Wisconsin Business Law and Litigation
A blog dedicated to Wisconsin business law and business litigation matters, authored by Chris Moander of the Moander Law Firm.

Rush Nigut posted a slew of good links to information on purchasing a franchise, including some stuff by Teri Rasmussen, the SBA, and Mike Hamblin - all good sources to get a handle on how the franchising process works.

I came across a series of posts on wind energy and taxes at the Tax Law and Business Organization Strategy blog. I have not read all seven yet, but Jack Howell has done a thorough job analyzing a huge number of issues that one may encounter when developing windpower on a property. WE Energies has pushed windpower for five years, so it is worth considering the tax implications of future development, such as selling of wind rights, the debate of royalties on windpower, and everyone’s favorite - wanting to push power back on the grid.

Dear Readers,

I want to give some much-deserved credit to my fellow attorney and friend Jon Groth, author of Jon Groth’s Personal Injury Weblog, which focuses on personal injury law in Wisconsin. His blog effectively address personal injury matters in light of local events - two good examples are his posts on the recent Burkosky family tragedy in Oconomowoc. Please check out his blog and drop him a line.

Jon also is a member of the Wisconsin Solo and Small Firm Conference Planning Committee. He has been and will continue to work tireless on one of the great bar events in Wisconsin.

Take note, companies that sell software or offer online services - it is fairly simple to ensure that you EULA is enforceable. As Kraig Baker points out: make sure the contract terms are clear, accessible to individuals to be bound by the agreement, and enforced consistently. Kraig reinforces good old common sense here - keep things simple.

The Small Business Times did a wonderful job last week in organizing the Biz Tech Expo. Above all, the speakers were great, at least so far as those to which I listened.

From a business law standpoint, several things stood out to me:

• If you are wanting to cut healthcare costs and keep employees in good working order, wellness programs are the “wave of the future.” It comes as no shock that offices function better and employees are happier when employees are psychologically and physically healthier - prevention works. I have no proof of my claim, but I would suspect that legal issues with employee behavior are fewer when overall happiness exists in the workplace. Also consider that wellness programs are not just cushy benefits, but rather focus on career paths for workers which yield a better business on the whole - the right people in the right place with the right mindsets….hard to beat that.
• Wisconsin, particularly Milwaukee, is behind similarly sized cities in truly utilizing the web for business purposes. At first, I did not really believe this, but several tech executives with which I spoke indicated that SE Wisconsin has been resistant to (1) web marketing and (2) web applications. Organizations that elected to use the web have leapt over competitors quickly. The lesson here: the web isn’t a fad (I’m sure you know this as you’re reading a blog), so fork over the cash for a killer site showcasing your goods, but bear in mind that you still need to get your intellectual property protected and need to be ready to formualte new contracts with new customers.
• If there is a recession, small business in SE Wisconsin has managed to avoid it. I asked each representative how business was going and, assuming I was not being lied to, business is good. The other side of the coin is that attendees to the Expo may not be an accurate cross-section of businesses in the Milwaukee area. As a final note on the matter, I was impressed with the professionalism and competence of the vast majority of businesses I met and I can certainly see why they are doing well.

Dear Readers:

I will be attending the Small Business Times BizTech Expo for the next few days. If you have not had a chance to sign up, come on down. I’m very excited about this event because it’s drawing some major national speakers and some quality local speakers. Aside from the usual expo set up of booths and chit-chat, there well over ten individual business strategy seminars that are free to people attending the event!

If you do come on down, I will be the guy likely having a great time meeting new folks, learning about new technologies, and talking shop with everyone and anyone.

I came across a link that I think outlines the basics of how venture capital works. The slideshow shows key elements of the financing process. What I find particularly important and useful is the explanation of why VC firms need and, frankly, deserve preferred stock in companies in which they invest - I love the fact the author uses the term “mischief” to describe the alternative of giving VC’s common stock.

I also think the author has the right idea in emphasizing that both investors and entrepreneurs have something to gain from transparency in the financing process - if everyone understands the terms, a true “meeting-of-the-minds” occurs and each side is happy with the deal.

Now, I do not claim to be an economist and neither does Larry Bodine, but he claims that the current recession is on its way out. His evidence appears to support his assertion. At the very least, any sign that a part of the economy is rebounding should bring some hope to businesses and individuals around the US.

It seems like no business gives substantive employee references any more. From my first job to my most recent (aside from my own firm), I don’t recall one instance of any former employer telling a potential employer anything more than “I would hire him again.” Pretty thin on details and value. We know why this trend came along…lawsuits. But is a five word reference the best practice?

The April 2008 Wisconsin Lawyer magazine has a wonderful article on the issues of employer liability and employer references, written by Matthew L. Mac Kelly. Mr. Mac Kelly outlined several points to curb employer exposure to liability when giving references, a few of which I think are novel and allow an former employer to actually communicate quality information to potential employers instead of doling out useless platitudes.

• Be truthful when making references, especially when you think the former employee poses a foreseeable risk to potential employers/co-workers. On the other hand, claiming a former employee engaged in specific conduct (especially illegal or inappropriate conduct) is a bad idea. Instead, an former employer could refer to the suspicion that the former employee engaged in certain activities.
• A former employer can formalize the reference process by selecting particular employees as the “reference folks” who have a duty to handle reference calls - only they can give references. To further formalize the process, a policy can be instituted requiring proof that a reference request is being made for a legitimate business purpose. All reference requests must be submitted in writing to the “reference folks,” thus ensuring that any reference is legit and proper.

The Coca-Cola formula. The Colonel’s Secret Recipe. Both are well-known as “trade secrets” and it also well-known that both are valuable and aggressively protected. So, what is a trade secret and what does that definition potentially mean for your business?

Wisconsin has adopted the Uniform Trade Secrets Act, which defines a trade secret - trade secret law is state-based, unlike other forms of intellectual property law. In simplified form, a trade secret is:
- information (formula, pattern, program, etc) from which your company gains specifically identifiable economic value by virtue of not being known by competitors, and
- you put reasonable efforts into keeping that information secret.
Reflecting on Coke’s formula, you can see that it’s formula provides the company with economic benefits because nobody else can reproduce the exact flavor of Coke absent the trade secret formula. Further, the formula is revealed to only a few Coca-Cola employees. Thus Coke has a trade secret.

The primary problem businesses run into with trade secret law is the second prong - reasonable efforts to maintain secrecy of the trade secret. Courts judge reasonableness based on the nature of the secret so a business generally has no way to predict what protection measures will be sufficient in the court’s eyes.

Employees are the main issue in most trade secret matters; Watergate-esque break-ins are not the real concern. Two major employee-centered problems arise: (1) whether your employees (new or not) are misappropriating the trade secrets of another business/former employer and (2) whether current and ex-employees misappropriating your trade secrets. The former subjects you to potential liability and the latter causes you to lose money and potentially need to litigate (although employee actions may not be prevented by internal rules and thus such theft is no fault of yours). For clarification, misappropriation occurs when somebody (most likely an employee) “takes” a trade secret (usually from an employer) and uses it without the owner’s consent.

When new businesses begin hiring, they are driven clarify to extreme degrees that no employee should bring in either ideas, documents, etc from former employers to use at the new job. They may also inquire into any non-compete or non-disclosure agreements the employee signed with a prior employers and, contrarily, may have employees sign new non-compete and non-disclosure agreements to protect the company’s own trade secrets.

There is no doubt that trade secrets are valuable, but they require constant tending, like a plant.