Our blog last month, Legal Hell for Stairway to Heaven, was one of our most popular ever. We discussed Led Zeppelin’s courtroom woes stemming from allegations that the band’s iconic hit was based on stolen material. Along the way, we looked at the most common reasons small businesses end up in court and precautions you can take stay out of legal trouble. This month, we bring you an update on the case while examining more legal risks that can stop small businesses in their tracks.
Plant and Page head into a Los Angeles courtroom June 14 after the trial was postponed from its initial May 10 date. That followed some well-publicized posturing over pre-trial motions. In the meantime, a precedent-setting Supreme Court decision handed down May 19 will have major ramifications on the Zeppelin trial. That case also involved copyright infringement, this time over the screenplay for the 1980 film Raging Bull. The Supreme Court’s majority held that there is no cut-off date for seeking damages on old copyright claims, just that back payments are limited to earnings from the previous three years. That means the statute of limitations issues initially seen a key hurdle for the plaintiffs suing Zeppelin are now gone, according to Bloomberg, which may spell trouble for the band.
As copyright claims go, The Telegraph reports that while Stairway is the most controversial one for Plant and Page, it isn’t their first. “The credits for several of the band’s songs – including Whole Lotta Love and Dazed and Confused – have been altered over the years after successful legal challenges,” the paper noted. “Francis Malofiy, the US lawyer spearheading the Stairway to Heaven lawsuit, has even gone so far as to call Led Zeppelin ‘the greatest cover band of all history.’”
And while Zeppelin may benefit this time around from the experience of previous legal challenges, lack of experience understanding potential legal risks that can presents major turmoil for small business owners, according to an Entrepreneur Magazine article titled These 3 Legal Traps Can Stop a New Business in its Tracks. “Once a new business is beyond the phase of executing the early idea and is getting off the ground, some of the biggest challenges revolve around legal risk,” the story explains.
Below are a few of the most common legal traps small businesses fall into, according to Entrepreneur:
1. Trusting verbal or handshake agreements
A prime example of this happens particularly early on in business and often starts with the first employee, independent contractor, or friend that comes to help.
You need assistance but have no money to pay, so you agree that they’ll get a defined percentage of the company or sales. You have a personal relationship so there’s really no need to draft a whole agreement. It will work out and if it doesn’t, you’ll just talk about it. You trust each other. This is a nightmare of a situation because it rarely works out. When the time comes, it’s going to be your word against theirs, which is unlikely to turn out well for you -- particularly if your business has become successful.
Even if you don’t have money to pay an attorney to draft an agreement, go to our friend “The Internet” and find a template agreement that you can alter to serve your purpose. Anything is better than nothing. But you really should seek legal counsel, which will be well worth your investment in both the short and long term.
2. Unknowingly using someone else's patents
Here’s the story: You came up with an idea that was going to revolutionize an entire market -- no, the entire world. You’re pumped, so you dig through pages of Google results and are confident that your new idea doesn’t exist. You begin executing on your new ideas while making progress, so you invest your life savings -- or at least a large piece of it. This, of course, is going to be the greatest investment ever.
Months later, when you’re making serious traction in the market, you receive a letter in the mail with the ominous heading, “Cease and Desist.” This letter serves as notice from another company -- which happens to be a lot bigger than yours -- that you’re infringing on their patents. The next step will be legal action if you don’t comply.
The good news is you now have the opportunity to stop using their intellectual property before they sue you. The bad news is your business just went from growing to non-existent and they might sue you for damages nonetheless.
To help mitigate this risk, it’s imperative that you have an attorney that specializes in patent law -- which is referred to as intellectual property -- perform a patentability search, the results of which will tell you who’s in the market and what’s been patented.
3. Unfairly competing
You scored big time and landed an all-star employee from your biggest competitor. Now you’re going to rule the world. As things get moving, your favorite new hire is out converting all of the business from their previous employer to their new one -- you -- while using their wealth of inside information they have on the competition to their advantage.
This is great news, right? Nope. Not unless you love lawsuits.
There are “unfair competition” laws in every state, most of which -- if not all -- dictate that you can’t hire an employee from a competitor, then have the new hire use confidential information to take all of the relationships with them.
Want to avoid this legal trap? It’s pretty simple, hire the all-star from the competitor but restrict them from using their confidential knowledge to solicit accounts. If they have the relationships, the accounts will come willingly.
In conclusion, Entrepreneur reiterates, “The business world is full of legal issues, many of which are difficult to learn about without having experienced them.” For that reason, importance of investing in good counsel can’t be understated.
When it comes to growth capital solutions, Fundamental stands out with unparalleled experience and insight. How can we help you or your clients avoid the risks and traps of entrepreneurship on your path to success?