before a problem arises is far cheaper than dealing with the catastrophe that can come afterward.

Business lawsuits can grind on for a long time, and become very expensive. While many lawyers like that, most clients prefer something short, and preferably very sweet, in the sense of winning at the end. Twice, though, I have been involved in cases that were short and sweet for our clients. The area of law has to do with covenants not to compete.

A covenant not to compete is a promise that after employment is done, the employee promises not to compete with the employer. Usually there is a time period and a geographic or industry boundary involved. Many states allow covenants not to compete between employers and employees. However, while it allows such covenants when the goodwill of a business is sold,* California explicitly forbids such covenants between employers and employees: “. . . . every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” California Business & Professions Code section 16600.

Many salespeople start their careers in states that allow covenants not to compete, and sign contracts that require them to promise that once the employment ends, they will not compete with the employer for a certain period of time. Sometimes, those salespeople are transferred to California, the single largest state by population. California courts will not enforce covenants not to compete. In contrast, the courts in the state where the agreement was signed will likely enforce the restriction. The race to the courthouse will likely determine who wins.

What To Do? if you are an employee who signed such a covenant in another state, but wants to compete here in California? Before leaving your job, you need to consult with counsel about your options. One likely option is to file a declaratory relief lawsuit here in the state of California, thereby reserving jurisdiction for California. Declaratory relief actions seek to have a court “declare” the contractual parties’ rights and obligations; there is no requirement that one side be damaged. California courts have often declared that they will enforce California’s strong public policy in this matter, even with a contract that requires using the home state’s law (a confusing melange called “choice of law” principles.)

Both times when our clients did this, the other side was very confident in their initial phone call. They thought the had both the facts (the contract) and the law (their home state’s law allowing covenants not to compete) on their side. In both cases, they soon abandoned their opposition to our case, once they realized what California law had in store for them. There’s an added bonus. Since many such employment contracts require that the losing party pay the prevailing party’s attorneys’ fees (usually a one-sided contractual element in favor of the employer), the employer has extra incentive to give up quickly, before the employer is paying for two sets of attorneys.

The Small Print. Of course, there are limits to this. Using a former employer’s trade secrets is forbidden just about everywhere, and especially here in California. See California Civil Code sections 3426.1 to 3426.11. Being allowed to compete is not a license to steal. Consult with your counsel to make sure that you scrupulously follow the law in this area.

Court cases can be long and expensive. California cases about covenants not to compete, however, can be short and sweet – for the former employee.

*When a business is sold, the buyer rarely wants to see the seller stay in the same area and industry, so that the seller can continue doing business with the seller’s original customers. Buyers therefore usually want sellers to stay away from competing for some period of time, to allow the customers a chance to transfer their loyalties to the buyer. The California Legislature recognized that this is in the interest of sellers, who are being compensated through the sale for this.

by: Andrew K. Jacobson, © 2003

Congratulations! You are going to start your own company! Before you do, you have to leave your current employment. Below is a checklist of things to do – and not do – before you leave.

Employee Rights.

Do make sure that you receive what is due you when your employment ends. You must be completely paid for the services you provided within 72 hours of the end of employment. If you are not fully paid within 72 hours, you can seek redress from the California Labor Commission – including a day’s pay for each day after the 72 hours that you remain unpaid, up to 30 days.

Severance Pay.

Check your employees’ manual to see if you qualify for severance pay, particularly if the end of your employment is not voluntary. You can negotiate for severance pay if you are terminated involuntarily, even if your company does not have a severance policy.

Retirement.

Arrange for any 401(k) plan, IRA, or other retirement-type plan. Does it need to be rolled over? Check with your financial advisor. Also, if you have been granted stock options, check with your financial advisor about their value and the conditions under which you should exercise the options.

Health Coverage.

If you qualify for COBRA health care coverage, you must be provided with the information necessary to make it possible for you to choose COBRA coverage within 45 days. If you are starting your own company, COBRA may be more affordable than seeking independent coverage for a small company.

Trade Secrets.

Make sure that when you leave, you do not leave with any of your soon-to-be former employer’s trade secrets. Purge your computer and personal files of correspondence and files that contain information valuable to your employer. If often makes sense to do so with the assistance of your employer ? it reduces the suspicions that you are stealing from them. Many start ups have suffered early deaths when former employers sue them for theft of trade secrets, because of suspicions (or plain paranoia) of former employers. By the time the issue is resolved, the start up has incurred huge legal debts, discouraging angel investors and venture capitalists. Moreover, the legal process hijacks huge amounts of time that could have been used developing the start up’s service. Customer lists, secret recipes, manufacturing processes, and the like can all be an employer’s protectable trade secrets.

However, many things are not trade secrets. If you have met customers, and can find them easily again (such as through the Yellow Pages or Internet) without referring to the employer’s list, the identity of that customer probably is not a trade secret. Further, your experience in the industry is yours, not the employer’s: “Equity has no power to compel a man who changes employers to wipe clean the slate of his memory.” Avocado Sales Co. v. Wyse, 122 Cal.App. 627, 634 (1932).

If you were just an employee, your former employer cannot prevent you from competing with it. Even if you signed a “Covenant Not to Compete,” California courts will not enforce it if you were just an employee. However, many other states will enforce a covenant not to compete. Seek good legal advice. Checking with an attorney before you leave is likely to be far more cost-efficient than when you get sued.

After You Leave.

Now that you have left your employer, you want to start your own business. What do you need to do to protect yourself?

First, find an accountant you trust, and knows your industry – even the most personable accountant is not worth the effort if she does not know your particular needs. Accountants not only do tax forms, they can also recommend specifics about your business. Below are some areas that you will need advice about.

Money, Money, Money.

The success of any business means making more money than it costs to provide the goods or services. You will need a good software program that will allow you to monitor your finances effectively. Quickbooks is renown as the easiest to use, but other software may be more effective for your business. Your accountant can advise you about what it most effective.

Form of Business.

Should you be a “C-Corp.”? An “S-Corp”? An LLC, a partnership, or a limited liability partnership? Your accountant can help. Once the form is chosen, you will need to memorialize the agreements made with any fellow adventurers, through by-laws, Membership Agreements, and the like. Remember this mantra: get it in writing. It is far cheaper to do it when everyone’s memory is fresh, than to wait until there is a dispute, and lawyers have to be hired.

Employees.

If you intend to employ anyone, you can hassle with the payroll forms yourself, possibly missing requirements that can earn substantial tax penalties, or you can hire a payroll service to handle the process for you. A payroll service is usually the way to go. Also, you will need an employee manual, to set the standards for your firm. (Get in writing.) Ask your accountant for a good lawyer (or just contact this writer!)

Insurance.

One of the biggest needs is not always obvious. You will need insurance, of varying types. If you employ workers, you will need workers’ compensation insurance, which has been expensive and difficult to obtain in California recently, even though it is legally required. You should also get general liability insurance, and product liability insurance if you create products. However, you need to protect yourself and the others in top management. Check out disability and life insurance. Life insurance, paid by the company on each of the top executives, can allow the dead executive’s heirs to be paid off for the executive’s interest in the company, without bankrupting the company itself. A good insurance agent can be of great assistance.

Real Property.

Are you going to need space for your business? It is wise to start educating yourself as to the market and where you can locate. San Francisco, for example, is punishingly expensive, especially for a start-up with no cash flow. Is there somewhere else you can be and still serve your customers? A computer parts assembler may want to be within an easy drive of Silicon Valley, but space in the Valley itself is still expensive, even after the market crashed a few years ago. Check other locations, such as Oakland or other parts of the East Bay, which did not participate as much in the Internet boom a few years ago.

Also, prepare for failure, as well as for success. Many landlords will expect the top principals to personally guarantee the leases, especially if it is for more than a month-to-month tenancy. Do not sign the first dotted line you see. Leave yourself an out, if you can.

By: Andrew K. Jacobson ©2004

In his autobiography, “My American Journey,” former Joint Chief of Staff Chairman General Colin L. Powell presents several tests to determine when the nation should commit to battle. These tests eventually became known as the “Powell Doctrine.” These tests are as applicable to litigation as they are to war:

1. Commit only if vital interests are at stake.
2. If committing, do so with all the resources necessary to win.
3. Go in only with clear objectives.
4. Be flexible to match the commitment to the objectives, as objectives change.
5. Only take on commitments that have the support of those who must bear the burden.
6. Commit forces only as a last resort.

Vital Interests. An employee has left with vital trade secrets. A former partner has left with the cash of the business. These are emergencies that demand an immediate response.

Usually, though, the threat is less clear. A former employee has left, in a hurry, but the reason for leaving is unknown. A supplier is withholding products, but there are unresolved payment issues. A customer with a clean payment history is now sixty days behind on a large bill, and phone calls are being ignored. The question of a vital interest depends on the situation. An attorney can help assess the situation and suggest solutions short of litigation.

Necessary Resources: Sticker Shock. Even well-off clients are stunned by the resources necessary for litigation. However, unlike most wars, there can be assistance. In California, the costs of some intellectual property disputes are covered under general business liability insurance policies as “advertising injury.” Some business principals may have personal liabilities covered by their home general liability insurance. Some contracts provide that one side will indemnify the other for certain actions. The first question after “what happened?” should usually be, “what insurance policies might be available to cover it?” Even if no one indemnifies you, there are other ways to curb costs.

The first is to take precautions to prevent the dispute from occurring. An attorney is most cost-effective when a relationship is being formed. Ignoring the potential for disputes merely compounds their destructive capability. Cheaper alternatives to full-blown litigation, such as mediation or arbitration, can not only lower the cost of a dispute, but also keep the relationship intact.

Attorneys can also structure contracts to lower the costs to the prevailing party when a dispute occurs. The “American” rule is that litigants pay their own attorneys’ fees. However, if parties contractually agree, the winner may get attorneys’ fees in addition to any other relief.

However, other litigation costs cannot be forgotten. Litigation requires management’s active participation. This can often require tremendous amounts of time from top executives. Employees up and down the chain have to be consulted on the facts, called to deposition, review papers, or otherwise be taken away from more profitable pursuits.

There are also intangible costs. Litigation strains relationships, especially when the combatants are formerly close associates. People caught in the middle have their loyalties sorely tested, and often respond by avoiding both sides. Nights spent worrying about the litigation are also a cost.

Specific Objectives. Deciding the objectives of litigation is often more difficult than it first seems. Crushing the opposition is a wonderful result, but rarely achieved cheaply.

Reaching an objective in litigation means knowing what is possible. Civil courts cannot put people in jail. Forcing a person back to work is very rare. Some outcomes are more likely. Preventing someone from benefitting from your labors can be achieved in the right circumstances. While courts hesitate to be proactive early, they will preserve the status quo through a preliminary injunction. Cases can quickly settle thereafter.

In most cases, only a monetary solution will work. A litigant must balance the size and prospect of the award against the costs of achieving that award. Judges and juries often take a view different from that of either litigant. My own rule is that there is never more than an 80 percent chance of winning, even for the most certain of cases.

Preparing to Change Objectives. Litigation, like war, is never static. A litigant must always be prepared to change the means and the goals. Cases are never as simple as they seem. Documents supporting the case are never found. New case law alters the field of battle. Witnesses cannot be found, or will not get involved. This is often the “fog” of war.

Good litigants are ready for these ups and downs. If the million dollar award no longer looks so certain, be prepared to take a more modest, but certain settlement offer. Alternatively, a defendant may avoid later costs and risks by making a more modest offer early on. These ups and downs are part of the ride.

Support to the End. Litigation’s initial “rush” can be invigorating. It soon wears off, replaced by slogging through document after document, tiresome demands from the opposition, and unwelcome attorney bills. Significant cases now take about eighteen months to reach a courtroom – much faster than before, but still a long time. The initial reasons for the litigation are often forgotten in the meantime. How much of eighteen months ago is still fresh in your mind?

Litigation as a Last Resort. Litigation is too expensive to be the first reaction to any crisis. Often, those interests can be served through litigation’s alternatives. Litigation should be considered only once the alternatives are ruled out.