A start-up entrepreneur recently told me about the agreement he signed with the developer of his website. The agreement has what I consider, from the entrepreneur’s perspective, a most pernicious provision: Ownership of the website, and its intellectual property rights, does not pass from the developer to his client until the fee is paid in full.
I understand why developers like this type of provision: It gives them extra leverage to ensure that they are paid.
In my opinion, however, this type of provision is inappropriate, from the perspective of the developer’s client, for several reasons:
- If development extends over a long time, the client is deprived of ownership rights throughout that entire period.
- Sometimes a client has a legitimate dispute that justifies a reduction in payment – but the provision in question does not allow for this possibility.
- There are other, less-disruptive means that can protect the developer, such as the granting of a security interest.
So here is my advice to anyone who receives a website development, or other professional services, agreement with a “you don’t own it until you pay” provision:
- Negotiate that provision away, making sure that you own the deliverables, and all intellectual property rights in those deliverables, as soon as they are created.
- If the service provider will not agree to this change, find another provider.
Photo credit: Sufi Nawaz via stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
In an article published today (Entrepreneurs Find Success With Specialty Lenders), the Wall Street Journal reported that some entrepreneurs who otherwise cannot obtain loans have been able to borrow from banks that specialize in niche industries.
As an example, the article cites Silicon Valley Bank, which caters to high-growth technology and life sciences firms.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Cumulative voting for corporate directors is a process by which each shareholder’s voting power is multiplied by the number of directors to be elected. The objective: By allocating all of their votes to one or a small number of directors, minority shareholders can ensure that their interests are represented on the board (i.e., a majority shareholder will not automatically control all board seats).
California Corporations Code Section 708 provides, subject to certain exceptions, that shareholders are entitled to cumulate their votes, but that right is not granted automatically. At the shareholder meeting, at least one shareholder must give notice of the intention to cumulate votes before voting for directors begins. Once notice is given, all shareholders may cumulate their votes, but only for candidates whose names were placed in nomination before voting began.
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From time to time, I am asked how a member of a limited liability company (LLC) can stop being a member.
A well-written LLC Operating Agreement will address this question directly, specifying the circumstances under which members may withdraw, and the consequences of withdrawal.
However, irrespective of what the Operating Agreement says, California law gives each member the right to withdraw from any LLC.
Corporations Code Section 17252(a) provides, in relevant part, that “Notwithstanding any restriction upon the right of a member to withdraw, resign, or retire, a member may withdraw from a limited liability company at any time by giving written notice to the other members.”
Upon providing notice, the withdrawn member retains a right to any economic distributions from the LLC but is no longer a member. However, if withdrawal constitutes a breach of the Operating Agreement, the LLC may reduce economic distributions by the amount of any damages suffered as a result of the breach.
Photo credit: stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
In a recently-decided case (JustMed v. Byce), the U.S. Court of Appeals for the Ninth Circuit decided that a software developer was an employee, rather than an independent contractor, even though the parties had completed almost no employment-related paperwork.
Byce took over development of JustMed’s software from an employee who had moved out of state. Byce’s compensation – the same as his predecessor’s – was 15,000 shares of JustMed stock (valued at $0.50 per share) per month.
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Protesters at the Philadelphia Tea Party on April 18, 2009
This is just too delicious: One group of “Tea Party” activists – known for opposing federal government intrusiveness – has brought suit against the registered Tea Party political party in the U.S. District Court for the Southern District of Florida (South Florida Tea Party, Inc. v. Tea Party).
Plaintiffs seek a declaratory judgment that (1) their use of “Tea Party” does not infringe any trademark or other intellectual property right, (2) Defendants to not have any exclusive intellectual property right to use “Tea Party” in politics, and (3) Defendants shall not make any false associations between themselves and grass roots “Tea Party” movements. (The third point seems to be more like a request for injunctive relief rather than a declaratory judgment, but intellectual rigor and consistency may not be major concerns, in this case.)
Perhaps plaintiffs did not notice that the U.S. District Court is part of the despised federal government?
Photo credit: Wikipedia
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
On the evening of Wednesday, April 21, the Silicon Valley Association of Startup Entrepreneurs (SVASE) will present Lethal Mistakes Startups Need to Avoid at the beautiful Crow Canyon Country Club in Danville (dinner included).
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
A client recently was given, and asked me to review, a nondisclosure agreement that made me chuckle because it looked like something left over from decades ago. I was especially surprised because this NDA came from a well-known computer-products company.
Some of the document’s more endearing qualities:
When you form a corporation or a limited liability company in California, the papers that you receive back from the Secretary of State include a Statement of Information form, which must be filed within 90 days of when the Articles of Incorporation (corporation) or Articles of Organization (LLC) were filed.
A corporation’s Statement of Information must be updated every year; for LLCs, updates are required every two years.
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Office Depot won a judgment against John Zuccarini under the Anticybersquatting Consumer Protection Act of 1999 (15 U.S.C. § 1125(d)) based on Zuccarini’s bad-faith registration of the domain name <offic-depot.com>, which was confusingly similar to <officedepot.com>.
Office Depot was unable to collect on its monetary judgment against Zuccarini, so it assigned that judgment to DS Holdings (“DSH”). DSH sought to levy against 190 <.com> domain names owned by Zuccarini and for which VeriSign controls the registry (a receiver having been assigned to auction off the domain names). Zuccarini (representing himself!) argued that DSH should be required to levy upon the domain names where their respective registrars are located, rather than at VeriSign’s single location.
The United State Court of Appeals for the Ninth Circuit held (Office Depot v. Zuccarini) that DSH could levy on the domain names either at VeriSign’s location (the Northern District of California) or at the registrars’ locations.
What we should learn from this case:
- Cybersquatting – especially when the victim is a large company – is a bad idea.
- Representing yourself in a litigation or its appeal – especially if you are not a litigator – is a bad idea.
- Domain names are intangible property.
- Domain name can be seized to satisfy a judgment.
Check out all posts about cybersquatting.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.