Wed, January 31st, 2007 - 12:03 pm - By Gordon Basichis
We saw this article on Yahoo.com
Jobless Claims Rise To 16 Month High.
By MARTIN CRUTSINGER, AP Economics Writer
The number of Americans filing applications for unemployment benefits shot up last week by the largest amount in 16 months, reversing two weeks of big declines.
The Labor Department reported Thursday that 325,000 newly laid-off workers filed claims for jobless benefits last week, an increase of 36,000 from the previous week. That was the biggest one-week rise since a surge of 96,000 claims the week of Sept. 10, 2005, when devastated Gulf Coast businesses laid off workers following Hurricane Katrina.
The increase of 36,000 was bigger than the 20,000 rise that had been forecast. Analysts, however, cautioned that it is difficult to read the claims figures at this time of year because of unusually wide swings caused by the holidays and other factors.
Based on past trends, claims numbers often surge in third week of the month as retail businesses shed seasonal workers hired to help with the crush of holiday shoppers. However, this year, the layoffs were much higher than in past years.
The jump in jobless layoffs followed a string of reports showing the economy was performing at a better-than-expected pace at the end of 2006 and the beginning of the new year. Employers added 167,000 new jobs in December, helping to keep the unemployment rate at 4.5 percent.
Economists believe that while growth has slowed because of the steep downturn in housing, they expect the United States will be able to avoid an outright recession.
The 36,000 increase in layoffs followed two weeks in which jobless claims had fallen by a combined 36,000. The four-week moving average for layoffs, designed to smooth out the weekly volatility, edged up slightly to 309,250 from 207,750 the previous week.
For the week ending Jan. 13, a total of 33 states and territories reported an increase in claims before adjusting for seasonal variations while 20 states and territories reported declines in claims.
The increases were led by California, which saw jobless claims rise by 10,115, an increase blamed on higher layoffs in construction and service industries. Layoffs were up by 8,870 in Michigan and 6,418 in Texas.
The states with the biggest decline in layoffs were New York, down by 26,764; North Carolina, down by 10,072 and Georgia, down by 8.987.
The state data is not adjusted for seasonal variations.
Corra never likes to see reports showing more people are out of work. That and the increase in house foreclosures is always a bit depressing. Corra, like the rest of you, hopes for a robust, well educated workforce that will help build the American economy well through the twenty-first century.
But then, there are more jobless. That’s always the downside. The upside of the equation is that you and your businesses have a wider selection of job candidates. Choose carefully, for some may have merely been downsized and others may have been dismissed for other reasons. Even if it was during the downsizing of a company that may have been an excuse to get rid of the deadwood, the substance abusers, sexual harassment idiots, and even the office thieves.
So be smart when you are hiring from the job pool and conduct preemployment background checks on everyone you hire. You should most definitely run a criminal report. If someone has access to your proprietary information, you would do well to run a credit report. A Social Security Trace will help determine if someone has a valid SSN number and is in fact a legitimate worker. With the government starting to crackdown on those who hire illegal workers, you don’t want to be its bad example.
So be smart, and as Corra always says, check them out before you hire.
Tue, January 30th, 2007 - 2:51 pm - By Gordon Basichis
Keeping It Confidential
Making the most of your intellectual property when seeking investors means making sure it’s not compromised.
From: Inc.com
As mentioned in last month’s column, your approach to making the most of your intellectual property (IP) is one of the factors that potential investors and/or co-venturers typically consider when making a decision about whether or not to invest in your company. It is important to keep confidentiality in mind when dealing with potential investors and co-venturers.
Can you assume that information provided to a potential investor or co-venturer remains confidential? The answer is, pure and simple, no! Under most circumstances unless there is a contractual obligation to the contrary, they can use (and tell others) any information that you give them. And worse, in most cases if you disclose information to anyone that is not under an obligation of confidentiality, the “confidential status” of that information is lost not only with respect to that prospect but also with respect to everyone else.
How do you create this “obligation of confidentiality”? The best way is with a written confidentiality or nondisclosure agreement (NDA), although an oral agreement can sometimes be enforced (if you can prove there actually was such an agreement). Simply marking a business proposal “confidential” and sending it to a prospect does not work — this “proprietary legend” does not create an obligation of confidentiality. Likewise, sending the confidential information with a proposed confidentiality agreement for the prospect to sign is a dangerous proposition. You want a signed confidentiality agreement in hand before you provide any confidential information.
Do you always need a written agreement to establish an obligation of confidentiality? Not always, but the exceptions are rare, and most often do not apply to situations where you are seeking investors or co-venturers. For example, you can sometimes show that an obligation of confidentiality has been assumed by a prospect through your history of prior dealings with them (referred to as “course of dealings”). However, this can be extremely difficult to prove, and in any event, the precise extent of the confidentiality obligation is typically limited or uncertain without a definitive written agreement. An obligation of confidentiality with respect to certain types of information also can be imposed by law when certain specific relationships (such as attorney-client, employee or-employee, doctor-patient) exist.
It is extremely important to make sure that the actual terms of an NDA fit your particular circumstances. Not all NDAs are created equal. Some agreements require procedures that are impracticable when applied to the actual relationship between the parties. For example, an agreement that requires all protected confidential information to be identified in writing may be just fine for an arm’s-length relationship where all communications are carefully controlled (e.g. limited to documents sent by mail or overnight delivery), but totally inappropriate in a situation where the other party has representatives visiting your facility. Other agreements place artificial lifetimes on confidentiality (e.g.,”the information will be maintained in confidence for a period of one year from the date of disclosure”) that have no basis in reality and can, in practice, hobble the IP strategy of the typical business.
In general, to protect your confidential information it is desirable that all information disclosed be protected unless it is clearly not confidential and/or can be shown to fall within certain standard exceptions. For example, the standard exceptions include information, which is already known to the public at the time it is disclosed, or which is later made public (other than by fault of the party receiving the information).
Do you need an attorney to prepare a confidentiality agreement? You are taking a risk if you do not at least have an IP attorney give the confidentiality agreement his or her blessing. There are a lot of “form” confidentiality agreements floating around. Many versions are available for download through the Internet. (In fact, I include a number of sample confidentiality agreements in my IP Tools product). The issue is whether the specific terms of a particular generic agreement fit your circumstances. It may or it may not. Do you want to deal with the consequences if the agreement is inapplicable in to your circumstances or does not cover all of your bases? I suggest that you do not. You are typically best served by having the agreement reviewed by IP counsel.
What if a prospect refuses to sign a confidentiality agreement? Many professional investors (such as venture capitalists and sophisticated angels) and large companies (potential co-venturer or licensee) are reluctant, at least initially, to sign confidentiality agreements. They tend to be concerned that they may be considering an investment in a competitive company, or have ongoing independent research on the same subject as your submission. They are afraid that they will end up in litigation if they decline to do business with you, and instead invest in the competitor or continue with their independent research.
As a practical matter, to proceed in the face of that attitude, you simply assume that “anything you say can and will be used against you.” You have to take a calculated risk — the risk that the prospect will “appropriate” everything that you disclose to them — but that risk can be minimized. Patent applications can be filed (if appropriate) before you contact the prospect. Information can be provided in stages. You do not disclose any information that is truly sensitive in your initial communications. In many instances, if the potential investor or co-venturer is sufficiently interested to take the next step, and disclosure of sensitive information is required, they are at that point willing to enter into a confidentiality agreement. If they are not, you can choose to take another calculated risk, or terminate the discussions.
Corra thinks this is a terrific article about the ins and outs of intellectual property and proprietary information. The article shows the pitfalls and vulnerabilities as well as the value attached to bartering your intellectual property with other companies and their intellectual properties.
What the article does not point out is that much abuse and theft comes from within your own company. Employees who are not carefully scrutinized often have access to intellectual property and proprietary information, like credit card databases and client contact lists. There are more than a few incidents where a business was seriously compromised by an integrity challenged employee stealing valuable proprietary information or intellectual proprietary and selling it to a rival company.
That is why Corra recommends that you run pre-employments screening on all job candidates, and periodic screenings on current employees. Besides a criminal background check, we recommend a credit report, especially for anyone who has access to proprietary information and intellectual property. People who have serious credit problems are often more susceptible to the pressures of those who are willing to pay for such sensitive information. We recommend a Social Security Trace, to validate the social security number and verify that the the number actually belongs to your job candidate. Education verification is also a good idea. It helps make sure those with access to sensitive data are qualified to use it.
As Corra says, check them out before you hire.
Mon, January 29th, 2007 - 11:35 am - By Gordon Basichis
We received this from a friend who had pulled it from the FBI Website.
TELEPHONE FRAUD INVOLVING JURY DUTY
Washington, D.C. - The FBI today is providing a warning to the public against an ongoing scheme involving jury service. The public needs to be aware that individuals identifying themselves as U.S. court employees have been telephonically contacting citizens and advising them that they have been selected for jury duty. These individuals ask to verify names and Social Security numbers, then ask for credit card numbers. If the request is refused, citizens are then threatened with fines.
The judicial system does not contact people telephonically and ask for personal information such as your Social Security number, date of birth or credit card numbers. If you receive one of these phone calls, do not provide any personal or confidential information to these individuals. This is an attempt to steal or to use your identity by obtaining your name, Social Security number and potentially to apply for credit or credit cards or other loans in your name. It is an attempt to defraud you.
If you have already been contacted and have already given out your personal information, please monitor your account statements and credit reports, and contact your local FBI office. Local FBI field office telephone numbers can be found in the front of your local telephone directory or on www.fbi.gov. For further information, please review the warnings posted on the U.S. Courts website at www.uscourts.gov, “Newsroom” news article “WARNING: Bogus Phone Calls on Jury Service May lead to Fraud,” August 19, 2005.
This posting is from an excellence source, the Federal Bureau of Investigation. Corra believes it’s fair to say few would have their proverbial thumbs on the pulse of identity theft like the FBI. As the article reports, it is simply a matter of someone seizing your social security number and date of birth, and they are off and running.
If you are a victim of identity theft you can spend many months, maybe years cleaning up the mess someone else made with your finances and credit. It is humiliating and debilitating, and often very expensive.
Corra recommends you run your social security trace every so often to see if you have a new partner using your social security number. Often it may be an undocumented worker merely using your number to pose as a legally eligible worker. And then sometimes it is someone who has stolen or planning to steal your identity.
In addition to the Social Security Trace, we recommend your run your Credit Card Report. You can also run a comprehensive background check on yourself to see if someone else is associated with your business.
Remember, your identity is your name, words and reputation. Don’t let someone else steal it away.
Fri, January 26th, 2007 - 5:15 pm - By Gordon Basichis
We saw this article on Inc.com
In Praise of Drug Testing
Just days before the Super Bowl, the National Football League and the players’ union agreed to a plan for more extensive drug testing, and for larger fines for players who fail tests, ESPN reports. The move can be read as an effort to prevent the NFL from facing the same kind of troubles that Major League Baseball has faced over steroids and other performance-enhancing drugs. The NFL’s testing regime, which the union ratified, will test more players per week, meaning that more tests will occur throughout the course of a year. The tests will also be conducted in a random fashion, so that players can’t plan their drug use around predictable tests.
Of course, testing for steroids in sports is very different from testing for illegal drugs in the workplace. But still, when I heard about the NFL and players’ union coming together to endorse a new plan, I recalled a column that Norm Brodsky wrote in Inc. in November 2004. In that column, Norm said that reluctantly, his company had begun drug testing.
“We’d heard rumors about marijuana being bought and sold on our premises. We’d also seen a marked increase in petty theft and minor accidents, which I suspected was related to drug use,” Norm wrote. “People were running forklift trucks into walls and dropping skids of boxes onto the floor as they were being moved from one spot to another. Items would disappear from the shipments of goods that we kept in the warehouse for customers of our trucking business. I couldn’t blame all of the problems on drug use, but I felt certain that it was a contributing factor.”
“Still, I hesitated to start drug testing… I had reservations about punishing people for doing something I’d also done at their age. In addition, I knew that drug testing could result in our having to let some employees go — maybe even some good, long-term employees — at a time when the growing labor shortage was making hiring increasingly difficult. That seemed likely to cost us a substantial amount of time and money — not to mention emotional anguish — over and above the cost of the testing itself. But I eventually decided that we had to go forward anyway, mainly because of the accidents. No one had been seriously injured, but I knew our luck would run out sooner or later.”
So, with ample warning to his employees, Norm started drug testing. The results of the first test were stunning: half of his workers failed. Read his column (here’s the link) to find out what happened next.
In the meantime, what do you think? Do you conduct drug testing at your company? Do you think that the NFL’s idea of hitting an athlete’s wallet following a failed drug test is sound? If employees fail at your company, what are the consequences for them?
Corra believes drug tests can be useful to certain employers. Substance abuse in the workplace does lead to 300% more in medical costs and benefits. So in addition to your criminal background check, social security trace, and credit report you may want to consider testing your job candidates for illicit drugs.
Remember, as Corra advises, check them out before you hire.
Thu, January 25th, 2007 - 11:01 am - By Gordon Basichis
We found this article on Yahoo.com
Merger boom shows no sign of slowing
By Mark McSherry 52 minutes ago
Merger proposals worth at least $82 billion were announced around the world on Sunday and Monday as the record year for M&A Values continued apace.
Among the bigger deals, Norway’s Statoil (STL.OL) agreed to acquire the oil and gas activities of Norsk Hydro (NHY.OL) for $30 billion, and U.S. pharmacy benefits manager Express Scripts Inc. (Nasdaq:ESRX - news) offered to buy rival Caremark RX (NYSE:CMX - news) for $26 billion.
The global mergers boom has been driven by low interest rates, gains in stock markets, and liberal credit markets. Also fueling M&A have been private equity funds, also known as financial sponsors.
At least three of the latest transactions involved private equity groups.
Orthopedic device maker Biomet Inc. (Nasdaq:BMET - news) agreed to be acquired by a private equity consortium for $10.9 billion. Real estate firm Realogy Corp. (NYSE:H - news) agreed to be bought by private equity firm Apollo Group for $6.65 billion plus debt and other liabilities.
And roofing products maker ElkCorp (NYSE:ELK - news) agreed to be taken private by buyout firm Carlyle Group (CYL.UL) in a $1 billion deal.
One expert said the merger boom should continue.
“I don’t see any reason why it should calm down,” said Brian Sterling, co-head of investment banking at Sandler O’Neill & Partners.
“The same drivers of transactions — the state of the economy, the state of the industries, and all the macro and micro trends related to them — don’t look like they are going to change through year-end.
“We expect volume of activity to continue.”
APPETITE FOR DEBT
High-yield bond investors have also helped boost M&A activity by snapping up new debt issues at a record pace this year, allowing private equity firms to finance some of the largest buyouts in history.
Research firm Dealogic said earlier this month the volume of mergers and acquisitions by private equity firms and other financial sponsors so far this year hit a record at over $626 billion, up about 90 percent from a year earlier.
Further, private equity firms have raised about $300 billion in new funding worldwide this year, according to research by Private Equity Intelligence.
The proposed transactions of Sunday and Monday will take the value of global mergers for 2006 to an all-time high of over $3.8 trillion, according to Dealogic. The previous high was $3.332 trillion in 2000.
This year’s biggest deals include AT&T Inc.’s (NYSE:T - news) proposed acquisition of BellSouth Corp. (NYSE:BLS - news) for roughly $80 billion in the United States, and the roughly $47 billion offer by German utility E.ON (EONG.DE) for Spanish rival Endesa (ELE.MC).
Corra sees that everybody is merger happy. Mergers can be a good thing for corporations, greater efficiency, reduction in labor, office space and equipment. But mergers are often a double edged sword. Sometimes the combining of two or more companies does not mean greater efficiency. It can also translate into awkward communication of vital information and a serious downgrading of personnel, which results in profit loss and a serious decline in morale. Can anyone say Time Warner?
The upside for your business is mergers usually create consolidation of personnel and downsizing where accomplished and capable people are bought out or dismissed and relegated to the job market. Someone’s loss may be your gain, especially if you are smart enough to recruit middle-aged personnel who are often experienced, capable, have great connections and a more traditional work ethic.
No matter who you hire, it is important to conduct preemployment screening. If you are picking up new candidates who were essentially downsized from other companies, you want to make sure they weren’t either dead wood or had habits unbecoming to your company. We recommend criminal background searches and credit searches. We also suggest you run education verification, because this is where candidates tend to lie the most.
So good luck in finding new talent as a result of the fall out from all the mergers. Just remember to take Corra’s advice and check them out before you hire.
Tue, January 23rd, 2007 - 2:23 pm - By Gordon Basichis
We found this article on Inc.com
To Start or Not To Start a Business with Your Spouse
Starting a business with the one you love might sound dreamy, but you should give it careful consideration before making the business commitment.
From: Inc.com
I’ll start off with this. I’m crazy about my husband. John and I have been married 11 amazing years and have been together for 13. Since we are both in high-tech and marketing, we are very involved with each other’s businesses. But it stops there.Flashback, Burgundy, France, January 2001. We were traveling around the country with our two basset hounds, trying to decide what to do next in our professional lives. Voila! Since we both love high-tech and direct marketing, we thought, “Let’s start a company together in the small business arena.”So there we were in France, discussing John’s role as CEO, and mine as COO. Sounds dreamy, right?
Reality set in quickly. “Why might this be a bad idea for us?” we thought. Let us count the ways.
- All of our “eggs” would be in one basket. Risky? Yes. What if we failed? We’d have invested our cash into the business, spent time to grow it, and would have nothing to show.
- We’re down one paycheck. We figured that the pay would be minimal — if any — until we either raised more money or became profitable.
- We’d kill each other. Since we both are fairly opinionated and bring similar backgrounds for this type of business to the table, it seemed that it might not be a good idea for our already great relationship.
Luckily, a friend who had just started his own business needed someone with our skills to work at his company. Since I already had worked for him for a few years, John bowed out of the new venture and went to work to provide the household income. In a way, our decision was made for us by this opportunity, but if you’re going to consider working with your spouse or significant other, you need to seriously consider the answers to the following questions.
- What type of personality do you each have? If both of you are “alpha” people, or strongly opinionated, be careful. If you are constantly in disagreement, it could leak over to your home life.
- Do you bring complementary skills to the business? This is important because if you overlap too much, you potentially could find yourselves going up against each other too often (see the last bullet). However, if you each have your own “domain” to manage, chances are you’ll have some new things to talk about at the end if the day.
- What happens now when you have disagreements? Be careful if you are the type of person to go to bed angry. If disagreements go unresolved, not only will it make your home life uncomfortable, the tension could make your hours — and your employees’ hours — at work unbearable.
- Is it ok for one of you to be the leader as opposed to the other? If you can’t support a chief or your spouse can’t support you as the chief, beware. Having a leader in the company is important, especially if you have employees.
Working with your spouse isn’t impossible, and it can work for the right people. One great example are Albert and Shannon of Due Maternity, a VerticalResponse customer that sells very hip clothing and accessories for pregnant women on- and offline.
Albert is technical; he manages the company’s website. He is also the negotiator when it comes to contracts and leases. Shannon’s background is merchandising. She develops relationships with the designers and suppliers, and is the face of the company.
Albert yields to Shannon as the president because of the nature of the business. People are buying maternity items from an attractive (and at times pregnant) woman. Albert keeps the wheels on the bus.
Their business is successful as a partnership because they each bring something complementary to the business.
In my case, my husband does lend a lot to my business. John is on my board of advisors, and he’s very supportive, complimentary and an asset to VerticalResponse. I couldn’t do it without him. But, then again, I couldn’t do it with him, either.
Janine Popick is CEO of VerticalResponse and a new columnist with the Women in Business Resource Center. Look for her advice — and musings — on starting and running a woman-owned business here each month.
Corra knows all too well what it is like to go into business with one’s spouse. While we can draw up more than a few bad examples, some couples are very successful when they pool their resources. From an historical context, where would America be if we didn’t have all the “MA & PA” shops and services that helped to build our nation?
Needless to say, if a couple goes into business together they will most surely discover that the other person is who they really say they are. As for the rest of you, it is wise to run background searches to see if your job prospects and possible paramours are who they say they are. Aside from the criminal background and credit checks, when entertaining a joint venture, you might want to run a comprehensive background check on your prospective partner.
At any rate, Corra’s advice should always be taken to heart. Check them out before you get hurt by any surprises.
Mon, January 22nd, 2007 - 10:39 am - By Gordon Basichis
We saw this article on Bulldog Reporter’s Daily Dog.
Crisis Erupts for MySpace: Social Networking Site Faces Lawsuit from Parents of Teens Who Were Sexually Abused By Adults They Met on the Site
Four families have sued the popular social-networking site MySpace and its owner, News Corp., after their teenage daughters were solicited online and sexually abused by adults they met on the site, CNNMoney.com reports.
Lawyers representing the plaintiffs said that families from New York, Pennsylvania, South Carolina and Texas filed suits Wednesday in Los Angeles Superior Court, charging recklessness, fraud and negligent misrepresentation by the companies.
“In our view, MySpace waited entirely too long to attempt to institute meaningful security measures that effectively increase the safety of their underage users,” Arnold and Itkin lawyer Jason Itkin said in a statement.
He told CNNMoney.com that the families would be seeking “probably in the millions of dollars… enough to get the attention of a service like MySpace.” He said it was up to each family to determine the monetary damages they wanted to seek.
“Blaming the families of abuse victims who were solicited online, as some have done, is a cynical excuse that ignores the fact that social networking sites can lead to heinous abuse by Internet predators,” said Adam Loewy of Barry & Loewey. “It is now clear that MySpace recognizes that serious security problems exist.”
MySpace said it had taken appropriate precautionary measures. “MySpace serves as an industry leader on Internet safety and we take proactive measures to protect our members,” said Hemanshu Nigam, the site’s chief security officer, in a statement. “We provide users with a range of tools to enable a safer online experience.”
“Ultimately, Internet safety is a shared responsibility. We encourage everyone to apply common sense offline safety lessons in their online experiences and engage in open family dialogue about smart web practices,” he added.
Corra has always been of mixed emotions when it comes to states mandating background checks on online dating and social websites. Then you see a story like this and start to wonder what is best overall. While we still oppose any legislation that would mandate background. Still, we think background searches should be offered on social networks and online dating sites.
Of course, for the most part background searches may not help in preventing some sick adult from abusing children, sexually or otherwise. Most pedophiles have more experience in winning youngsters than youngsters do in avoiding pedophiles. And kids being kids, are often loathe to tell their parents about the “great new guy” they met over the Internet.
Nevertheless, no one needs a sex offender chasing your kid or for that matter chasing after you on a social network and online dating service in order to get to your kids. For that matter no one needs them in the workplace, and HR Managers should take note of the damage to moral and the potential litigation a sex offender can wreak on your business. We realize this is a world of apology and understanding, a world in fact of less personal accountability, but the experienced Corra still sees things as they are and not as apologists hope they are.
So if you are dating online, screen your prospective paramours. If you run the Nationwide Criminal Search, not only does it protect you but your children as well. The Nationwide Criminal Search retrieves the names of sexual offenders in all fifty states. We suggest, too, that you run a Social Security Trace, which helps establish that person is who he really says he is. A Comprehensive Background Check will detail much of someone’s material assets, property, vehicles, boats and planes, show liens and judgments, family relations and business associations.
This is horrible, what happened on My Space. But it could happen on any Internet Social Network or Online Dating Site. And it does, more often than we may realize. While My Space will probably suffer the financial consequences, I’m sure child abuse is the last thing its owners want or need. In the end it is not the service, but people who abuse the service for their own sick and selfish needs.
So do as Corra urges and check them out before you date them. Check them out before you meet them. And check them out before you hire.
Fri, January 19th, 2007 - 3:47 pm - By Gordon Basichis
We saw this article in Inc.com
Relax. Let Your Guard Down
Why patents, trademarks, and other intellectual property protections are bad–that’s right, bad–for business.
By: David H. Freedman
By most measures, the Sten was a forgettable product. This British submachine gun, thrown together for World War II, was wildly inaccurate and so unreliable that the only thing troops counted on from it was a jam at the worst possible moment.
Yet the Sten was one of the true hit products of the mid-20th century, and with a run of some 4.5 million, it became one of the all-time bestsellers in the world of weaponry. By contrast, the U.S.-made Thompson M1 machine gun and its variants, used by American troops in World War II and a more accurate and reliable weapon, saw a run of only 1.7 million in its half-century lifetime. How could a gun as lousy as the Sten sell so well–and even outsell the M1? One big reason: It was easy to copy. The Sten’s blueprint was widely circulated, and the gun was purposely designed to be easily manufacturable by anyone with modest metalworking skills and tools, making it the darling of resource-strapped Allied units. Though none of these Sten-alikes produced royalties for the weapon’s originator and maker of record, London’s Royal Small Arms Factory, the Sten’s sheer familiarity became such that after the war Britain and other countries around the world ordered it from the factory by the truckload well into the 1960s, making the Sten a gold mine.
And therein lies a lesson for entrepreneurs today. Though companies continue to treat intellectual property as an asset to be kept out of the hands of others at all costs, there have long been compelling reasons that such aggressive IP protectiveness is not only unnecessary but also counterproductive. Today we’re in the midst of a shift in which the potential benefits of relaxing IP paranoia are becoming less of an interesting exception, a la the Sten, and much more the rule.
That may sound like a strange claim, given the near-frenzied attention paid to the value of intellectual property today, as well as to efforts to bolster our patent and copyright systems. Some $5.5 trillion worth of IP is said to be rattling around the computers and file drawers of U.S. companies, accounting for just under half of the nation’s GDP. About twice as many patent-related lawsuits were filed last year as in 1992, suggesting companies are more determined than ever to keep others’ mitts off their good ideas.
And yet the simple truth is that companies rarely succeed because they succeed in protecting intellectual property, or fail because they do not. Ninety-five percent of patents end up being of absolutely no commercial value. Even in high tech, where IP is king, the best rule of thumb for patent protection is: Don’t bother. “A long period of patent protection for a new technology isn’t all that useful because a newer technology will quickly displace it,” says Glen Whitman, an associate professor of economics at California State University, Northridge. “The faster the pace of innovation, the less important will be the patent.” To put it another way: Superb execution trumps IP protection every time.
That’s because it usually isn’t individual big-bang product ideas in and of themselves that make or break a company; rather, it’s a constant stream of smaller good ideas in any and all areas of the business. According to a study by researchers at Boston University and Princeton, patent protection is of little or no benefit when it comes to such an ongoing string of ideas–which makes sense, given the time it takes to get a patent into place and the relative perishability of any single idea.
Why do so many companies become obsessed with patents? In part, it’s because they don’t really understand their own business, says Danny Shader, CEO of Good Technology, a wireless software maker based in Santa Clara, California, and the main rival to Research in Motion’s BlackBerry in the hand-held e-mail market. “A lot of people think they’re in the invention business, but they’re really in the application business,” says Shader. “They confuse innovation with patents, and that’s a classic mistake.” Profitable innovation comes not from inventing a new product, he maintains, but from having a team of smart employees who figure out how to do a better job every time they interact with customers. “That sort of innovation will do a lot more for your company than a piece of parchment,” he says.
It’s not just that IP protectiveness is useless; it can be harmful, too. Companies that work to put walls around their IP tend to make a lot of enemies. Look no further than Bill Gates, who started sowing ill will as a student hacker when he refused to let other programmers use his code, in gross violation of all that hackers hold sacred. A continued trail of IP bullying has left Microsoft one of the world’s most resented corporations. It’s hard to argue that the company has failed because of this enmity. But it helps explain why Microsoft software now suffers so many hacker attacks that the company has designated one Tuesday a month as “Patch Tuesday.”
It’s not just the big guys that can offend with a mania for protecting whatever they might consider to be intellectual property. Make an online reservation with the easyGroup Companies’ easyHotels in London or Basel, Switzerland, and you’ll get a confirmation e-mail that includes this charming statement: “The easyGroup of companies has built up a significant reputation in the name ‘easy’ and has a number of trademark applications and registrations in many countries. easyGroup cannot permit others to use the ‘easy’ name without the group’s rights being prejudiced. It follows that no use should be made of the name ‘easy’ (or anything similar to it) without our consent.” What shouts “friendly host” and “thanks for your business” more than a gratuitous threat intended to curtail the use of the English language?
Alienating customers and potential partners are some of the soft costs of IP protection. The hard costs can be impressive too: a minimum of about $20,000 to see an application through the patent process, not counting the cost of the time of the employees who are pulled into it, and most definitely not including the potentially explosive costs of waving the patent at a defendant in an actual or threatened legal action. And remember, this is for a patent that has a 95 percent chance of being worthless. “Patents are expensive to get and more expensive to enforce,” says Tom Bell, a professor at the Chapman University School of Law in Orange, California. “If I had a patentable invention, I might rationally say that I’d rather spend the money on having my engineers create something else.”
Ninety-five percent of patents end up being of absolutely no commercial value. Even in high tech, where IP is king, the rule of thumb for patent protection is: Don’t bother.
IP protection, goes the conventional wisdom, preserves an incentive for companies and people to invent and create. But when you talk to the people who actually do the inventing and creating, a different picture emerges. In a 2005 survey conducted by the American Association for the Advancement of Science, 58 percent of researchers whose work had been affected by patents reported that their research was delayed as a result of the patent process, and 28 percent said they ultimately had to abandon their work because of it. The Boston University and Princeton study concluded that inventors tend to have a greater chance of profiting when IP protection is relaxed and the door is opened to increased competition and imitation.
Indeed, some of the very industries that are most dependent on new ideas and innovation are the least dependent on IP protection. Take the sailboat industry, where manufacturers are constantly refining materials, shapes, and gadgets in a drive to add an extra knot, a bit more stability, a cleaner line, or a longer life. One of the better-known sailboat design firms is Jim Taylor Yacht Designs in Marblehead, Massachusetts, which has produced blueprints for some 3,500 boats, many of them on behalf of leading manufacturers such as Sabre Yachts and Precision Boat Works. “I never bother with patents,” says founder Jim Taylor, “and there are very few innovations anywhere in the sailboat business that have been patented.” When one boat based on a new Taylor design debuted, another company bought it, took the boat apart, and soon brought out its own boat incorporating a construction technique that was a key part of the Taylor design. Taylor says he just shrugged it off. “We don’t go around sharing all our designs and ideas freely, but we don’t make much of an effort to protect them, either,” he says. “If someone manages to do something similar to what you’ve already done, then they are by definition behind you, so why should you care? I’m more interested in always moving forward.”
Many large companies see the issue differently. In fact, corporate America is lobbying hard to make our patent and copyright system ever more restrictive. Big companies, after all, often have the resources to prevail in IP disputes. The notable exception, of course, is when a major company gets hit by a so-called patent troll–that is, a company that exists primarily to extort money via patents and which serves no useful role in the economy. In the most prominent recent example of trolling, RIM nearly had its BlackBerry service shut down and only survived after agreeing to pay a $612 million settlement. But it hardly ends there. About one out of five genes in your cells, for example, have been patented by U.S. organizations, typically in the hopes of squeezing licensing fees out of companies that develop drugs targeting those genes.
As a result, smaller companies trying to bring out new products, especially in high tech, often find themselves buried under the administrative and financial requirements of shelling out license fees for an ocean of processes, techniques, and gizmos covered by patents. According to a 2003 Federal Trade Commission report, the development of a single new product can entail wrestling with thousands of such patents. “It shouldn’t be surprising that an intellectual property model that arose in Charles Dickens’s time doesn’t quite fit the needs of the information age,” says David Stork, chief scientist at electronics manufacturer Ricoh’s California Research Center.
Most companies would do better to channel their energies away from building legalistic fences around their creations and toward mastering the art of sharing. If you’re looking for a role model, forget about Thomas Edison’s patenting of the electric light bulb–a patent later ruled invalid after much ugly legal wrangling. Instead, consider the way a consortium of companies came together and agreed upon a standard socket shape for the electric plug. “Looking at IP as something to give away is not as entirely strange as it might seem,” says Lawrence Rosen, a lawyer with high-tech law firm Rosenlaw & Einschlag and a lecturer at Stanford Law School. “If you can get cooperation from others on developing your product, there’s the potential for your technology to become widely embraced and even ubiquitous, and you ultimately get a bigger ecosystem in which your technology can thrive.” In its fullest incarnation, this sort of free swapping of work becomes the open-source approach most famously embodied in the Linux computer operating system, which companies such as Red Hat and Novell profit from–even though, in a sense, Linux is owned by everyone and no one. To be sure, the open-source approach is extreme. But it’s nonetheless a useful mindset that could apply to any business.
Of course, there are some situations in which IP aggressiveness may be reasonable and even essential. The minority of industries that are driven not by marketing and customer relations and a bevy of features but by a small number of large, painstakingly developed and easily copied technical breakthroughs probably need strong protection. The pharmaceutical industry is a clear example. It takes about 10 years and the better part of a billion dollars to identify the one molecule out of trillions that works against a disease and then drag it through the multistaged testing process. Once the pill is out, it might take only a week to bring out a perfect imitation that could be sold at cut-rate prices to take over the market, since few people are loyal to any particular drug company.
But it’s hard to come up with many other industries that fit this description. Perhaps the blockbuster movie business, where piracy makes it more difficult to recoup the $150 million or so needed to go into the black on big-budget films. But that’s just a sliver of the entertainment business. In fact, there really are relatively few cases where easing IP protection would endanger an entire industry or class of product, even if it caused a bit of scrambling to adjust. “Most would do okay without it,” says Chapman University’s Bell. “Businesses wouldn’t be dying, and we’d enjoy most of the products we enjoy now.” Hollywood may be screaming bloody murder about the havoc that piracy will wreak, but this is hardly the first time movie moguls have warned that the sky is falling. Jack Valenti, the former head of the Motion Picture Association of America, testified thusly to Congress in 1982: “The VCR is to the American film producer and the American public as the Boston Strangler is to the woman home alone.”
Even in the case of small biotech companies, IP protection need only be short term, says Robert Freedman, CEO of Hurel Corp., a biotech start-up in Beverly Hills, California. “As products mature, the balance point of competition shifts away from the uniqueness of the technology and toward the embodiment of the product into fully developed services,” he says. In other words, even in big-bang technology businesses, the companies that win in the long term aren’t necessarily the ones that do the inventing; it’s those who figure out how to bring product improvement and better marketing and customer service to the fore.
Anyway, it may not matter what you or I think about it. It’s what the kids think about it that counts. And upcoming generations are not merely less concerned with IP protection, they’re appalled at the notion of locking up ideas or works. Sure, it’s useful to take that point of view when you’re strictly on the receiving end of pilfered IP, but anyone who tries to switch it when it’s his or her IP on the line will doubtlessly be roundly booed by his or her peers. It’s hard to see how this genie can be put back in the bottle. The breadth and depth of what’s available online is simply staggering–including movies that haven’t even been released yet, and every episode of what seems like every TV show ever made, from thousands of different sources, downloadable a dozen different ways. “The technology of sharing has changed the world,” says Stork. “Business models have to change to adapt to it.”
Corra found this to be a thoughtful and provocative article. Since Corra is somewhat familiar with this space, the author of the article has made more than a few good points. However, upon reading this, one shouldn’t confuse the possible dispensation of intellectual property with one’s proprietary information. Proprietary information, such as credit card databases, competitive intelligence documentation and product schematics and construction schedules are very valuable and may well be desired by unscrupulous competition.
And the author’s points notwithstanding, there is at least some intellectual property that is worth guarding if only to swap or sell later on in mutual beneficial business ventures. In any event, the last thing you need is to help your loyal employees turn out to be not so loyal and steal what is valuable to you.
You should be running background checks on all job candidates. In addition to criminal background reports, we recommend credit reports, especially for those who have access to intellectual property and proprietary information. You may also wish to run a Social Security Trace to verify that person is working under his own, valid social security number. This is a great concern in this world of illegal immigration and identity switches.
So do as Corra suggest and check them out before you hire. And with some, check them out periodically, just to make sure there are not any significant lapses.