Business Law Prof Blog

Crowdfunding and the Public/Private Divide in U.S. Securities Regulation

Some of you may recall that I blogged last summer about a SEALS (Southeastern Association of Law Schools) discussion group on "publicness."  That post can be found here.  My contribution to the discussion group was part of a paper that then was a work-in-process for the University of Cincinnati Law Review that I earlier had blogged about here.

That paper now has been released in electronic and hard-copy format.  I just uploaded the final version to SSRN.  The abstract for the paper reads as follows:

Conceptions of publicness and privateness have been central to U.S. federal securities regulation since its inception. The regulatory boundary between public offerings and private placement transactions is a basic building block among the varied legal aspects of corporate finance. Along the same lines, the distinction between public companies and private companies is fundamental to U.S. federal securities regulation.

The CROWDFUND Act, Title III of the JOBS Act, adds a new exemption from registration to the the Securities Act of 1933. In the process, the CROWDFUND Act also creates a new type of financial intermediary regulated under the Securities Exchange Act of 1934 and amends the 1934 Act in other ways. Important among these additional changes is a provision exempting holders of securities sold in crowdfunded offerings from the calculation of shareholders that requires securities issuers to become reporting companies under the 1934 Act.

This article attempts to shed more light on the way in which the CROWDFUND Act, as yet unimplemented (due to a delay in necessary SEC rulemaking), interacts with public offering status under the 1933 Act and public company status under the 1934 Act. Using the analytical framework offered by Don Langevoort and Bob Thompson, along with insights provided in Hillary Sale’s work, the article briefly explores how the CROWDFUND Act impacts and is impacted by the public/private divide in U.S. securities regulation. The article also offers related broad-based observations about U.S. securities regulation at the public/private divide.

I hope that you are motivated to read the article--and that you get something out of it if you do read it.  The thinking involved in creating the article was often challenging (even if the expressed ideas may not reflect or meet that challenge).  Yet, writing the article, in light of the super work already done by Don Langevoort, Bob Thompson, and Hillary Sale, was joyful and illuminating for me in many ways.  

I often say that I stand on the shoulders of giants in my teaching and scholarship.  That was transparently true in this case.  If only all academic research and writing could be so rewarding.  

Take Over Defenses: Vive La France!

Professor  Steven Davidoff Solomon posted this article to the DealBook yesterday highlighting France's new 2-votes for long-term shareholders law:  The Florange Law.  

The centerpiece of the Florange Law is a mandate that French companies give two votes to any share held for longer than two years. This goes against the historical one-vote-for-every-share system that most countries have. The law allows an opt-out if two-thirds of shareholders approve one by March 31, 2016.

ISS issued a guide (Download Impact-of-florange-act-france) opposing the law and encouraging investors to pressure directors to opt out of the law (through amendments to corporate bylaws) before the deadline.  

Professor Davidoff Solomon questions the strength of the one-share-one-vote corporate democracy in the U.S., noting that recent IPOs, like Facebook, went public with two classes of stock as a anti-takeover measure.  There is also the related question of what impact a law like this would have given the turnover rates of many institutional investors. 

-Anne Tucker

Call for Papers: The Current State of Cybersecurity (Chapman Law Review)

From the industrious editors at Chapman Law Review soliciting papers for their 2016 Symposium on Cybesecurity:

Cybersecurity has become a critical national security and corporate security problem in the last fifteen years. Examples include hackings of the Pentagon, SONY, Target, JPMorgan Chase, Home Depot, various universities, and hospitals. A lively debate is now raging in Congress, academia, and in the corporate world over what steps should be taken. Attorneys are at the forefront of the problem in advising clients and securing confidential information. What duties do attorneys and corporations have to prevent a cyberattack? What duties do attorneys and corporations owe to their clientele? What actions should attorneys and corporations take to mitigate a cyberattack once it occurs? What measures can businesses take to respond in the future? What steps should the U.S. Government take to protect its public and private entities? How can the U.S. Government respond to attacks on private entities? What domestic law governs cyberattacks and their responses? 

The Chapman Law Review will explore these and other questions at our next symposium on January 29, 2016, to be held at the Dale E. Fowler School of Law at Chapman University.  We invite interested scholars and practitioners to submit abstracts for papers to present at the symposium on the topic of cybersecurity, focusing on cyberattacks, corporate hackings, available government responses, and attorneys’ corresponding ethical duties.

Submission Information

We are looking for papers between 10,000 and 15,000 words. If you would like to apply to participate in the Symposium, please submit an abstract of no more than 500 words by June 22, 2015. The deadline for the completed paper will likely be in October 2015.  Selected papers will be published in a special issue of the Chapman Law Review in approximately April 2016, and the authors will participate in the 2016 Chapman Law Review Symposium on Friday, January 29, 2016.

If you have questions about the Symposium, please contact Alexa Stephenson, Senior Symposium Editor, at [email protected]. 

Delaware LLC Case Sends Wrong Signal, Unnecessarily Expands Equitable Standing

Vice Chancellor Laster recently issued an opinion in In re Carlisle Etcetera, LLC (available here), that has the potential to encourage (or at least fail to punish) sloppy practices and unnecessarily expands equitable standing for judicial dissolution.  In doing so, the case increases litigation risk for LLCs. 

The case involves an LLC made up of two member parties that formed Carlisle Etcetera, LLC. (Carlisle): WU Parent and Tom James Co. (James). The LLC agreement called for a manager-managed board, that would serve as sole manager.  WU Parent appointed two board designees, as did James.  Board decisions required "unanimous approval."  At some point, for tax reasons, WU Parent assigned its membership interest to WU Sub. Thereafter, Carlisle identified WU Sub as a 50% member interest in tax filings and the LLC's accountants referred to WU Sub as "an equal member" of the LLC.  The parties discussed an updated LLC agreement that would have made clear that an initial member of the LLC could transfer ownership to a wholly owned affiliate that would retain membership status, though that agreement was never finalized.  

[Please click below to read more.]

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The Future of Respectability for Lawyers (Part 2)

In my last post, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession (based on the drop in applications to law school) and potential waning influence.  I suggested that business leaders (inadvertently or otherwise) may be the driving force that ends up saving the legal profession.  I would like to take the discussion one step further.

There is no doubt in my mind that, historically, companies rarely did much legal training for the lawyers they hired.  They simply bought talent—usually by offering employment to attorneys with private practice experience that was valuable to the corporation.  Sometimes this worked extremely well, and sometimes it failed miserably.  Why? Business leaders sometimes possess only basic knowledge of what quality legal talent really looks like (after all, they usually are not lawyers themselves).  Moreover, they often have difficulty finding a lawyer who can operate in a corporate environment and have high-level legal skills.  The “a lawyer is a lawyer” mentality still prevails. 

Adding to the difficult situation is that private firm attorneys often view corporate attorneys as those who could not flourish in private practice (for whatever reason—lack of skill, drive, ability, focus, etc.), and they consequently may be perceived at times by their own companies as somewhat suspect (“If they were really good attorneys, wouldn’t they be practicing with a firm?”).  It becomes a Kobayashi Maru-type of character test for such in-house attorneys—virtually, a no-win situation.  They are hired to help, but at times not fully trusted to do so because they are on staff.  Professional respect, and compensation, for in-house attorneys lags behind that for lawyers in private firms.

Corporations are struggling with the concept of attorneys as part of entrepreneurial teams.  Few companies hire law students directly out of law school for the very same reasons that firms are currently limiting their new-hires—lack of return on their dollar.  Lawyers take 5-15 years to build the experience necessary to obtain the “gravitas” needed for a high level of trust, depending on the field.  Many lawyers never achieve this status; they are simply caught in an eddy of repeating activity.  (Perhaps this issue is worthy of a separate post!)

At this juncture, the in-house path remains precarious, and pursued at one’s peril.  At most companies, there is no specified legal track, unlike the well-worn management paths.  Many corporate legal positions are much lower paying than firm jobs, and often of the “J.D. preferred” type of position—helpful to be a lawyer, but not necessary.  Graduating law students usually do not choose this corporate path—it is chosen for them, as they graduate from lower tier law schools, have less than stellar grades, or perhaps due to personal obligations involving location or family.  Perhaps such students never had a great desire to be lawyers, drifting into professional school through lack of other opportunities.   Additionally, inside companies, non-lawyers often feel that their in-house attorneys are a form of threat, and sometimes attempt to undermine them.* Advanced education continues to be viewed, probably irrationally, with some suspicion in the business environment.  Perhaps because the lawyers presently in-house have offered little to benefit the business operations, or because they are just not well understood.

These attitudes appear to be changing.  As the legal environment continues evolve, students may actually enter law school for the specific purpose of being in-house counsel, perhaps even having a specific company or industry in mind prior to taking their first class.  Law schools are well advised to shift their focus to accommodate this new reality.  Law schools that play the game well will again become a dominant option for bright college students.  What does this future look like?  That will be the subject of my next post.  More soon!

 --Marcos Antonio Mendoza 

 

*Interestingly, I have never heard a single MBA joke (has anyone?), but frequently hear lawyer jokes.  However, many millennials report to me that lawyer jokes are no longer de rigueur around them—in other words, people feel sorry for them and the challenges they face!

$2 Million in Attorneys' Fees for "No Quantifiable Benefit"

You may recall my blog post this fall about the Delaware Chancery Court opinion in In Re Nine Systems Corporation Shareholders Litigation. That case discusses what happens when a self-dealing transaction results in a fair price, thus causing no damage to the corporation, but the process followed was fair. The court held that the plaintiff could still recover attorneys' fees and costs. I noted that the only people likely to be satisfied with that result were plaintiffs' attorneys. (It makes no difference to the plaintiffs in the case because they had a contingent fee agreement with their attorneys-no recovery, no attorneys' fees to be paid.)

The Chancery Court just entered its order awarding plaintiffs' counsel, Jones Day, $2 million dollars in attorneys' fees and expenses. That's right, the attorneys get $2 million even though, as the Vice Chancellor notes, "the quantifiable benefit obtained in this litigation was $0." Thus, the defendants have to pay $2 million to counsel for helping the court determine that nothing they did harmed the corporation or its shareholders.

It could have been worse; plaintiffs' counsel asked for $11 million.

I'm afraid that this opinion will give plaintiffs' attorneys an incentive to search for problems with the process in conflict-of-interest cases just so they can get in on the Nine-Systems action and collect attorneys' fees. No harm to the corporation? No problem!

 

ICYMI: Tweets From the Week (May 17, 2015)

"'The Wealth of Nations,' is not fully intelligible without ... first reading ... 'The Theory of Moral Sentiments.'” http://t.co/iwoSM3JtVN

— Stefan Padfield (@ProfPadfield) May 10, 2015

"Campaign for Accountability Sues SEC for Rulemaking on Political Contribution Disclosure" http://t.co/UvfEeAetKu #corpgov

— Stefan Padfield (@ProfPadfield) May 15, 2015

attorney-client privilege vs. "the right of a [stockholder] to discover what advice was given" http://t.co/mH9bokO4SF #corpgov

— Stefan Padfield (@ProfPadfield) May 11, 2015

"Should Business Appraisers Rely on Case Precedent for [lack of marketability] Discounts?" http://t.co/Pb9jKd6ZxD

— Stefan Padfield (@ProfPadfield) May 13, 2015

"The Great Global Financial Crises: official investigations, past and present, 1929-2011" http://t.co/7Bp1ZoHHrw

— Stefan Padfield (@ProfPadfield) May 16, 2015

I, for one, welcome our new computerized trading overlords

So the big securities news this week was the “hoax” bid to buy Avon Products.

Apparently, a hoaxster filed a fake offer to take over Avon Products with EDGAR, the SEC’s online database.

The filing caused a brief spike in the price of Avon shares.  (As of the drafting of this blog post, Avon shares were still trading slightly higher than they were before the offer was filed).  The details of the filing are as yet unknown, but presumably, whoever filed the release profited off the spike.

DealBook points out that this kind of incident may prompt the SEC to conduct some kind of preliminary vetting of filings with EDGAR, but one of the more interesting questions – as Matt Levine argues – concerns the definition of “materiality” for securities laws purposes.  Ordinarily, false statements (such as a false representation concerning a takeover bid) are only prohibited to the extent they are “material” to a “reasonable” investors.  Most human investors would likely have recognized the dubiousness of the offer (it named a law firm that doesn’t exist, and misspelled the name of the offeror); computerized traders, however, did not.  (And perhaps humans then followed on, seeking to capitalize on the chaos caused by computers.)  Indeed, a previous spike occurred when Tesla filed an April Fool’s Day press release announcing the release of a (fictional) new product.

Margaret Sachs has previously recognized that courts tend to vary their notion of the “reasonable investor” given the context in which a fraud occurs.  Courts tend to assume a very high degree of sophistication for fraud on the market claims concerning widely-traded securities, but when it comes to Ponzi schemes and other frauds aimed at vulnerable populations, courts lower the bar.

Which of course raises the question whether we need a whole new definition of materiality aimed at the computers who do the majority of today’s trading.  Tom C.W. Lin has recently published an article on precisely this topic, arguing, among other things, that computerized trading and algorithmic investors should be considered as a type of reasonable investor at whom regulations are aimed.

Providing Low-Wage Earners with Predictable Schedules

Recently, I have seen a fair bit written about states, the federal government, and individual firms raising or potentially raising the minimum wage for the lowest paid workers.

Low pay, however, is only one of many problems facing low-wage earners.

After hearing Charlotte Alexander (Georgia State) present on this co-authored paper - Stabilizing Low-Wage Work: Legal Remedies for Unpredictable Work Hours and Income Instability – I have become convinced that unpredictable work hours is a significant issue. The article is well worth reading. 

Unpredictable work hours can be problematic for many people – attorneys in BigLaw for example – but low-wage earners do not have disposable income to throw at the problem. Childcare and transportation, for example, become even more of a challenge when work hours are not stable and not set in advance.  Unpredictable, inconsistent work hours also hamper economic mobility by making it difficult or impossible to take classes or get a second job.    

For more on this issue, listen to MIT Operations Management Professor Zeynep Ton’s talk at the Aspen Institute. Her discussion of Mercadona, a low-cost supermarket based in Spain (discussion starts at 14:50), and QuickTrip, a convenience store with gas stations (discussion starts at 17:30) was quite interesting. Corporate social responsibility often seems dominated by high-end companies like Patagonia and Whole Foods. It is easier to be socially responsible when you are charging $700 for a jacket or 39% more on certain food items (according to one study in Boston). Mercadona, however, offers some of the lowest prices in Spain. Mercadona employees receive their schedules one month in advance and have stable schedules.  Mercadona also pays almost double the minimum wage (plus a bonus). As a result, Mercadona’s turnover is an extremely low 3.4%.  Likewise, QuickTrip seems to compete well on price, but also appears to take relatively good care of its employees.

Individual firms could and should address this issue of unpredictable work hours voluntarily, but the market may prove ineffective in this area and legislative action may be needed.

Did a Slave Make Your Product and Do You Care? The California AG Thinks So

Last week, I looked lovingly at a picture of a Starbucks old-fashioned grilled cheese sandwich. It had 580 calories. I thought about getting the sandwich and then reconsidered and made another more “virtuous” choice. These calorie disclosures, while annoying, are effective for people like me. I see the disclosure, make a choice (sometimes the “wrong” one), and move on.

Regular readers of this blog know that I spend a lot of time thinking about human rights from a corporate governance perspective. I thought about that uneaten sandwich as I consulted with a client last week about the California Transparency in Supply Chains Act. The law went into effect in 2012 and requires retailers, sellers, and manufacturers that exceed $100 million in global revenue that do business in California to publicly disclose the degree to which they verify, audit, and certify their direct suppliers as it relates to human trafficking and slavery. Companies must also disclose whether or not they maintain internal accountability standards, and provide training on the issue in their direct supply chains. The disclosure must appear prominently on a company’s website, but apparently many companies, undeterred by the threat of injunctive action by the state Attorney General, have failed to comply. In April, the California Department of Justice sent letters to a number of companies stating in part: 

If your company has posted the required disclosures on its Internet website or, alternatively, takes the position that it is not required to comply with the Act, we request that – within 30 days of this letter’s date – you complete the form accessible at http://oag.ca.gov/sb657 and provide this office with (1) the web links (URLs) to both your company’s Transparency in Supply Chains Act disclosures and its homepage containing a link to the disclosures; and/or (2) information demonstrating your company is not covered by the Act.

There are no financial penalties for noncompliance. Rather, companies can face reputational damage and/or an order from the Attorney General to post something on their websites. A company complies even if that disclosure states that the company does no training, auditing, certification, monitoring or anything else related to human trafficking or slavery. The client I spoke to last week is very specialized and all of its customers are other businesses. Based on their business profiles, those “consumers” are not likely to make purchasing decisions based on human rights due diligence. I will be talking to another client in a few weeks on the California law. That client is business to consumer but its consumers specifically focus on low cost—that’s the competitive advantage for that client. Neither company-- the B2B nor the B2 (cost conscious)C-- is likely to lose significant, if any business merely because they don’t do extensive due diligence on their supply chains. Similarly, Apple, which has done a great job on due diligence for the conflict minerals law will not set records with the sale of the Apple Watch because of its human rights record. I bet that if I walked into an Apple Store and asked how many had seen or heard of Apple’s  state of the art conflict minerals disclosure, the answer would be less than 1% (and that would be high).

People buy products because they want them. The majority of people won’t bother to look for what’s in or behind the product, although that information is readily available through apps or websites. If that information stares the consumer in the face (thanks Starbucks), then the consumer may make a different choice. But that assumes that (1) the consumer cares and (2) there is an equally viable choice.

To be clear, I believe that companies must know what happens with their suppliers, and that there is no excuse for using trafficked or forced labor. But I don’t know that the use of disclosures is the way to go. Some boards will engage in the cost benefit analysis of reputational damage and likelihood of enforcement  vs cost of compliance rather than having a conversation about what kind of company they want to be. Many board members will logically ask themselves, “should we care if our customers don’t care?”

My most recent law review article covers this topic in detail. I’ll post it in the next couple of weeks because I need to revise it to cover the April development on the California law, and the EU’s vote on May 19 on their own version of the conflict minerals law. In the meantime, ignorance is bliss. I’m staying out of Starbucks and any other restaurant that posts calories- at least during the stressful time of grading exams.

Explaining the Duality of Corporate Wrongdoers

My post from last week posed the question of why corporate executives do what they do.  Why do they commit unethical and illegal acts?  If you ask almost anyone this, the answer comes back the same: corporate executives are greedy.  That’s why they lie, cheat, and steal.  Follow that up with the question of what should be done about it, and most people say that more law and more prison time is the solution. 

I’ve never bought into that thinking (as to the cause or the fix).  Sure, some of us are greedy.  And some small percentage of us are looking to break the law to advance our own interests at every opportunity.  But I’ve seen too many good people do bad things, and vice versa, to think that the cause of illegal corporate behavior (or almost any behavior) is somehow an inherently binary condition—good or bad, right or wrong, greedy or selfless.  The reality is that many of us are both good and bad at the same time.  But how does that actually work?  How can someone like Rajat Gupta, the former managing director of Goldman Sachs, spend his time chairing three international humanitarian organizations and positively impacting “humanity writ large” (can you say that?), while also passing boardroom secrets to his billionaire hedge fund pal, Raj Rajaratnam? 

Criminological and behavioral ethics theories help explain this duality.  In the 1960’s, a criminologist named Donald Cressey conducted a study of hundreds of convicted embezzlers.  Cressey determined that three key elements are necessary for violations of trust—the essence of almost all white-collar crime—to occur: (1) an individual possesses a “nonshareable problem,” i.e., a problem the individual feels cannot be solved by revealing it to others; (2) the individual believes the problem can be solved in secret by violating a trust, which is usually tied to their employment; and (3) the individual “verbalizes” the relationship between the nonshareable problem and the illegal solution in “language that lets him look on trust violation as something other than trust violation.”  Put another way, the individual uses words and phrases during an internal dialogue that makes the behavior acceptable in his mind, such as by telling himself he is “borrowing” the embezzled money and will pay it back.  Cressey believed that these verbalizations—what we commonly call rationalizations—were “the crux of the problem” of white collar crime, because they allowed an offender to keep his perception of himself as an honest citizen intact while acting in a criminal manner.  This, in essence, is the psychological mechanism that allows good people to do bad things.

Importantly, Cressey (and others after him) found that rationalizations were not simply after-the-fact excuses offenders used to lessen their culpability upon being caught.  Instead, rationalizations were “vocabularies of motive,” words and phrases that existed as group definitions labeling deviant behavior as appropriate, rather than excuses invented by the offender “on the spur of the moment.”  In other words, offender rationalizations are drawn from larger society and put into use prior to the commission of criminal acts.  This insight—that offenders rationalize their unethical or criminal conduct before they act, which then allows their conduct to proceed—is considered a key insight into white collar criminal behavior and has greatly influenced criminologists and behavioral ethicists alike.

In the next post, I will set out some of the most common rationalizations used by white collar offenders.  And we’ll see that these rationalizations are present in many, if not most, of today’s headline-grabbing cases of corporate wrongdoing.

The Future of Respectability for Lawyers (Part 1)

I sincerely appreciate the opportunity to post!  I have been following this blog for some time with great interest.  I hope to bring a third perspective—not as an academic, nor a private firm practitioner, but as an employee of a company who happens to be a lawyer. 

A few weeks back, Professor Heminway posted, and I commented, on the difficulty good law students have in finding jobs.  I made the point that the law is in a state of transition—firms are becoming smaller, but more opportunities are arising within corporate models.  Over the past 20 or so years, attorneys have gradually become more integrated in the corporate world, and we have seen the number of positions with firms gradually decline in comparison.  

As part of this mainstreaming of lawyers into the business model, lawyers are becoming more and more part of business teams, not walled-off in legal departments.*  By incorporating lawyers into operational divisions, have businesses “humanized” lawyers, making them more accepted and respected?  Will this growing engagement and familiarity, with lawyers as co-workers in the business environment, lead to greater opportunities for all lawyers, including those in private practice?  The answer is, maybe, possibly.  It’s complicated.  Allow me to explain.

Let’s be clear—external counsel are respected for their pure legal skill, or otherwise, businesses wouldn’t hire them!  However, business leaders often view external counsel with some trepidation, as engaging them could result in great cost and perceived “rolling roadblocks” of legal reasons things cannot done. Additionally, while lawyers and business leaders work in parallel, their goals do not exactly align. Law firms are for-profit organizations, after all, and have their own operating concerns. Nevertheless, businesses value the private law firm stamp of approval on the company’s work product for many reasons. 

Most businesses (I believe, and from what I have seen) initially began onboarding lawyers not to deepen the bench of their overall business talent, but simply to lower costs tied to legal spending for basic legal services.  An excellent article in the MIT Sloan Management Review by Professors Robert C. Bird and David Orozco outlines the progression for effective use of internal counsel, and I’ll return to some specific discussion of that in later posts.  But I think the article accurately reflects the continuum for integration of lawyers, and most companies are somewhere around the early “avoidance” or “compliance” stages for use and understanding of internal lawyers.

However, as businesses advance in their view of legal assistance and business models incorporate lawyers as part of their entrepreneurial focus at the highest levels, I think their lawyers are on the path to becoming valued in a way that is impossible for private practice attorneys.  Rather than the (unfair or not) stereotypical view of self-serving or disinterested firm lawyers some business leaders may have dealt with in the past, will these same leaders that work daily with lawyers integrated into their corporate teams grow to appreciate and respect them more, since their talent and loyalty to the companies’ interests is paramount? Will this eventually lead to a shift as to societal viewpoints about lawyers, as they become more familiar and helpful personas around everyday workplaces? And in turn, will the law firms become more generally appreciated and respected (and less commoditized!), as this growing force of in-house attorneys bridge the communication gaps with external counsel, thus increasing trust levels between the entities?

Maybe business leaders, who have historically been at odds with their law firms to some degree, will actually be the force (perhaps initially, quite inadvertently) that saves the legal profession from potentially destructive isolation and gives greater hope to aspiring law students.  This interim period—as the prevalence of the private firms lessens and corporate legal strategy grows—may be difficult for all involved.  More thoughts on this soon.

--Marcos Antonio Mendoza

 

*Depending on the organization, direct control of such lawyers may or may not remain in the general counsel’s office.

Additional May Guest Blogger - Marcos Mendoza

I am delighted to introduce Marcos Antonio Mendoza as an additional BLPB guest blogger for this month.  He plans to do several posts here over the next few weeks.  I look forward to his contributions.

Marcos is a graduate of Washburn University School of Law (J.D.) and the University of Connecticut School of Law (LL.M.), with Honors.  His recent article in the Connecticut Insurance Law Journal, "Reinsurance as Governance: Governmental Risk Management Pools as a Case Study in the Governance Role Played by Reinsurance Institutions,"  is a continuance of “insurance as governance” scholarship through the empirical examination of reinsurer relationships.  With more than 25 years in the insurance and self-funded pooling industries, he currently is an assistant director with the third party administrator for one of the largest public-entity risk management funds in the U.S., based in Austin, Texas.

Marcos is a regular reader of--and sometimes-commenter on--the BLPB.  His perspectives have been quite valuable to me.  I hope that you will find his insights helpful to your work.

2016 Emory Transactional Law and Skills Teaching Conference - Save the Date

Emory’s Center for Transactional Law and Practice cordially invites you to attend its fifth biennial conference on the teaching of transactional law and skills. The conference, entitled “Method in the Madness: The Art and Science of Teaching Transactional Law and Skills,” will be held at Emory Law, beginning at 1:00 p.m. on Friday, June 10, 2016, and ending at 3:45 p.m. on Saturday, June 11, 2016.

The registration fee for the conference is $189 and includes:

 Pre-conference lunch and snacks
 A pre-dinner reception on June 10
 Breakfast, lunch and snacks on June 11

We are planning an optional dinner for attendees on Friday evening, June 10, at an additional cost. Attendees are responsible for their own hotel accommodations and travel arrangements. Additional information on the optional dinner and accommodations to come.

A request for proposals will be distributed in the fall.

We look forward to seeing you in June of 2016!

Sue Payne
Executive Director and Professor in the Practice of Law
Center for Transactional Law and Practice
Emory University School of Law
[email protected]

More on the Lady Vols and Trademark Abandonment

As some readers may recall, I posted twice back in November about The University of Tennessee, Knoxville's decision to drop the Lady Vols moniker and mark from all women's sports teams at UTK other than women's basketball.  The first post primarily wondered about university counsel's consideration of trademark abandonment in the rebranding effort.  The second post unpacked some additional issues raised by the first post and addressed some readers' and friends' concerns about my stance opposing the rebranding.

Interestingly, adverse reactions to the branding change, which is effective on July 1 (the beginning of the new academic year at UTK), have not died down since those original posts.  Letters from concerned citizens have been published in the local paper, and the paper even published a recent news article documenting some of the back-and-forth between Lady Vol fans and the campus administration. [Ed. Note: this article may be protected by a firewall.]  I have followed all of this with some interest.  

Honestly, part of me just cannot wait for the university to drop the mark altogether so that I can start using it to mass merchandise retro Lady Vols t-shirts, hats, and other merch.  Entrepreneurial pipe dream?  Maybe.  But it seems like a great idea, yes?

And there's a case involving Macy's that I will be following to help me to assess whether and, if so, when to launch my venture.  The case, covered in an article in the New York Law Journal on Monday, involves Macy's and its disuse/limited use of department store names forsaken as a result of its own rebranding efforts.  You know the names well if you're a person of a certain age--A&S, Filene's, Marshall Fields, Stern's, etc.  (I shopped at all of them.  Eek!)  The defendant in the action, Strategic Marks, claims the right to use these so-called "heritage marks" for bricks-and-mortar and online shopping services. Apparently, Strategic Brands filed intent to use applications and statements of use with the U.S. Patent and Trademark Office.  In the case, Macy's challenges Strategic Marks's right to use the heritage marks--asserting, among other things, that the marks have not, in fact, been abandoned (given that Macy's still uses them on the occasional plaque, t-shirt, and tote bag.)  The case had been scheduled for trial earlier this year, but the trial date was postponed to reflect new claims by Macy's regarding Strategic Marks's use of additional marks earlier registered by Macy's.

The case apparently raises some interesting trademark abandonment issues that also may apply to the Lady Vols rebranding effort as time moves on.  Among them: the length of time a mark must be in disuse before it is considered abandoned (although a presumption of abandonment apparently arises after non-use for three consecutive years), the types of behavior that constitute an intent not to resume use of a mark, and the effect of residual goodwill associated with a mark on claims of abandonment.  Although Macy's and Strategic Marks do not agree on the facts of the case, it is the law as applied to those facts that I am most interested in knowing.

Of course, since UTK is keeping the Lady Vols name for the women's basketball team, at least for now, the trademark abandonment issue is not ripe.  Accordingly, I cannot yet think about quitting my day job to promote the Lady Vols brand to all the passionate UTK women's sports fans out there.  But I am keeping my entrepreneurial eyes on this issue.  If they do away with tenure in The University of Tennessee system, for example, I may need an opportunity like this . . . !

Reposting: Insight into the on-campus interview for academic job seekers

Karen Kelsey at the Professor Is In wrote an insightful post about the on-campus interview portion of academic jobs.  Having come to academia straight from practice, I would have loved to read something like this before going on the market.  As as someone who has served on search committees  5 out of the last 6 years, I wish that all candidates had this level of awareness about the role and purpose of the on-campus interview.  

Candidates have to demonstrate that they are excellent scholars, excellent teachers, and good departmental colleagues. Beyond that, they must show that their scholarship, teaching, and service are suited to the particular campus, department, and job. And they have to convey that they [are] engaging and pleasant to be around. 

While most of the BLPB readers are gainfully employed academics and lawyers so this article isn't relevant to you directly, but it may be a good resource as we mentor folks interested in academic careers or any professional job with extensive interviewing.

-Anne Tucker

Sports Law Grading Break: A Little Perspective on Deflategate

I had planned to write a post about Delaware LLCs and who has standing to request judicial dissolution, but that post is going to wait.  I'm knee deep in Sports Law exam grading, and so sports is on my mind.  The big thing going on right now is, of course, Tom Brady's four-game suspension for his apparent participation in having footballs deflated to a psi that was not in compliance with league rules.  

The science on the benefits of deflating footballs is not clear, as noted here.  That, of course, is irrelevant to whether the rules were broken.  Some have argued that the air pressure rules are stupid, especially given that the league not long ago change the rules to allow each team to prepare their own footballs for use on offense. Andy Benoit of SI.com explains, 

With football being so much about strategy, the more comfortable the ball is for a quarterback and his receivers, the more entertaining the game becomes.

The NFL already agrees with this. Why do you think officials and ball boys go to such lengths to try to keep a football dry during a rainy game? Or, bringing it back to the inflate/deflate issue (or inflate/deflate controversy, since America has decided to be dramatic, if not hysterical, about this), why did the NFL permit quarterbacks to prepare their own balls before games in the first place?

The problem is, the league didn’t go far enough here. It should abolish all parameters regarding the ball’s air. Tom Brady didn’t cheat. Tom Brady’s job is to throw the football. Unfortunately, he had to go too far out of his way to do his job well.

I wouldn't think it would take a lawyer to explain that this reasoning is flawed, but perhaps it does. Even where a rule is stupid, counterproductive, or even obstructionist, it is still a rule. Failing to follow it leads to sanctions.  If a speed limit is too low, it can limit my ability to get to a meeting on time or make it so the FedEx driver can't deliver as many packages in a day.  But if either one of us gets clocked by a police officer's radar going 15 mph over the speed limit, we're going to get a ticket. And it's no defense to say, "But it's making it harder for me to do my job well!" 

Brady, through his agent, has vowed to appeal, as is his right.  Some people seem very concerned with Brady's image, and other have even suggested that the suspension could keep Brady from a future in politics.  Maybe, but given that we live in a country that has re-elected many people who have tarnished their own images while in office, I'm not going to be too concerned about this.  

The NFL, of course, has its own image issues, much of which is self-imposed.  The sanctions against Brady seem reasonable but severe, if acting in a vacuum.  But we don't, and it's hard to to look at other relative punishments for guidance.  The NFL has been aggressive with suspensions in other areas, such as Sean Payton's year-long suspension for BountyGate. Saints fans were certainly not happy with the outcome of the NFL's punishment.

On the other hand, as the Washington Post reported, A lot of people noticed that Tom Brady got twice as long a suspension as Ray Rice’s initial punishment.  The NFL could argue, of course, that Brady broke the league's rules, while Rice was subject to punishment from thecriminal justice system, too.  And they might, if they wanted to remain as tone deaf on domestic violence as they have been in the past.  

Why the NFL has this inflation rule, though, is a fair question. As Andy Benoit noted in the article linked above, why not just let each team provide footballs with whatever inflation they want?  If it is easier to catch a deflated ball, then it's also easier to intercept.  The league knows that offense sells tickets, so why not provide an advantage to all teams, if there is one to be had?  Seems like a win-win option, and it reduces the number of things NFL officials have to worry about enforcing. Less regulation of regulations that are hard to enforce and have dubious value to the integrity of game helps everyone involved, and it reduces people trying to game the system through largely irrelevant technical rule enforcement. (I'm looking at you, pine tar.)

Still, a rule is a rule, and if you get caught knowingly breaking a rule, there will (and should be) sanctions.  And let's be honest: The New England Patriots, with Bill Belichick and Tom Brady know what they are doing better than most.  They are arguably the most successful coach and quarterback combination in NFL history, and they are very, very good at what they do. They only do things they think will help them win, and if they do something risky, there's a good chance they're correct that there's an advantage to be had.  

Respect them for their skills, and hold them accountable for actions. And let's keep it all in perspective. It's still just football, and this time, no one got physically hurt.   

NASDAQ Testing Blockchain (Bitcoin) Software

Two weeks ago, I blogged about an interesting new book on bitcoin, the digital currency. I noted that the backbone of bitcoin is the blockchain software that verifies bitcoin transactions.

The Wall Street Journal reports that NASDAQ is testing blockchain technology as a settlement mechanism for trading in the shares of private companies. If the test is successful--and that's a huge "if" given the need to scale up the software to unaccustomed heights--blockchain could be used to verify that buyers and sellers actually made reported trades. It could potentially eliminate the need for a centralized settlement system.

One more reason for business lawyers to read the Vigna and Casey book and get up to speed on bitcoin.

ICYMI: Tweets From the Week (May 10, 2015)

Social Enterprise Law Tracker has officially launched! http://t.co/AFspSGLQxu #socent #BenefitCorporation #L3C #SPC #BLLC #dataviz

— SocEnt Law Tracker (@socentlaw_track) May 4, 2015

first decision in Delaware "to provide strong support for the concept of 'equitable dissolution' of LLCs" http://t.co/2YmnRk3s9v #corpgov

— Stefan Padfield (@ProfPadfield) May 5, 2015

How far is the leap from "Corporations Acting As Directors" to corporations acting as politicians? http://t.co/zokPxA6jUr #corpgov

— Stefan Padfield (@ProfPadfield) May 5, 2015

"The Curious Exclusion of Corporations from the Privileges and Immunities Clause of Article IV" http://t.co/GVPic978wM

— Stefan Padfield (@ProfPadfield) May 6, 2015

"Are Companies Impermissibly Bundling Proposals for Shareholder Votes?" http://t.co/uUiDeNqxKC #corpgov

— Stefan Padfield (@ProfPadfield) May 7, 2015

A Business Law Professor’s Take on Williams-Yulee

In Williams-Yulee v. The Florida Bar (.pdf), the Supreme Court rejected a First Amendment challenge to the Florida Canon of Ethics that bans judicial candidates from personally soliciting campaign contributions.  And I realize this is an odd case to discuss on this blog – nothing about it explicitly engages business law issues – but bear with me as I get to the (perhaps, ahem, somewhat attenuated) business-related point.

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