Want to Start A Business in Indiana

Then stop and take a look the Indiana Government site - Access Indiana. One page exists as pretty much a portal for businesses wanting to start up here or relocate here. Just follow this link.

I use pretty much as I do not find easily a link to the Indiana Secretary of State's Business Services Division page. A rather important page as it with the Secretary of State that registers corporations, and limited liability companies.

How Contracts Help Fight Fraud

From the Supply Excellence blog comes Fraud Risks (and how Contracts can help):

In other words, a head-in-the-sand approach or playing nice will not protect against fraud … it’ll just prevent you from knowing about it until it’s too late. And while communication early and often is key, the contract tweaks Neil highlighted also point to an important step technology can play in reducing risks of fraud.

Having pre-approved clause language and proper process and approvals in an automated contract management system may root out instances where fraud can take place in the first place. And, worse case, it provides improved after-the-fact visibility in the event that it is not caught proactively.

Notice it is just any contract but a well-written contract that helps fight fraud. Here is another point where a good relationship with the business' lawyer can help prevent problems - such as lost proftis.

What to do if your company gets a deposition notice?

Read Be Prepared to Deal With Deposition Notices and get ready to call your lawyer:

Your company has just been served with a 30(b)(6) deposition notice under the Federal Rules of Civil Procedure, and it is your job to respond to the notice and determine who will testify on behalf of the corporation. Is there anything you can do to ensure that your company puts its best foot forward at the deposition? The answer is yes: There are numerous strategies for selecting and preparing witnesses to participate in these depositions.

A 30(b)(6) deposition is a widely used litigation tool that requires a corporation to appear at a deposition and respond to questions regarding a specific list of topics contained in the notice. Since these depositions make it easier to depose the right corporate officers and managers on the right topics, as in-house counsel you need to be aware of how to avoid the many potential pitfalls of 30(b)(6).

Take a good look at the list of topics in the notice. Once you fully comprehend the crucial points involved, you need to identify the right witness or witnesses to speak on behalf of your company. Balance the number of witnesses against cost and time constraints.

The scope of a 30(b)(6) deposition is broad: A company can proffer as many witnesses as it needs to cover all areas of inquiry. A corporation may prefer to respond to a particular topic of inquiry covered in a plaintiff's notice by designating several corporate representatives. But doing so may unnecessarily subject the corporation to many hours of deposition testimony that an opposing party otherwise might not have the ability to take. And that isn't necessarily an outcome that you want to encourage.

Oh, if you think just because it says "federal" that this may not apply to you, then think again. Indiana's trial rules have a similar rule for our state courts:

(6) A party may in his notice name as the deponent an organization, including without limitation a governmental organization, or a partnership and designate with reasonable particularity the matters on which examination is requested. The organization so named shall designate one or more officers, directors, or managing agents, executive officers, or other persons duly authorized and consenting to testify on its behalf. The persons so designated shall testify as to matters known or available to the organization. This subdivision (B)(6) does not preclude taking a deposition by any other procedure authorized in these rules.

Is Your Business Insured Against Employee Lawsuits?

Rush Nigut brings this up in his post Insurance for Employee Lawsuits: Don't Forget to Check Coverage.

I think many small businesses are under the mistaken believe that they are covered for employment lawsuits through their ordinary business liability coverage. This is usually not the case. You will need to purchase a specific policy relating to employer practices in order to be covered. In addition, employer practices liability insurance policies vary greatly so be sure to carefully review the covered items with your insurance agent and lawyer. Find a policy that provides comprehensive coverage.

So are you insured? Can you afford not to be?

Blogging Employees - Is Your Company Prepared for Them?

Even if you think you are, you need to read HRTechNews.com's What!? Company liable for employee’s personal blog? :

"An employee at software firm Cisco wrote an anonymous blog, which he used to criticize patent lawyers. He stepped over the line when he wrote particularly disparaging comments about two attorneys involved in a suit against Cisco.

They found out the author’s identity, and they’re suing him for defamation. They’re also suing Cisco, despite the fact that the blog was personal, written from the employee’s home and never mentioned any affiliation with the company.

Why’s the employer being blamed? Allegedly, the employee’s supervisor knew what he was writing, and never told him to stop."

***

Other keys to an effective policy:

• No blogging at work. You can’t control everything employees do, but you can tell them how they’re allowed to use the company’s time and property.
• Harassment rules apply to online communication. If someone would be punished for saying something in person, they can be punished for saying it online, too.
• No leaking confidential information or trade secrets.
• People should not identify themselves as agents of the company or imply that they represent the company’s views. (Cisco wrote a new policy requiring employees who blog to include a disclaimer that their opinions aren’t indicative of the company’s.)

Employers, Preventive Law and the Employee Leaving the Business

The best advice I found (lately) is this paragraph from Handle departing employees: When the grass is greener:

There are two lessons from the HISL case: first, listen to your employees when they have good ideas. Second, if you wish to prevent departing employees taking preparatory steps prior to leaving employment to ensure their future income, or competing with you after they have moved on, make sure your contracts of employment are properly drafted.

That last sentence nicely sums up what we lawyers call preventive law. As much as I write about litigation, as much as I do like trial work, preventive law is the best bet for business owners. (Actually, for everyone).

Why most people, businesses, institutions prefer waiting for litigation to hit is something that has puzzled me and has puzzled others. After so many years, I think the reasons are a desire to deny any risk and a desire to save on attorney fees until the lawsuit arrives at the door.

If you look over my articles here on non-compete agreements and trade secrets, you will see my emphasis on preventive law. The article I quoted above dealt with both of those subjects.

Indiana jurisdiction over out-of-state defendants

How do Indiana courts have jurisdiction over people and businesses not residing Indiana courts? After all, Indiana's civil jurisdiction ends at its borders.

Indiana's Trial Rule sets out how to get jurisdiction. Indiana Trial Rule 4.4 (Service upon persons in actions for acts done in this state or having an effect in this state) sets out the categories of actions by defendants which give Indiana court's jurisdiction over those defendants.
What neither the courts nor out-of-state businesses wants is to be brought into an Indiana court for an inadvertent incursion to Indiana. The law gives weight to the amount of contact an out-of-state defendant has with Indiana. Where defendant's the only contacts are by telephone
and without personal appearance in Indiana and it is the Indiana plaintiff initiating contact, Indiana law makes it very difficult to have jurisdiction over the out-of-state defendant. See Dura-Line Corp. v. Sloan, 487 N.E2d 469 (Ind. Ct App. 1986) and Baseball Card World, Inc. v. Pannette, 583 N.E.2d 753 (Ind. Ct App. 1991), trans. denied..

Indiana businesses need to be careful about dealing with out-of-state persons. Consulting with a lawyer about the problems of operating outside of Indiana is far cheaper than trying to collect a debt in another state.

Indiana Business Opportunity Transactions Act

For those buying or leasing goods from another to start a business, take a look at Indiana's Business Opportunity Transactions Act. The statute came to my attention when I found online a complaint filed by Indiana's Attorney General. The complaint is to be found here.

I have taken the liberty of quoting the most pertinent parts of the definition for "Business opportunity":

(1) involves the sale or lease or offer to sell or lease any goods or services to an investor that are to be used by the investor in beginning or operating a business;
(2) involves an initial payment by the investor of more than five hundred dollars ($500) and an initial cash payment of less than fifty thousand dollars ($50,000); and
(3) involves a solicitation of investors in which the seller represents that:

(A) the investor may or will earn an amount in excess of the initial payment as a result of the investment;
(B) a market exists for any goods to be made or services to be rendered by the investor;
(C) the seller may buy from the investor any goods to be made or services to be rendered by the investor;
(D) the seller or a person referred by the seller to the investor may or will sell, lease, or distribute the goods made or services rendered by the investor; or
(E) the seller may or will pay to the investor the difference between the initial payment and the investor's earnings from the investment.

Businesses can face felony charges, a civil suit, an action by the Attorney General or all of the above.

Suing Bloggers - Sort of a Follow up to "Employees and the Internet"

Along the lines of my post Employees and the Internet and extending it a bit further is Enjoining Damaging Web Posts by Former Employees Comes at a Steep Price from Workplace Privacy Counsel:

Employers should view the Bank’s experience as a cautionary tale. What started as a quick agreement and apparent resolution literally, as the saying goes, ended up on the front page of the New York Times. The case also shows how quickly journalists will publicize a story that can be portrayed as “an attack on the First Amendment.” Sometimes filing suit is not the best way for an employer to protect its interest.

Somewhat similar but for now not directly involving employees is the case noted in Jet Maker Subpoenas Blog Critics:

In the latest case of corporation-versus-blog, the manufacturer of a line of "affordable" jets is seeking to uncover the identity of persons who posted critical comments on an aviation industry blog. Eclipse Aviation has served a subpoena on Google Inc. seeking to out the identities of more than two dozen people who have posted anonymous comments to the blog Eclipse Aviation Critic NG, which is hosted on Google's Blogger service.

For employers who may not be aware of these suits, pay attention for this may become common than any of us would like.

Non-lawyer writing on non-compete agreements

Unlike some lawyers, I do not mind when non-lawyers write about legal matters - so long as they do not muff the law. No-Fault Divorce. Is It Time To Tie The Knot With A New Employee? from insurancenews.net does a good job with the legal issues. Besides, how can I object to an article that has the following paragraph:

To create a truly good agreement, start from the basics. It is worth the money to have an attorney involved in the drafting. But that is just the beginning. More important is that you, as the agency owner or manager, must guide the attorney to include the specific contractual elements you need.

I often wonder if my readers think my pronouncements about needing lawyers for a business are not a bit self-serving. Of course, they are self-serving to a point. I am looking for new clients, but I prefer to prevent problems for those clients to cleaning up the avoidable messes.

If you have a business then read all of the article. It applies to more than insurance agents.

Business' Top Ten Legal Mistakes

From 2003 and the Harvard Business School comes the article Top Ten Legal Mistakes Made by Entrepreneurs. Good points in the article even if all will not apply to all small businesses.

"'While the language of the law can be intimidating, the concepts are usually quite straightforward,' she says. 'Lawyers tend to be risk averse, and if you delegate to them you will usually stay out of legal trouble but can often compromise your business objectives. My goal for the course—and for the coaching I give entrepreneurs—is to give them sufficient comfort with the legal concepts to feel confident in driving the process, to understand the ways in which the law is a constraint, but also the ways in which it is a tool that can help you create and capture value.'"

I agree with the description of lawyers as risk averse - our job is to protect our client's best interests - but I disagree with the verb "delegate". As a business owner you ask what are the risks, I give you the risks, and then we perform a cost-benefit analysis. The lawyer's job should then become working to minimize the legal risks.

Employers - Protect yourself against wage claims

Here comes another example of how an employer can protect themselves from unnecesary lawsuits. Put another way, not protecting yourself makes makes necessary an unnecessary lawsuit. I suggest reading all of The Wage and Hour Class-Action Epidemic but study these points:

1. Conduct an internal audit to determine areas of vulnerability. Because employers bear the burden of proof, they should carefully weigh the benefits and risks associated with the classification of their employees. Employers should frequently conduct audits of their payroll practices and update their classifications to ensure positions are properly classified.

This process includes: becoming familiar with the regulations and updates; reviewing all exempt positions to determine if they are properly classified; monitoring work and relevant job descriptions for exempt employees to confirm exempt responsibilities and reclassifying positions if necessary.

2. Implement changes by modifying and utilizing existing resources. Employers can use existing systems to better track hours of work. For example, existing resources such as computer systems and fob-keys can be used to mandate log-in and log-out procedures.

3. Implement ongoing training and education to ensure the laws are understood by employees.

4. Mitigate the potential for misclassification by clearly defining job duties and responsibilities. Clearly defining responsibilities with training and performance evaluations that reiterate the same message are simple ways of guarding against violation.

5. Update record-keeping practices. The successful defense of any class-action lawsuit requires that employers maintain accurate and detailed records and documentation in the event that such records are later needed to refute alleged claims. The more accurate the record-keeping system is, the less chance of being presented with an exaggerated class-action claim for overtime and unpaid wages. Time clocks or other reliable electronic systems may be the best route for an employer wanting to ensure accurate records.

6. Diversify practices. An easy way to defeat claims of class allegation is to demonstrate that your practices vary by individuals and location. You can demonstrate this by drafting job descriptions and performance evaluations that emphasize ability to use discretionary judgment. Additionally, providing local operations discretion to implement certain practices that are specific to that location also creates a record of diverse practices.

New Trademark Blog and Declaratory Judgments

What is a declaratory judgment suit? I am glad you asked that question as I found a very good description of declaratory judgment suits in Dilution by Blurring's Declaratory Judgment Actions. Here is the question's answer from the article:

What is a “declaratory judgment”? A declaratory judgment is a judgment from a court that declares the rights of the parties in a dispute.

When would someone file an action for a declaratory judgment? Typically, a person files a declaratory judgment action when another person threatens them with litigation. In the trademark context, if Apple, for example, threatened to sue BlueAir for trademark infringement and BlueAir does not think that they are infringing Apple’s mark, then BlueAir can file a “dec action” in federal court to have the court determine who’s right as they did in this case.

I never get to use declaratory judgments very often but they do have their limits - as noted in the article.

From what I have seen, I like Dilution by Blurring. The blog takes on trademark law in a way that business owners as well as lawyers can understand.

Indiana's Deceptive Consumer Sales Act - Part 1

Let me say that for most of the past fifteen years I have been thinking Indiana's Deceptive Consumer Sales Act is pretty useless. That was when I tried a case on another subject - home improvements fraud - that also comes under the Deceptive Consumer Sales law and the judge implied an intent requirement where the statute does not require any such intent.

I find the Act's problems lying in the following provision and the general public's ignorance of the Act:

IC 24-5-0.5-5(a): No action may be brought under this chapter, except under section 4(c) of this chapter, unless (1) the deceptive act is incurable or (2) the consumer bringing the action shall have given notice in writing to the supplier within the sooner of (i) six (6) months after the initial discovery of the deceptive act, (ii) one (1) year following such consumer transaction, or (iii) any time limitation, not less than thirty (30) days, of any period of warranty applicable to the transaction, which notice shall state fully the nature of the alleged deceptive act and the actual damage suffered therefrom, and unless such deceptive act shall have become an uncured deceptive act.

I know that is a big chunk of statute to digest. Let me pick it apart a b it. First, the consumer must know that a certain act comes under the Act. Second, the consumer must write a letter explaining to the party providing the consumer good or service (that is the supplier mentioned above) explaining how they were injured within the time frame set out above. Unless, of course, the act is incurable. The statute brings an intent requirement into its definition of "incurable deceptive act":

IC 24-5-0.5-2(a) (8): "Incurable deceptive act" means a deceptive act done by a supplier as part of a scheme, artifice, or device with intent to defraud or mislead. The term includes a failure of a transferee of structured settlement payment rights to timely provide a true and complete disclosure statement to a payee as provided under IC 34-50-2 in connection with a direct or indirect transfer of structured settlement payment rights.

Which brings us back to common-law, tortious fraud which is not required when a supplier does nothing to cure (fix) the deceptive act within 30 days of receiving notice of the consumer's injury.

The consumer loses if:

1. If a consumer does not know that a transaction comes under the Deceptive Sales Act; or
   
2. If the consumer does not send written notice of the injury.

Little noise gets made about this statute. Yet, the statute has a lot of potential. So now I will be making some noise about the statute. Over the next week or two, I hope to explore the statute in some detail. For what has changed over the years is the availability of the Internet to publicize and informing the public is one purpose of this blog.

Business owners, do not think that what will follow does not apply to you. I think consumers and business owners are ill-served by the statute's relative obscurity. Honest business people can find themselves ensnared by the statute just as dishonest suppliers can escape penalties thanks to the general public's ignorance.

Trademarks and trade secrets - Important for your Business?

From the San Jose Mercury News Dynamic nature of patent law actually has more to do with all kinds of intellectual property for business.

"Paul Goldstein, a Stanford law professor, has written a new book on the subject. Despite its title, 'Intellectual Property' (Portfolio, Penguin Group) is an easy read and a good guide for anyone starting or operating a company involved with patent, trademark and copyright issues. And is there any other kind?"

The article goes onto a Q & A with the author:

Q Your book, "Intellectual Property" is subtitled "The Tough New Realities That Could Make or Break Your Business." What are they?

A The realities center around the volatility of intellectual property law - not just patents, but copyrights, trademarks and trade secrets. An abrupt change in any of these areas of law can make or break your business.

Q By "abrupt change," you mean. . . ?

A An example: In the early 1970s, Kodak looked at the instant photography business that Polaroid monopolized, thanks to its patents. Kodak had expert counsel, relying on existing patent law which imposed a high standard, telling it that these patents were invalid, under existing standards.

So Kodak invested $600 million, relying on these expert opinions. Well, by the time the product came out, the Court of Appeals for the Federal Circuit had lowered the patent standard, and suddenly patents that looked invalid when Kodak made its investment were now valid. Once you count the damages levied against Kodak, their loss was over a billion dollars, just because the legal standard changed.

Q Can a company protect itself against something like that?

A There are cycles of high and low protection for each form of intellectual property. In the book, I identify the dynamics that indicate where on these cycles we are today with each area of law and what companies can expect to happen.

For example, patents were on a huge upswing starting in 1980s through the end of the century. Now the pendulum is swinging in the opposite direction.

Q Where else are we in this cycle?

A Trademark is in a long-term upswing. It has, over a 100-year period, expanded from a narrow remedy aimed at protecting consumers from confusion to a robust property right. Look at the polo player on the Ralph Lauren shirt, or the name Calvin Klein - these names and brands have taken on a value of their own, almost like a product or a song.

That's been a huge expansion of trademark, and there's no sign it's going to slow down.

Copyright, on the other hand, is in a more modest way encountering the same cutbacks as patents, most notably in the courts.

One thesis of the book is that these changes occur because of public sentiment. In 1998 Congress extended the term of copyright by 20 years. It was a move of no great prospective economic consequence. But it served as a lightning rod in this country for people who said this was a greedy move to monopolize the public domain. As a result, you'll find courts today carving out exceptions to copyright to a degree that we've never seen before.

Wage and Hour Litigation by Way of Iowa

Up early this morning trying to catch up on some reading and a little writing here. So what has Iowa got to do with Indiana? Both states share the federal Fair Labor Standards Act (FLSA). Rush on Business has three good articles on the FLSA. Start with the latest - Tips on How to Avoid Wage & Hour Lawsuits.

Since I left my in-house position, I have not kept as close an eye on the FLSA and these articles contain some very good reminders. For businesses I cannot think of any better advice than this:

Update: SMBTime blog had a great point in a follow up to this blog post regarding the fact that businesses should consider hiring an attorney to conduct the wage and hour audit so as the maintain the attorney-client privilege.

Trade Secrets: This Week's News

Xconomy continues its coverage of the IRobot case with IRobot Seeks Sanctions Against Robotic FX in Alabama Case; In Other News, the DeLorean Has at Least Two Remaining Fans. The parties have an Alabama case as well as the previously commented on Massachusetts case: "...the Alabama case focuses on two iRobot patents the company says the Negotiator infringes upon...."

I admit that the following may not have much to teach but it is too fine a paragraph to pass up:

As we at Xconomy have come to expect from the filings in this case, last week’s offerings are chock full of quirky details and attorneys’ wry observations. One of my favorites from this batch is a footnote to the section of the brief describing the shredding of the CDs and wiping of hard drives: “To put Mr. Ahed’s actions in perspective, destruction of a mere 60 megabytes of data from a hard drive has been described as being ‘the equivalent of 29,297 typewritten pages.’…Here, Mr. Ahed destroyed at least six thousand times as much data. If this information was printed and stacked, it would reach more than ten miles into the sky. If Mr. Ahed had shredded this paper at the rate of one page per second, it would have taken him five and one-half years to destroy it—even assuming he worked 24 hours a day, 7 days a week (and took no breaks to buy new shredders).”

It does put in perspective the differences between digital and paper information. Something that the other news story also bears upon.

Information Week reports on Former DuPont Scientist Sentenced For Trade Secret Theft.

On Tuesday, a former DuPont scientist who admitted stealing company secrets was sentenced to serve 18 months in prison, fined $30,000, and ordered to pay almost $14,500 in restitution to DuPont.

Gary Min, 44, was sentenced in Wilmington, Del., for stealing DuPont trade secrets, an act he admitted to in November 2006. The maximum sentence for his offense is 10 years in prison and a $250,000 fine.

Prior to sentencing, Min reportedly asked for leniency because incarceration would be a hardship on his family and because his actions did not result in significant financial loss to DuPont. The estimated value of the documents exceeded $400 million, according to the government.

I guess digital information played a part in IS & S case but I cannot tell from The Philadelphia Business Journal's IS&S wins trade secrets trial.

Innovative Solutions & Support Inc., maker of display systems, data equipment and computers for aircraft, said Wednesday a jury has awarded it a little more than $6 million in a trade-secret misappropriation trial.

The Exton, Pa.-based company said the jury unanimously found that each of the defendants had misappropriated IS&S' air data computer technology and that it had suffered damages of slightly more than $4.4 million in lost profits and $1.6 million in net profits earned by the defendants.

While the defendants contemplate their options of appealing the judgment, Indiana business owners might want to contemplate whether they can afford these kind of losses. If you think you cannot, then get with your business's lawyer and prepare yourself to prevent this kind of loss. I am available for consultation if your business does not have an attorney.

Thinking more about restaurants and intellectual property #1

Does a restaurant need trademarks? Do most businesses need trademarks?

The New York Times' coverage of the Pearl Oyster Bar litigation got me thinking about how its points would apply here. I made some comments within the original post and others have occurred to me since then.

First, I want to be clear that I am not addressing all restaurants. Franchise restaurants have franchisors eager to protect their trademarks and trade secrets. Nor am I addressing those restaurateurs who do want to expend the money to protect their intellectual property. I specifically exclude them on the assumption that they have made the decision that any infringement has not or will not cost them any money. A civil suit requires damages and that will be measured in dollars. No damages means no lawsuit.

I remain convinced that trademarks are the most cost effective intellectual property for any small business. The name must be unique and used in connection with the business. This could include the business' name or items on the menu or both. Trademarking the business' name provides protection against the competitor with the same or a similar name moving into the same area. While bringing menu items under a trademark provides protection from a competitor using your business' success with a menu item for their own purposes. You can see the government's fees for trademarking here.

You have the ultimate decision as to trademark or not. Remember enforcement costs do exist. I suggest thinking of trademarks as a form of insurance. Like all insurance, you need to think about what will be your costs if you do not have the insurance.

4/26/08 update: Follow Up on "Restaurants and intellectual property" about settlement of this case.

Restaurants and intellectual property

From last week's New York Times about a New York restaurateur filing suit for against a knock off of her restaurant. Since the original article might not be available for long, I am quoting at some length.

***

The suit, which seeks unspecified financial damages from Mr. McFarland and the restaurant itself, charges that Ed’s Lobster Bar copies “each and every element” of Pearl Oyster Bar, including the white marble bar, the gray paint on the wainscoting, the chairs and bar stools with their wheat-straw backs, the packets of oyster crackers placed at each table setting and the dressing on the Caesar salad.

Lawyers for Ms. Charles, 53, said that what Ed’s Lobster Bar had done amounted to theft of her intellectual property — the kind of claim more often seen in publishing and entertainment, or among giant restaurant chains protecting their brand.

In recent years, a handful of chefs and restaurateurs have invoked intellectual property concepts, including trademarks, patents and trade dress — the distinctive look and feel of a business — to defend their restaurants, their techniques and even their recipes, but most have stopped short of a courtroom. The Pearl Oyster Bar suit may be the most aggressive use of those concepts by the owner of a small restaurant. Some legal experts believe the number of cases will grow as chefs begin to think more like chief executives.

Charles Valauskas, a lawyer in Chicago who represents a number of restaurants and chefs in intellectual property matters, called their discovery of intellectual property law “long overdue” and attributed it to greater competition as well as the high cost of opening a restaurant.

“Now the stakes are so high,” he said. “The average restaurant can be millions of dollars. If I were an investor I’d want to do something to make sure my investment is protected.”

Business means money and at the bottom of most businesses is some sort of intellectual property - service/trademarks, patents, copyrights, trade secrets. Protecting the business means protecting that same intellectual property. The businesses failing to protect their most basic intellectual property is probably surprising to many - including the business' owners! That most basic intellectual property being the business' name in the form of a servicemark or a trademark. Restaurants are particularly lax at protecting their names.

The article brushes against two areas where restaurants face a bit more difficulty than other businesses.

But the detail that seems to gnaw at her most is a $7 appetizer on Mr. McFarland’s menu: “Ed’s Caesar.”

She has never eaten it, but she and her lawyers claim it is made from her own Caesar salad recipe, which calls for a coddled egg and English muffin croutons.

She learned it from her mother, who extracted it decades ago from the chef at a long-gone Los Angeles restaurant. It became a kind of signature at Pearl. And although she taught Mr. McFarland how to make it, she said she had guarded the recipe more closely than some restaurateurs watch their wine cellars.

“When I taught him, I said, ‘You will never make this anywhere else,’ ” she insisted. According to lawyers for Ms. Charles, the Caesar salad recipe is a trade secret and Mr. McFarland had no more business taking it with him after he left than a Coca-Cola employee entrusted with the formula for Diet Coke.

Mr. McFarland called the allegation that he was a Caesar salad thief “a pretty ridiculous claim.”

“I have my own recipes for my items,” he said.

I see both trade secrets and copyrights implicated in the preceding section. Recipes made public can be copyrighted but if not made public ought to be treated as a trade secret. The Times touched on patents and trade secrets:

One of Mr. Valauskas’s clients, Homaro Cantu, has applied for patents on a number of his culinary inventions, like a method for printing pictures of food on flavored, edible paper. Mr. Cantu also makes his cooks sign a nondisclosure agreement before they so much as boil water at Moto, his restaurant in Chicago.

Tim Wu, a professor at Columbia Law School, said that this almost seemed an inevitable result of bringing lawyers into the kitchen. “The first thing a lawyer would say is have all your people sign nondisclosure agreements,” he said. “It’s a classic American marriage between food and law.”

Abstractly these all sound like great ideas but I must make an assumption that patents and copyrights are justified by the potential for loss of income to the business. The time captured the practical value of patents and copyrights:

Few chefs have followed Mr. Cantu’s footsteps all the way to the Patent and Trademark Office. One who did is David Burke, the chef at David Burke & Donatella, on the Upper East Side and other restaurants. He said he had trademarked a “swordfish chop” but no longer tried to defend that term from copycats.

“You’ve got to chase people down if they use it. I got tired of it,” he said. But he said he still applied for trademarks on more recent innovations, like his bacon-flavored spray.

Many chefs are skeptical that intellectual property law conforms to their line of work. Tom Colicchio said that he had decided not to do anything about a sandwich shop that he considers a clone of his sandwich chain, ’Wichcraft. “There’s nothing you can do,” he said. “You can’t protect recipes, you can’t protect what a place looks like, it’s impossible.”

Got a recipe or a process upon which the business depends? If it fits within the definition of a trade secret, then a non-disclosure agreements seems a small enough cost to me. I have a greater problem with patents or copyrights, but particularly patents. That depends on a cost-benefit analysis based upon facts of which I have no idea at this time. However, I would suggest a patent in a situation where the item being patented could be licensed to other businesses. Think about that one.

Since writing the above, The New York Times' Diner's Journal Blog posted a bit of a follow up (and photographs of the restaurant) in the post: Pearl Oyster Bar. The blog post notes that the plaintiff's complaint includes an allegation for breach of fiduciary duty. The New York Times' writer actually does a great job defining fiduciary duty:

Ms. Charles accuses Mr. McFarland of “breach of fiduciary duty and misappropriation of corporate opportunity.” In legalese, a “fiduciary duty” is like a kind of loyalty that you owe somebody who places their trust in you. You’re not supposed to put your own interests above theirs. The term is sometimes applied to executives or directors of a corporation, but there are also times when a doctor owes a fiduciary duty to a patient, or a lawyer to a client. Ms. Charles’s lawyers are arguing that as sous chef of Pearl Oyster Bar, Mr. McFarland had a fiduciary duty to the restaurant.

The blog post also mentions allegations of the defendant poaching (the same verb used by the Times' blogger and I assume no pun was intended) employees from the plaintiff. Which makes me think that in a restaurant of this sort needs non-competition agreements for its employees. Any sort of business having a key person who can bring down a business needs a non-competition agreement for that employee.

I do suggest reading the comments to the blog. Some very preceptive comments about business generally, and the restaurant business specifically.

4/26/08 update: Follow Up on "Restaurants and intellectual property" about settlement of this case.

Five Ways to Legally Hurt Your Business

A list of things that a business can do to hurt itself by not taking the proper precautions under the law.

1. Fly Solo.

Business has enough risks, so why risk both your business and your personal assets? Operating as a corporation or a limited liability company protects your persons assets from your business creditors. Setting up a corporation or a limited liability company is relatively inexpensive - far more inexpensive than finding your home and personal bank accounts attached by your business creditors.

2. Not Setting Up a Corporation or Limited Liability Company Properly.

Paying an attorney to set up a corporation or a limited liability company looked like an avoidable expense when you saw that online or computerized program. If you cannot afford an attorney for an incorporation or a limited liability company, then you need to seriously consider whether you have the capital to run your business. Incorporating a business involves more than sending the Indiana Secretary of State Articles of Incorporation and a check. You do not want to wake up on day and find out that your incorporation incorporated nothing. Why not? See #1. An LLC operating agreement is a true retail product and you can find yourself with even more problems than with a stillborn corporation. These kinds of problems lead two kinds of attorney fees: big ones or just one to a bankruptcy attorney.

3. Fail to Protect Your Intellectual Property.

What is intellectual property? Trademarks, copyrights, patents, and trade secrets. The first three require filings with the federal government for full protection. Trade secrets require self-help. More importantly: these are the things that you actually make you money. If someone uses your business name or your business product, this steals from the work you did. Don’t protect it and it is gone and so goes your business. You need an attorney for the work on trademarks and copyrights and patents (you actually need a patent lawyer for patents), and you should have an attorney to review your trade secret protections. If you cannot afford these services, then you better ask yourself if you can afford to stay in business.

4. Fail to Protect Against Employees.

You know to keep an eye on the cash register even if your business no longer has a cash register. What about the other assets of your business? The trade secrets, the company goodwill, the company client list? Ask this about your employees: if any left, which ones could truly harm the business? Now ask yourself about those particular employees: do I have a non-compete agreement? If not, why not?

5. Never Establish a Working Relationship with your attorney.

Here is the best tip I can give any business owner on saving money: get your attorney involved at the start of the process and not at the end. Litigation costs more than a year’s consultation.