Spross & Associates, PLLC

Why do you see a “By” prior to a signature in a contract?

The “By” prior to a signature simply means that the signer is signing the document on behalf of a company and not on behalf of themselves. If someone signs a document without the “By” there are some interpretations that would put both the company and the signatory on the hook for liability under the agreement. So when signing as an officer of a company or on behalf of the company, make sure there is a “By” even if it is handwritten.

Here is an example:

ABC, INC.

By:______________________ (signature)

Why Should Attorneys Review Press Releases?

It’s a good idea to have legal counsel review all press releases, including third party press releases where you are quoted, prior to their public issuance.  Why?  There are several “hidden dangers” that could come back to haunt you later, in the form of a lawsuit or loss of goodwill for your company.

So what do lawyers look for in reviewing a press release?  First, a sweep of the press release for trademark and branding inaccuracies is a good idea.  Each trademark or brand should have the appropriate trademark symbol and identifying noun, and be used correctly (i.e. as an adjective, rather than a noun, not used in the possessive, etc.).  This will help preserve your trademarks and brands as valuable corporate assets.

Next, lawyers focus on substantiation of claims made in the press release and avoiding misleading statements.  The rationale for this type of review is that consumers don’t have the resources to conduct the necessary tests or investigations to determine whether a claim is true, so the burden is placed on the company making the claim.

The press release is also reviewed for comparative advertising claims.  This is important because there are particular guidelines to follow when comparing competing products.  And, in some countries, comparative advertising is illegal, for instance China.

The bottom line: share your good news with the public while protecting your company’s assets and goodwill.

Severability in NDAs

Does your Nondisclosure Agreement (NDA) have a severability clause?  It should.  There is some case law out there that says without a severability clause, if there is a provision that is unenforceable, the entire agreement is invalid.  My opinion is that this is not good law; however, why chance it?  Put a severability clause in your NDA and all agreements for that matter.

Here is a sample severability clause.

If any portion of this Agreement is determined to be or becomes unenforceable or illegal, such portion shall be reformed to the minimum extent necessary in order for this Agreement to remain in effect in accordance with its terms as modified by such reformation.

Tricky Vendors and Signatures

One thing I recommend is that business owners and management periodically send out a reminder that employees are not to sign ANYTHING, no matter how innocuous, without the approval of management.  This includes documents that the other party says are just standard.  I know many people that have been burned by a shady vendor having company employees sign something when the vendor knows the employee is not authorized.  You as the company owner are left holding the bag because most of the time the dispute is in the price range where it doesn’t make sense to litigate.

So be careful and continue to reiterate to employees not to sign or “approve” anything without management or legal approval.

Limited Liability Companies (LLCs)

People always ask me, LLC or corporation?  I have been using LLCs lately for three different scenarios.

Scenario 1 – Real Property

I have used LLCs for ownership of real property.  For instance,, if you have rental properties you can place the property inside the LLC.  In theory, the ownership of the LLC will not change over time.

Scenario 2 – Family Owned Business

Let’s say you are creating a business that is going to stay in the family.  An LLC could be used for this situation.

Scenario 3 – Certain Ownership Interest

Finally, if the ownership structure of the business is certain and will not change over time, an LLC could work.  For instance, you know that you will not need an option plan and you will not be handing out equity over time.

Good News/Bad News (or the other way around) on IT Spending

Two stories that seem to indicate that IT spending may help cure the ills of today’s healthcare system.

First, the bad news for the pharma industry and the healthcare industry in general. No surprise that cash is hard to come by in this industry and we're seeing it in the states on the Medicaid front.

Now the good news.  There's a silver lining to the cash crunch. Healthcare providers and pharmas are going to have to get more efficient to stretch the money they do have and this story quoting Bruce Carlson, publisher of Kalorama Information seems to indicate that wireless products will continue to be a large part of those efforts.

“It's no surprise that hospitals are earmarking large portions of current and future budgets to wireless development," he said. "In 2003, 25 percent of US hospitals had wireless. That figure will be somewhere between 80 percent and 90 percent in 2010.”

Doing Deals without a Contract

It is important to understand that the last six or so decades of business/commercial law in our country has been focused quite a bit on saving the American worker, inventor, and artist from big bad Corporate America.  So, we wind up with law and public policy that favors the individual and small company at the expense of the big company, especially where relationships are concerned.  The law assumes and expects the big company to be the mature, careful, knowledgeable, and responsible party.  If the big guy messes up, does not sign a contract with the small guy, or gets lazy, the default law favors the smaller guy far more often than not.  This is generally true in European countries too.

Doing a handshake deal is often a poor long-term choice for the big company.  Unfortunately, it is also the fast and easy choice, especially in an environment where everyone is busy and under time pressure.  Just note that if you take the quick route, the deal is probably not in your favor.  Often, the lawyers on the back end can do little for you too, and if they can, it is expensive.  No less than $500k for commercial litigation, no less than $2M for a tech-heavy IP suit, not to mention the time you and your team will lose in litigation.

Doing a bad deal or the quick “sign the form” deal is often not a good choice either.  Under United States law, there is a strong public policy doctrine called Freedom of Contract that is sitting on top of the “protect the little guy” policy.  It means that, as an American, you have the right to do any deal you want on any terms you desire.  However, as a consumer or a little guy, there are certain things that Uncle Sam does not allow a big retailer, a mortgage company, your bank, etc., (collectively “the big guys”) to do to you.  So, no consumer bothers to negotiate when buying a shirt at Wal-Mart.  You are protected from being really blind-sided or being treated unfairly by some protective default United States consumer law.

That is not always true for companies though.  As a company, United States Freedom of Contract means you have a patriotic, American, God-given right to be taken advantage of and totally pummeled into the ground until you are bankrupt, and the courts will often sit back and let you kill yourself with bad deals if you are so inclined.  So, you need to make sure you enter relationships properly and under clear contract terms you understand, appreciate, and can live by.

Open Source in Consulting Deliverables

If you are a buyer of coding services, why should open source in the Deliverables concern you and what can you do to protect yourself?

Open source code in your deliverables can be a major problem.  It may open you up to potential intellectual property infringement actions or, during due diligence, it may torpedo an acquisition.

So, what do you do in your consulting agreements?

First, request a warranty stating that there is no open source in the Deliverables.  More specifically, I like to say that there is no code that is governed by viral license agreements.

Second, I do not distinguish open source contained in the Deliverables from the Deliverables themselves.  When I ask for warranties and indemnification, they apply to “Deliverables” and everything included in those Deliverables.  That way, the consultant is on the hook for the entire Deliverable.

If the consultant is unwilling to provide the warranty and/or the indemnification, then I require that any open source must be preapproved in writing before being included in a Deliverable.  Absent your written approval, the source code is treated as part of the Deliverable and, therefore, not excluded from the warranty or indemnity under any circumstances.  If open source is included in the Deliverables, make sure that you also get a copy of the applicable open source license.

Conflict of Law Provisions

Everyone has seen it in their contracts and wondered what it means.  It is always in the miscellaneous section at the end of agreements.  It usually says something like, “without regard to the conflicts of law provisions therein.”  The full text is “This Agreement shall be governed by the laws of the State of Texas, without regard to the conflicts of laws provisions therein.”  Why is it included?

This provision is used to take interpretation of an agreement outside of the state law where a cause of action occurs.  For instance, if you have an agreement with a company that is in California there could be a cause of action that arises in California.  However, you want the laws of Texas to apply.  You have added a “choice of law” provision for that very reason.  Unfortunately, most states have a rule that says the law of the state where the cause of action arose governs that cause of action.  This would mean that if the cause of action happened in California, even if you said you wanted Texas law to aply, Texas law would point back to California.  By adding the "without regard to the conflicts of law provision" we are able to negate the Texas law that points back to California.  that is why most choice of law provisions contain the described clause and you should think about verifying that your's does too.

Another Reason for Background Checks!

Looks like HIPAA may have teeth after all. An

Arkansas

nurse recently plead guilty to a HIPAA violation based on her disclosure of patient information for personal gain.  Criminal prosecutions are rare under HIPAA, but the lesson here is that federal prosecutors will throw the book at anyone improperly attempting to benefit financially from patient information.

So what does this mean to healthcare IT providers? Be smart.  While HIPAA does not apply directly to you as a company, you may have a duty to conduct background checks of your employees that may have access to patient information. A simple background check may help you meet your obligation of "reasonable and appropriate" security measures if you signed a Business Associate Agreement and may keep aggressive prosecutors from going after you. For general guidance on background checks go here .