by Lee Gesmer | Sep 19, 2006 | Technology
Technology. Do you know what Wikipedia is? Did you know that this open source encyclopedia covers 1,391,807 topics (in the English version, as of this writing)? That it may be (or soon become) the greatest collaborative knowledge gathering effort the world has ever known? That it is the 17th most popular site on the Internet, receiving 14,000 hits per second? That you can find a topic in Wikipedia by simply entering “wiki” at the end of a Google search? (e.g., Lost TV show wiki)?
If you’re interested in understanding the origins, goals and inner-workings of this astonishing phenomenon, I recommend these two articles from The Atlantic and The New Yorker, respectively:
by Lee Gesmer | Sep 18, 2006 | Business Lit. Session, Litigation
Litigation. Lawyers love to argue about attorney-client privilege. What could be juicier than to find out what your adversary in litigation said to his or her attorney, believing it to be covered by this privilege, a privilege that is so sacrosanct that the Supreme Court has ruled that it extends beyond the grave?
Nevertheless, the attorney-client privilege can easily be lost or waived. For example, if the communication is revealed to a non-attorney third party, it risks waiver.
The world of computer technology and email has given rise to new grist for the waiver doctrine. Most companies inform their employees (in employee manuals, for example) that communications utilizing the company’s internal email system are open to review and examination by the employer. According, it is established law that an employee who uses her employer’s email system to communicate with an attorney has waived the privilege. Most lawyers, aware of this, instruct their clients who wish to communicate from work to use an Internet-based email system, such as Google’s Gmail or Yahoo Mail. The theory is that since the employer doesn’t have access to these emails and the emails are protected by a user name and password, they retain their privilege.
This assumption was challenged in a recent case before Judge Gants, sitting in the Massachusetts Business Litigation Session. In this case, NERA v. Evans, the former employer argued that since, unbeknownst to the former employee, the computer used by the employee (who was now suing the company) stored screen shots of the emails, which were then technically accessible to the employer, the privilege had been waived. Judge Gants rejected this argument, but he did posit a “test” that, until something better comes along, should be viewed as highly persuasive precedent, at least in Massachusetts. Judge Gants stated:
The bottom line is that if an employer wishes to read an employee’s attorney-client communications unintentionally stored in a temporary file on a company-owned computer that were made via a private, password-protected e-mail account accessed through the Internet, not the company’s Intranet, the employer must plainly communicate to the employee that:
1. All such emails are stored on the hard disk of the company’s computer in a “screen shot” temporary file; and
2. the company expressly reserves the right to retrieve those temporary files and read them.
Frankly, I don’t expect many companies to adopt such a policy, but at least there is some guidance on this issue from a well-respected Massachusetts Superior Court judge.
by Lee Gesmer | Sep 15, 2006 | Litigation
Litigation. In Pease v. Tyco Electronics Corp., decided on September 7, 2006, Massachusetts Federal District Court Judge Ponsor dismissed wrongful termination claims by a former employee of Tyco, based on evidence that the employee had lied to Tyco regarding his education (an MBA), and then modified and destroyed files on his computer to cover up his actions during the litigation. Among other things, this case shows how effective forensic examination of a computer can be in litigation, as well as the fact that federal judges simply won’t tolerate this kind of conduct.
Of course, the case also shows that when an employee brings a suit like this he had better make sure that he has no skeletons in the closet.
by Lee Gesmer | Sep 15, 2006 | Copyright
Copyright. Sometimes it just seems like the law is full of traps. Miss a filing deadline, fail to make the proper objection or motion in court, leave the many forms of “magic language” out of an agreement – any of these, and countless more, can result in disaster.
Our firm has recently seen two clients pay over $500,000 to buy their way out of what I call the “work for hire” trap. Both clients are software companies. In the first case, the client hired an independent contractor to develop its product, and failed to get a written assignment of ownership from him. After leaving under adversarial circumstances, the contractor claimed that he, not the company, owned the product. The second case involved similar facts, but the independent contractor/programmer worked for a small agency, and after several years the agency asserted ownership of the programmer’s work. Again, no written assignment, and again, a multi-hundred thousand dollar settlement to avoid litigation and get what the company should have owned outright.
In both cases the companies could have argued that they had an “implied license” to use and sell the software (since in neither case did the contractor warn the company of his ownership claim while the work was being done), but the implied license doctrine is messy, to say the least. What investor or purchaser wants to be told that the company it is investing in or buying doesn’t own its software, and that it has an “implied license” from a hostile former programmer? ‘Nuff said.
Here are “the rules” of work for hire under the Copyright Act:
First, the easy case: if the developer is truly an “employee” (works full time, at direction of employer, employer withholds taxes), and the work is within the scope of her employment, the employer owns the programmers work. In this context the disputes that usually arise are over the “scope of employment” question – when the employee works at home evenings or weekends, was the invention within the “scope”? Any ambiguities in this situation are usually resolved be a well written employment agreement that draws this line contractually.
Second, if the developer is an independent contractor (working for you directly or through an agency), you must get a written assignment. The assignment can be complicated and wordy, but it can also be as simple as one sentence: “I, John Doe, for good consideration, receipt of which is acknowledged, do hereby assign to Corporation all title and interest in the intellectual property I have created for Corporation.”
Leave out any mention of “work for hire” unless you are sure that the work falls into one of the nine narrow work for hire categories set forth in the Copyright Act (for example, a translation or an atlas). If the contractor is working on one of these items, then the contractor can agree in writing, before work is commenced, that his work is a work for hire. Note that a computer program developed by a contractor can never be a work for hire, because computer programs are not one of the nine categories.
Because of the legal technicalities associated with the work for hire doctrine as applied to independent contractors, any reference to a work for hire is both unnecessary and possibly dangerous. What if the contractor agrees that the computer program she is writing is a work for hire? Does this technically deficient agreement (since computer programs don’t fall under work for hire) undermine the “employer’s” ownership? Who needs to worry about these technicalities? The solution, plain and simple, is to get a blanket assignment. An assignment covers all bases: whether the developer is an employee or an independent contractor, and whether her work falls within the nine work for hire categories or not, the assignment transfers ownership.
Avoid the work for hire trap, and with one important caveat, get an assignment.
The caveat is that a non-employee may be able to terminate the assignment after 35 years.
by Lee Gesmer | Sep 11, 2006 | Litigation
Litigation.
“Of course, this letter is not intended to create, nor do you or we presently have any binding legal obligation whatever in any way . . ..”
In 1991 those words played a major role in the Massachusetts Appeal Court’s reversal of a $32 million trial judgment against Federal-Mogul Corp. in the case (infamous to Massachusetts business lawyers of the time) of Schwanbeck v. Federal-Mogul. The plaintiff in that case claimed he had a deal to buy a division of Federal-Mogul, and FM had breached that agreement. While the trial court agreed (resulting in the $32 million judgment), the Appeals Court reversed, in part on the language quoted above.
That case was an object lesson to attorneys in our firm involved in M&A transactions that it was essential to include “no legal obligation” language in every transaction, unless and until our client was prepared to be legally bound. An article that I wrote in 1991 discussing this case in more detail is linked here.
However, this problem is not limited to contracts – it arises surprisingly often in settlement discussions in litigation. Not too long ago our firm had a case in which the attorneys for the other side insisted that a verbal conversation with an attorney in our firm, followed by a confirmatory letter that outlined a settlement at a high level of generality, was enough to result in a settlement binding on our client. After months of depositions, days of arbitration, and well over a million dollars in legal fees on both sides, an arbitrator ruled that the agreement was not binding on our client, leading to even more litigation and, ultimately, a favorable settlement for our client.
Another permutation of this legal trap is illustrated in a recent decision by Superior Court Judge Allan van Gestel in the case Targus Group Int’l v. Sherman. There, following a private and nonbinding mediation, the parties entered into a written and signed “Agreement in Principle,” setting out settlement terms. The Agreement did call for “execution and exchange of final settlement documents and mutual releases in a form satisfactory to counsel ….,” but did not contain “no legal obligation” language.
The settlement faltered as the parties tried to negotiate final settlement documents, and the parties ended up in court, with Targus arguing the Agreement in Principle was binding on Sherman.
The result? Judge van Gestel granted summary judgment for Targus, holding that the Agreement in Principle contained all the essential terms and therefore was binding.
Practice pointer: unless you intend to be bound, always, always, include language to the effect that there is no binding agreement until a final agreement is reached. Calling a settlement agreement an agreement “in principle” and making it subject to a later agreement satisfactory to counsel is not enough to guarantee avoiding the result in the Targus case. Although this should be obvious to most experienced lawyers, its surprising how many lawyers miss this simple point. In my office I have an easy way avoid this result: whenever settlement negotiations begin I send an email to opposing counsel, stating that we have no deal until we have a final settlement agreement, approved and signed by the clients. Opposing counsel inevitably writes back agreeing, and the risk of having an agreement forced on my client is avoided.
