Would you encourage your employees take a five-fingered discount from the office supply store? Probably not. Would you cheat a hard-working employee by not paying her? Of course not. However, in the press of the Great Recession, software piracy is still prevalent, and lax controls on software may be jeopardizing your company.

When buying new computers, it is easy to forget that there is more than just the cost for the hardware – you have to buy software, too. From word processors and spreadsheet programs to customized programs for your industry, it is tempting to copy programs with a single license onto multiple computers. Because after all, since you have the original media, you can do what you want, right? And who is going to check, anyway – the software sheriff?

There are two problems with this scenario, besides the fact that it is illegal. First, many programs today are subject to constant updating, and most updating is done only once per license. Your program may be missing important parts that keep it secure and let it work right. Second, there is a “software sheriff” around – the Business Software Alliance, or “BSA.” BSA’s members include some of the world’s leading software companies, like, Microsoft, Adobe, and Cisco.

Why Should You Care? The BSA is actively offering “rewards” to those who disclose illegal use of software. All a competitor or disgruntled ex-employee needs to do to mess with your business and cost you thousands of dollars and many hours of time is to contact the BSA and claim that your company is using unlicensed software. BSA is getting companies to pay $100,000 or more for their unlicensed software. This does not count the time you, your company and your counsel spend dealing with this unproductive hassle. You will save a lot of money by ensuring that you do not get stung. If your company gets taken to court for copyright infringement, your company can be held liable for up to $150,000 for willful infringement of each registered copyright, plus the attorneys’ fees and costs of the plaintiff, which can be even more substantial. Your company would also be stuck with paying for its own legal counsel, and the lost hours of employees and managers as they are called to participate in the litigation.

What to Do on Your Own. A preliminary step can be done by your own company: do a quick inventory of the software on a few computers. Select those computers that have been around the longest. Do not trust the employee using the computer to report the software – have someone else catalog all the software on each computer. Many programs are licensed for free, like Adobe Reader or Dropbox, and can be quite useful for many tasks. Others, like Adobe Photoshop or the Microsoft Office Suite can cost hundreds of dollars a copy, and are the type of software that the BSA is on the lookout for. Other common programs that are unlicensed are Symantec Antivirus programs and Microsoft Server. Match a license for each program installed. If you find an unlicensed copy or two, delete it and, if the program is needed, buy a new, licensed copy. If there is are a lot of unlicensed copies, stop and contact legal counsel for the next step.

(Incidentally, the software inventory can also turn up some other issues, such as BitTorrent clients like uTorrent, Deluge, or Vuze. Unless there is a legitimate purpose for using such software, such as distributing very large files within your business, an employee is probably using the bit torrent client to illegally copy and distribute music and movies. Since your company’s internet protocol (“IP”) address appears as the downloader, it will probably subject your company to liability. That is a nightmare you want to avoid.)

What to Do If The BSA Contacts You. If the BSA contacts you, or your preliminary inventory discovers a lot of unlicensed software, do not wait and hope that your company or your local computer guy can handle the problem. IT professionals do not have the legal background to understand the details of software licenses, which are written by legal professionals to bore and obfuscate. More importantly, your employees, or an IT professional that you employ to investigate, can be called as a witness against you if your company is sued for copyright infringement. The last thing you want is to give unfettered access to your computers to someone who can then be subpoenaed to reveal everything on your computers. If an IT professional is necessary, let your counsel do the hiring. Then the professional’s work is protected by the attorney work product doctrine or the attorney-client privilege. These concepts give attorneys and their clients private space to determine what to do, without the threat of those facts and discussions being revealed.

What Bay Oak Law Can Do for You. The sooner we are called in, the sooner we can cloak the investigation under the attorney work product doctrine and attorney-client privilege. We can manage the process to protect your data that might be demanded in a later lawsuit; if that information is destroyed, the modern trend in e-discovery is to sanction the party doing the destruction. Our lawyers have represented companies in many copyright infringement cases over the years. We can perform or supervise the license reviews. If necessary, we can assist in directing you to places where your company can buy properly licensed products. We can also assist in putting together the proper procedures to minimize future problems, including updating your employee handbook on this and other issues, like social media use.

Taking software is not cost-free – it can destroy your business. Paying for your software rewards those who work hard to develop the software, and is really much cheaper in the long run. If you have questions, call us at 510-208-5500, or contact andy@bayoaklaw.com.

Wikileaks is back in the news, as it has released another large cache of documents from the US Government. Wilileaks believes that government and corporate actions should be completely transparent, so that everyone can view and judge actions. That is a process argument – everyone needs to see how the sausage gets made.  But if the point is to let justice prevail, Wikileaks needs to recognize the right to private counsel.

Most of an attorney’s function is behind the throne, out of the view of the public. We do so not because we are hiding things, but because we need to offer options, play devil’s advocate, be yelled at. We need to give our principals – our clients – candid information and room to figure things out. We have a strong attorney-client privilege because that private space is needed to look at options. Many ideas are frequently awful, but we – clients and attorneys alike – cannot be sure until we have the space to play out the options and consequences. We don’t get to the right answer until we check a lot of wrong ones. However, if our opposition learns of our thought processes, they can take countermeasures, thereby disturbing the objective of getting to the best solution.

Transparency is great in the abstract: people collaborate together, with everyone having tools to contribute to the best solution. That model falls apart, though, when there is a force hostile to the best interests of the group.

There is also the problem of the parasites, sucking up the resources and knowledge without contributing to the whole. Secrecy is important to many businesses, from formulas to manufacturing processes, or just the identity of its customers. Competitors that could lift that information freely without contributing to their own means that it sucks the life out of the harder-working, more successful enterprise. Why tinker to improve a process when you can just take that which someone else has done? Why struggle finding the right market for your product, if someone else has done it, and you can just suck the benefit out of them? The long-term trend would be to reward the parasites and discourage the harder workers. Why innovate when you can just copy? For Wikileaks, it has rewarded the governments that have strong secrecy protections, by allowing them access to private communications of the United States, and punished those governments, like that of the United States, that have been a force for transparency, however awkward that march has been.

The true import of Wikileaks so far seems to be the banality of most of the secrets to most world citizens. Why, for example, keep secret that Australia was being scrutinized because its air safety standards was lacking? The secrecy isn’t a matter of evil, but a matter of respect: rather than humiliate a friend, you draw the friend aside and mention that there is an issue that needs to be fixed. The friend appreciates – and expects – the opportunity to fix things before it becomes a public humiliation. Even with seven billion humans and 150+ countries on this planet, “burning” someone is public is still as negative as if we were to do so in front of the tribes of our ancestors. Wikileaks is based on the assumption that we are all in a game in which we meet everyone just once, so we can avoid the consequences that would happen the next time if we burn them this time. Karma – or however you term it – guarantees that what goes around comes around.

When the Internet burst into popularity in the mid-1990s, the rush to get popular names resembled the Oklahoma land run of 1889 – but for far more fertile cyberspace locations. Cybersquatting became rampant, as parasites tried to trade on the reputations established by others.

Cybersquatting on the Internet is far less of a problem now, but now businesses and individuals face a new problem – Twittersquatting. Two years ago, Former Oakland A’s manager (and current St. Louis skipper) Tony La Russa sued Twitter over a parody Twitter account purportedly by him. The account was quickly shut down and the dispute settled, but apparently precedent has been set. Twitter squatting has been born and is set to fly.

During the Deepwater Horizon oil spill in 2010, an inspired Twitter squatter sent out tweets purportedly from BP’s public relations department. In June 2011, a secondary life insurance company called Coventry First has sued to find the identities of whoever started the @coventryfirst Twitter account, which pretends to note Coventry First’s distress when there are no plane crashes that “increase shareholder value.”

While the above examples have been mostly humorous, twits using your business’s name could destroy your company’s reputation before you even know about it. Twitter does have an anti-squatting policy, but every business should participate in the Twitter land rush by claiming its own name. Besides being a potential marketing device, claiming your business’s name prevents it from being claimed by someone else. It’s free and took me less than 30 seconds to do.

When someone subpoenas subscriber information from an internet service provider, does the subscriber have an expectation of privacy? In California, at least, the answer seems to be: No.
In People v. Stirpo, (Second District Court of Appeal, May 16, 2011), the defendant challenged the search warrant to the internet service provider (“ISP”) that sought information based upon the internet protocol (“IP”) address connected with the hacking of a school district computer system. The ISP provided the subscriber information related to the IP address. Upon executing the search warrant, the police found a diagram that mapped the school district computer system intrusion.
Defendant Stirpo’s only real chance at avoiding the rotten fruit of his intrusion was to challenge the search warrant that sought the subscriber information. Defendant Stirpo claimed a right of privacy to his subscriber information. The Court of Appeal was not persuaded: “as stated by the Tenth Circuit in U.S. v. Perrine (10th Cir. 2008) 518 F.3d 1196, 1204, “Every federal court to address this issue has held that subscriber information provided to an internet provider is not protected by the Fourth Amendment’s privacy expectation.” The Stirpo court went on to quote another Federal case, US v. Forrester, 512 F.3d 500 (9th Cir. 2008): “[E]-mail and Internet users have no expectation of privacy in the to/from addresses of their messages or the IP addresses of the websites they visit because they should know that this information is provided to and used by Internet service providers for the specific purpose of directing the routing of information. Like telephone numbers, which provide instructions to the ‘switching equipment that processed those numbers,’ e-mail to/from addresses and IP addresses are not merely passively conveyed through third party equipment, but rather are voluntarily turned over in order to direct the third party’s servers.”

The moral of the story, of course, is that your internet secrets are not secrets — even when hacking in to the school district computer. Even if you co-found Microsoft.

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.

Without giving away too many details, we have been contacted by potential clients whose internet protocol information is being sought because it has been connected with illegal downloads of movies. However, these people only owned the wireless routers that were used to receive the movie; they did not download the movie themselves. Someone else downloaded the movies from the wireless router because the router was not password secured. The lesson: password secure your wireless router, so that your neighbors are not implicating you in their illegal actions.

First, downloading a movie or song off the internet without the proper permission (Hulu, Netflix, or iTunes – good idea; BitTorrent – bad idea) is copyright infringement. If someone uses your router to illegally copy content, you might have your records discovered if the copyright owner subpoenas your identifying information from your Internet provider. Even if you show that you did not actually download the file and thereby avoid liability, you are stuck with hundreds or thousands of dollars of legal bills. Courts have found that those who do not actually download the information are not liable, but it can be an expensive proposition to disprove even if it ends quickly.

[4/27 Update: The Huffington Post has an even more disturbing example of what can go wrong when you fail to secure your router -- automatic weaponry and inaccurate accusations of downloading illegal images of children.]

The quick and easy fix is to password protect your router. At most, it is a five minute procedure synchronizing your router with your computer or smartphone. After that, it is a seamless access – most routers do not require you to put in the password every time. Also, remind those who do use the router (teenage children, perhaps?) that copyright infringement is illegal, and has serious consequences to it. There is too much legal content accessible on the Internet to bother with the illegal stuff.

When I discuss contracts with Business of Media students at Ex’Pression College for the Digital Arts , I give them four words of wisdom that I hope will outlast their memories of me. I tell them I want them to whisper these four words, like Charles Foster Kane whispering, “Rosebud,” on their deathbed. If my family coughs up some money for a tombstone for me, it can have these four words, too:

“Get it in Writing”

Now, I know that contracts do not have to be in writing to be enforced. They can be oral – “Hey, gimme your apple, and I’ll give you my orange.” That’s a contract. Contracts can be implied – I wave around a $20 bill in front of a student and point to his writing instrument, and he understands that I’m willing to pay $20 for a cheap pen. That’s a contract, too. So why get it in writing?

Getting it in writing means that it is ever so much easier to enforce – both for a lawyer like myself, and for a regular client. A writing makes it so much easier to prove the existence of the contract. It puts a big cramp into a weasel trying to get out of his responsibilities, when he has to face a piece of paper that lays out what each side has to do.

Do-It-Yourself Contract. Now, as a lawyer, of course I’m all for 20 page contracts, with addenda, appendices, and exhibits. I love signed contracts, with notarized signatures. But it doesn’t have to be that hard, or that expensive. You can do it yourself – it is really pretty simple. The most basic contract is just an exchange of one thing for another. “I promise to mow your lawn on Saturday for $20.” You: will mow the lawn. The other person: will pay $20. Time of performance: Saturday. Each side can add conditions (“if it is not raining,” or “provided that the lawn’s appearance meets your satisfaction”), but the basics are what each side is going to do or give up. The following is a valid contract, not even if, but especially if you do nothing: “B promises to pay me $100 if I do not smoke for the next seven days.” As anyone who knows a smoker understands, not smoking is pretty hard for someone hooked on tobacco.

Many people are afraid that putting in front of a counterpart a contract implies that the counterpart is not to be trusted. Here’s the way around that: when the counterpart says, “we don’t need it in writing, you can trust in me,” reply, “I do trust you – but I’m afraid I’ll forget the details. This is my way of making sure that you can trust me.” They usually don’t have a snappy comeback to that.

A No Signature Contract? While the consent inherent in contracts is best expressed when the contract is signed, you can still evidence that consent in a way that takes advantage of the other person’s reluctance to alienate you. Send an email to the person that has in the body the terms of the agreement, prefaced with the following “This is just to confirm the agreement that we reached today, that . . . “ and lay out the nature of the agreement. After that, put in the killer line: “If your recollection of our agreement is different, please let me know the difference as soon as possible.”

More than 95% of the time, there is no change, and your counterpart’s silence is evidence of his consent to your agreement. Later, if he tries to weasel out of the agreement, you have written evidence of his assent to the agreement. No lawyers need to get involved, and the weasel gets snared nearly every time.

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.

by: Andrew K. Jacobson © 2003, Bay Oak Law

In recent years, new business owners have had several entities to choose from, depending on the needs of the business and the owners. The two most important factors in deciding the right business entity are limited liability and the tax treatment.

Limited Liability. “Limited liability” is available when the business respects certain obligations, such as obtaining a license from the state, keeping certain records and keeping the accounts of the business separate from the accounts of the owners. If this is done, the liabilities of the business generally are not passed on to the owners of the business.

Tax Treatment. How the profits of the entity are treated tax-wise is also an important consideration. Corporations pass their profits to their shareholders by dividends; however, the corporation pays taxes on the profits before the distribution to the shareholders, and the shareholders pay taxes on their share of the dividends, at the shareholder’s tax rate (“double taxation”) Some entities, like general partnerships, can “pass-through” their profits to their owners without the problem of “double taxation.”

The task of the new business owner is to choose the entity most compatible with the interests of the owners.

Sole Proprietorships. Sole proprietorships are the classic one person working alone. The owner is fully liable for all liabilities. The business’s income is treated as the income of the owner, and the expenses of the business are taken as a business deduction. However, only one person can be in charge, and the business cannot sell part of itself.

General Partnerships. When two or more people own a business, they can choose to be a general partnership. No paperwork is required, but the owners (“partners”) need to agree who owns how much; that should be in writing and signed by the owners. There is no limit to the liability of the partners for the debts of the partnership. The profits are distributed to the partners. The partnership ends when one of the partners leaves.

Corporations. The “classic” entity form is the corporation. The owners enjoy the right to limit their liability for the debts of the corporation – an important consideration in a society that can attack businesses decades later for issues like asbestos, tobacco, or mold. However, California has an annual franchise tax of $800, plus taxes on the profits of the business.

Limited Liability Companies. A new form of business is the limited liability company (“LLC”). While an LLC enjoys the right to limit the liability of owners, it can have the tax treatment of a partnership (no double taxation). However, the LLC form is not available in professions subject to certain government licensing requirements, like general contractors, lawyers, or doctors.

Confused? Talk to your lawyer or accountant to decide what is best for you. While the initial cost can seem bothersome, the right choice can save tens of thousands of dollars later.

Andrew K. Jacobson is the founder of Bay Oak Law in Oakland, California, and has been practicing law for entrepreneurial clients since 1990.

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.