Business Law

Is a Letter of Intent Really Necessary?

By Blog, Business Law

Is a letter of intent (aka memorandum of understanding, term sheet, summary of principal terms, or heads of agreement – all referred to as a “LOI”) for a sale or acquisition of a business, or other M&A transaction, worth the paper it’s written on? Why spend time and money on negotiating and drafting a LOI that is, for the most part non-binding?

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Peer2Peer Software, Confidential Information and Employment Policies

By Blog, Business Law, Employment Law, Intellectual Property Law

Employers should be alert to yet another web-based activity that should be addressed in its technology policies and practices.
In January of this year the Federal Trade Commission sent a letter to 100 companies warning each of them that “sensitive personal information from or about your customers and/or employees has been shared from your computer network…to a peer-to-peer file sharing (P2P) network.”  Then, the FTC described specifically the files that were available to all users of that P2P network.  This was not the first time the FTC has raised an alarm about the potential damage that can occur if P2P network software is installed on a company’s server.  But what does this mean to a business in practical terms?  It could mean a breach of security in a businesses’ network that results in the loss of private information or its trade secrets or other proprietary, confidential information, AND the violation of state and federal laws prohibiting the disclosure of private information.
President Obama was unknowingly involved in a recent example of the potential problem.  It was widely reported last year that P2P software may have been used to obtain all of the blueprints and avionic specifications for President Obama’s helicopter, Marine One.  One commentator has described P2P networks as a “conduit for hackers to enter a network or computer, access personal and confidential information, as well as deploy viruses or worms.”
P2P technology is for group sharing, most commonly used by millions to share music, video and documents through sharing programs such as Bit Torrent.  Each user of the software (usually free and downloaded to a computer) can obtain information shared by others.  When the settings are configured incorrectly, however, other data on a user’s computer may become available to the other users of the P2P software.  Anyone can join these networks, and “millions of computers could be connected at one time,” as the FTC has warned in its publication Peer-To-Peer File Sharing: A Guide for Business.
The potential risks associated with P2P software mean that employers should review their policies regarding their employees’ use of and access to the company’s computers and network, and review their internal security systems.  An employer’s policy decision will be influenced by its culture, but the importance of protecting against disclosure of the company’s proprietary information and private information relating to its employees and customers must be given great weight.  The FTC’s publications discuss various methods to control the installation and use of P2P software and to protect confidential information (see also, P2P File-Sharing: Evaluate the Risks).   But whatever policy decision is made should be supported by policies and procedures that unambiguously inform the employees of the limitations and prohibitions.  Those policies should apply not only to the employee’s use of his or her computer and access to the company’s servers and network from the office location, but also to the employee’s remote access to the system.  In addition, administrative security controls should be applied to monitor the network, consistent with the policy.
Stephen C. Gerrish, Employment Group

CAN-SPAM Business Compliance and Penalties

By Blog, Business Law

E-mail spam is a part of our business and personal lives.  Do you think everyone else is getting away with spam, so you can too?  Think again.  The federal CAN-SPAM Act of 2003 is alive and well.  When you’re evaluating whether or not your business needs to be concerned about complying with Spam Laws, keep in mind that each separate violation of the federal CAN-SPAM Act is subject to penalties of up to $16,000 and California violations are $1,000 each.  If you need more evidence to become convinced, just ask Facebook about the $873,277,200 judgment they won against a Canadian spammer who used the social networking service to illegally advertise his wares.  It would seem that California Judge Jeremy Fogel wanted to send a powerful deterrent message to illegal spammers.  To read more about this case, click HERE.
Shortly after the federal Can-Spam legislation was adopted in 2003, Delaware and California adopted similar Anti-Spam Legislation.  They were the first two states to do so.  Under the California legislation Cal Bus & Prof §17529, it is illegal to send unsolicited commercial e-mail from California or to a California e-mail address.  The law applies to senders and advertisers on whose behalf messages are sent, so be aware that you cannot contract away your obligation to comply with state and federal Spam Laws.
Federal and state anti-spam laws are directed at commercial communications and are not strictly limited to e-mail or advertisements.  If a message contains only commercial content or its primary purpose is commercial (even if it is an order confirmation or other relationship communication), then it must comply with applicable anti-spam laws.
Here are some tips for helping ensure that your commercial communications comply with anti-spam laws:

•    Begin with Opt In (your e-mail should be addressed to visitors to your own site who request to be added to your mailing list; don’t use e-mail addresses that have been harvested from other web sites. If you purchased an e-mail list from a third-party, ensure that the e-mail addresses were on an “Opt-In” list related to your topic).

•    Provide an easy and clear Opt Out option (so recipients can avoid receiving unwanted communication in the future).
•    Honor Opt Out requests promptly (once someone Opts Out, you cannot continue to send them future messages).
•    Use an accurate source e-mail address (so recipients can identify who sent the message).
•    Use accurate and descriptive subject lines (so recipients are not mislead or tricked into opening e-mails).
•    Include your contact information in the body of your message (so recipients can discover how to contact you).

You can report being spammed to the Federal Trade Commission. Send a copy of the unwanted or deceptive messages to or call 1-877-FTC-HELP.
Kathryn Andrews, Business Group

California Legislation Threatens Tax-Free Exchanges

By Blog, Business Law, Real Estate Law

California’s anticipated $20 billion budget shortfall is well-known and legislators are understandably scrambling for solutions.  Newly proposed AB 2640 was introduced in the California Assembly on February 19 and would raise revenues immediately.  In fact, its terms are retroactive to January 1, 2010.
Among other provisions, AB 2640 would tax gain from certain exchanges that are tax-free under federal law.
For example, Section 1031 of federal tax law provides that no gain or loss is recognized when business or investment property is exchanged for property of a “like kind.”  California has long-respected this non-recognition provision, but AB 2640 would require that those gains, exempt from federal tax, be taxed in California.  While 1031 exchanges apply to many types of property, they are most commonly used for real estate, allowing gains from the sale of one investment property to be rolled over into another investment property so long as the entire proceeds of the sale of the original property are used for the purchase of new property.  If AB 2640 is enacted into law, gain on the transaction will be taxed at California’s rates and, in order to qualify for the full federal tax exclusion, anyone wishing to complete a 1031 exchange will have to pay the California taxes from funds other than the proceeds of the sale of the original property.
AB 2640 also takes aim at two valuable corporate non-recognition provisions.  Currently, when a corporation issues its stock, whether in a public or private offering, it does not recognize gain or loss.  Section 1045 of the Internal Revenue Code also allows gain to be rolled over if a taxpayer sells “qualified small business” stock and rolls over the proceeds to another “qualified small business” stock within 60 days of the sale.  These two provisions allow corporations to effectively raise capital and favor investment in small businesses.  Both of these provisions will be eliminated with AB 2640, causing corporations to pay tax on stock issuances and discouraging additional investment in small businesses.
There are a number of other exclusions AB 2640 would eliminate, including the exclusion of gain on transfers between spouses when they are divorcing, non-recognition provisions that apply if property is destroyed or condemned and other provisions that relate to exchanges of insurance policies and corporate securities.
It seems unlikely that AB 2640 will become law with its sweeping changes.  It will, however, only require a majority vote in the California legislature to enact it.  The bill does not create any new taxes (which would require a 2/3 majority to enact), it simply removes some existing exemptions and exclusions.  It would certainly generate current revenues and alleviate the present budget crisis.  Over the long term, however, it does not increase overall revenues but accelerates them to the present.  The Legislative Counsel of the State of California allows you to track the bill’s progress at by entering “AB 2640” into the search line.
Anne E. Senti-Willis, Business Group