Summer Bounty

After all the work and the waiting (we had a much more mild summer than normal, which delayed the tomatoes by almost a month), finally, the garden is in full production mode:

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For the last several weeks, I’ve been harvesting a basket like this:

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And this week, I expect there will be 2 or more.

The big downside to the late blooming garden is that much of the heavy harvesting will need to occur in September or October, when I’m working to close transactions for clients before the end of the fiscal quarter and/or traveling. But, the upside potential is huge as well. If we can avoid a frost, I have enough green tomatoes that there should be a constant stream of ripening tomatoes that stretches well into Thanksgiving. Making sauce and canning tomatoes and pickles in the cooler fall months is very much preferable to doing the same in August.

And the garden to start-up analogies continue: sometimes, despite your best efforts and hard work, things don’t scale when you plan them to scale. But, sometimes, the delay comes with its own sweet rewards.

Garden Prep

It’s almost that time of year again!

Back in January, I started seeds for tomatoes, peppers, eggplant, and okra.

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The okra died. I restarted them a few weeks ago and they seem much happier.

Today, the garden is a sad dried out, over-grown and gone-to-seed collection.

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The peppers had seed leaves by the end of January.

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But the tomatoes, despite being planted several weeks later, have completely overtaken the peppers in terms of growth.

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Just a bit of labor to harvest the remaining bits (yay beets!), then we turn the beds, add compost, fertilize, and it will be a welcome home to all of the seedlings that are thrilled at this weekend’s blazing sun.

Hurray for the coming summer garden!

Laws Of Nature Are Not Patentable

Yesterday, the U.S. Supreme Court released its unanimous opinion in Mayo v. Prometheus. I was pleased to see the Court affirm and clarify the unpatentability of laws of nature.

Here’s a generalized statement of the law of nature at issue in this case: Certain concentrations of a specific drug metabolite in the blood indicate (a) toxic levels to humans (too high); or (b) ineffective therapeutic levels (too low).

The method claims included a step of (i) administering the drug; (ii) determining the level of the drug metabolites in the blood; and (iii) increasing or decreasing the administration dose in accordance with prescribed tolerances for efficacy and toxicity.

A long line of case law makes it clear that laws of nature, natural phenomena, mathematical algorithms, and abstract ideas are not patentable subject matter under 35 U.S.C. Section 101. This doesn’t mean that adding additional steps to natural phenomena, or applying a law of nature in a unique way may not be patented, but we now have guidance that says those steps must be more than just the run of the mill application of standard processes regularly used in the field of the claims.

In reversing the Federal Circuit Court and affirming the District Court’s ruling, the Supreme Court clarified why these claims were not directed to patentable subject matter:

[T]he claims inform a relevant audience about certain laws of nature; any additional steps consist of well understood, routine, conventional activity already engaged in by the scientific community; and those steps, when viewed as a whole, add nothing significant beyond the sum of their parts taken separately.

In other words, you can’t add well understood, routine, conventional steps to a natural phenomenon or law of nature and have a valid patent claim. In explaining the rationale behind the conclusion, the court stated its concern and pointed out that Prometheus was in good company:

The Court has repeatedly emphasized this last mentioned concern, a concern that patent law not inhibit further discovery by improperly tying up the future use of laws of nature. Thus, in Morse the Court set aside as unpatentable Samuel Morse’s general claim for “‘the use of the motive power of the electric or galvanic current . . . however developed, for making or printing intelligible characters, letters, or signs, at any distances,’”

Great Job SCOTUS!

Tech Law Garden: Year 2 In Review

The second year of running my own private law practice was similar to the first. Fast, furiously busy, and over before I knew it.

The biggest change is Tech Law Garden has added a part-time Junior attorney! She does great work. It’s exciting to have someone to collaborate with, and the clients get a better value when she’s a good fit as I’m able to bill her out at a lower rate than myself. I’ve also hired someone to do all of my bookkeeping, which is a huge relief and allows me to focus more on my practice.

As for the actual practice of law, more than half of last year’s work was the typical internal legal work all growing technology businesses need: click-through agreements associated with product launches, standard form sales agreements, NDAs, privacy policies, terms of use, API click-through agreements, revenue share agreements, co-marketing agreements, publishing agreements, security policies, open source policies, trademark guidelines, and negotiating deals from the companies’ standard forms.

About 10 – 15% of the work was internal diligence and summary of (i) existing contracts held; or (ii) open source software used by companies in order to help them prepare for a product launch, sale, lawsuit, or IPO filing.

Another 10% is general advice and counseling on all the issues that can arise in the day-to-day life of a small technology company (and in a few cases, IP/tech advice and counseling for individuals). Some of this is easy to predict: for example, privacy and security are always an issue. But I particularly enjoy this portion of my practice because I can never guess what surprise might be next (need to file for an export license? a need for a DUI referral for an executive’s relative? a subpoena? an unexpected image of porn displayed in user generated content? a discovery of a serious bug that has privacy implications? an employee who’s developing a competing product? a desire to implement a laptop gifting program? a co-founder with addiction issues? an individual who’s trying to start a new venture while employed at his/her old job?).

And, the remainder, of course, is negotiating deals with other companies. Typically, other small and medium companies are fairly nimble and my clients can close those deals on a fairly short timeline. Manufacturing agreements, distribution agreements, and other specialized service agreements can take a little more time, but generally don’t take more than a month (unless you’re dealing with regulated manufacturing or super-secret technology, in which case all bets are off).

However, as you’d expect, almost all of the usual suspects in the Fortune 500 want to work from their forms (*not* my clients’ forms). In some cases, my clients and I have been able to convince big companies to use my clients’ forms. (I’ve never seen a University licensing department agree to anything except their own forms). But, in most cases, to do a significant deal with a big company or university, technology startups have to start with a long, extremely big-company-favorable (or university-favorable) form.

With these folks, if you are a small startup, unless you have quite a bit of leverage, it is common for it to take at least a month, and often *many* months, to get a deal to closure. It can be a painful exercise, and I think this is one area where a good attorney can add quite a bit of value for a startup (to help the startup (i) understand exactly what the risks of the deal are; (ii) focus on what they really want and need from the deal; and (iii) hold the line).

In year 2 of Tech Law Garden, the longest, most drawn-out deals awards go to:

  • Amazon
  • Apple
  • Advertising Agencies (When they represent big brands, they expect to be treated like a big company, no matter what size they are.)
  • Facebook
  • Google
  • Microsoft
  • Samsung
  • Universities (Academic time is a completely different concept from business time. Think holidays.)
  • Zynga

Finally, because I’m a data nerd, here are some data points from my practice, thus far:

  • I have done invoiced (including pro-bono) work for exactly 60 clients since I started the practice, a little over 2 years ago.
  • The first month of my practice, I invoiced 2 clients.
  • In a typical month in year 2, I invoiced 11-12 clients.
  • In my busiest month in year 2 (September), I invoiced 17 clients.
  • In addition to the clients who’ve engaged me, I’ve also met with, or taken phone calls from over 30 potential clients where the correspondence was significant enough to create a folder for the correspondence, but (for whatever reason) we have not engaged in an ongoing attorney-client relationship at this time.
  • I’d estimate I’ve met with or taken phone calls from at least another 60 entities or individuals who needed an attorney, but it was very clear that they did not need someone like me. I’m always happy to talk with folks and make referrals to other attorneys as a regular part of my practice.

In short, my practice has very little predictability. I have a few clients for whom I do work every month. But the majority of my small startup clients and individuals only need help a few months of the year. It is not uncommon for a client to need help one month and then for them to be silent for 6 months. It is also not uncommon for me to meet with a potential client in one month and for them to wait 6 months until they engage me.

I’m excited to see what year 3 will bring!

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:

[YOU] HAVE ENGAGED A REALISTIC LEGAL COUNSEL. HER DRAFT AGREEMENT WAS WELL-PREPARED, SHORT& TO THE POINT, AND SHE DESERVES THE COMPLIMENT.

Ordinarily, CAPSLOCK drives me crazy.

This time it made my day.

A Northern Californian Summer Garden

The beauty of the first big harvest (even if it comes at least a month late due to weird 2011 weather!):

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Even in a bad year, home-grown heirloom tomatoes are overwhelming in September:

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Tomatoes are my favorite food, so many of my Summer meals look like this:

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And when the harvests start to decline, it isn’t even all that sad:

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Eventually, the summer garden plants need to be removed to make way for the winter garden. Ideally, I get a chance to do it before the first frost when there are still green tomatoes. This year, the last harvest of the summer was the week before Thanksgiving.

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This is what happens when a Southerner marries a Californian with a garden (fried green tomatoes aren’t a side, they’re the main attraction in a dinner salad!).

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And, of course, I pickled most of the green tomatoes for later enjoyment.

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Last night, December 1st, we ate the very last of the ripe tomatoes from the Summer garden (stored in the fridge after the last harvest).

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And now, it’s nothing but leafy greens, brassicas, and making our way through the winter squash ’til next summer.

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:

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

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Even the garlic bulbs were smaller than normal this year:

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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).

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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)