grellas

The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.

What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).

If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.

If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.

If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.

To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.

A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.

A few thoughts on this:

1. The subject matter here concerns the idea that laws are selectively enforced to favor a few elites and, whether one agrees with this or not, this is really political subject matter that is not proper for HN.

2. The "crime" allegedly being committed by Airbnb today rests solely on the blog author's assertions that: (a) Airbnb and many other prominent tech startups are handling money in ways that violate California's money transmittal statutes and (b) that fact in turn violates federal laws that make it a crime to commit such violations. While it is conceivable that the laws mentioned might some day be interpreted in this way, it is a huge stretch - indeed, even a frivolous assertion - to say that Airbnb is committing "crimes" simply by operating its business in accordance with its prescribed business model. As matters now stand, however, this is only a layman's conclusion about a complex body of laws - and one that is not supported by the actions or interpretations of those charged with enforcing such laws. In this context, there is no basis for calling anybody here "Silicon Valley criminals" unless it is in a generalized political sense (e.g., the robber barons were "looters and criminals") - that is, through use of the word "criminals" in a hyperbolic, non-specific manner. This is really another way of saying that the subject matter of the post was as much political as anything else.

3. It is irresponsible for VentureBeat to take this underlying material and concoct a headline stating that "allegations of past and present Internet crime haunt Airbnb co-founder." The clear implication of this headline is that there are serious allegations of criminal misconduct currently affecting this particular individual and that is objectively false. No crimes of any kind have been charged. No activity is being engaged in by this individual that has even remotely raised concerns by the public authorities of criminal activity. The relevant activities are said to be "criminal" based solely on a lay interpretation of laws that is not supported by the relevant regulators, by existing case law, or by any criminal enforcement actions of prosecutors. The picture painted by the headline, then, is plainly misleading if not false.

4. The factual background as recited by the blog author may be true or not. Only the persons involved really know. Taken as a whole, the facts themselves are here dwarfed by the problematic legal conclusions set forth as fact by this piece. I would therefore call it a "hit piece" or unfair attack as presented by VentureBeat. The blog author made an essentially political argument in his piece; this follow-on piece, though, attempts to recast that argument as legal fact about alleged crimes and this goes way over the line in my judgment.

Anybody who thinks I am being unfair in so describing the VentureBeat piece need only imagine like allegations being made about you simply because you ran a successful Silicon Valley venture that handled money in some manner, whether as payments or deposits or otherwise. If you don't mind being called a "criminal" when there is no hint that you are doing anything at all to violate current laws, then more power to you. For the rest of us, I think "unfair" is a very understated way of describing it.

Note a couple of points:

1. It is important that they be "contemporaneous" - after-the-fact emails that try to paint a self-serving picture do not help and can sometimes backfire.

2. It is important that they be clear. In emails, we sometimes ramble or make ill-conceived statements or simply incomplete ones, and all this can be twisted against you in any later dispute. Best advice here: be yourself and set forth the terms as you see them honestly, clearly, and in keeping with the nature of the relationship (no CYA stuff), preferably without legalese; don't document pointlessly but only as needed to add clarity to what you are hoping to achieve.

3. Watch out for "merger" clauses in any final documentation if your expressions of intent as set forth in emails are contradicted by what the final contract says. A merger clause says that the written contract sets forth the entire contract between the parties and that nothing that has previously been said or even tentatively agreed in prior exchanges between the parties is valid if it contradicts what is set forth in the final written contract. When you sign a contract that has such a clause, you will be hard put to push any contradictory interpretation that you might have previously documented in emails. The emails still matter if all they do is help interpret otherwise ambiguous expressions in the final contract but not if they contradict clear provisions of that contract. The lesson here: don't assume that, simply because you have documented something in an email, it will necessarily help you in the end.

4. Get good legal advice before signing any important contract and normally document it in a formal contract if it is at all important. If it is a smallish, then the ebb and flow and the informality of email documentation can work just fine but do be aware of the limitations of any such approach. A good lawyer will also help think through the issues and help eliminate problem areas concerning whether the contract expresses your true intent. Do not use a lawyer slavishly but use one when it matters. This is really the theme of my GP post where I essentially say be careful not to be penny-wise and pound-foolish when it comes to using legal help on things that matter.

Many founders do a "quickie LLC" on their own "just to get started" with the expectation that they will get a lawyer later to clean up the paperwork.

When they do this, the two classic mistakes they make are: (1) not imposing vesting requirements on grants made to founders; and (2) not requiring that founders assign all IP rights into the company in exchange for the grant.

In most cases, this becomes no-harm-no-foul and is simply cleaned up at a later stage. If there is an early falling out, though, you can have founders who leave the company and subsequently assert expensive legal claims even though their contributions to the venture may have been slight. In such a case, the do-it-yourself attempt to save a few dollars at the outset becomes a very expensive lesson in just how badly things can go wrong when you cut corners on such matters.

Don't know the facts here and am not commenting on OP's position, which might be entirely legitimate and which can only be evaluated by those who know the facts.

It is not rendered by an appellate court and is not binding on anyone but the parties immediately before the court. It poses two issues of broader interest - (1) whether a school that buys DVDs can legitimately convert the contents of the DVDs into streaming format without violating the anti-circumvention rules of DMCA and (2) whether it can stream such content broadly within its closed network without infringing copyright because such use is fair use - neither of which is answered in a way that gives the ruling any precedential value (as to issue 1, the parties did not brief, and the court did not discuss, the DMCA anti-circumvention rules but only the anti-trafficking rules; as to issue 2, the holder of the DVD rights had given express "public performance" rights to the school, which the judge took to authorize the challenged activity and which basically takes the discussion out of the fair use realm and puts it in the category of a dispute over the meaning of a licensing provision).

With oddball facts and oddball law, and somewhat cursory treatment of the key issues by the court, the ruling is purely a symbolic one for fair-use advocates. Nor is it likely to be appealed, as it stems from a motion to dismiss that the court granted but with "leave to amend" (meaning that it can be refiled with sharpened allegations). The ruling may be found here: http://newsroom.ucla.edu/portal/ucla/document/UCLA_Streaming....

Hate to throw a wet blanket over this but I think this fairly sums up the significance of the ruling.

1. It is bad form for this sort of thing to be aired publicly. It may give us a voyeuristic fascination on something that is depicted as an internal intrigue within a prominent up-and-coming startup but this is fundamentally company confidential information that is not capable of being aired publicly without significant distortion. Who can answer the implied charges of impropriety? Those most directly affected by whatever is happening can’t do so without violating duties of confidentiality. Yet what are they supposed to do? Sit by while people now start making invidious comparisons of their activities with, say, the increasingly notorious Groupon venture? Come out and declare "I am not a crook"? Start attacking the author of the email, who may have intended it as a confidential communication and not even have had a role in its being leaked? Or start to spread over the public record all sorts of confidential discussions in hopes of trying to defend their reputations? I don’t know how this got leaked. But it amounts to an inherently unfair attack that is almost impossible to defend just by the nature of the case. In law, we learn early on that a one-sided story can almost always be made to sound compelling, while on a full airing it can just as easily be shown as just the opposite.

2. There is a long-time tension in the startup world between founders and VCs and, as someone who has worked closely with founders for nearly three decades, I can say unequivocally that it has not been the VCs who have tended to get the short end of the stick when the inequities arise. Now that fact does not justify founder abuse, if that is what happens in a given case (I say nothing about this case - we really don’t know the facts). For decades, investors categorically refused to let founders take even a penny out of the company as they were urged to "swing for the fences" to ensure that the investors got their projected minimum 10-to-1 one return on investment. And when they missed, it was the investors who would force a merger or sale of the company, take out their liquidation preference to get a return on their money, and leave founders with a zero-equity return after perhaps years of working for little or no salary and putting in 20-hour workdays in the process. This value proposition may have paid in a big way for founders in select companies but it has also left large numbers of seriously harmed founders in its wake over the years. Today, this is changed somewhat and founders at times have opportunities to balance their risks along the way as they strike their bargains with the VCs. How, when, and to what extent they take any money out along the way is a completely legitimate issue to be fought for by founders and resisted by investors as circumstances dictate. But the overriding goal of letting founders spread some of their risk is completely bona fide. The details get resolved by the founders, the company, and the investors through private negotiation, not through a public airing. If investors choose to accept something that sounds aggressive to the rest of us, that is their calculated risk. Last I checked, they qualified as "sophisticated investors."

3. Is it good policy to have a dividend declared for the benefit of insiders and for founders to take significant cash out of a company in the early stages even while other employees may not have that opportunity? Maybe, maybe not. That is a legitimate question for debate and it should be cast as a policy debate, not as a perverse prying into the details of a particular company whose circumstances we do not really know. The traditional justification for requiring founders to ride it out to the bitter end with no prospect of any real return unless the company hit it big is that it is important that founders have "skin in the game," i.e., show a real commitment to the venture as opposed to making opportunistic short-term moves that further their immediate gain at the expense of the venture. That is a legitimate concern at all times in a startup but so too is the idea of fairness to founders. Why, when founders have the power to assert more control, should they voluntarily accede to a historic policy the keeps them in handcuffs and leaves them with basically an all-or-nothing proposition in whether they ever get anything significant out of the venture? This makes no sense and it is natural that founders would want to change this older pattern and practice. We can debate to our heart's content whether this is good for startups or not - that should be a policy debate (including over where exact lines ought to be drawn on cash take-outs), not an excuse to take what might amount to cheap shots at a founding team that certainly deserves better treatment than to have a one-sided debate carried on at its expense.

Some contracts are routine and don't need any form of customizing. The review in such cases is minimal and can even be skipped if the routine nature of the contract is obvious or if the entrepreneur is seasoned enough to identify a clean situation without lawyer help. Most such routine contracts cover simple cases, such as a simple nda or a recurring situation in which a basic template is used with no material variation apart from non-legal business items that typically get customized in an exhibit.

For most cases, though, the whole key to doing a contract right is to customize it properly on its material points. This means it should be clear, it should accurately reflect the intent of the parties, and it should contain basic legal protections for each party. It is vital to this process that both the lawyer and the entrepreneur understand what is material. Why? Because that determines the proper cost-benefit analysis for how it should be reviewed.

For example, say a startup is negotiating a 1-year office lease for only a few hundred square feet of space at a modest rental rate. That sort of lease needs very little lawyer review because there is not much at stake (the money is small, the location itself not particularly important to the startup, etc.). A quick read-through by the lawyer is the max that this needs and then only to see if there is anything wildly out of line in the document. What about a 3-year lease with more square footage and a higher rent? In that case, maybe a good high-level review is in order, with comments and mark-ups on a range of important points but little or no attention paid to boilerplate clauses that may be highly unfavorable to the tenant as worded but that are also highly unlikely to occur. And what if the lease is for 5 years with two 5-year options to renew, with a location that is very important to the business involved, and with risks (such as potential environmental liabilities) that can far exceed even the value of the lease itself if mishandled? In that case, lawyer review is normally vital and needs to be pretty thorough (including even haggling over much of the boilerplate language) because it is far more likely that contingent risks can come about over a lengthy period, the amounts at stake are greater, and the lease itself may be important to the business (e.g., a restaurant that depends heavily on having a particular location).

This same sort of approach applies to a whole range of contracts. What if your business is getting acquired or if you are buying a business? Well, if it is a little business and the purchase price is very small (say, $50,000), you can very likely be well-served by a canned form used for small business sales (brokers who do these deals use these all the time). Such a form will have basic provisions covered and will usually contain the most important warranties and representations but all of it will be bare-bones. This normally works fine for a small sale. Again, lawyer review can be skipped or done at the quick read-through level. But what if the business you are buying is going to cost you $1,000,000. In that case, you still are in the small-business category but the money is more significant. This likely warrants an intermediate level of lawyer review (contract needs to be customized for the deal, with proper account taken of whether it should be structured as an asset sale, stock sale, or merger - each having different tax consequences - and with careful attention paid to reps and warranties, to conditions for closing, and to collateral matters such as non-compete, etc.). This might take $5K or $10K or sometimes more in lawyer time but it is money normally well spent (it certainly is if you are a small business owner and $1M is a lot of money to put at risk for your situation). And, of course, once you start talking about acquisitions in the tens or hundreds of millions, you need major lawyer time to make sure the complex aspects of such deals are handled properly.

What about a license agreement? A small deal, with non-exclusive rights concerning routine IP needs little or no lawyer review. But a core OEM deal involving the licensing of IP that is at the core of your company obviously warrants significant lawyer review, especially if it involves joint development efforts, sweeping indemnification clauses that might trigger major liabilities, or other complications that require sophisticated handling of IP and other rights. Of course, there is also the issue of weasel language and its nasty impact if it is not caught and deleted from any major contract.

In short, lawyers and entrepreneurs need to be guided by good sense in handling these matters. It is not good sense simply to act as if lawyers are not needed. It takes only one really bad instance for most entrepreneurs to realize how bad a mistake it is to cut corners in really important matters. On the other hand, letting lawyers run wild with their reviews is foolish as well. Their time must be managed and managed well. It should be used where it matters and curbed where it doesn't.

Let the barbs fly, then, but this is one lawyer who will insist that the advice given in this piece may have a grain of truth in it but is too simplistic to cover most serious business affairs. It may work in a number of cases but it can easily get you into trouble.

By the way, I am not saying give an open ticket to lawyers. If your lawyer can't make good judgments concerning what is important and what is not, and can't manage time wisely, it is time to get a new lawyer.

Judge Alsup is of a different school. He is definitely "hands on" and handles cases in ways that put the parties under significant pressure to trim their marginal claims and defenses, to scale back on wild discovery forays, and to give serious consideration to getting to an expeditious trial (or settling) rather than potentially be steamrolled by the judge (for example, as he has impliedly threatened to do to Oracle, if it otherwise did not trim its wilder claims, by sending it packing while he stays the litigation pending patent reexaminations). One can agree or not with such a style and it can sometimes border on judicial abuse but it definitely leads to leaner dockets and calendars that are far less cluttered with marginal garbage than one would find on the docket of a more latitudinarian judge. A good (but strict and tough) judge will only play this out in areas where the judge has lawful discretion to make such calls because trying to force things that are plainly against the rules is abusive, leads to injustice, and makes for hack judging. When a judge is tough in the right sense, however, it is amazing to watch how this can trim the excesses of the adversary system and lead to better justice than would otherwise be the case if the parties were simply allowed to run wild.

The arm-twisting that is evident in the appointment of the court's own expert on damages is a direct message to both parties that they should refrain from going to wildly speculative extremes and focus on credible claims of damages only. Since there is Ninth Circuit authority for such an appointment, this is not overtly out-of-bounds for the judge to do but it is definitely aggressive and does pose a risk of prejudicing jurors if not properly handled. Reasonable minds can differ on this one but, in terms of case handling, this is one more in a series of examples of a judge suffering no nonsense in his courtroom and is at that level quite admirable.

1. A Delaware C-corp is often a fine choice for startups but be careful not to make it a fixed rule. Whatever you do must fit your circumstances and not be something you do simply because it is declared from on-high. You don't want to find yourself in the position of the young founder who ultimately said "why incorporating my startup [in Delaware] was my worst mistake" (see http://news.ycombinator.com/item?id=2399139). And, as tptacek points out variously on this thread, sometimes an LLC or an S-corp might be a better fit for you or your team - this choice is often tax-driven, though it can also tie to the less formal management structure and the often lower cost of an LLC (see my comments here on some pluses and minuses of LLCs in a startup context: http://news.ycombinator.com/item?id=1276724). My point: think it through before making this choice (on domicile, here are some thoughts on how local domicile might in some cases be better than Delaware: http://grellas.com/faq_business_startup_002.html).

2. C-corp is a particularly good choice for 2011 if you plan to hold the stock in your venture for more than 5 years with the hope that you can sell it free of any federal capital gains tax and also free of AMT. Not all stock grants will qualify, even in a C-corp, and so you should check with a good CPA (for some of the relevant factors, see my comments on so-called QSB stock: http://news.ycombinator.com/item?id=2018041).

3. Vesting for founders is a mix-and-match process and does not have to be uniform for all founders. Those who have not yet make significant contributions to a venture at the time of entity formation normally should take their interest subject to vesting - otherwise, they might walk away with a large piece of equity before having earned it. This wouldn't necessarily apply to all founders, however, and it is at times appropriate that one or more founders on a team get their stock (or at least a significant part of it) free and clear of vesting requirements. Otherwise, there is an unfair risk of forfeiture placed upon them. Also, the one-year cliff idea often doesn't fit with founders, in my experience; more typically, there is some sort of immediate pro-rata vesting (monthly, quarterly, etc.).

4. The "lock down the IP" point is often overlooked, especially by founders trying a DIY approach: make sure you have not only technology assignment agreements to capture all IP generated in the pre-formation stage but also invention assignment / work-for-hire agreements to make sure the company owns all IP generated by founders after they have their initial stock (the company does not automatically own it just because they are owners doing work on the venture). The idea of IP has its detractors today but your company will suffer in fund-raising and on exit if holes exist in these areas. All it takes is one bad episode - anything from a founder bolting to form a directly competitive venture using the same IP to an ex-founder filing suit to block further company development on IP that he claims he owns - to convince most founders that IP protection is in fact vital in the early-company stage for most ventures.

5. One other very important item: make sure to separate your founder grants from any large cash investments that are done for equity. If you don't, it will create tax risks because, if cash and services are contributed for stock at the same time and for the same type of equity, the service providers (i.e., those contributing the "sweat equity") can potentially be taxed on the value of the equity received as measured by what might be a high company valuation (e.g., you get 50% and an investor gets 50%, you contribute your talents and services and the investor puts in $200,000, all for common stock - result: you are at risk for having received up to $200,000 income item on which you must pay tax). Not a particular tax risk if investors use convertible notes (because the stock is not priced in that case) but a potentially serious one if investors get stock. The relevant planning tip: while you don't need to unduly front-load expenses, don't wait too long before setting up the entity either - you should generally do this before you have your investors lined up and about to sign.

Another way of putting this: if the host does not knowingly countenance infringing acts, and if it diligently complies with takedown notices identifying specific items that are infringing, it is immunized from liability for infringement, whether direct, contributory, or vicarious. In other words, Congress passed the DMCA to facilitate the growth and maintenance of robust internet services and the courts will give the law its proper force notwithstanding the efforts of content providers to try to finagle new revenues through aggressive lawsuits attacking the services. In this sense, the opinion is a well-reasoned extension of Viacom, which was decided last year in favor of Google and YouTube on a grant of summary judgment (my comments on Viacom: http://news.ycombinator.com/item?id=1456757). Here too the decision was on summary judgment (what summary judgment means: http://news.ycombinator.com/item?id=1457388).

At the same time, MP3tunes got nailed here for failing to follow up properly on the takedown notices in the sense of taking steps to remove properly identified infringing materials from the lockers of users. On this point, the court granted judgment for EMI based on affidavits alone and held MP3tunes liable even without a trial. Again, a big part of the court's reasoning was devoted to this point.

On a final note, the copyright law is complex on the issue of de-duplicating storage (a previous comment of mine on this is here: http://news.ycombinator.com/item?id=2535137; for some commentary by EFF, see here: https://www.eff.org/deeplinks/2011/05/current-music-locker-s...). Common sense, of course, dictates that a user who has already bought a piece of music, who uploads it into a service, and who enjoys listening to it through that service is doing nothing more than getting the benefit of something legally purchased. The problem is that law often fails to keep up with changing technology. Thus, well-established copyright principles (decided years ago in the offline world) say that one engages in a "public performance" if he uses one copy of a copyrighted item to enable members of the public to view or listen to it serially (this is the so-called "master copy" reference mentioned in the decision). Of course, it is not really "one copy" if each user individually uploads his own copy and then replays it. But is it the user's own copy if it is de-duplicated? This decision says it is but this is by no means a foregone conclusion under the law and that is why Amazon and Google have taken the conservative route and have not used de-duplication. In fact, it is an area of great uncertainty. This decision, good as it is on the point, does not change that. This is a trial court decision that has no legally binding effect beyond its impact on the parties immediately before the court. It will be appealed and who knows what will happen at the next level? I would seriously doubt that major services like Google's will think themselves safe to de-duplicate their storage just yet.

All in all, a very good decision but very likely not the final word on these issues.

If early-stage LLCs want to adopt equity incentives, they can mimic what a corporation does with a little custom drafting to the operating agreement. Instead of defining ownership in terms of percentage ownership as set forth in a schedule (the typical LLC pattern), LLC owners who want to issue equity to employees can define the ownership in terms of "units" of ownership. They define a number of authorized units in an operating agreement (e.g., 10M units) and then reserve a grouping of them for an equity incentive pool. These can then be used to support unit option grants (like stock options, albeit always NQO and never ISO) or restricted unit grants (akin to restricted stock grants in a corporation). If this is all done in the early stage, the units can be priced at nominal pricing so as to avoid adverse tax consequences to the employees. There is still the problem of option holders being taxed on the spread on the date of exercise (as with NQO options in a corporation) but, otherwise, such grants may be made very much as they would be in a corporation (made subject to vesting, etc.).

The key to an effective plan is to do this early in the LLC's existence and, if done in that way, this is pretty comparable to what happens with a corporation (except for the absence of ISO-like options). As long as this is all done right, there are no special restrictions on issuing equity incentives to employees in an LLC.

LLCs are state-specific and it might be that there are special restrictions in Illinois or other states that don't exist in California where I practice. But the above sums up the essence of how it is done here.

1. LLCs are partnership-like entities governed by an operating agreement and every owner (member) has to sign and agree to the terms of such agreement, meaning also that every owner (employee) gets to see in intimate detail who owns what within the company, who has what management authority, who has invested what, and the like. Bad for the company.

2. LLCs have no counterpart to ISO-like grants, meaning that everyone who exercises options can (normally) effectively do so only at the time of a liquidity event because he would otherwise have to pay an immediate tax on the "spread" (difference between exercise price and fair value of equity interest acquired) as of the date of exercise and would thereafter hold an illiquid investment for what could be many years. Bad for the employee.

3. Apart from the limitations of LLCs themselves, it becomes difficult to administer an option plan when the value of a company is already high because it costs too much for employees to buy into it. For example, if a company is already worth $10M, the exercise price of options needed to buy .001% of it would be $10K. How many employees want to part with real dollars for the hope of a speculative return way down the road, especially if the company itself says it has no plans to move toward a liquidity event any time soon?

Hence, the alternative plan adopted here makes sense. It does not represent any form of true equity interest but is an employee bonus plan. This means you lose the benefits if you leave employment. It also means you get, at best, employee compensation that is subject to tax at ordinary income tax rates as well as to all employment taxes (though no tax is due until the bonus is paid). It also means that the interest is not transferable. It is basically a special reward granted to those who stick it out over the years until the company gets to a liquidity event. It is not perfect but, given the problems noted above, it is actually a pretty good solution to the problem of how to afford special incentives to key employees whom you want to add value to a growing but mature company operating in LLC form.

1. Motion to intervene: the fact that Apple earns revenues from third-party developer sales confirms that its interest in the "property" at issue in the litigation (the IV license) is potentially impaired if Lodsys is allowed to sue the developers for infringement when in fact (as Apple would claim) its patent rights were "exhausted" in this area when it (or its predecessor) granted the license to Apple. This fact, then, strengthens Apple's claim that is has a right to intervene to protect its interests.

2. On the merits: Apple will claim an unimpaired right to earn revenues from its developers owing to the strength of its license - this bolsters its substantive case that Lodsys is abusing its patent by trying to double-dip in having taken payment for the license in the first place (from Lodsys's predecessor) and then over-reaching to try to get further licensing revenues from those who should have the right to rely on Apple's license.

1. Under Rule 24(a)(2) of the Federal Rules of Civil Procedure, the court must grant Apple the right to intervene as of right if Apple can show: (1) that it has filed a timely motion to do so; (2) that it claims an "interest" in "property" that is the subject of the action; (3) that its ability to protect its interest in that property may as a practical matter be impaired or impeded if the legal action is allowed to be disposed of without its participation; and (4) that existing parties cannot adequately represent that interest.

2. Consistent with this rule, Apple's legal argument boils down to the idea that it has a license from IV to protect, and rights under that license, all of which will be impaired or impeded if Lodsys is allowed to pursue infringement claims against developers who develop apps for the environment to which Apple's license applies. Hence, Apple must be allowed to step in to defend the integrity of its license and to argue, based on that license, that Lodsys is barred by the doctrine of "patent exhaustion" from pursuing claims against the developers.

3. Apple thus argues that it needs to be in the case to protect its own interests, not those of the developers. Now, de facto, this might amount to the same thing since Apple does not want to face a revolt among its developers. But there is irony here in that Lodsys is arguing, as one of its major points on why Apple should not be allowed to intervene, that Apple has no obligation legally to hold the developers harmless (i.e., based on Apple's agreements, the developers are on their own). In seeking to intervene to argue the patent exhaustion doctrine, then, Apple is saying it will protect its license rights primarily and developers only incidentally and, again, without undertaking any legal obligation to indemnify any developer.

4. All that said, "patent exhaustion" is a potent defense, the effect of which (if upheld) would be invalidate the patent for misuse. "Misuse" here lies in the idea of extending the exclusive rights afforded by the patent grant beyond their legitimate scope. Apple's ability to prove misuse, though, is by no means easy. To show misuse, it will essentially have to show that the IV license was intended to cover separate products (apps) that did not even exist when the license was granted and that do not constitute an integral part of the Apple product when sold. This will be tricky at best and obviously will take a party of Apple's sophistication and wherewithal to marshal the arguments and factual development effectively. That, of course, is why Lodsys does not want Apple in the case. It would much prefer to bully smaller and less sophisticated parties because that is how patent bullying works best.

I personally don't think the answer lies in abolishing patents because I don't think there is or likely ever will be sufficient impetus behind such an effort to make it happen. There is more hope someday of doing away with software patents but this will take many years given the recent Bilski ruling and Congressional inertia.

I don't pretend to have an answer to this. I suspect that, long term, there needs to be a severe curtailment of software patents, if not an outright abolition, in order to bring the system in line with what it used to be 20+ years ago. I have represented innovators for decades. In the past, I used to tell them: don't copy someone else's code unless you have a right to, watch out about misusing a former employer's IP, etc. and you will be fine. Today, I can't do that. Anyone can wind up infringing all sorts of nebulous patents at any time simply by doing completely independent and innovative work using nothing but one's own skills, knowledge, and talents. That is a very sorry place to be, and it has to change but how and when - that is what is so very frustrating. The author of this piece has the right sense of things but he, like me, winds up at the end basically howling at the moon in frustration over the utterly dispiriting short-term course of events.

Google wanted the Nortel patents very badly but couldn't find enough fellow bidders whose interests matched its own to overcome the concerted efforts of Apple, Microsoft, and others who have a stake in pulling Android down. An interesting analysis of who the winners and losers were in this bidding process appears here: http://www.tangible-ip.com/2011/what-does-nortel-mean-for-th....

Having lost that bid, Google is in a far worse position to defend Android from patent attacks than it ever has been before. Essentially, all of its competitors now have formidable new weapons to use against the Android platform. This isn't so much an issue of "trolls" as it is conventional large players who use patent portfolios as arsenals for both offensive and defensive purposes. Google's enemies are now much more formidably armed as a result of the bidding.

Google therefore hopes to stir the DOJ into doing something about this on the antitrust front. The DOJ is scrutinizing this deal and may wind up imposing conditions that could be vital to Google. Its antitrust chief, Christine Varney, had represented Netscape while in private practice years ago in its antitrust fight with Microsoft and she has publicly expressed concerns about the misuse of patents by trolls and others for anti-competitive purposes (for those with a subscription, see this WSJ piece: http://online.wsj.com/article/SB1000142405270230365740457636...). Quite apart from her personal views, however, it is problematic that competitors can collude horizontally to do a major IP acquisition for what seems like an obvious anti-competitive purpose.

Google is not a "little guy" that might elicit sympathy in battling over the mobile space but it clearly has had its competitors gang up on it in pulling off the Nortel bid. Android will undoubtedly survive this attack but Google is seriously worried about being besieged in this way. In this piece, it is essentially looking to its last best hope in the DOJ for attempting to block this attack by competitors who hope to win by artificial legal means that which they can't win in the marketplace.

Let's hope this gets the scrutiny it deserves.

A business model is not flawed simply because it offers a service that entails inevitable risks of injury or harm to those who use the service (airlines have crashes; banks have embezzlers and thieves; anesthesia has an inevitable x% fatalities when used with operations; eBay has frauds and swindlers, and so on).

HomeAway just went public with a different but related business model as that of Airbnb. Its S-1 registration statement identified all sorts of contingencies by which the company might face liabilities from the wrongdoings of third parties in connection with its vacation rentals - everything from bogus listings by which prospective renters are swindled to robberies and bodily injury suffered by renters to physical injuries from conditions on the premises. In spite of all this, its business model has not proved to be flawed.

This world is not perfect and much evil can lurk in and about the nooks and crevices of human relationships. The fact that a service provider can't act as guarantor against all such risks does not mean that it can't offer a reasonable or even valuable service.

Airbnb probably did downplay the risks to its users up to this point (and it certainly messed up this particular incident) but it has now gone a long way to correcting that problem. If it can offer a desired service that will bring benefits to 99.99999% of its users year in and year out, and if it guarantees against a significant range of risks as it has now done, that is a lot better than most businesses do. It may or may not succeed in its venture (I for one wish them well) but that will be an issue of execution, not of a flaw in the business model tied to the inevitable risk that people sometimes do bad things.

In a corporate statement on Thursday, Airbnb said: "Trust and safety are Airbnb's highest priorities and as such the improved safety processes are being implemented immediately . . ."

A few legal (and other) observations:

1. An Airbnb guest has committed serious property crimes against an Airbnb host, causing not only significant financial loss to the host but also potentially severe emotional trauma.

2. As a contract matter, the Airbnb terms tell that host that the company assumes no legal responsibility for anything that might happen in her interactions with that guest. Contract disclaimers of this type are generally legally valid and enforceable so as to limit company liability.

3. That said, the law will look at the overall relationships between the parties and will not necessarily limit liability when those relationships give rise to legal duties from one party to another beyond those defined by contract. In particular, if a company materially misleads those who use its services, or if a company assumes an implied duty based on its conduct or statements in a transaction, or if any other basis exists by which the law might define a legal duty that, if breached, gives rise to liability, then liability can exist entirely independent of contract. In such a case, the contract disclaimers, though they might limit liability for any express breach of the contract itself, do not limit the legal claims of a victim of a breach of the duties that might exist independently of the contract.

4. The victim of the crime here, in her blog post, very pointedly mentioned her view on this issue when she said: "By hindering my ability to research the person who will rent my home, there is an implication that Airbnb.com has already done the research for me"; and then added that the friendly, community-based site "creates a reasonable expectation that some basic screening of its users has occurred" (my emphasis). Whether intended to or not, the key phrases highlighted in these quotes suggest that the victim here likely sees Airbnb as having violated legal duties owed to her and for which she believes it owes her compensation. In essence, the legal position here would amount to saying (and these are obviously my words and not those of the victim, as I have no idea what her actual position on this is), "I don't care what your stupid contract disclaimers say; you misled me into believing that this was safe and you will make me whole for my harm suffered when I relied on you."

5. Under law, the "make me whole" part will vary depending on the nature of the breach. If it is a contract breach, then it normally means compensating the victim of a breach for either out-of-pocket losses or for the benefit of a bargain, which in this case would mean for the direct financial damage to property. But under tort theories, for instance, the idea of making a victim whole could easily mean compensating her for emotional trauma and the like. In the one case, the number might then be in, say, the $50,000 range while, in the other, it might be, say, $5,000,000.

6. I have no idea about the facts here (and indeed have been distressed to watch the HN family tear into each other over this issue) but, logically, it might be that offers of genuine compensation have been made by the company here (e.g., $50K or $100K or whatever) and equally sincere rejections of such offers have occurred because the victim might be using an entirely different measure of what it takes to make her whole (meaning that a much larger number might be expected to compensate for the trauma involved). This is speculation on my part but it is not illogical to assume this might be happening. It also might explain why discussions over this issue remain "in flux," as noted in the quote from this article.

7. Airbnb has a great business model, and it is one that will survive this incident and indeed help improve people's lives. But it needs to set up stronger procedures to ensure that people understand what they are getting into when they use its services and in helping to minimize the risks to the extent practicable for a company facilitating (but not assuming legal responsibility) for any given transaction. This is no small challenge because the procedures must be both meaningful and cost-effective for the company to implement in order to achieve its business goals. The second quote from the article above confirms that they are trying to do just that. I wish them well in the effort. Based on what pg has said, I would assume these are great founders and I for one am ready to continue to wish them well in their very promising venture while hoping that they have learned some serious lessons from the apparent mishandling of this episode.

8. As for the victim, EJ, anyone who has experienced serious trauma (as many of us have at one point or other in our lives) can attest that it is impossible for words to capture what this means: not just the pain but the persistence of it all, the fact that it does not just go away, that money can help at the margins only, the hopeless sense of feeling violated - all this and more makes us all want to see her get past this with some sense of being restored. That takes time and a lot of slow healing and we can only wish her the best in her path to recovery. It will help a lot if the company does the right thing but that is not an easy thing to work out - it too will take some time.

1. Disregard truth when it gets in the way of the advantage you seek to attain with the aid of law.

2. Say whatever it takes to get judges to go your way, even if you not only omit important facts in making your petition but also affirmatively misstate whatever inconvenient fact gets in your way.

3. Disregard your duty as a prosecutor - which ultimately is to ensure that justice is done even as you pursue alleged criminal wrongdoing - and place the formidable powers of your office at the disposal of a private civil litigant with whom you want to cozy up.

4. Don't give a second thought to wasting the legal and judicial resources of two governments to help put on a charade that is wholly unnecessary to any legitimate goal of the legal system but that serves the interest of a private litigant only.

5. And, perhaps worst of all, don't hesitate to misuse the law to try to ruin the life of an innocent man in order to protect the market dominance you once had but now see as slipping to the point where it can be upheld only by resort to vicious legal tactics aimed at crushing potential competitors.

One recoils at the thought of it and can only wonder who within Cisco would have countenanced it all.

These areas are complex and I can't advise on your specific case in a public forum. I note the above analysis only to suggest that you explore your rights further - you very likely hold the strong hand here.

This is not intended as a grim metaphor on life. In fact, I am a supreme optimist about the beauty of living and about having hopes of doing great things and doing one's best to achieve them. But what are those things when the reality is that one's individual life is finite? That is the challenge faced by every human being who has ever lived.

This piece attempts to answer it by saying, in effect, be careful to set your goals on things that ultimately matter. Whether the author, at age 30, has enough perspective to answer this question well is something we can all ponder. But we all need to try, and this piece is a thoughtful attempt to do so.

And just how does one build a startup with all that such an effort normally entails while factoring in the need to make sure others aren't "left behind" as that startup pushes on toward a hoped-for success? This issue can't even be discussed in meaningful terms. We all, of course, share in the problems of society and we all do our bit in trying to help with such problems - and who can help but feel for those who are suffering. That is a given for most people. But what then? Do I operate my business so that it doesn't eliminate any competitor in hopes of saving that competitor's jobs for its employees? Do I refrain from introducing disruptive technologies because they might actually disrupt the lives of others? Do I ask my representatives to enact laws granting permanent subsidies to companies such as Border's, Blockbuster, Tower Records, and so many others so that they can continue in business offering products or services that people more and more don't want? Or how about passing an innovation tax to capture the all the profits of the successful tech companies so as to level the playing field? Or how about a law banning all disruptive technologies so that we can all enjoy a world that resembles the one we knew a few decades ago?

The point, I think, is that startups exist on their own terms in a free enterprise system. The goal of a business venture is to succeed in a marketplace, not to ensure that others aren't affected by one's activities. Nor is the goal of a venture to give away what it earns to salvage the prospects of others who are failing. Individuals can do that if they like, and that is an issue of private conscience on what one does with private wealth. But it is not meaningful, in my view, to tell entrepreneurs to run their ventures with the aim of solving social problems as opposed to that of succeeding in a marketplace. When you try to do that, you wind up mixing up the goals of private venturing with those of broader social institutions such as government or those of private charitable impulse. That is why even to pose the question first stated above is to expose this as flawed thinking about the legitimate business concerns of a tech company.

This piece is a variation on the lament expressed in the piece from a few days ago about how Silicon Valley founders and entrepreneurs are (in effect) shallow, self-absorbed types who can't think beyond the next trivial innovation in hopes of gaining a quick-kill exit even as they neglect a slew of problems that beset humanity and are crying out for solutions if only these narrow types just had a larger vision and greater sense of social responsibility (http://news.ycombinator.com/item?id=2760540 - of course, the piece had not put it in those exact terms but I hope I captured its flavor even as I used license in recasting its claims).

I hate to come across as narrow-minded but it really crosses a line to lecture the tech startup world about its moral responsibility as if "it" were a monolithic entity that had responsibilities beyond those that define what a given business venture is supposed to do. At best, this amounts to discussing the important issues in confused terms; at worst, it amounts to an author smugly claiming more refined sensibilities than the mere grubbers upon whom the author is passing a misdirected moral judgment.

The holding here states that the qualities of the characters as distinctively depicted in the 1939 movie are in themselves protected by copyright even though the original characters as depicted in the book are not.

You are correct that this, then, is the "crux of the case" and this is indeed a dispute about what is or in not in the public domain rather than one about a literal taking back of elements of the public domain. Nonetheless, the practical effect of the ruling is to make it hazardous to use public domain characters from older works of literature in new films if such characters have previously been depicted in any film that remains under copyright (which obviously limits what one can do with certain public domain materials on penalty of being sued for infringement).