If you are forming an LLC with your bestie—and you want your bestie to stay your bestie—you need an operating agreement. People tend to think of legal agreements as an indication that they don’t trust their business partners. That really isn’t the point of an operating agreement. You probably think you’re on the same page. How do you know for sure? An operating agreement. How are you going to handle differences in opinion later on? You create strategies to break ties…in your operating agreement. How do you protect yourself from default LLC provisions that run counter to the way you want your business to operate? Again, an operating agreement.
Throughout law school, I heard my classmates say they chose to become attorneys because they don’t like (or aren’t good at) math or science. I find that interesting because writing a contract (at least, a good one) requires the same thought processes, analysis, and structure as writing software code.
One of the fundamental principles of software design is abstraction. As much as possible, a good developer tries to find commonly used code and abstract it out to prevent repetition. In turn, this abstraction leads to software with fewer errors that is also much easier to maintain. Good attorneys also use this abstraction principle to create robust contracts.
I like clients who are smart. I like clients who have done their homework. Sometimes, however, a client can know just enough about the law to be dangerous. The language of law is complicated. Bylaws are very different from an operating agreement. Independent contractors are very different from employees. You understand your business model but, until you communicate it to your attorney, she doesn’t. Leading her down the wrong path can cost you a lot of grief, time, and money.
One of the most frequent questions I get asked is how a client can protect the ideas in the new mobile app she is creating. The three most common ways of protecting IP are patents, copyrights, and trademarks. Unfortunately, none of these are effective in protecting a developer’s idea. A patent protects an idea but it is highly unlikely that the idea underlying a mobile app—no matter how clever—rises to the level of novelty required for patent protection. So, what about copyrights? Well, a copyright only protects the expression of the idea—not the idea itself. That means a copyright can protect your source code and maybe even the look and feel of your app but not the concept of the app itself. Finally, there are trademarks. Trademarks, however, only protect your brand—not your idea. Is there anything you can do? Kind of. You can protect your ideas before the mobile app is launched using the oft forgotten concept of trade secrets.
When I talk to business owners who are reluctant to store their customer information in the cloud, they most often tell me that they do not want to use the cloud because of the duty they owe to their customers to protect that data. Many of us are control freaks and we think that if we physically keep the files on our own laptops, on our own flash-drives, or on our own servers, we can better protect this data. This stands to reason because who will take more care with our customers’ data than we ourselves? This seems reasonable…until a tornado or a hurricane or a flood comes along.
If you are confused by legal mumbo jumbo, you certainly aren’t alone. Sometimes, the way attorneys write is confusing even to other lawyers. Even though there is a shift in the law toward writing contracts in more “human-friendly” ways, capitalized common words that aren’t usually capitalized, WORDS IN ALL CAPS, and specific words and phrases (known as terms of art) are there because of their legal significance. Some things cannot be de-legalesed. I hope after you read this, you will understand contracts a little bit better.
You got that, right? When you are using a mobile app, you are “signing” a contract with the app provider.
So, what is a double-sided marketplace (or, a two-sided marketplace)? We use these marketplaces every day but most people have never heard this term. A double-sided marketplace is essentially a marketplace that brings together two categories of users who need each other to be successful. One of the most familiar examples is Uber®. Uber requires both drivers and passengers; otherwise it would not be a business. Other examples include matchmaking businesses such as Match®, business review platforms such as Yelp®, and sites like eBay® that bring together buyers and sellers.
These double-sided marketplaces are especially prevalent in the mobile app world but these marketplaces have an unusual legal risk associated with them. This risk revolves around the lack of control over the users.
Software as a Service, or SaaS, as it is more commonly known, is a method for delivering software through an internet browser. The user simply types in a URL and then enters a username and password to access the program. This delivery model is very different from a licensing scheme where the user downloads the software from the internet or goes to Best Buy® and buys it off the shelf before installing it onto her own personal computer or company server. There are many benefits to SaaS, such as access from any internet-enabled device, scalability to many users, and automatic upgrades, but along with these conveniences comes a unique set of liability and content ownership issues. Most of the issues stem from the fact that because the software is not installed on the user’s own server, it is not within the user’s direct control.
What do chickens and eggs have to do with trademarks? Nothing, really. I just thought about that question when I was talking to a client who was trying to decide whether he should file a trademark application for his company’s name or his company’s logo first. And, as any good attorney will tell you—it depends—but usually it should be the chicken (I mean, the company’s name). Why should the company’s name be filed first? To save you money.