Big, Important Legal Issues

In the last two months, I’ve received two calls that reminded me that start-up founders, employees, and the self-employed have huge legal issues outside of traditional start-up law.

So, I’ve decided to make a Public Service Announcement:  If you are self-employed or involved in an early-stage start-up, consider the following issues and seek the appropriate professionals to address them if appropriate.

1. LIFE INSURANCE. If you are:

a) an American citizen who is a start-up founder, an early stage start-up employee, or self-employed;

b) not financially independent (Note: you are financially independent *only* if you work because you want to, but you don’t have to, and you won’t have to work anytime in the future, either);

c) and you have dependents;

then you need life insurance. Period.  Unlike many more traditional careers, these groups don’t have any form of pre-negotiated survivor benefit plan. If you are a major financial contributor to your dependents’ needs, then even if you are fully vested into social security, unfortunately, it is almost certain that SS survivor benefits will not be sufficient to support your family if you die.

2.DESIGNATED DECISION MAKERS.  You need a designated decision maker who can manage things for you if you become incapacitated or die.  Yes, thinking about this is not pleasant.  But many of the individuals I work with do not have estate plans and are unmarried.  In the event something happens to them, their next of kin will be involved in all aspects of their life (including their business).  If you are not absolutely certain that every state/country where you have assets, business, contracts, or potential health issues recognizes the person you want as your next-of-kin decision maker, then you *need* to visit an estate planning attorney to figure out what documents are necessary to ensure that the person you want in charge is able to make decisions (either financially, health-wise, or both).  Founders, in addition to seeking input from an estate planning attorney, you should discuss this potential issue with your corporate attorney to understand what provisions already exist in your corporate formation documents regarding exercise of a founder’s voting rights in the event of a Founder’s death or incapacity.

3.  CENTRALIZED DOCUMENT/ACCOUNT MANAGEMENT.  In the event of an emergency, you need one location where your decision maker knows to go that outlines where and how to access all important online and physical bank, investment, credit card, billed accounts, title documents, health documents (advance care directives!), insurance policies, and anything else that may be critical.  The actual rights and responsibilities that your decision maker will have with respect to the information you store varies in each situation (again, see an estate planning attorney), but if you don’t have the information in a location where your decision maker can access it, they will be completely unable to act on your behalf.

4.  HEALTH INSURANCE AND DISABILITY INSURANCE.  The self-employed often struggle with health and disability insurance as it is can be very expensive outside of the guaranteed issue employer market (try large industry organizations or NASE). Some early stage start-ups don’t offer medical insurance due to budget constraints and many early stage start-ups don’t offer disability insurance.  Much like life insurance, if you have dependents, you should seriously consider whether you need one or both of these insurance products before you are working the start-up or self-employed sprint and unable to focus on anything outside of the business’s growth trajectory.

**NOTE:  I do not practice estate planning law, insurance law, or corporate law outside of technology transactions.  This post, like all of my posts, does not contain legal advice and I did not become your lawyer solely because you read it.  It is very possible that your situation is unique and that all of the issues I raised for consideration above do not apply to you.

Lawyers Are People Too

I’ve been very busy with work and growing my practice. Today, a client took the time to forward a comment from the opposing side:


Ordinarily, CAPSLOCK drives me crazy.

This time it made my day.

Indemnities — Boring, But Important

If there’s one topic that’s guaranteed to make my clients’ eyes glaze over, it’s indemnities. My clients will fight to the death regarding the business points that they believe are important. But, often, by the time we get to Section 18 on page 13, they’re ready to mentally check out of the conference call and leave the lawyers to fight about the legalese.

From a legal fee standpoint, this isn’t a great idea — Lawyers can fight all day about just about anything, but especially about indemnities, because, truly, they’re just risk shifting. There is no “right” or “wrong.”

Just think of an indemnity as insurance, without a premium — Great to have one in your favor, not so great to be offering one to the other party.

When someone says, “You should indemnify us for all claims related to your breach, or your negligence” what they’re really saying is, “I don’t want to have to prove that you were in breach or that you were negligent. If it looks like you might be, I want you to be on the hook. And, I don’t want you to have any defenses or arguments about why it’s not your fault or problem.”

Here’s a hypothetical example:

Startup is running a software as a service and offers access to their service via an API. Big Company wants to wrap the API’s functionality into their product or service and offer it to their end users.

The indemnity issues *really* matter:

1. Who should be on the hook if the end users breach the end user terms of service? (e.g. what if the end users break the law? Shouldn’t that be the end users’ problem? Does it make sense to have one company responsible for all legal costs and damages associated with end users’ actions? If so, which company? Big Company will try to make certain it is Startup.)

2. Who should be on the hook for a patent lawsuit regarding the combination of the API’s functionality with the other side’s functionality? (In the absence of an indemnity, the liability would be shared. But Big Company’s default form will try to make it entirely Startup’s issue.)

3. Who should be on the hook for changes in the law that require changes to the software/service? (Again, this is an ordinary risk of doing business that all companies face. But Big Company will try to push the entirety of this risk and all associated costs on to Startup.)

The biggest issue with an indemnity, however, is that unless drafted narrowly, it will cover *all* claims, regardless of their value. So, if a malicious, false, and/or vindictive claim is filed, the indemnifying party is still on the hook. An indemitor can end up insuring against the defense and settlement of claims filed by the indemnitee’s enemies or folks looking to go after deep pockets for a quick settlement.

As a final risk, many General Liability insurance policies explicitly carve out indemnity obligations from “insured contracts.” I always advise my clients to check with their insurance brokers to find out if they are accepting un-insured liability by taking on an indemnity obligation. At a minimum, the increased premiums required to accept such a clause (if you can get coverage) can be a useful bargaining chip when discussing whether an indemnity is “standard” or “required” or “normal.”

The Latest Summer Garden

This year has been a doozy for Northern Californian gardeners. Winter was long. Spring was uncharacteristically wet. And summer seemed to lag by at least a month.

The result?

I didn’t have ripe tomatoes until after August 1st this year. Typically, ripe tomatoes are a July 4th treat and by the time August rolls around, I’m knee deep in tomatoes that need to be canned, dried, and gifted.

But not this year. The first real harvest of the year was the typical size, but it didn’t come until the second week of August:


And, the next week’s looked like a typical haul from the second week in July, not the third week in August:


Even the garlic bulbs were smaller than normal this year:


But, despite the late bloomers, we’ve finally started enjoying some of my favorite summer meals. Big salads of mixed veggies like this one (broiled eggplant, baked corn (a gift), baked squash, fresh red onions, fresh tomatoes, and balsamic vinegar and chevre).


Now that’s a summer garden treat.

The anti-NDA

In the last two weeks, I’ve seen a surprising glut of Non-Disclosure Agreements that were exactly the *opposite* of what my clients expected to see.

What to do I mean?

I mean, these NDAs all had express permissions for the receiving party to use or disclose the information they receive in the course of their business. In other words, these contracts had the standard confidentiality obligations one would expect to see in an NDA but then also included some carve-outs. However, the effect of the carve-outs was so big that they turned the NDA on its head.

Essentially, August 2011 has been the month where the big company form Non-Dislcosure Agreements I received morphed into a Permission to Compete With My Client (By Using Their Disclosures) Agreement.

In several cases, given the business realities and the difficulty of getting big company legal time to review my edits, I recommended that my clients refuse to sign and limit their disclosure to only those things they’d feel comfortable disclosing without an NDA.

Thankfully, this approach worked against several large companies. Apparently, the message that’s been conveyed to the random middle/high-level project/product manager at several Fortune 50 Companies is: “Get ’em to sign our terrible form if you can. If not, don’t sign anything, but have a limited meeting anyways.”

This is a shift for me. Historically, my experience with large companies was that they wanted you to sign their form before the meeting, no matter what. Several years ago, however, their forms weren’t draconion permission to compete agreements with free perpetual non-assert clauses (I’m not exaggerating, one form I received included an non-assert clause for all IP rights associated with everything disclosed by my client in connection with the agreement).

Moral of the story? NDAs, while typically boilerplate and uninteresting, can occasionally contain provisions that give up the ghost. My August clients are very happy they were safer rather than sorrier (and several reported back with entertaining tales of embarrassing their business counterparts at the big companies when they pointed out why they just couldn’t sign the new version of Fortune 50 company’s NDA)


As you may recall, I started late on the garden this year, and decided to minimize the plantings.

I am glad.

I started with this:


A few weeks later, had this:


And, now, after 3 weeks away with the garden on the automatic watering, I have more than enough work cut out for me:


Due to the late start and the cool summer start, I still don’t have any ripe tomatoes, but there are hundreds of green ones. And I can’t wait.

There are a few ripe cucumbers, and I suspect I’ll find a few other early goodies when I clear the weeds, prune the plants, and support the plants that have outgrown their allocated spaces.

Overall, I’m congratulating myself on the decision to downsize the garden this year. At the beginning, when the plants are small, it seems so easy to add just one or two more. But now, when production is in full swing, I’m going to have several hours of work each weekend just to keep the plants healthy and bearing fruit.

The garden/start-up analogy is clear: Plan for growth at the start so that it doesn’t crush you when it comes.

A Novel Open Source License

I’m in London, finishing up a European vacation with a visit to a couple of clients for work before heading back to Silicon Valley.

Today, one client’s CEO showed me around and introduced me to one of the tech guys. After shaking my hand, one of them immediately enlarged the newest open source license he wanted to get approved for his project:

The Do What the Fuck You Want License.

I had never encountered this license in the past and was a little flabbergasted to encounter it on-site on-screen for immediate approval.

I am happy to report, I managed to maintain some semblance of composure and let them know that for this particular client’s needs, this license was acceptable.

Also, I immediately went back to my hotel and looked up the history, as I couldn’t believe that this license was already on Version 2.0 after only a decade or so… The GPL is only on 3.0 after 23+ years!

Amazon Calls California’s Cards

Wednesday, California’s Governor signed a bill into law that modifies the definition of “doing business in the state” for the purposes of collecting sales tax.

The bill explicitly includes retailers

entering into agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet Web site, or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in this state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in this state of over $500,000, within the preceding 12 months

Amazon responded today by terminating all of its California Affiliates.

Internet taxation by States is an ongoing conflict on many fronts, and no doubt there will be many battles that will be fought in the future.

For example, The Performance Marketing Association is currently challenging a similar law in Illinois on the grounds that it is unconstitutional.

For the meantime, the end result is that California will not be collecting any sales tax from Amazon, *and* it won’t be getting any income tax from the terminated affiliates either.

A Second Facebook Movie?

Paul Ceglia’s allegations regarding his role in the founding of Facebook are grandiose.

The legal response from the Facebook team is similarly fantastic.

No matter how it plays out — it’s shaping up to be a huge fight and will likely make a great story.  I can’t help but wonder if this scenario might find its way to the big screen as well.

Spring Has Sprung

Back in February, I sowed all of the saved seeds, watered them, covered them, placed them on heat mats and hoped for the best.

Sure enough, 5 days later, the magic of germination was in full force.


6 weeks under flourescent light over heat mats with a rotating fan to provide some “wind” and we were rewarded with two trays full of very healthy seedlings. (On a side note, I am not primarily located in California right now, so good friends are graciously acting as my greenhouse and plant stewards between visits.  I suspect that’s why the plants look so great this year.)



Since then, they’ve been transplanted to individual dixie cups and will be ready for distribution to fellow tomato lovers in 2-3 weeks.

So if you have an interest in home-grown tomatoes, let me know.  I will be delivering tomato seedlings to all takers in the San Francisco Bay Area starting April 18th.