Paul Wallbank – Brilliant Communications

Tag: legal

  • Should Australia pass a jobs act?

    Should Australia pass a jobs act?

    Last week the US President signed the Jumpstart Our Business Startups (JOBS) Act into law.

    The US law seeks to make funding easier for new businesses by lifting the burden of regulations like the Sarbannes Oxley Act (SOX) and various other financial rules.

    One of the main planks of the reforms is it changes shareholder thresholds, for instance allowing 2,000 investors rather than 500 maximum before it has to go public, and allows companies to advertise their shares subject to certain restrictions.

    Whether it achieves the stated aim of allowing new innovative businesses to raise funds or triggers a new generation of “boiler rooms” and investor fraud remains to be seen but it begs the question of should Australia pass a jobs act.

    The funding crisis

    There is no doubt Australia has a business funding crisis. Before the global financial crisis of 2008, it was difficult for smaller business to access finance.

    In the aftermath of the GFC, it became even harder for businesses to raise funds as banks withdrew from the small business sector, increased their lending rates and tightened criteria.

    While this situation has eased somewhat, partly due to the entrance of new angel and VC investment funds, financing of startup and small business is patchy and still tough.

    An Australian Jobs Act would make it easier for business to raise funds and well crafted one might encourage both self managed and public superannuation funds to allocate some of their investments into the startup and innovation sectors.

    A Scammer’s dream?

    One of the big criticisms is that it reduces investor protections; while it restricts investors with less than $100,000 in annual income from punting more than 5% of their income, it’s quite clear in a full blown mania the Jobs Act will enable plenty of shoeshine boys and self funded retirees will do their life savings.

    The question of course is how well the existing regulations protect investors or the community given the financial disastersof 2008.

    Despite tough rules like SOX and the Basel Agreements, massive institutionalised fraud occurred and it’s surprising there have been no reforms in these rules given the huge and unprecedented costs of rectifying the problems.

    In an Australian context, it’s clear local regulations aren’t working when thousands of investors are defrauded by their financial advisors in financial planner led scams like Westpoint. So reform is due.

    While it’s clear the legislation isn’t working, it’s also clear the Australian financial planning industry doesn’t have the skills or ethics to advise clients should a local Jobs Act be passed.

    Perhaps we should be accepting there is risk in investing and an Australian Jobs Act could help by simplifying business rules and improving transparency in accounts rather than bogging business and investors down in masses of unread paperwork.

    Is the US experience valid?

    Looking at the US Jobs Act it appears the Silicon Valley insiders are finding ways to extend their business models, whether this is successful creating new American jobs or just enriching the good folk of Sand Hill Road will pan out in the next few years.

    For Australia it’s important we reform our laws to make business and innovation easier though we need to be careful we don’t ape the worst aspects of the Silicon Valley business model.

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  • You hold us harmless

    You hold us harmless

    Social media site Pinterest was recently caught in one of the ongoing quandaries of social media – the ownership of content.

    The subject is tricky; social media sites rely on a vibrant community of users posting news and interesting things for their online friends.

    Unfortunately many of things social media users post are someone else’s property, so almost every service has a boilerplate legal indemnity term like Pinterest’s.

    You agree to defend, indemnify, and hold Cold Brew Labs, its officers, directors, employees and agents, harmless from and against any claims, liabilities, damages, losses, and expenses, including, without limitation, reasonable legal and accounting fees, arising out of or in any way connected with (i) your access to or use of the Site, Application, Services or Site Content, (ii) your Member Content, or (iii) your violation of these Terms.

    Facebook have similar terms (clause 15.1) as do LinkedIn (clause 2.E) and Tumblr (clause 15). Interestingly, Google’s master terms of service only holds businesses liable for the company’s legal costs, not individuals.

    Boilerplate terms like these are necessary to provide at least an illusion of legal protections for investors – those venture capital investors, greater fool buyers or punters jumping into the latest hot technology stock offering need a fig leaf that covers the real risk of being sued for copyright infringement by one of their users.

    The risk in these terms shouldn’t be understated; by agreeing to them a user assumes the liability of any costs the service incurs from the user’s posts. Those costs don’t have to be a successful lawsuit against the service, it could be something as minor as responding to a lawyer’s nastygram or DMCA takedown notice.

    Of course, none of the major social media platforms have any intention of using these indemnity terms; they know that the first time they go after a user all trust in the service will evaporate and their business collapse.

    Somewhere among the thousands of social media services though there is going to be one that will pull this stunt. Strapped for cash and slapped with an outrageous claim for copyright damages, the company’s board will settle then send out their own demands to the users responsible.

    Those “responsible” users – probably white, middle class folk sitting in somewhere in the US Midwest, South East England or North Island of New Zealand – will be baffled by the legal demand that requires them to file a defense somewhere obscure in California or Texas and will go to their lawyer friends.

    When the lawyers tell them what it means their next step will be to their local news outlet.

    The moment the story of a middle class person facing losing all their assets hits the wires is the moment the entire social media business model starts to wobble.

    In many ways what the social media sites are trying to do is offset risk.

    Risk though is like toothpaste. Squeeze the tube in one place and the pressure moves elsewhere.

    By laying off a real risk by using legal terms the social media sites create new, even bigger risks elsewhere in their business.

    The dumb thing is these terms really don’t protect the services anyway – it’s unlikely the typical social media user will have anything like the assets to cover the costs of a major copyright action by a rich, determined plaintiff.

    It’s going to be interesting to see how many services still have these indemnity clauses in 12 months.

    For the industry’s sake, the big players will need to have ditched these terms before that first dumb attempt to claim damages from users hits the wires.

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  • When tails wag dogs

    When tails wag dogs

    A recent Business Insider examination of how patent “aggregator” Intellectual Ventures works is a good example of one of the problems in modern business – essential ancillary processes have overtaken doing business itself.

    Intellectual property rights are an important part of doing business, however what should be an adjunct to doing business has consumed many enterprises.

    As the Business Insider article point out, Intellectual Ventures has become some sort of modern day privateer, extracting loot from hapless companies that cross its path.

    This problem with intellectual property is part of a larger problem with lawyers, where they have been given too important a role in business.

    In any civilised society lawyers are essential and carry out an important role but in western society over the last fifty the scope of the legal system has expanded so dramatically that now the legal tail wags the business dog.

    Today company directors, business owners and entrepreneurs live under the shadow of breaching some obscure law that they had no inkling existed. Of course, the lawyers can help with this.

    A similar thing has happened in the financial world, accountants have also moved from being an essential adjunct of business into being at the centre of most enterprises.

    Much of this explosion in lawyering and accounting has been due to the increased role of government in our lives; each time a new law or regulation is enacted it makes it harder for the average person, or business owner,  to understand the system.

    A cynic can argue this is by design but most government actions are intended to address some injustice or flaw in society. The problem is there are always unintended consequences.

    One can also argue that the increased growth in business overheads like lawyers, accountants and patent attorneys is because of fat, prosperous business conditions.

    So maybe what western business has seen in the last fifty years has been because of a favorable market place; politicians have introduced a morass of often contradictory financial and legal rules because they know business, and society, can afford it.

    Now times have changed and both business and society can’t afford unnecessary overheads it will be interesting to see exactly how our laws and regulations evolve to respond.

    Maybe they won’t and we’ll see a black economy develop where whole groups of society ignore the rules, dispense with lawyers and accountants and hope for the best. This would not be good.

    Possibly we’ll see legislatures and courts winding back and reigning in some of the more silly and egregious excesses as they recognise society can’t carry the burden and remain productive.

    Whatever happens we can be sure the lawyers, accountants and people like Intellectual Ventures will fight hard against any change that reduces their status and income.

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  • Paying the piper – the cost of the internet’s walled gardens

    Paying the piper – the cost of the internet’s walled gardens

    With the web increasingly dominated by four major, and many minor, fiefdoms the cost of being part of those groups is gradually becoming clear.

    As part of Facebook filings in advance of their public float they published the key agreements with their developer partners including that with games provider Zygna, technology journalist Tom Foremski has a disturbing look at Facebook’s conditions that illustrate the costs and risks.

    In terms of the costs, Tom identifies Clause 2.1 of Facebook’s “Statement of Rights and Responsibilities” – shown as Annex 1 in the Developers  as probably the biggest price for all content creators;

    … you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (“IP License”). This IP License ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it.

    So by sharing something on Facebook, you grant Facebook the right to do what they like with what you’ve created. That’s something worth thinking about.

    For anybody trying to make a living off Facebook, it’s important to consider they also retain the right to throw you off the service at any time. From clause 4.10 of the Statement Of Rights Annex;

    If you select a username for your account we reserve the right to remove or reclaim it if we believe appropriate (such as when a trademark owner complains about a username that does not closely relate to a user’s actual name).

    So get into a trademark dispute with a big corporation – and often their lawyers cast a very wide net on potential similar spellings – and your account is shut down.

    There’s also the specifics of the Zynga agreement that should concern anyone investing in the games company. Right at the beginning of the agreement we see this clause;

    The parties further acknowledge that Zynga is making a significant commitment to the Facebook Platform (i.e., using Facebook as the exclusive Social Platform on the Zynga Properties and granting FB certain title exclusivities to Zynga games on the Facebook Platform). In exchange for such commitment, [*] the parties have committed to set certain growth targets for monthly unique users of Covered Zynga Games.

    So Zynga is closely tied into the fortunes of Facebook, we knew that on a business level but now we know just how deep and binding the agreements are.

    We should be clear, all the major social media and online services have similar clauses on intellectual property and copyright infringements; there’s no shortage of businesses who’ve been caught out by eBay or Paypal and plenty of people found their Google accounts shut down by their obsession with real names.

    For all businesses the message is clear – be careful before committing totally to one online platform or another. Should you end up in a dispute, or find you’ve backed the wrong service, it may be a very costly process to get your company off that platform.

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  • The social maze

    The social maze

    Towards the end of 2011 we saw a surge of stories about companies and employees fighting over the ownership of corporate social media accounts like LinkedIn contacts and Twitter feeds.

    For the social media community this is encouraging as it shows that businesses are beginning understand there the value in online networks. It also illustrates the risks for both businesses and employees when these tools aren’t properly understood in the workplace.

    The employer’s risks

    As social media sites are one of ways businesses communicate with the public, managers have to understand these services are an asset too important to be left to the intern or youngest staff member in the office.

    Should that intern move on – possibly at the next college semester – the business may find they are locked out of the account or it is even deleted.

    Business pages and accounts should be set up in the name of senior people in the organisation and, where possible, administration should be shared by the relevant unit in the organisation (customer support, marketing or whatever).

    The nominal owner and administrators should understand that the account is the property of the business and all posts on it will be work related and not personal.

    When one of the administrators or owners leave the organisation, login details should be handed over and passwords need to be changed. Where possible, the ownership should be changed to another employee – this is one of the current problems with Google+ accounts at the moment.

    Employers need to understand that the professional contacts individuals make during the course of their work isn’t their property, so trying to claim the personal LinkedIn contacts and Twitter followers of an employee’s private account probably will not be successful.

    Similarly social media services like LinkedIn are not Customer Relationship Management programs (CRMs) and using them that way, as a company called Edcomm did, will almost certainly end up with problems and a possible dispute.

    Traps for employees

    When given a work social media account to maintain, it’s best to consider it as being like your work email – it’s best to use it for business related purposes only and you’ll have to give it up when you leave the organisation.

    If you’re being held out as a representative of the business, as we see in the Phonedog_Noah dispute over a business Twitter account, then it’s best to set up a private account for your own use and not use the business account after leaving the organisation, even if they don’t ask for it when you leave.

    On sites like LinkedIn and Facebook you should change your employment status as soon as you leave an organisation to make it clear you’re no longer working there. If you’ve left on bad terms, resist the temptation to insult your former employer when you change your details.

    Staff using social media have to be aware that can be held accountable in the workplace for things they do on their personal online accounts; sexual harassment, abusing customers and workplace bullying through a Facebook or Twitter account can all result in disciplinary action.

    In many ways the disputes we’re seeing on social media services reflect what we’ve seen in many other fields over the years – the ownership of intellectual property, professional contacts and even access to websites have all been thoroughly covered by the courts over the years and there’s little in these disagreements that would surprise a good lawyer.

    With all business disputes though, it’s best to resolve them before lawyers and writs start being involved. Clearly defining and understanding what is expected of both employers and staff can save a lot of cost and stress.

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