Lessons I Learned Today 5/28/09 Take this Cupcake and Shove it!

This is a digest and recap of highlights, quotes, and comments from articles and discussions posted on this date on the Applied Entrepreneurship, LinkedIn group site.

 

 *Cupcake Trade Secrets Allegedly Stolen by Todd Sullivan

The Las Vegas area’s trendy and fast-growing Cupcakery business is suing a California cupcake entrepreneur, charging she stole trade secrets and infringed on trademarks when she opened two gourmet cupcake shops there.

The Cupcakery, in a lawsuit filed in U.S. District Court in Las Vegas, says Ballus is now profiting from the Cupcakery’s intellectual property assets.

“Upon information and belief, Defendant Ballus used Plaintiff’s trade secrets and confidential information obtained during the course and scope of her employment at The Cupcakery to develop a competing cupcake business,” the suit charged. “Upon information and belief, Defendant Ballus procured her employment with The Cupcakery under false pretenses and in order to obtain such confidential information and other trade secrets regarding Plaintiff’s business model to aid in the development of her own gourmet cupcake business.”

 

*The Trade Secrets of Luxury Hotel Concept Allegedly Stolen: Starwood Hotels v. Hilton Hotels by Todd Sullivan

Hilton Hotels was sued by Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, over claims it stole trade secrets to improve its luxury brands.

“This case involves corporate espionage and the looting through computer fraud of a mountain of information,” the lawsuit claims.

 

*Reasonable Efforts to Maintain Secrecy – Learning from the Bad Experiences of the Brits by Press Millen

Virtually every trade secrets statute in the U.S. requires the owner of a trade secret to take “efforts that are reasonable under the circumstances to maintain its secrecy.”

Yet there’s not a lot of guidance about what that means or what is required.

One source that courts might well consider authoritative is the U.S. government’s own regulations regarding the handling of secret information. These are found at 32 CFR Parts 2001 and 2004 from the National Archives and Records Administration and they are quite extensive.

Among other things, they describe in detail how classified information is to be classified, marked and safeguarded.

 

*From Nuclear War to Net War: Analogizing Cyber Attacks in International Law by Scott J. Shackelford

On April 27, 2007, Estonia suffered a crippling cyber attack launched from outside its borders.. It is still unclear what legal rights a state has as a victim of a cyber attack. For example, even if Estonia could conclusively prove that Russia was behind the March 2007 attack there is no clear consensus on how Estonia could legally respond, whether with armed force, its own cyber attack, or some other measure.

There scholarly literature dealing with these questions, as well as the ethical, humanitarian, and human rights implications of information warfare (“IW”) on national and international security is scarce. Treatments of IW outside the orthodox international humanitarian law (“IHL”) framework are nearly non-existent. This underscores the tension between classifying cyber attacks as merely criminal, or as a matter of state survival calling for the same responses as conventional threats to national security.

International law has been slow to adapt. The facts on the ground, and the widespread, amorphous use and rapid evolution of the internet in many ways challenge state sovereignty. I will advocate that the best way to ensure a comprehensive regime for cyber attacks is through a new international accord dealing exclusively with cyber security and its status in international law. Yet, the international community lacks the political will to tackle this issue directly. Until such an accord becomes politically viable, it is critical to examine how existing treaty systems may extend to cover the novel facts presented by cyber attacks.

The main failings of existing international treaties that touch on cyber law though are that most do not carry enforcement provisions. Nor do they specify how the frameworks change or fall away entirely during an armed attack. Nevertheless, regardless of whether or not cyber attacks fall below the threshold of an armed attack these bodies of law have a role to play in forming an appropriate regime. The cyber attack on Estonia in April, 2007, presents an example of the dire need for clarity in the international law of non-conventional warfare using modern technology.

 

*Neuromarketing, Subliminal Messages, and Freedom of Speech guest blog by Marc Jonathan Blitz, Associate Professor of Law at OKLAHOMA CITY UNIVERSITY SCHOOL OF LAW  on the Neuroethics & Law Blog

One of the underlying themes in America’s First Amendment jurisprudence is the idea that speech (and other expression) can be strongly insulated from government regulation – because it is, at least in the typical case, a whole lot less likely than other activity to have coercive effects.

If pure speech were … like the imperius curse that allowed evil wizards in the Harry Potter novels to exercise total control over their victims, or like the display of the Queen of Diamonds card that similarly transformed a brainwashed soldier into an unwitting and robotic agent in “The Manchurian Candidate” – then we could not feel as safe leaving such a powerful instrument of coercion in people’s unregulated hands (which are, indeed, not only unregulated, but constitutionally-shielded from regulation).

First Amendment scholars have also grappled with the issue of subliminal advertising or expression.  In a 1979 piece on the philosophical foundations of First Amendment law, for example, Thomas Scanlon cited subliminal advertising as an example of speech that undercuts or circumvents individual autonomy rather than enabling it:  “What is bad about it is not just that it is ‘subliminal,’ i.e. that we are influenced by it without being aware of the influence . . . [but also that] if it works, it causes us to act – to buy popcorn say, or read Dostoevsky – by making us think we have a good reason for acting, even though we probably have no such reason.”

“[T]he rise of neuromarketing – and the decades-old worry about subliminal advertising that preceded it – threaten these judgments about speech’s “non-coercive” nature.”

“[W]hat makes subliminal speech or stealth neuromarketing unsettling for us is not that might enter our mind outside of our awareness, or that it might even subtly influence us in ways we can’t easily take control of, but rather that it is doing so to fulfill a certain kind of design that is intended to cause us – in our own minds – is a certain kind of harm.  A message that is carefully calculated to make us buy a product we wouldn’t otherwise buy (and to do so without us knowing why) is a deeper violation of our autonomy than a hidden element that powerfully influences the way we perceive a work of art (again without us quite knowing why) and changes our emotional response to that artwork, but doesn’t “program” us to engage in any behavior benefitting the speaker or an ally of his.”

 

*Non-Compete Agreements: Friend or Foe? by Rayna Gokli

The existence of a non-compete agreements can make or break an individual’s career. If a non-compete agreement is found to be valid, an employee may find himself looking for work in a new field. However, if the employee takes steps before signing the non-compete, such as making sure it is narrowly tailored, it will be less likely to interfere with the employee’s next job search. Additionally, before signing any contract, including a non-compete agreement, an employee should consult with an attorney who has the appropriate specialty.

 

*Business methods need patents by Wayne P. Sobon

From now on, only those methods that involve “specific machines” or transformation of “articles” from “one state to another” can qualify for patent protection.”

“The effect of Bilski has been felt almost immediately at the U.S. Patent and Trademark Office (PTO), where applications for business method patents are down and rejections are up.”

 

*Employment lawyers predict that furloughs may lead to lawsuits  by Tresa Baldas

In a recent survey of 245 large companies by Watson Wyatt Worldwide Inc., 10% of employers said they had offered unpaid time off, and an additional 9% said they planned to do so in the next year.

Furlough-related lawsuits are only a matter of time, predict management-side attorneys, who believe that the temptation for some employees to work outside the office will get too great, exposing an employer to liability. Blackberry use, checking emails or voice mail — anything that employees do while on furlough-leave can be considered work, they warn. And if it’s work that’s benefiting the company, it has to be compensated under the Fair Labor Standards Act.

“Be very cognizant of the fact that a lot of employees — your good employees — have a hard time letting go. They’ll check their e-mails.”

 

*Furloughs may be smarter than layoffs by Eric Bellafronto and Blaire Cleveland

Because reduction of exempt employees’ work hours poses significant legal risks and reduction of exempt employees’ salary can be seriously demoralizing, employers might consider implementing furloughs or shutdowns on a workweek basis.

 

* Fears rise over new fraud law by Marcia Coyle

“Obama signed a new law that, besides mainly targeting economic stimulus fraud, broadens the liability of businesses for defrauding the government in a host of other areas.”

“The Fraud Enforcement and Recovery Act of 2009 embodies the most significant changes in 23 years to one of the government’s most effective and financially remunerative fraud-fighting weapons — the federal False Claims Act (FCA). The law expands the potential liability of companies and institutions receiving federal funds, extending the act’s reach to subcontractors and subgrantees and enhancing the Justice Department’s investigative tools, among other provisions.”

“The law contains “qui tam” provisions that allow private citizens to sue on the government’s behalf those who defraud the government and to share the recovery — usually 15% to 25% of the total. Since the act was amended in 1986, the government has recovered more than $20 billion, with more than $5 billion in the past two years, according to the Justice Department.”

“Ambiguous definitions and a key change that Congress made retroactive likely will enmesh business in years of litigation…”

“The new law also expands liability to include the knowing retention of overpayments, even if the overpayments were innocently received. And liability for retaliatory acts against a whistleblower is broadened by removing the requirement that the retaliation be by an employer. The conduct covered extends to action taken against a contractor or agent.”

 

What I Think

I think this assortment of legal horrors should be enough to keep you awake for many nights. Horrors for you, heaven for me. After more than thirty-five years counseling entrepreneurs on how to set up and run their businesses, to have the best chance of avoiding such legal entanglements, while also enjoying litigating the cases of those who either didn’t heed such advice or ignored the counsel of “Mr. Goodwrench,” I am in my element in such turbulent legal waters.

For the entrepreneur, however, concerned with achieving the best bottom line with the least personal discomfort, these legal tales spell a disaster, no matter how they come or go. Aside from those pirates who would use and abuse the legal system to ambush the unsuspecting, deep-pocketed entrepreneur, none of the articles posted on this date can make any honest entrepreneur do anything but quiver.

All of these scenarios mean money lost from the bottom line, energy diverted from the business plan, creativity diluted, and opportunities lost due to the pressure from the legal department. I would be remiss in failing to remember that for every threat or crisis there is often a corresponding opportunity, but the eternal “black hole” of legal issues can easily suck the cash out of even the peripheral businesses, let alone the main parties.

Certainly, when one sees a competitor embroiled in any of the litigious situations presented in these articles, thoughts of how to profit from it may occur. On the other hand, risking having to even call the lawyers over a “former” key employee of a competitor can substantially diminish the return on investment made in recruiting such an individual. The same can be, and in my experience, often is true of even acquiescing to his or her presentation of a resume to your HR department.

I strongly suggest to my clients that they incorporate a provision in the offer letter, engagement letter, or employment packet, to the effect that the prospective employee is not bound by any non-compete or non-disclosure which would negatively impact their employment with my client. Whether or not this is effective to fully insulate an unknowing client depends upon the circumstances, including the jurisdiction. If nothing else, when combined with a proper offer and hiring protocol, it should provide an easy and efficient way to at least screen for such legal land mines in a prospective employee’s resume.

At the other end of the employment time line, clearly legal minds can differ on the usefulness of such downsizing tactics as furloughs, mandated time off, reduced hours, and other, more creative methods of reducing personnel costs. Once again, the good news may be that for every employee you lay off, there may now very well be several unemployed individuals you could find to replace that individual, and at the same time achieve a much better, and less expensive employee in return. The unfortunately unemployed talent now on the street is staggering. It should make you take a long, hard look at your own bevy of beauties from a retention and enterprise growth perspective.

Clearly, in a troubled economy, the possibility of unscrupulous competition cannot be ignored. You may very well be the last one in your business to recognize the corporate espionage, computer fraud and other forms of looting going on throughout your organization. If your business is slow, make sure it is not because you failed to take steps to plug a leak, of talent, data, of customers.

The articles posted on this date range from cupcake wars to cyber attacks and premonitions of nuclear war, all revolving around legal diligence, enforcement, and continuous monitoring of your legal environment. That leaves quite a bit of room in between the goal posts. Considering how hard you work to maintain or improve your bottom line in these turbulent economic times, how much sense does it make to fail to actively secure your defenses from a breach, which could totally put you out of business?

One of the first things I offered my clients, as the economy declined, was a free, 360-degree self-audit form. My decision was that I would rather see my clients start to recognize, and hopefully self-correct the areas in which they were short on compliance, vision, or protection, than to let them suffer the potentially catastrophic results of ignorance of such risks. How well do you understand what is coming and going through the e-mail and copy machines in your business, and the impact it may have on the viability or profitability of your company?

 

 

If you enjoyed my impression of these articles, why don’t you read them for yourself and see what you and I missed or hit? Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.

Prosecutors Finally Find a Pretext; First TELCO Indictment Filed

Prosecutors have finally come up with an indictment in the first “pretexting” case brought under a federal law President Bush signed on January 12,2007, the “Telephone Records and Privacy Protection Act of 2006” (“Telco Privacy Act” or “Act”). The law passed through Congress in 2006 in the wake of the Hewlett-Packard spying scandal.

 

The indictment, brought against Vaden Anderson, 28, alleged he used pretexting to obtain confidential phone records from Sprint/Nextel by serving the phone company with a fake U.S. District Court civil subpoena.

 

Pretexting generally involves obtaining telephone records from a telephone carrier under false pretenses such as by posing as a phone company customer, in order to request a report of last month’s calling records. It gained notoriety during the 2006 Hewlett-Packard (“HP”) scandal, when investigators hired by HP impersonated HP directors and others to obtain their phone records.

 

In an article in The National Law Journal, republished on Law.com, David Hricik, a law professor, former chair of the American Bar Association Section of Intellectual Property Law’s professional responsibility committee, and noted ethics expert, said the HP case prompted attorneys to re-examine how they deal with the investigators they hire, some of whom might want to use pretexting to obtain otherwise difficult to discover records.

 

Hricik, however, said the legality of pretexting is still a gray area. Using trickery to catch a discriminatory landlord, for example, may serve a social good, but using it to obtain private cell phone records could constitute a crime.

 

Telco Privacy Act penalties include fines and imprisonment for up to 10 years and also provide for enhanced penalties, increasing the fines and imprisonment by up to five years in certain enumerated circumstances.