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August 26, 2003

Former Morgan Stanley Exec Should Have
Purged His Blackberry Before Selling it on eBay

Wired magazine has a story about an (unidentified) former Morgan Stanley executive who, some time after leaving the firm, sold his Blackberry email pager on eBay. He didn't seem to realize that he had left a great deal of confidential information on the pager. Some of that information conceivably could have gotten him in trouble with the SEC if the buyer had traded on inside information. His former employer was not pleased.

Quotable quotes:

  • "Paige Steinbock, a partner in headhunting agency Korn/Ferry International, called the database of Morgan Stanley employee names and home phone numbers 'a virtual gold mine of information.'"
  • "The VP who sold the BlackBerry said he had no idea data could remain on a device long after the battery was removed."
  • "Judging from the windfall of info captured on the VP's BlackBerry, the financial expert interviewed for this story said he could only imagine the wealth of information people could gather if they placed ads for used BlackBerries online and waited for the devices to roll in."

August 26, 2003 in Embarrassments / Bad Career Moves | Permalink | Comments (0) | TrackBack

August 25, 2003

Doctors Have to Explain Joke
Chart Notations on Witness Stand

The BBC's Web site reports that many doctors are being more cautious about the notes they write in their patients' medical records. Why is that? Because the doctors are starting to realize that someday, on the witness stand, they might have to explain their abbreviations and slang. Here's a sampling:

  • CTD: Circling the Drain [i.e., the patient is not expected to live long]
  • DBI: Dirt Bag Index
  • LOBNH: Lights On But Nobody Home
  • TTFO: Told To [Go Away] -- see the BBC story to read the "save" by the quick-thinking doctor who was asked about that one in court.

Sorta makes me glad my writing isn't funny.

August 25, 2003 in Embarrassments / Bad Career Moves, Litigation | Permalink | Comments (0) | TrackBack

August 24, 2003

NY Times: Some Dot-Com Refugees
Learned Career-Enhancing Lessons

There's a very interesting article in today's New York Times (free subscription required). It explores some of the practical business lessons learned by former "corporate types" who defected to dot-com companies but then later returned, chastened, to the corporate world.

August 24, 2003 in Leadership and Management | Permalink | Comments (0)

Someone's Parodying Your Slogan?
You May Just Have to Get Used to It

A Fox News Network business strategy backfired last week when Fox was literally laughed out of court. Fox News tried to stop Al Franken, the alleged comedian and satirist, from using its trademarked phrase "fair and balanced" in the subtitle of his new book. Fox News got something of a black eye in the press coverage of the case. And, in a classic illustration of the law of unintended -- but surely not unforeseeable -- consequences, Fox News did Franken a huge favor by generating priceless publicity for his book. All in all, Fox News doubtless would have been much better off gritting its collective teeth and keeping its mouth shut about Franken's book.

The Situation: Al Franken is the author of such sober, thoughtful works as Rush Limbaugh is a Big Fat Idiot. (How the man won four Emmy awards for his work on Saturday Night Live, I'll never understand.)

Franken was about to release a book entitled Lies, and the Lying Liars Who Tell Them: A Fair and Balanced Look at the Right. The book cover included a picture of, among others, Bill O'Reilly, a Fox News Network headliner.

Some folks at Fox News evidently took offense at Franken's book and its subtitle. They must have cackled with glee (so to speak) when they learned that Fox News had previously obtained a federal trademark registration for the term "Fair and Balanced."

The Business Decision: Fox News filed a lawsuit seeking an injunction to block publication of Franken's book.

The Outcome: Things didn't work out quite the way the Fox executives hoped.

  • Fox News didn't look too good in the press reports. (I can hear the likely response from certain quarters: "What else did you expect from the liberal media?")
  • In court, Fox News claimed that Franken's use of the phrase "fair and balanced" would "blur and tarnish" Fox's registered trademark. The New York Times reported that spectators in the courtroom laughed at Fox's legal arguments.
  • The judge was no kinder in his ruling; he held that Fox's lawsuit was "wholly without merit, both factually and legally" and reportedly he was scathing in his criticism of Fox News. See the Reuters story for more quotes from the court hearing.
  • Mr. Franken got the kind of national publicity for which most authors would cheerfully sacrifice a body part. His publisher, no doubt delighted by Fox's unwitting gift, rushed the book into print ahead of schedule. The book quickly rose to No. 1 in the Amazon sales ranking.

Quotable Quotes: From a prior Reuters story: "'You pay money to position your advertising so it becomes an American idiom,' said Robert Thompson, media professor at Syracuse University. 'Parodies in most cases do more good for a company than harm. It gets that brand out there.'"

Perder peso ahora

Critique: What Could Fox News Have Done Differently?

  • Fox News presumably knew that if you're a trademark owner, you can't baldly assert that someone else's use of your mark is an infringement. The law requires that you demonstrate at least a likelihood of confusion -- not a certainty, but more than just a possibility, of confusion -- as to whether the other party's products or services originated with you, or at least are sponsored or endorsed by you. The idea that anyone might would think Fox News had sponsored or endorsed Franken's book is ludicrous on its face. (If your trademark is famous, you might also be able to assert "dilution" instead of infringement, but that's another story.)
  • Fox News should have remembered that, any time you start a high-profile squabble with someone who is at least semi-popular with the public, you risk taking a hit to your reputation if you lose.
  • Fox News, of all people, should have realized that if you're going to pick a fight where the other side will make a First Amendment argument, you can expect much of the press to line up against you, if not openly then implicitly. Moreover, Fox News is conservative in its general outlook, so it should have anticipated that the so-called liberal media might not be especially sympathetic.

Similar Stories: Reuters reports that other companies have tried similar tactics, with little success. For example, Verizon Communications unsuccessfully sued one of its union for using the catch-phrase "can you hear me now?" to protest layoffs.


August 24, 2003 in Marketing | Permalink | Comments (0)

August 23, 2003

Backdating Contracts Leads to Prison Term --
But It Can Be Entirely Proper

From the notes I took while getting ready to start this blog:

A former public-company CFO was recently sentenced to three and a half years in federal prison. His company, Media Vision Technology, had inflated its reported revenues, in part by backdating sales contracts. Because of the inflated revenue reports, the company’s stock price went up – until the truth came out, which eventually drove the company into bankruptcy. (We've all seen that particular movie in the past couple of years, eh?)

The judge noted that the CFO had an otherwise-exemplary record. If the new, stiffer penalties of the post-Enron sentencing guidelines had applied, however, the CFO likely would have faced more than 10 years in prison. (The Recorder, Apr. 8, 2003; see archived story.)

But backdating a contract is not necessarily illegal, depending on the circumstances.

Let's look at a hypothetical example. Suppose that:

  • Jones is an end-customer from Customer Corporation. Smith is a sales rep from Vendor Corporation.

  • While playing golf together one Saturday, Jones and Smith start talking about a potential sales deal. (That’s why I keep telling myself I should learn to play golf.)

  • During their conversation, sales-rep Smith tells Jones about some features that will be in Vendor Corporation's next product release; he asks Jones to keep the information to himself, because it's still confidential. Jones says "no problem."

  • Monday morning, sales-rep Smith starts getting nervous about having disclosed his company's confidential information to Jones. He calls his company's lawyer. The lawyer drafts a nondisclosure agreement (NDA), which states that it is “executed to be effective as of” the previous Saturday.

  • Smith takes Jones out to lunch. While they're waiting for their food, he and Jones sign the NDA.

    (Whether Smith and Jones had authority to sign contracts under their companies' respective policies is another question -- many companies have internal policies that restrict who is allowed to sign what kind of contracts. But chances are that Smith and Jones each had apparent authority, vis à vis the outside world, and that may well have been enough to create a binding contract.)

So far, so good – the backdated NDA very likely will be deemed to be effective during Jones’s and Smith’s conversation on the golf course. There's no deception involved; the written NDA simply memorializes and fleshes out the oral confidentiality agreement that Smith and Jones entered into. (There's another lesson here, which is that oral agreements can sometimes be entered into very casually.)

Now change the facts a little, and the possibility of jail time looms into view:

  • Customer Jones and sales-rep Smith continue with their discussions. It ends up being a big-dollar deal. Smith, the sales rep, starts shopping for the new car that he intends to buy with his commission check. Jones and Smith work hard to get the sales contract executed by March 31, the last day of the first (calendar) quarter.

  • Unfortunately, however, Customer Corporation’s legal department is too busy to review the contract before March 31. Customer’s purchasing department refuses to sign the contract without the legal department’s blessing. (Damned lawyers, always screwing up deals . . . .)

  • On April 10, Customer’s legal department blesses the sales contract (finally!), without asking for any changes, so the purchasing department signs the contract – without dating it – and FAXes it back to Smith the sales rep.

  • A happy Smith and his sales director fill in “March 31” on the date line. The sales director signs the contract and sends a copy to Accounting. The company's controller calls up the sales director and says, "it's about time!"

If Vendor’s accounting department books the revenue in the first quarter, that might well constitute securities fraud. The Media Vision Technology CFO undoubtedly knew this. Unfortunately for him, he had the lesson reinforced the hard way, with a prison sentence.

August 23, 2003 in Accounting, Contracts, Criminal Penalties, Embarrassments / Bad Career Moves, Sales, Securities law, SEC regs / actions | Permalink | Comments (0)

August 22, 2003

Article: When Your Company Gets Hit
With a Search Warrant

An article by some lawyers at Latham & Watkins (a big L.A. firm), posted on (paid subscription required), lists the immediate actions the authors say you should take if The Law shows up with a search warrant.

I found what appears to be another version of the same article in HTML and PDF formats at the Latham & Watkins Web site.

(Usual disclaimers: I can't vouch for the accuracy or completeness of the information at external sites; if your company gets served with a search warrant, you really ought to call your lawyer right away.)

August 22, 2003 in Criminal Penalties | Permalink | Comments (0)

Insider Trader Convicted --
And He Wasn't Even an Insider

Today's National Law Journal has a story that illustrates yet again how vigorously the SEC goes after people it thinks are trading on on "inside" information. This one involves a stock broker who was convicted by a jury of insider trading.

The broker had learned that certain companies were about to be mentioned in the "Inside Wall Street" column of a business magazine. He got this information second-hand, from a colleague who in turn had a contact at the business magazine. The SEC got suspicious when the stock prices of companies mentioned in the column started going up before the publication dates.

I thought four things were particularly interesting about the story: First was the reminder that the SEC monitors stock prices to sniff out possible insider trading. Second, the broker wasn't an insider at any of the companies whose stock he traded. Third, the guy ended up spending about $75K in legal expenses and is now working as the manager of a donut shop -- honorable work, and nothing to be embarrassed about, but probably not what he expected to be doing for a living. Finally, the judge apparently wasn't totally sure that what the broker did was a crime, but he felt that he had to sustain the conviction; then, when the SEC asked that the broker be ordered to disgorge his profits (about $5K), the judge said "enough is enough," and awarded the SEC $1. (The story doesn't say whether the broker will face any prison time.)

August 22, 2003 in Criminal Penalties, Securities law, SEC regs / actions | Permalink | Comments (0) | TrackBack

August 21, 2003

Watch Out for State Spam Laws

There's been a lot of debate lately about whether Congress should enact anti-spam legislation. No matter what side of the debate you're on, if your company does email blasts, it's important to remember that numerous states have anti-spam laws that conceivably might apply to your company.

See for what appears to be a useful summary of state laws and links to the text of the legislation; I don't know how accurate or up-to-date it is. Other countries and the EU might also have anti-spam laws that could come into play.

August 21, 2003 in Marketing | Permalink | Comments (0)

August 19, 2003

Music Industry Could Go After
Your Company for File-Swapping

You've probably heard about the controversy over the music industry's battle against Internet song-swappers. In a recent letter to a U.S. senator, the president of the Recording Industry Association of America pledged that "RIAA is gathering evidence and preparing lawsuits only against individual computer users who are illegally distributing a substantial amount of copyrighted music." See Reuters story.

Suppose that your employees were surreptitiously swapping songs, not just with their home computers, but with your company's servers. Now suppose that RIAA were to discover that fact -- possibly because of a whistleblower within your company. RIAA might view your company as a tempting target for a copyright-infringement lawsuit, with the intent of making your company into a very public example. (Software industry groups such as the Business Software Alliance have done much the same thing with their anti-piracy campaigns.)

August 19, 2003 in IT Management | Permalink | Comments (0)

August 18, 2003

Deliberate Copying of Patented Technology
Leads to Doubling of Damage Award

Last Friday, chipmaker Microtune announced that "On August 12, 2003, a federal judge awarded Microtune double its compensatory damages and all of its attorney's fees against Broadcom Corporation in Microtune's patent infringement lawsuit against Broadcom. Microtune estimates that the total judgment against Broadcom will be between $7 and $10 million." See also CNET news story.

Quotable quote from Microtune press release:

In issuing the order, the Court cited "the existence of a substantial amount of circumstantial evidence that Broadcom deliberately copied Microtune's technology" in Broadcom's BCM3415 tuner chipset. Because of the "jury's unanimous finding by clear and convincing evidence that Broadcom's infringement of the '035 patent was willful," the Court also took the exceptional step of awarding attorney's fees to the Company.

A doubling or even trebling of the damage award is not particularly unusual for patent-infringement cases if the judge and jury are persuaded that the defendant intentionally copied the patented technology.

In fact, a defendant can be found to be a "willful" infringer, and subject to an increased damage award, even if all it did was to go about its business after learning of the potential relevance of the patent. The way the courts have interpreted the law, once a company learns about a patent that might affect its business, it has an affirmative duty to use due care -- which usually means getting advice from a patent attorney -- to make sure it is not infringing. (I'll save my editorial comment on that interpretation of the law for another day.)

August 18, 2003 in R&D; | Permalink | Comments (1)

August 15, 2003

Cheating on Educational Discount
Results in Damage Award,
Mail-Fraud Conviction

Hewlett-Packard announced yesterday that it had recovered some $1.8 million from a company that bought computers using an educational discount but then resold them to commercial customers. See story.

(Perhaps of greater interest to corporate managers, the company's owner reportedly pleaded guilty to related federal mail-fraud charges.)

Lesson: Don't lie about being eligible for discounts or other special deals -- that is, unless you think you might look good in handcuffs.

August 15, 2003 in Criminal Penalties, Purchasing | Permalink | Comments (0)

August 14, 2003

Allegedly Out-of-Date Comparative
Advertising Triggers Lawsuit

Comparative advertising sometimes begets litigation. An advertiser can take some simple steps to discourage its targeted competitor from running to the courthouse.

You've seen comparative ads -- "Gleam-So-Bright toothpaste contains 43% more whitening ingredients than Brand X." Brand X's people will tear apart the Gleam-So-Bright ads in search of anything that might be factually false or arguably misleading to consumers. If Brand X's lawyers think that they have a shot at a false-advertising claim, then Gleam-So-Bright can expect a cease-and-desist letter, or even a lawsuit (possibly without warning).

UpShot found this out last month. UpShot is the provider of an on-line customer-relationship-management (CRM) system. It claimed in some of its ads that customers preferred UpShot's CRM solution by 2 to 1 over that of competitor It also claimed that the Salesforce offering lacked support for Microsoft Outlook. In July 2003, Salesforce filed a lawsuit for false advertising, unfair competition, and unfair business practices. See story.

Technically, Salesforce has the burden of proof. As a practical matter, however, UpShot will have to defend the truth of its advertising claims. Even if UpShot's advertising claims are bulletproof, the company still will have to spend a good bit of money, and a great deal of management bandwidth, in document production, depositions, interrogatory responses, motion practice, and trial preparation.

The UpShot case also illustrates why it's often preferable to be very specific about the version of the competitor's product that you're targeting in your comparative ad. The instant that your claims arguably become outdated, you may be in danger of being sued.

Possible lessons: If you're going to do comparative-advertising:

1) Try to make sure that your claims are as factually bullet-proof as possible.

2) Try to collect hard evidence in advance to support your factual assertions (your lawyer will thank you).

3) Consider the risk-reward ratio -- how much incremental benefit will you get from doing the specific comparison, versus how much additional risk are you courting by doing so.

4) Consider including a footnote with additional factual data, perhaps including (i) the applicable version numbers of the products in question and (ii) the date as of which your data is current.

(Of course, don't rely on this as a substitute for legal advice; click on the "Disclaimers & cautions" link at the top right of this page.)

August 14, 2003 in Marketing | Permalink | Comments (0)

August 13, 2003

Rigging a Promotion Costs Coca-Cola Big Bucks
and Triggers Grand-Jury Investigation

From the Career-Limiting Moves Department: Coke agrees to pay up to $21MM to Burger King for rigging results of market testing of Frozen Coke at BK restaurants. Wouldn't you hate to be in the shoes of the marketing managers who did that . . . .

In 2000, Coca-Cola and Burger King ran a promotional campaign to test the appeal of Frozen Coke, a slushy drink, at Burger King restaurants in Virginia. (Burger King is a huge customer for Coke fountain drinks.) If the test was successful, then Burger King would make Frozen Coke a regular offering.

Apparently the initial results of the campaign weren't pleasing to some people at Coke. They took steps to increase the Frozen Coke traffic at the test restaurants. Supposedly, this included paying a man -- without Burger King's knowledge -- to get hundreds of kids to go to Burger King restaurants and ask for the Frozen Coke meal deal. That made sales look pretty good. Burger King started to ramp up its Frozen Coke program.

Then, however, a finance executive in Coke's fountain-drink division was let go. He filed a lawsuit, claiming that he had been fired for whistleblowing. In his lawsuit, he accused Coke of rigging the Frozen Coke promotional campaign.

His accusations touched off investigations by the SEC and by the Justice Department. Coke was subpoenaed by a federal grand jury. Coke's corporate headquarters admitted that some of their employees had rigged the promotional campaign and said that it was cooperating with the investigations.

Needless to say, Coke's customer Burger King was not thrilled. Earlier this week, Coke announced that it had reached a settlement with BK. According to the New York Times, Coke agreed to pay up to $21 million to Burger King and its franchisees. Of course, Coke still has the SEC and the federal grand jury to worry about.

It's not clear what happened to the individual Coke employees who supposedly rigged the promotional campaign. Coke reportedly said it had "disciplined" them. It's safe to say they probably don't have stellar careers at Coke ahead of them. And who knows what punishment the federal prosecutors will demand.

Some possible lessons for corporate managers:

1) Remember the old saying that you shouldn't do anything you wouldn't want to see published on the front page of the New York Times.

2) Your corporate sins can come back to haunt you years later, especially if one of your colleagues leaves the company under less-than-happy circumstances.

3) What you think of as a simple error in business judgment, the Justice Department -- those friendly folks who can send you to federal prison -- might regard as criminal behavior. (And let's not forget the SEC and the private shareholder plaintiffs' bar. )

4) Angering one of your company's biggest customers is seldom a career-enhancing move.

5) Coke's marketing budget for Frozen Coke probably didn't include a $21 million payment to settle the dispute with Burger King. Busting that budget was unlikely to have been a career-enhancing move either.

Sources: New York Times story (free subscription required) and National Post (Canada) story (with more details on the former executive's accusations about the rigged promotional campaign); Google News search.

August 13, 2003 in Criminal Penalties, Embarrassments / Bad Career Moves, Marketing, Securities law, SEC regs / actions | Permalink | Comments (0)

Welcome; Cautions; Disclaimers

Welcome to Business Lessons. I use this blog for note-taking about my business-related reading. Some of that reading is law-related, because I'm a lawyer by training.

Now for some customary cautions and disclaimers:

1. This site is presented for general information only. It should not be read as business advice or legal advice about your specific situation, and of course it doesn't establish an attorney-client relationship between you and me.

2. Any opinions expressed here are mine (or those of the commenter, if applicable) and not those of my employer, my former law firm, or any of its clients.

3. Remember that in legal matters, small changes in facts can make a big difference in outcome. For your specific situation, consult a lawyer licensed in your jurisdiction who has expertise in the appropriate subject area.

August 13, 2003 | Permalink | Comments (1)