Since the Supreme Court issued its controversial ruling granting enemy combatants in U.S. custody the right to Habeas Corpus, I was waited to hear the outrage from the American people.  Apart from a few legal types, I have heard relatively little discussion of the matter despite the fact that it overturns numerous prior Supreme Court decisions.  It is a sad day for Americans when enemy combatants have more rights than some Americans.

Habeas Corpus - which literally means "you have the body" is the right we enjoy to challenge our detainment by the police, etc., in front of a civil court.   Prisoners of war and enemy combatants, in contrast, are traditionally tried in military courts.  While Habeas Corpus is a well respected right for Americans, it has been suspended even for U.S. citizens during prior wars - including its suspension by Abraham Lincoln.  It has also historically not applied to foreigners and those taken on the battlefield. 

The bizarre ruling by the Supreme Court, however, extends the right of Habeas Corpus not only to foreigners - but to foreigners who are enemy combantants detained outside of the U.S. - i.e. taken on the battle field attempting to kill members of the U.S. Military.  Under the Geneva Convention, enemy combantants are not even afforded the rights of Prisoners of War because they do not fight in uniform.  (The intent of the Geneva Convention was to minimize civilian casualties by forcing military personnel to wear uniforms that distinguished them.)   Historically, enemy combatants were often simply shot as spies.  
 
Those who have addressed the Supreme Court's decision have noted that our soldiers and marines should simply shoot the enemy combatants rather than take them into custody.  However, this could lead to a charge of murder or war crimes against the soldier or marine.  The soldier or marine will be tried before a military tribunal.   Yes, the same military tribunal that the Supreme Court does not believe is good enough for terrorists is good enough for the soldiers who risk their lives defending us.

Sometimes its pretty embarrasing being a lawyer.

        

Most people will acknowledge that legal advice is expensive.  The most expensive legal advice, however, is the advice not followed.  Over the past couple of weeks I have had a couple of clients complain about the amount they were spending on legal fees.  Ironically, in both cases the amount was driven by their failure to follow the advice they were originally given.

In one case the party is in litigation.  At several points in the litigation we have been in strategically advantageous positions.  Contrary to our advice, the client repeatedly decided to have us freeze all work on the case while he attempted to negotiate settlement.  Each time we warned that the opposing party had not demonstrated any sincerity in prior settlement discussions and that stopping work on the litigation and restarting once settlement discussions failed would only add to the costs.  The client proceeded and - sure enough - when settlement failed, he complained about the costs of getting the case back to where it was prior to settlement discussions.

In a second case, the client asked about producing a product.  We advised that producing the product would likely result in allegations of infringement - even if there were good arguments about why the product did not infringe - and that the expense of fighting the allegations would be substantial.   The client decided to proceed with the project, but is now concerned about the expense of responding to the infringement allegations.

The most expensive piece of legal advice is that legal advice which is ignored.

        

There are times when one has to wonder if our elected representatives are capable of running our country.  This week was one of those times.  By several actions with week, the U.S. House of Representatives demonstrated that they do not understand cause and effect and are generally clueless about how economics works.

Congress is feeling the heat about gas prices.  Consumers are angry about paying nearly $4 per gallon for a commodity that historically as been pretty cheap here.  The elections are only 5 months away.  Thus, Congress has decided to act - by avoiding the very cause of the problem.

In their infinite wisdom, Congress voted to authorize the Justrice department to sue the the Organization of Petroleum Exporting Countries (OPEC) over the high gas prices.  The vote, which was 324 - 84, authorizes the Justice Department to subject the oil producing states to U.S. anti-trust laws.  Apparently, Congress thinks this will play well for the elections this fall.  In reality, it not only shows how clueless our elected officials are - it also raises a serious risk - both to our economy and to our national security.

The number one entity to blame for high gasoline prices is none other than Congress.  While I am all for the development of alternative fuels (something Congress talks about but has done little to really support), I also understand that it will be a decade or more before most of these fuels will make a meaningful dent in our need for oil.  Until new technologies come online - we will be dependent on oil.  Thanks to Congress, that oil will cost more than ever before.

The first reason that Congress is to blame for high gasoline prices in that Congress has repeatedly fought oil industry attempts to produce and refine more oil domestically.  In 1970 the U.S. produced  9.4 million barrels per day.   (This is the last year that the U.S. was essentially oil self-sufficient).  By 2007, that number had dropped to 5.1 million barrels to day (a fifty year low).  Thus, while our consumption of oil has increased significally, our dommestic production has almost been cut in half.  Currently, the U.S. produces only 25% of its consumption.

The irony is that the U.S. has billions of barrels of oil.  While Congress routinely calls oil industry executives to testify about why gasoline prices are so high, they seem to ignore the testimony.  Oil industry execs have repeatedly made clear - in addition to China and India suddenly becoming major consumers, a big part of the high price of oil is because Congress will not allow the oil companies to extract oil reserves that we know are there.  The U.S.'s refusal to extract its own oil will be a pretty good argument in defense of OPEC.   It is like a person suing the local grocery store for the prices being to high when the person has a full panty at home and just does not want to use it.

During the grilling of oil industry executives, Rep. Maxine Waters of California threatened to solicialize the oil industry if prices do not come down.  Yes, we really want the government that has overseen the U.S. transition from oil self-sufficiency to producing only 1/4 of its petroleum needs running our oil companies.  Simply put, much of the reason you are paying higher prices at the pump is because Congress has seriously hampered domestic oil production.  Maybe we should sue Congress instead of OPEC.

The second reason that Congress is to blame for higher pump prices is that Congress is virtually incapable of controlling spending.   To get re-elected, Congress loads up its legislation with pork.  Unfortunately, Republicans have decided to take the same approach as Democrats and "bring home the bacon."  President Bush, of course, has only recently realized that he is allowed to veto Congressional overspending. 

The lack of fiscal control in Congress and low interest rates in the U.S. has lead to the U.S. dollar falling like a rock against foreign currencies.  In 2002 I was in Europe and could get 100 Euros for about $90.  Today, 100 Euros will cost about $158.   The fall of the U.S. dollar means that everything we import, including oil is now about 70% more.   Yep, that $132 per barrel oil could be about $80 if the dollar had held its value.

While suing OPEC would make the U.S. look silly in light of its refusal to develop its own petroleum reserves, it is also dangerous both economically and for national security.  Most who read my blog are probably too young to remember the oil embargo and oil crisis in the 1970s.  In 1973, OPEC was upset by the U.S. and its allies support for Isreal.  They decided to embargo these countries.  The result was oil shortages and a major hit to the U.S. economy.  (At the time I lived in Germany and driving was banned on Sundays).   Gas prices shot up - when you could get it.   I can still remmember back in the 1970s waiting in lines to get gasoline - lines that stretched for more than a block.  I can remember service stations that were closed - because they did not have gas to sell.

The scary part is that domestic production of petroleum is far lower today (both in gross barrels and in percentage) that it was in the 1970s.  Back then, we still produced most of our gasoline.  Today, what would happen if suddently our supply of gasoline were to drop 75%?

If OPEC decided to retaliate for the lawsuit, we may look back longingly at the dates of $4 per gallon gasoline.  Where will the U.S. economy snap $6/gal., $8/gal. or $10/gal?  Realistically, we would not be completely cut off from gasoline.  We get much of our gasoline from Canada and other non-OPEC countries.  However, if OPEC were to even cut back on supply by 10%, it would enough to send oil futures soaring.  OPEC countries have plenty of money thanks to the current price of oil (ie. thanks to Congress) and a number of them, including Iran and Venezula do not particularly like us. 

Rather than threatening lawsuits to look tough before November's elections, the best thing Congress could do would be to vote to allow more domestic oil production, while promoting alternative energy for the future.  Of course, the best thing the American people could do would be to use their vote in November to get rid of the people who created the problem in the first place.

        

One of the common mistakes made by startups and even more mature companies is failing to make sure that they own the copyright in important content or software.  Many small companies will hire outside contractors to build websites, create custom software and even develop items such as logos which the company will use in marketing.  This is often the only way that such items can be developed.  Unfortunately, many companies fail to consider who actually owns the copyright.

Just because a company paid for work does not mean it owns the copyright.  Many companies incorrectly believe that they own all rights because they paid the contractor to develop the work.  Unfortunately, that is usually not the case.  Section 101 of the Copyright Act discusses "works made for hire."  A work made for hire is deemed to be the work of the employer, not the employee.  Thus the copyright is owned by the employer.

 The work for hire rule, however, applies in limited circumstances - usually when the creator is an employee or the work is a commissioned or ordered part of a collective work and there is a written agreement.  In other situations, the work is not a work for hire.

What this means is that the contractor who wrote the program, developed the content or created the logo is usually the owner of the copyright.  This means the contractor may be free to walk across the street and sell the program the company paid $100,000 to create to the company's competitor for $50,000 or $20,000 or $1.50.  Talk about losing your competitive edge.

Having the contractor own the copyright can also become a problem if you try to move the work to another medium.  If there has been a falling out, the contractor may demand more money for further use of the work. 
Such disputes can be disastrous for a small company.

The way to avoid such matters to it deal with the issue upfront.  Who will own the copyright?  If the company will, it will need to get an assignment from the contractor.  If the contractor insists on retaining the copyright, the company should consider agreements that will limit the contractor's ability to sell the software in the company's line of business and which expressly grant the company the ability to copy the work and/or to create derivative works.  

Regardless of what arrangement the parties agree to, it should be in writing.  Who owns the copyright will probably effect the price that is being paid and the benefits that each party obtains from the relationship.  However, failing to deal with the ownership issue upfront will almost always result in one party getting much less than they bargained for.

If the work is important to the company, have the agreement prepared by an attorney.  A few hundred or even a few thousand dollars is much less expensive than losing a potential acquisition when it is learned that the company does not have clear title to important software or content.

 

        

Jesse Staywrote an interesting post earlier today about Google.  It is a well thought piece objecting to the treatment by Google of a blogger who registered the domain name googleappsengine.com.  Unfortunately, I am compelled to stick up for GOOGLE.  Sorry, it is partly the lawyer in me and partly due to experience I have had with others cybersquatting on my client's trademarks.

One of the difficult positions a trademark owner is placed in is the requirement that it defend its marks against infringement.  Sometimes this requires a company to send a cease and desist letter to a "friendly infringer."  While Jesse's friend may have had good intentions, use of GOOGLE's trademarks by an unlicensed third party weakens the marks and makes them more difficult to enforce in the future.  It is often a tough balancing act.  A company does not want to offend friendly users of the mark, but needs to make sure that its marks are not infringed.  There is probably a reasonable likelihood that someone going to googleappsengine.com would believe that the site is in some way affiliated with GOOGLE.  If something happened on the site that was objectionable, GOOGLE may get blamed before most people understood that the site is not affilitated with the company.  Additionally, the site could be used to sell competing products and create confusion among consumers.

When I reviewed the letter I actually thought that it was pretty reasonable in tone.  GOOGLE is obviously big enough to crush anyone who is infringing its marks.  The letter, while firm, is not overly threatening.  You have to remember that GOOGLE probably has thousands of Domainers trying to snag any GOOGLE related domain name they can.  It is hard to tell up front if the person who registered the domain name has honest intentions or if they are simply trying to make a quick buck by cybersquatting.  The only safe approach is to firmly, but politely go after everybody.

One potential way to resolve the trademark infringement/cybersquatting issue is to have the company whose trademarks are at issue own the website.  They can then license the use of the domain to those who want to blog about their products.   Of course, they may also require a disclaimer that the views expressed on the site are not those of GOOGLE.

Jesse's friend may have had good intentions.  From a legal point of view, however, GOOGLE was being pretty reasonable.

        

Most people are aware of the concept of check kiting.  A person uses a number of banks or other institutions to in effect give himself a loan.  He rights a check on bank one and then deposits a check into his account at bank one drawn on bank two.  He then deposits a check in his account at bank two drawn on bank three.  If you can find institutions that are sufficiently slow at presenting the checks, you can give yourself a loan for several days until you get money to cover the checks.  You can also get yourself a criminal record, as check kiting is illegal.

The word kiting is also used to refer to domainers who use the five day trial period to acquire and use domain names.  Someone with good software can repeatedly register domain names without ever having to pay for them.  The domain names are referred to add farms and hopefully make the domainer $20-50 per year in add revenue.  It does not sound like much until you see that some domainers are grabbing thousands of domain names per day. 

This brings me to what I call business kiting.  In business kiting a purported "investor" gets to try out a business without really investing in it.  For example, an investor shows interest in a company and enters into a contract to invest in the company.  In exchange, the investor gets an equity stake.  The only problem is that the investor never really makes the investment.  The company, thinking that it now has funding, moves ahead with expansion, acquisition or other expenses.  It is often several months before the company's founders realize that the investor (who often offers to handle the finances) has not actually invested the money.  Bills go past due and into delinquency.  If the business does not look promising after a few months, the investor simply walks away and allows the business to go bankrupt.  The investor is out little, if any, money.

So where is the upside?  It is all owned by the investor.  The investor will often get a substantial stake in the business for his or her investment.  If the business does well, the investor may claim that the remainder of the investment was not needed - but will still retain their full ownership.  In the best case scenario, the investor will invest the promised money once it is sure that the business is going to take off (drastically changing the risk/reward calculation to the investor's advantage).   If other investors appear, the purported investor will often insist on taking a piece of the action or on selling out the equity stake that he should not have received in the first place.  The founders have little choice but to buy him out, as litigation with the investor will send other funding sources running.

 Regardless of the scenario, the founders of the business do not get what they have bargained for and the phony investor gets a windfall.  The phony investor shifts the risk to everyone else, but is front and center for the reward.

One key to avoiding business kiting is to make sure your agreements are reviewed by an attorney.  Yes, attorneys are expensive, but a thousand dollars today can save hundreds of thousands spent on buying out the phony investor.   One provision that should be seriously considered is a provision that clearly sets forth that receipt of the funding is a condition precedent to the investor receiving equity.   This may be staged if necessary (i.e. 3% ownership for each $10,000 received up to X percent).  This way the investor cannot lay claim to equity that he or she does not deserve.

Another possible provision is to cap the equity interest of the investor based on funds received prior to receipt of further funding commitments or other bench marks.  For example, if the investor was to invest $100,000 within six weeks for a 40 percent equity share and has only invested $20,000 by the end of the period, the founders can freeze the investor's interest at 8 percent.  This prevents an investor from watching to see if the company lands an important contract or otherwise shows signs of growth prior to investing the rest of the money.

Most of the "angels" in Utah are honest and will make the experience a win-win.  However, there are a few who want to "invest" without putting their money at risk.   Founders beware.

 

        

Just when you think that one of the presidential candidates has a good idea, they keep talking and ruin the momentary connection with reality.

Recently Mrs. Clinton proposed a summer holiday from the gasoline tax.  That sounds pretty reasonable.  Most Americans would appreciate a 18.4 cent drop in gasoline or a 24.4 cent drop in diesel prices.  Now the rub, Clinton has proposed that the oil companies will pay the tax out of their record profits.  Lets assume for a moment that Clinton can accomplish this legally - what would be the effect.

The average profit margin for the oil companies is currently running about 7 percent of revenues.  Clinton's plan would require the oil companies to pay the gas tax (5.5 percent of revenues).  For diesel it would be about 6 percent.  This leaves the oil companies with a profit rate of 1 to 1.5 percent.  Do you know many businesses who would agree to operate on that kind of profit margin.

Of course, the oil companies have an alternative.  India and China are hungry for oil.  Europe would be happy to get more.  If you sell the oil oversees, you do not have to pay the U.S. gas tax. 

Some day the American people are going to realize that if you keep punishing people for success, they will simply stop succeeding or they will take their ideas, businesses, etc. elsewhere.  Why do you think we have so many skilled engineers and scientists from India?  Could it be India's historically anti-business laws (which are rapidly changing and are drawing talent back home).  Why is business booming in Utah and other states that are business friendly and suffering in business unfriendly states like Michigan?   

Perhaps we should make ATLAS SHRUGGED mandatory reading for all politicians.

        

One of the most frightening things about the impending presidential election is how little the three major candidates still in the race seem to know about economics.  McCain acknowledges it is not his strong suit (at least he is honest).  Clinton and Obama seem to be in a race to see who can promise the most new government spending and the most socialistic policies.  Yes comrades, the USSR may have folded, but we are winning on the western front.

The latest in frightening statements is from Clinton.  She is now proposing to confiscate the "windfall" profits of the oil companies to fund new energy technologies.  (Drilling where we already know there is oil is too pedestrian and we would rather wait for 10 years for new technologies come on line).  Aside from the socialist implications of penalizing companies who are making a profit, Clinton's plan is horrible from an economic point of view.

Just as an aside, the "windfall" profit these evil corporations have made amount to a profit rate of about 7% - How dare they?  Out of that has to come dividends, reinvestment to find new sources of energy and making up for the years in which they had losses.  Few investors would consider a 7% profit to be a windfall.  The only reason that the gross amount is so high is that energy prices are high - something that Clinton will certainly escalate.

In case anyone missed out on business law 101, companies are not people.  Corporations, LLCs, etc. are fictional entities; creations of law which allow groups of people to function together.  Because they are fictional entities, corporations do not really pay taxes.  Oh yes, the check may have the company's name on it, but the money really came from one or more of the following sources: 

1)  The money may come from the shareholders of the company.  While some Americans have bought into the idea that shareholders are just part of the super rich who are stealing money from working people, the reality is that most American workers now have IRAs, 401Ks and mutual funds.  Any money the company does not pay in dividends is money that does not go into the IRAs, 401Ks or mutual funds of any of us who own stock directly or indirectly.  In other words, we have all paid an investment tax.  (This is in addition to the double taxation already paid on dividends.)

2)  The money can come from the company's employees.  This may mean lack of raises or even pay cuts.  It can also mean lost jobs if the company has to divert those resources to Clinton's success penalty.

3)  The most common source for companies to get the money to pay the success penalty is from consumers.  Yes, you and I will be paying the "windfall" profits tax by higher prices at the pump and utility bills.  The company has to pass the tax along or its shares will drop like a rock.

Of course, there is another option.  Companies can become ex-patriots.  Yes, numerous traditional U.S. companies have moved off shore to avoid the taxes which the U.S. levees on them.  The U.S. has one of the highest corporate tax rates in the world.  How do you compete with foreign corporations who do not  have to pay these taxes - they do not have to lower their returns to investors, lay off employees or charge customers higher prices.    A few years ago Stanley Tools looked to Bermuda.  Not for a vacation, but to reincorporate to save $30 Million a year in U.S. taxes.  A host of other companies have done the same thing.

The U.S. is driving off our good companies at the very time when they can least afford it.  European countries are increasingly becoming market oriented and U.S. tax laws make our companies less competitive.   When our economy tanks at least we can feel good that we stuck it to those even oil companies.  Well, at least until we learn:

we have met the enemy - and it is us.

        

It is not often that a high school orchestra gets to premier a piece of music by a well-known composer.  The musicians at Brighton High School got that honor earlier tonight when they got to perform BRIGHTON PROCESSIONAL, Op. 115, written for them by Dr. Crawford Gates.  The students did a wonderful job with the piece and Dr. Gates indicated that to have children of that age perform one of his pieces was a highlight of his career.  (Dr. Gates wrote one other piece for a high school orchestra - his own - but it was too advanced.) 

To have a commissioned work from a composer of Dr. Gates' reputation would normally cost quite a bit.  Dr. Gates, however, graciously did the work for a small payment to a charity of his choice - the Perpetual Education Fund of the Church of Jesus Christ of Latter-day Saints.

The students were also provided with the treat of performing for some of Utah's musical greats.  Not only was Dr. Gates in attendance, but Robert Cundick (former Tabernacle Organist and well known composer) and the widow of Maurice Abravanel were in the audience.   The students repaid the compliment by performing Dr. Gates' work beautifully.

Congratuations to Dr. Gates on his work, to Brighton's music guru Mr. Madsen and all the students of the Brighton Orchestra.

As a side note, one of the questions that continues to face public education is how to reward teachers that go above and beyond and inspire their students.  Five years ago Mr. Madsen came to Brighton High School.  He had 18 students in the orchestra.  Today, Brighton's Orchestra is 85 strong and receiving awards both in Utah and out of state.    

        

Most Utahans are attempting to stay as far away from the events in Eldorado, Texas as possible.  Members of the LDS church are concerned about being confused with their fundamentalist offshoots that still practice polygamy, were dresses that look like they are from the 1800s and live more in a compound than in a subdivision.  The events in Texas, however, should cause anyone who actually believes in the Constitution serious concern.

The fact that some members of the FLDS church practice a pretty sick form of polygamy is well known.  For years 50 year old men have been marrying 13 and 14 year old girls.  Unfortunately, Utah and Arizona have done an embarrassingly poor job of prosecuting these pedophiles.  The man who was allegedly at the center of the abuse is serving probation for marrying an underage girl in Arizona.  (Marrying may be a generous word since many of these girls have little choice in the matter.  Being traded may be a more appropriate term.  "Here, brother, you can have my 13 year old daughter and I get your 11 year old in a couple of years.")  This conduct is despicable and should be vigorously prosecuted.  No probation - just lots of jail time.  I personally think the prosecutions should extend to the mothers as well.  What kind of woman would allow a 50 year old pervert to have her 13 year old daughter and allow her sons to be kicked out of the community to keep a high female:male ratio.

All of that said, there is still this pesky thing we call a Constitution, which Presidents and judges are sworn to uphold.  The events in Texas show that the Constitution and the accompanying amendments are very fragile.   Police in Texas raided the FLDS compound based on an unverified telephone call from a supposed 16 year old girl who was being abused by her husband.  The only problem, the alleged abuser was in Arizona - serving probation for being a pervert - and it appears that the caller was in Colorado and is not a member of the group.  

That, however, has not stopped the Judge in Texas from taking more than 400 children away from their parents - likely a very traumatic event for children who have always been kept close to home.  They have warehoused them in a gym and three weeks later they have yet to provide reasonable foster care for them.  Of course, all of that overlooks that the State of Texas has made no showing that the children they took into custody are being abused.  (I recently heard an analysis that the teen pregnancy rate at the FLDS compound is 1/2 the teen pregnancy rate in Texas generally.)  Of course, if under age marriage is the issue, why did they take all of the boys and all of the girls below, say, 10?

The Fourth Amendment to the Constitution states:

    "The right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

Apparently the Judge in Texas hearing the matter skipped that part of law school.  The State of Texas conducted a raid based on bogus information.  As soon as it was learned that the search was based on a false police report, the children should have been released.  To date, the State of Texas has not put forward meaning full evidence that the children are being abused.  Rather, they are relying on "experts" who claim that the teachings of the FLDS church amount to emotional abuse.  Once you start down that road, you better look out.  There are "experts" that believe that any type of parenting amounts to abuse.   Did you abuse your children by giving them a curfew - by telling your daughter that she cannot sleep over at her boyfriends house - by forcing your children to do chores - or by being a global warming denier?

Ironically the Judge in Texas also skipped the day they taught the First Amendment to the Constitution as well.  The First Amendment, in addition to protecting free speech and religion, also protects your right "to petition the government for a redress of grievances."  The Judge in Texas has instructed attorneys for the FLDS and for the children not to file any more motions.  In other words, she is saying "Gee, I have made a huge mess by violating your Fourth Amendment rights, so now I will violate your First Amendment rights because I can't deal with the mess I made."

So why should you care?  Because the same Constitution that the Judge in Texas is violating is all that guarantees you your rights.   LDS people and many other religious minorities need only look to their histories to realize what can happen when the Constitution is ignored.   While you may think you are now well accepted in society - this should provide little comfort.  Jews were well accepted in Germany and Italy in the 1920s. 

Pastor Martin Neimoeller is credited with the following:

They came first for the Communists,
    and I didn't speak up because I wasn't a Communist.
Then they came for the Jews,
    and I didn't speak up because I wasn't a Jew.
Then they came for the trade unionists,
    and I didn't speak up because I wasn't a trade unionist.
Then they came for the Catholics,
    and I didn't speak up because I was a Protestant.
Then they came for me,
    and by that time no one was left to speak up.

And I didn't speak up because I am a ___________.

To the State of Texas - please vigorously prosecute those who abuse children, but do so without eviscerating the Constitution.  Its a old piece of paper I am kind of found of.