|Ask the Attorney
|Internet Messaging, Advertising
Hale and Dorr, LLP Washington, DC
Q: My company wants to license patented technology to
give us a cutting edge over our competition. Are we free to use
the patented technology?
A: U.S. patent laws only grant to the patent holder the
right to exclude others from making, using, selling, or importing
patented technology into the United States. A U.S. patent does
not grant the patent holder the right to practice the patented
technology. Therefore, it is important to make certain that your
company is free to practice the patented technology in view of
all other patents (not just the immediate patents offered in the
license) or else obtain the appropriate licenses to practice such
technology. Thus, evaluation of any offer to license patented
technology should include a due diligence review.
2. Venture Financing
William B. Asher, Jr.
Testa, Hurwitz, & Thibeault
Q: How long should the contractual covenants in my venture
financing agreements run?
A: The quick answer: Until an initial public offering
(IPO).but not any IPO. Investors want assurance that their contractual
rights (financial information, approval of major transaction,
board seats, etc.) will expire only if the IPO is of significant
size and scope. A qualifying IPO is typically defined by its total
size ($10 million plus) and price per share (200% to 500% return).
Essentially, the investor is trading control for the chance of
a reasonable aftermarket exit. You should request that covenants
also expire if investors reduce their stake in the company.
3. Instant Messaging
Joseph E. Addiego III
Davis, Wright, Tremaine, LLP
Q: My employees use free instant messaging (IM) programs
to communicate with our clients as well as with their friends.
Should I be concerned?
A: Most free IM services are not private and are less
secure than e-mail. Also, in certain regulated industries, all
client communications must be archived, a feature not included
in many free IM programs. Further, IM can be more difficult to
monitor than email, making it the perfect method for disgruntled
employees to leak proprietary information without detection. A
good IM policy, similar to your e-mail policy, and a robust commercial
IM client can help.
4. Internet Advertising
Jeffrey H. Blum Davis
Wright, Tremaine, LLP
Los Angeles, CA
Q: What are the rules governing advertisements on the
A: Internet advertisements are governed, in part, by the
Federal Trade Commission Act, which forbids unfair or deceptive
acts or practices in advertising. Like other media forms, an Internet
ad must be fair and truthful, and must disclose material facts
regarding a consumer transaction in a clear and conspicuous manner.
Disclosures should always be made before an online purchase. Consumer
information collected through Internet advertisements must be
consistent with posted privacy policies and industry practices.
5. Stock Options
Mark L. Epstein
Epstein & Friedman
Q: Don't corporations get a tax deduction on their stock
A: There are legal restrictions on how tax-qualified stock
options can be structured. The employer cannot deduct the value
of these options as compensation expense when the options are
granted or exercised; the employee does not recognize taxable
compensation income (although the spread between the option price
and fair market value constitutes an item of adjustment for alternative
minimum tax purposes). Depending on when the employee sells the
option stock, the employer may then deduct a certain amount as
compensation expense. If the employee holds the option stock for
the required term, the employer will never get a tax deduction.
Albert Keyack Schnader
Harrison, Segal, & Lewis, LLP
Q: I've developed software using my own skills and several
consultants, and now I've hired some full-time employees. Sales
are picking up, and we are close to raising capital. Investors
want me to verify ownership. Don't I own what I paid for?
A: Absent written agreements, the copyright in software
is owned by the author, and patentable inventions are owned by
the inventors. Ownership also depends on whether the person is
acting within the scope of his or her employment or consultancy.
These are complex issues and can be remedied by agreements that
transfer ownership to the employer.