Category Archives: Business

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Online Contract Formation: Are your “Terms of Use” binding?

Many companies have their “terms of use” posted on their websites, but are they binding? The Ninth Circuit Court of Appeals recently decided a case addressing this specific issue and providing guidance to businesses that use websites and/or mobile applications in transacting with customers.

Facts of the case

In Nguyen v. Barnes & Noble Inc., the plaintiff alleged, among other things, that the operator of the website engaged in deceptive business practices when it cancelled an order he placed and was confirmed by Barnes & Noble, Inc. In response, the website operator filed a motion to compel arbitration as required under the terms of use (TOU) posted on its website. The plaintiff argued that he should not be bound by the arbitration requirement because he did not have notice of, nor did he agree to, the TOU.

The TOU on the website were accessible through underlined, green hyperlinks located in the bottom corner of each page of the website. The hyperlinks were located beside other legal notices and near buttons a user had to click on to complete an online purchase. The website operator claimed this gave the user constructive notice of the TOU and the plaintiff continued to use the website after such notice.

Holding

The Court of Appeals for the Ninth Circuit sided with the plaintiff. The court reasoned that although the hyperlinks to the TOU were conspicuous on every page of the website, the user was never prompted to agree to them. Even having the hyperlinks located close to other buttons the user must click on, without more, is insufficient to give constructive notice. As a result, the plaintiff did not accept the TOU, did not enter into a binding agreement with the website operator, and therefore arbitration was not required to address plaintiff’s claims.

Conclusion

This decision demonstrates that the rules of contract formation still apply to website agreements and terms of use. It also highlights the importance of requiring the user to take an affirmative action to accept the TOU. As Nguyen indicates, you should require the user to click on an “I Agree” box before allowing the user to complete a transaction.

Courts are reluctant to bind individual consumers to agreements or terms of use contained in browsewrap contracts. In fact, the Ninth Circuit commented in a footnote that the standard may be higher where agreements are being enforced against consumers than against business entities. Regardless, this decision should serve as notice to all website operators that browsewrap terms of use have serious limitations.

Remember, you can have the most solid and protective TOU possible, but if they are not enforceable, they do you no good.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

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11 Shipment Terms Defined under the Incoterms

Hopefully you have read our blog titled “Shipping Terms in Your Commerce Contracts.” This blog will provide a brief summary of some of the terms defined in Incoterms 2010. Remember, these are summaries of the terms and you should confer with legal counsel before using an Incoterm in your transaction.

Below are Incoterms that apply to all modes of transport:

Ex Works (EXW). The Seller agrees to have the goods at an agreed point (usually the seller’s facility) and provides the Buyer notice to allow the Buyer to take delivery of the goods. The Seller’s only responsibility is to prepare the goods for pick up by the Buyer’s carrier; Buyer assumes the risk of loss of the goods, freight charges, export and import responsibilities and delivery to buyer’s facility. EXW is typically not an ideal option for most importers unless you have a freight forwarder and broker in place and have negotiated preferential shipping rates.

Free Carrier (FCA). The buyer and seller can name a location on the seller’s side (for example, “FCA Seller’s Facility at [address]”). If the parties name the seller’s facility, the seller is responsible for loading the goods onto the initial carrier and the buyer is responsible for transport, freight charges and risk of loss thereafter as well as export and import responsibilities.

Free Alongside Ship (FAS). This term is followed by a named port of shipment and is only applicable for water transport (”FAS Boston.”). The seller is responsible for the cost of transporting and delivering goods to the export point, but the responsibility shifts to the buyer once the goods are unloaded at the export point..

Free on Board (FOB). This term is followed by the named port of shipment, for example FOB New York, and applicable only for waterway transport The goods are place on board the vessel by the seller at a port of shipment at seller’s expense. Seller has responsibility until the goods are loaded on the transport vessel, then all responsibility shifts to the buyer.

Cost and Freight (CFR). This term is followed by the name of the port of destination and applies only to waterway transport. CFR requires the seller to pay the costs and freight necessary to bring the goods to the named destination. Buyer assumes responsibility for loading the goods on the truck at the place of import, transport to the destination and import responsibility.

Cost, Insurance, and Freight (CIF). CIF is similar to CFR (applicable only to waterway transport) with the additional requirement that the seller purchases insurance against the risk of loss or damage to goods.

Carriage Paid To (CPT). The buyer and seller name a location on the buyer’s side to which the freight is prepaid by seller. The wording would be something like “CPT Buyer’s Facility at [address].” The import responsibility is buyer’s only obligation, while the seller is responsible for transport, freight charges, risk of loss and exporting obligations.

Carriage and Insurance Paid (CIP). The parties name the place on the buyer’s side to which the freight is prepaid by seller (“CIP Buyer’s Facility at [address]”).. Seller carries all of the responsibility, including providing insurance against loss of damage, and import responsibility and unloading from the final carrier are buyer’s only obligation.

Delivered at Terminal (DAT). The buyer and seller identify a terminal, or a named point within the terminal, where appropriate, on the buyer’s side to which the goods are delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as obligations to unload at the terminal.

Delivered At Place (DAP). The parties name a stipulated destination on the buyer’s side where the goods are to be delivered. Seller carries all of the responsibility, except import responsibility falls on the buyer as well as the obligation to unload once it reaches the designated destination

Delivered Duty Paid (DDP). The parties name a Buyer’s location to which the goods are delivered (e.g. “DDP Buyer’s Facility at [address]”). All responsibility falls on the seller, except for obligations of unloading once the goods reach the Buyer’s location.

As you can tell, Incoterms can be confusing. The above is only a summary of the terms and there are many other factors to consider.

. I’ve created a graph identifying the buyer’s and seller’s obligations within the 11 Incoterms and will be happy to email it to you if you send me an email to Leslie@marell-lawfirm.com

If you need assistance understanding shipping terms or drafting an effective contract, contact Leslie S. Marell to schedule an appointment.

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Key Terms to Include in a Partnership, Shareholder, or LLC Operating Agreement

If you are entering a partnership, shareholder or Limited Liability Company (LLC) Operating Agreement with another party, it is important to draft a solid contract. Although you may not think it is necessary because the other party is somebody you trust, having an agreement in writing can help avoid legal disputes in the future as well preserve your relationship.

In some jurisdictions (such as New York), it is not a breach of contract for a party to withdraw from a partnership that was created orally. See Gelman v. Buehler. In other words, a partnership may be dissolved unilaterally if there are no particular terms or undertakings specified in the underlying agreement. This, in addition to the important issue of joint liability, is why I typically dissuade people from using straight partnerships.

There are a variety of important terms to include in this type of written contract, but the buyout agreement terms require special attention. The Buy-Sell Agreement is an agreement among business owners to purchase or sell a business interest after a specific event, at a determinable price and on predetermined terms. The purchase or sale may be mandatory or optional and the agreement may give purchase or sale rights to one party, all of the parties, or to the company.

Below are three important purposes of a Buy-Sell Agreement:

  1. The owners of the business may want to place restrictions on who can become a new co-owner. For example, if a co-owner dies or gets divorced, his or her interests could transfer to a spouse or children if a buyout agreement is not in place. The agreement includes a general prohibition on the sale of transfer of ownership interests, except under the circumstances specified in the agreement.
  2. The owners of a business may wish to “create a market” for the sale or transfer of their ownership interests. Owners of a small business typically do not have a ready market to sell all or a portion of the business, so the Buy-Sell Agreement can provide a means for the purchase of it.
  3. The mechanism for determining the purchase price of an owner’s interests can be specified in the Buy-Sell Agreement. In fact, the agreement can set forth how the purchase price will be paid. This can prevent disputes that commonly arise between “selling” owners that typically have a different perspective of fair price or terms of payment than those of the remaining owners.

There are many other factors that should be considered in a Buy-Sell Agreement, which will be covered in future blogs, so please check back for more information. Or, to learn more about buy-sell agreements and how to protect yourself or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Getting Sales Commission Agreements in Writing Avoids Disputes (and in some states, it’s the law!)

Whether you are an employer or an employee, it is important to have your sales commission agreements in writing. In fact, several states (including California) require any employer that pays commissions to employees providing services in the state to have a written agreement with the employee. The contract must outline how the commissions are computed and how they will be paid.

A sales commission agreement should clearly explain how the commissions are calculated and when they will be paid. The employee should be provided a signed copy of the contract and the employer should retain a signed acknowledgement of receipt of the contract by the employee.

In setting forth the calculation of commissions, the terms “sales” and “profits” must be defined. If returns, refunds, cancelled orders or other such occurrences impact the calculation, this must be clearly stated in the contract. It should also set forth when a commission is earned. Is it earned when an order is placed, when the goods are shipped or when the customer pays?

What about bonuses? You must look at the applicable state law, but in California short-term productivity bonuses are excluded from the definition of “commissions.” This can be a tricky area, however. For example, if the California employer has agreed to pay a fixed percentage of sales or profits as compensation for work, that can be considered a commission. It is common for bonuses to be based on a percentage of sales or profits, so this can create some ambiguity in what constitutes a commission. As a result, the best strategy is to have a clear and concise written agreement that sets forth the bonus plan and/or commission plan in order to avoid any disputes with the employee.

It is important to note that most employers do not have contracts with their at-will employees, so the sales commission agreement should contain a provision stating that the employee’s at-will status is not changed by the existence of the written commission’s agreement.

There are numerous other factors that must be considered when drafting a sales commission agreement. If you need assistance creating this type of contract or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

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How to Expedite the Legal Review

When you are negotiating a contract with another party, it can be a complex and lengthy process. Below are a few tips to help expedite the legal review process before you even involve your attorney:

  • Before you give the other side a copy of the contract, talk over the major issues. Create a checklist of issues to discuss so you can determine where the starting point is for both sides before the negotiations even begin.
  • Once you discover the issues where the parties disagree, try to negotiate and reach an agreement on as many of them as possible. The more you can work through before the attorneys get involved, the better off you are likely to be. Even a “legal” clause such as the warranty provision should be discussed. Talk through what the warranty includes, how long it will last, and the deadline for fixing the problem.
  • Wherever possible, you’ll want to start working with a standard template; However you can’t rely on a standard template and simply fill in the blanks. Remember, this is a unique transaction that should include the deal points you have agreed upon. You will have to make revisions to any template to conform to the deal.
  • If the other party is making significant changes to the contract, don’t be afraid to ask questions about why they are being made. Asking these questions will provide you with information about the other side’s concerns, which is critical in reaching an agreement.
  • Discuss the business aspects of all clauses, even the “legal” or standard clauses. For example, if the supplier insists on inserting a limitation of liability, ask what the supplier expects it should be responsible for if their product is defective and it’s in the field.
  • Get creative in finding solutions to avoid problems, or minimize their impact. For example, in the purchase of capital equipment, you might discuss some form of limitation of liability in exchange for the supplier providing no charge monthly preventative maintenance and on site spare part consignment. Talk in real world terms with real world approaches to heading off the problem of faster resolutions.

Most importantly, don’t simply “hand off” the contract to your attorney. Schedule a meeting with your lawyer to discuss what has been negotiated between the parties and the reasons for the other party’s exceptions. You should stay engaged in the process and encourage your counterpart to do the same.

If you follow the above tips, it will reduce the time involved in the legal review process and help ensure you achieve a positive result. When you are ready to involve an attorney, contact Leslie S. Marell.

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Essentials for Employment Contracts

When your business is ready to hire employees, it is essential to get legal help. An employment contract can be used to outline the legal relationship between your entity and your employees so there is no confusion regarding the rights and duties of the parties. Having an agreement in writing can help your business avoid misunderstandings and litigation in the future.

An employment contract should be drafted to meet your business’s specific needs and the job position covered in the agreement, but below are a few factors to consider:

  • The contract should set forth all information regarding how the employee will be paid, including salary, hourly wages, commissions and bonuses.
  • The hours the employee is expected to work should be defined, as well as whether the worker is expected to perform his or her job duties in the office or if he or she has the ability to work remotely.
  • If your business intends to grant equity in the company to attract employees, the terms should be detailed in the employee contract. This includes addressing topics such as the type of stock grant, exercise price, options for acceleration and vesting term.
  • Any benefits that will be provided to your employees should be covered in the agreement. Examples of benefits to address are 401k or pension programs, health insurance, vacation and sick leave, maternity or paternity leave and other similar perks of the job. The contract should specifically discuss any requirements that must be met before the benefits can be exercised.
  • You should have your employee sign a non-disclosure agreement (NDA). This could be a stand alone agreement, or it could be made a part of the employment contract. It is important to describe what must be kept confidential, as well as the consequences of violating the NDA provisions.
  • In most situations, you will want the contract to specify that the employment is “at will.” Otherwise, you should clearly set forth the term of employment. Additionally, the grounds for termination should be outlined and if compensation will be paid upon termination.
  • If your business is in a competitive industry, you may want to consider including a covenant not to compete for a certain period of time after the employee stops working for you. However, since the courts do not favor restraining an individual’s ability to work, you should obtain legal counsel in drafting these provisions and to determine if they are enforceable in your state. For example, California holds non-competition agreements to be unenforceable.

To ensure that your employment contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

 

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Protecting Your Trade Secrets Requires More than a NDA

There are several industries that require valuable intellectual property to be shared with third parties. In order to protect intellectual property, most businesses use confidentiality agreements or non-disclosure agreements (NDA). However, there are certain circumstances where having a NDA may not be enough.

In the case of nClosures, Inc. v. Block & Co., the Seventh Circuit Court of Appeals ruled that a NDA signed between the designer of a product and the manufacturer was unenforceable because the owner of the intellectual property failed to take reasonable steps to protect its confidentiality.

Facts of the case

nClosures was the designer of protective cases for electronic tablets and other similar devices. Block agreed to manufacture the cases for nClosures and executed a confidentiality agreement protecting nClosures designs. However, five months following nClosures’s initial sale of the cases, Block began selling its own competing product.

Decision

A lawsuit for violation of the NDA was filed by nClosures. Block moved for summary judgment, which the trial court granted. The trial court reasoned that nClosures could not enforce its NDA because it had not taken reasonable actions necessary to safeguard its case designs. More specifically, on appeal the Seventh Circuit ruled that nClosures failed to enter into NDAs with other parties who had access to the designs of the cases. Furthermore, nClosures did not mark its design drawings as “confidential” when they were given to Block and failed to limit electronic of physical access to the designs. The court ruled that because nClosures did not take reasonable steps to protect the confidential status of its designs, its NDA with Block was unenforceable.

Practical advice

If you are the owner of a trade secret, the take-away from the nClosures decision is that securing a confidentiality agreement is essential, but also not enough to protect your intellectual property by itself. You must exercise due diligence in protecting the confidential nature of your trade secrets. Failure to be vigilant could result in nullifying the enforceability of your NDA.

If you have questions regarding the nClosures decision or how we can assist you with other business-related matters, contact Leslie S. Marell to schedule an initial consultation.

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How a Business Attorney Increases Your Bottom Line

All business owners look for ways to cut costs and save money. You may think that handling legal issues on your own will save your entity money, but working with a business lawyer to safeguard your business’s best interests will save you in the long-run. For example:

  • Legal structure. Having an attorney help you pick the most advantageous legal entity for your business is one of the most important things you can do. There are a variety of entity types available and each has its own pros and cons. Choosing the right legal structure for your business impacts your personal exposure to liability and taxes.
  • Transactions. Contracts can be complex and extremely difficult to understand. Negotiating the best deal for your entity can feel overwhelming, especially if the other party has their own attorney. Working with your own business attorney can ensure that all negotiations are handled fairly and that the contract is drafted in a way that unambiguously reflects what the agreement was. A seasoned lawyer can also anticipate certain obstacles and take action to decrease your potential liability as well as reduce the likelihood of any disputes going through costly and time-consuming litigation.
  • Employment practices. Before your entity hires its first employee, you should confer with a lawyer. It is essential that employers verify that their employment practices (such as hiring/firing employees, providing benefits, classifying employees versus independent contractors, and other similar matters) comply with federal and state laws. Failure to do so can result in your business being sued or being assessed penalties by the government.
  • Lease agreements. Leasing commercial space is often a commitment that lasts for a long period of time. Leases often cover numerous complicated matters, so it is essential that you understand what you are agreeing to before you sign the contract. Failure to confer with a lawyer regarding a commercial lease could lock your entity into an agreement with over-reaching or unfair terms that can negatively affect your business’s chance of succeeding.

The above list is not exhaustive, but it gives you an idea of how a business attorney can save you time and money. To learn more about starting a new business or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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3 Types of Agreements that Protect Your Proprietary Information

Does your business have an intangible asset that you need to protect from competitors? It could be an idea, customer list, computer code or other comparable assets. It is essential that you take steps to safeguard the aspects of your business that sets it apart from others. If you don’t do it now, it could mean costly litigation for you in the years to come.

How do your protect your intangible assets? The answer depends upon the unique circumstances surrounding your business, but the following are a few types of contracts that generally can be beneficial:

  • Intellectual property (IP). You might be surprised at what types of assets you can protect. Most businesses understand that they need a patent to protect a new invention, but you can also use a trademark to protect the source of your goods or services. Creative works can be protected by a copyright. Don’t assume you cannot protect your intangible asset. Confer with us and determine the best strategy for safeguarding your IP.
  • Non-Disclosure agreement. It should be mandatory for anyone who has access to your confidential information to sign a non-disclosure agreement. This includes your employees, independent contractors, vendors and customers. This type of agreement can limit when and how your business’s sensitive information is shared. It can also set forth your company’s available legal remedies if the contract is breached.
  • Non-Solicitation agreement. All of your main employees should execute an agreement preventing them from soliciting your business’s customers for a set period of time after they leave your employment. This type of agreement should also include a provision that your business is the owner of any IP developed while the person is working for your entity. Be aware, however, that these agreements must be carefully crafted to be enforceable and in California, they are unenforceable.

It is additionally wise to require all of your employees to password-protect their company computers with passwords, which are updated regularly. You should limit access to your confidential data to only those workers who must have it to properly perform their job duties. Your business should also back-up its digital data routinely.

If you need assistance creating any of the above contracts or you have questions regarding your company’s contractual needs, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

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5 Important Tips for Your New Business Venture

When you are starting a new business, it is easy to feel overwhelmed by all of the decisions you have to make. The decisions you make now can have lasting consequences, so it is important to get them right. Below are five important tips to help ensure that your new business gets off to a successful start:

Legal Structure

There are several different types of business entities to choose from, each with its advantages and disadvantages. To learn more, please read our blog titled “Which Legal Structure is Best for Your Start-Up?” It is important for you to confer with a business attorney to ensure you select the legal structure that is most beneficial for your business.

Written Contracts

New business owners often fall prey to relying on oral promises that aren’t fulfilled. Getting your agreements in writing is the best way to protect your interests. This includes creating a written agreement between the founders of the business which outlines each owner’s percentage of ownership and how the daily business decisions will be made.

Intellectual Property

Intellectual property can include anything from your company name, to its logo, to the type of products you sell. All business owners should take the initiative to legally protect their intellectual property. If your entity fails to obtain the proper patent, trademark or copyright, it could result in you have no legal recourse if another party infringes on your rights. One important step in protecting your private information is to require all employees to execute a non-disclosure agreement.

Employees

There are a wide variety of laws governing an employer’s relationship with its employees. It is imperative that you educate yourself regarding the laws, rules and regulations that apply to your industry and your specific business.

Get help

When your business is first starting out, you will likely be tempted to try to save money and handle things on your own. Unfortunately, this approach can end up costing you significantly more than the cost of retaining a professional. One mistake could be the end of your business before it even gets off the ground. Don’t let that happen – get the legal assistance you need.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.