Frankenforms: The Dangers of Internet Business Broker Legal Documents

internet business broker legal documents
Most Internet business broker legal documents are dangerous Frankenforms

When you’re buying or selling an Internet business, using a broker’s template documents to do so is typically a very bad idea.

Why?

Whether it is a letter of intent (LOI), the purchase and sale agreement, or related documents (e.g. escrow agreement, promissory note, etc.), the broker’s documents are usually garbage that don’t protect anyone except perhaps the broker.

How the Frankenform is created

Most online business brokers are not Internet attorneys. In order to get deals done (even incorrectly), they’ll patch together various parts of different legal documents they find at different sources and use these Frankenstein forms for all e-commerce sales and acquisitions without even understanding what the legalese in the documents really means.

As an Internet lawyer representing clients in the purchase or sale of an e-commerce company, I’ve seen horror stories because of these Frankenforms. For example, it’s common for a broker to provide an asset purchase template to use even when it is an equity deal.

Because these documents are slapped together from various pieces of other contracts, you’ll often see problems with identifying what is being sold, the price, method and timing of payments, and even the identities of the parties (sometimes referring to the seller when it should be the buyer or vice versa).

The parties, including the broker, sign documents for the deal without anyone fully understanding the legal rights or obligations of everyone involved because the forms used are vague and often conflict with the parties’ intent.

It’s also common to see the broker try to push through a deal without all of key players signing on the dotted line. For example, brokers will often attempt to sell an Internet business by having a single signature on the documents for the seller even if the seller happens to be married. This can cloud ownership to the business because the spouse has not consented in writing to the sale. And that’s a recipe for disaster for the buyer, particularly when the seller goes through a divorce and the spouse wants either a share of the business or a cut of the sale proceeds from the deal.

Do Internet business brokers serve a purpose?

Yes! They help put sellers and buyers together. And that’s a good thing.

However, a business broker represents one party for a commission. And the broker’s forms should not be used to ink the deal for convenience purposes.

What should you do?

At a minimum, your Internet lawyer should review and revise the broker’s forms (including the LOI) before you sign anything. Ideally, you’ll want your Internet business attorney to draft the documents so they save you time, money, and many legal headaches. That way you’ll avoid the pitfalls of Internet business broker legal documents.

And if you’re a business broker who insists on using templates, have a qualified Internet lawyer prepare them for you, explain what they mean, and consult that attorney on deals to ensure you’re protected and your clients are getting deals done right.

Revenge Porn and Your Website

revenge porn
Can a visitor post revenge porn on your website?

If you operate a website that allows visitors to upload images (even just a profile pic), you need to be aware of the risks of having revenge porn on your website.

What is revenge porn? It’s when someone posts a nude, semi-nude, and/or sexually explicit photo or video online of a person without that person’s consent.

There are two common types of revenge porn.

First, a jilted spouse or lover will post pics out of spite to humiliate the person with whom they had a relationship that went bad.

Second, there are hackers who steal these types of photos and videos and post them online. The motives vary for hackers. For most, it seems to a quest for 15 minutes of fame acquired for posting nudie pics of actresses (e.g. the “Fappening”) or celebrity sex tapes. Some hackers have been arrested for selling software that’s designed to steal nude photos (See Ian Lang’s article at Askmen.com, “Hackers Face Charges After Selling Nude Photo Hacking Software”).

Thanks to new state laws, there’s been a crackdown on revenge porn sites, that is, websites focused on hosting user submissions of sex videos and erotic pics uploaded without consent of the person being attacked. In a New York Post article by Marissa Charles, “Meet the Angry Mom Who Took Down the King of Revenge Porn,” you can read the saga of one effort to remove revenge porn. It’s important to note that at least one website owner is going to prison.

Does this mean that if someone uploads revenge porn to your site that you’ll end up in jail? Of course not. However, even those who don’t get prosecuted for hosting such content can be sued civilly for actual and punitive damages.

This means it’s a good idea to keep a watch out for the types of photos and videos your website visitors are posting (or even linking to). And if there’s a request to take down a pic by someone (whether it’s revenge porn, copyright infringement, or another reason), take the request seriously.

Although your Internet lawyer can help you on a case-by-case basis, it’s a good idea to remove revenge porn quickly for both legal and ethical reasons. You should also consider having your Internet attorney draft submission guidelines that make it clear what type of user content is acceptable to be uploaded to your site.

Internet Lawyer: 7 Keys to Picking the Right One for Your Business

choose an internet lawyer
Read this article before you retain an Internet lawyer for your company

The purpose of this article is to help you identify the right type of Internet lawyer to represent your online business needs.

Why am I giving you this information?

For two reasons…

1. If you’re not a good fit for legal representation by my Internet business law firm, I want you to quickly find another attorney who can help you.

2. If you decide to become a client, I want you to know what you’re getting. No surprises.
Fair enough?

Let’s get started. Be sure to take notes so you can quickly identify what’s right for you.

1. Your Internet Lawyer’s Location

Unfortunately, there aren’t enough attorneys practicing Internet business law on a full-time basis for most people to find one in their home town. Unless you live or work in a large city, you’re probably going to have to look elsewhere to find an attorney who really understands ecommerce law.

U.S. Website with U.S. Customers

In the United States, many online legal matters are governed by federal law instead of state or local law.
This means you can hire someone who doesn’t live near you to represent you in many Internet legal matters. In fact, there’s a good chance you may never even meet your Internet lawyer face-to-face.
If there’s a state or local legal issue that comes up (e.g. sales taxes), your Internet lawyer can help you get the right legal counsel to handle that particular issue on an as-needed basis.

Foreign Website with U.S. Customers

If your business is located outside of the United States but you have U.S. clients, you’re going to want a U.S.-based Internet lawyer to make sure you’re not violating U.S. laws when doing business with those clients.

U.S. Website with Foreign Customers

What if you’re in the United States and have foreign clients too?
You’ll want to have a U.S.-based Internet lawyer protect you here and have that lawyer work with foreign legal counsel to protect you as-needed in other countries where you do business.
Lawsuits
When it comes to Internet-related lawsuits, you have a variety of issues to consider when finding the right legal help.
For example, if you’re suing someone in another location (another state or country), your Internet lawyer can help you determine if you need to hire another lawyer (and where) to represent your interests in the lawsuit. If you have been sued, your Internet lawyer can help you identify an attorney to represent in the court where you’ve been sued.

2. An Apple Is a Fruit — But Not All Fruits Are Apples

Many Internet lawyers know business law but few business attorneys understand Internet law.
For instance, if you talk with the typical business lawyer about pay-per-click (PPC), search engine optimization (SEO), a Google “slap,” or affiliate compensation disclosure requirements, the attorney will probably give you a blank stare followed by “I’ll have to do some research on that issue and get back to you on it.”
Although there’s nothing wrong with research, why should you pay for a business lawyer to educate himself on basic Internet legal issues when an experienced Internet attorney already knows the answer?
There’s a good chance your average business lawyer doesn’t know much about Internet law. This means you can either pay for his education or talk with an Internet lawyer when you have e-commerce legal issues come up.
Does this mean you should fire your local business lawyer? Of course not…unless your lawyer claims he’s an expert in all types of law and can represent you in everything that comes up in your business and personal life. A jack-of-all-trades is a master of none. These types are more concerned with losing you as a client than representing you properly.

3. Pros and Cons of Internet Law Firm Size

Want to scare the pants off of someone in an Internet business dispute? Hire one of the largest law firms in the world and have a nasty letter sent to that person on stationery that lists at least a dozen locations for that law firm around the world. Bonus points if the business’s website lists more than a 1,000 attorneys working for it globally. It’s like you’ve inflicted a plague of lawyers on your opponent.
This is one of the best uses for a large law firm…scare someone into doing the right thing out of fear. Your big business attorney may not know Internet law. It’s just mistakenly assumed by the person who receives the letter you paid to have sent.

What’s the Risk?

If the other side decides to fight, you will probably pay a fortune in legal fees. Big law firms have large overhead costs. They rent premium office space with nice downtown views; have lots of support staff, country club dues, and lots of other costs most law firms never pay.
Because of these extra expenses, you can expect to pay a large law firm 2 to 3 times what an Internet lawyer working at a smaller law firm charges. Internet attorneys are not cheap so it rarely makes sense to pay extra simply because the business is large with lots of expenses that don’t benefit you.

Education Costs

There are also the hidden “education” costs you get with large law firms. As discussed before, many business lawyers don’t know Internet law…and that’s true in large law firms too. The difference is that you’re paying at least twice as much for lawyers in that business to learn what an experienced Internet attorney already knows.

Time Costs

In addition, there’s the extra time factor.
Junior attorneys with 6 or 7 years of “experience” at a large law firm may never have tried a case in court, drafted an e-commerce contract from scratch, or negotiated any business deal.
If you’re involved with a lawsuit or need Internet legal documents drafted, these junior attorneys will take more time than an Internet lawyer at a small law firm that does this type of work nearly every day.
Junior attorneys at big law firms often have their work reviewed by a senior lawyer. So, in addition to paying for the junior lawyer’s education and extra time, you’ll probably pay additional fees for the time it takes for a senior lawyer to review the work…and you better hope the senior attorney knows something more about the Internet than how to send and receive email.

When to Hire a Big Law Firm

So when should you consider using a big business instead of an Internet lawyer at a smaller business? There are two common situations.
First, there’s the “fear factor” scenario described above. This works when you’re trying to scare someone into doing the right thing. But for it to work, your opponent must be small and smart enough to fear going up against the big law firm. If you can’t afford to pay the big business for more than sending that letter, it’s a bluff so use this tactic wisely.
Second, when your Internet business gets large enough that you’re considering going public or selling out for a fortune, it’s probably time to bring in a big business to handle securities law and related issues. The business may not know Internet law but it will have lawyers who can guide you through the process of taking your company to the next level or cashing out.
Hint. When lawyers for a publicly traded company (e.g. Apple or Google) looking to buy out your business come knocking on your door, that’s a good sign it’s time for you to get a big law firm involved to represent you as you either sell or take the company public.
On the other hand, if you’re paying for a big business to represent your startup Internet business on an ongoing basis, but there’s no reason to do so, you’re essentially burning money. You’re overpaying for an expensive ego trip.

4. Can You Identify the Different Types of Internet Attorneys?

There are several different types of Internet lawyers. If you can’t identify the type you’re dealing with, there’s a good chance you’ll pick the wrong one to represent your business.

Defamation Lawyers

There are lawyers who like to represent plaintiffs or defendants in civil lawsuits. Sometimes they specialize in defamation (libel and slander) cases. As the Internet has grown, these attorneys have found clients to represent who have been defamed online or have been accused of defamation.
These attorneys are not really Internet lawyers but rather trial lawyers (litigators) who represent individuals and some businesses in lawsuits involving defamation. The fact that the defamation occurred on the Internet instead of in a newspaper really isn’t very relevant to these lawyers.

Internet Business Trial Lawyers (Litigators)

There are trial lawyers who focus on handling civil lawsuits involving businesses. These can be anything from contract disputes to ownership issues. Although they may handle online defamation cases too, their focus is primarily normal business disputes.
Few focus on the Internet exclusively. Instead, most Internet Business Litigators will represent your company in court whether or not e-commerce is part of the dispute.
Good business trial lawyers have transferable skills that can persuade a judge or jury on your behalf regardless of what’s at stake. Ideally, however, you want legal counsel who understands your Internet business enough to have a competitive advantage in the courtroom against a trial attorney on the other side who doesn’t.
What’s the down side to Internet trial lawyers? They’re a hammer looking for a nail to hit…and everything looks like a nail. In other words, because they’re skilled at going to court, they’re heavily biased toward using lawsuits to solve business disputes that might otherwise be resolved to your satisfaction without ever getting involved in a lawsuit in the first place.
When you are hunting for an Internet trial lawyer to represent you, you’ll want one who has the experience to win in a court room but also the wisdom to recognize that sometimes you’re better served by settling your dispute without a lawsuit or before trial.

Internet Business Transactional Lawyers

An experienced Internet business transactional attorney is the closest thing you’ll find to a colleague. These are the deal makers who try to make sure their clients don’t get involved with lawsuits in the first place.
An Internet transactional attorney focuses on making sure you have the right legal documents in place – from your website legal documents to your e-commerce contracts. This type of attorney is going to encourage you to have the right type of legal entity in place to protect your personal assets while running your business online. If you’re looking to make a private purchase or sale of an e-commerce company, an Internet transactional attorney can put the right paperwork in place to make the deal go as smoothly as possible while protecting your interests.
You’ll often find that Internet transactional attorneys not only understand what you do online but they also own their own Internet companies in addition to representing clients. In other words, they’re online entrepreneurs who also know Internet business law.
When you’re looking for an Internet business transactional attorney, be sure that you check out if there’s a basic understanding about how e- commerce works and related laws and regulations.
If an attorney doesn’t know about Federal Trade Commission guidelines that affect the Internet and lacks a basic understanding of spam laws, Internet sales taxes, online privacy, etc., you should keep hunting until you find someone who is qualified to represent your business interests online.
You will also want an Internet transactional attorney who has the wisdom and connections to refer you to a good cyber trial lawyer in case you have a dispute that results in a lawsuit.
It’s a warning sign if an attorney who doesn’t litigate pretends he can handle lawsuits simply to keep you as a client. The same is true when an Internet trial attorney pretends to be a good Internet business transactional attorney. They are very different skill sets.

Intellectual Property Attorneys

Intellectual Property (IP) lawyers focus on copyrights, trademarks, service marks, and sometimes patents too. They handle these intellectual property rights for offline and online businesses.
However, their practices aren’t exclusively focused on Interne t law. In fact, IP lawyers often don’t know a lot about online businesses except for issues related to intellectual property.
There is a blurring of the lines with this category though.
For example, there are Internet litigators who focus on lawsuits involving intellectual property. There are also Internet business transactional lawyers who can handle your copyright and trademark registrations.

5. Consultation Chemistry

Would you buy a car without test driving it first? Why would you hire an Internet lawyer to represent you on an ongoing basis without seeing if there’s a good fit?

The Test Drive

Your initial consultation (often a virtual meeting by telephone or via Skype) is your first “test drive” to see if there’s a good fit. This has a lot to do with chemistry between you as a prospective client and your Internet lawyer.
If you have questions, get them answered during the initial consultation. If it doesn’t “feel” right to you, then look elsewhere. Regardless, you will obtain valuable information during the consultation so it wasn’t a waste of time. If nothing else, you’ll get answers to some questions and understand more about yourself and what you’re looking for in legal representation.

Date But Don’t Propose Right Away

It’s rarely wise to ask someone to marry you on the first date. Even if the answer is “yes,” you’re making a long-term commitment without really knowing the other person.
Similarly, you’ll ideally want to hire the Internet lawyer for one or two projects to see whether there is a good fit before committing to a long- term relationship as a client.
Sometimes you simply won’t “click” so it makes sense to cut your ties after a project or two and find someone else that meets your business’ Internet legal needs. In other cases, you’ll quickly discover the attorney really doesn’t know Internet law but pretended to in order to get your business.
If you’re happy with the work done, you can consider establishing a long- term relationship where you pay for Internet legal representation on an ongoing basis by the Internet attorney. Like a good marriage, your Internet attorney will learn a lot about you over time and accordingly be better able to represent your interests.

6. Time and Money

President Abraham Lincoln (a business lawyer who represented railroads) once said that a lawyer’s time was his stock in trade. In other words, a lawyer sells his irreplaceable time as inventory.
What’s this mean to you when hiring an Internet lawyer?

Free Lunch Syndrome

The Internet has conditioned people to be freebie seekers. But there’s really no such thing as a free lunch, free medical, or even free legal advice. Someone pays for each of these.
Now you might find someone who claims to be an Internet lawyer who is dumb enough to subsidize your online business by representing you for free.
But would you trust the quality of “free” brain surgery by a neurosurgeon? Why trust your legal needs to “free” either? Chances are that “free” legal help is going to be extremely expensive when you discover after the fact how much it cost you.

Will Your Internet Lawyer Charge an Hourly Rate or Flat Fee?

When you’re involved in a lawsuit or in ongoing negotiations, your Internet attorney will likely be able to give you a guesstimate of fees but it doesn’t make economic sense to quote a hard flat rate. There are too many variables involved because no one knows how much time is going to be involved handling the legal matter.
In these types of Internet legal matters, your attorney will likely ask for an evergreen advance deposit to bill against at an hourly rate (typically billed in ¼ hour or 1/10th hour increments). When the deposit dips below a certain amount because of the amount of work done, you replenish (evergreen) it.
In addition, the time spent fielding phone calls, voice mails, and emails for a “quick question” aren’t free either. You can expect to pay for the time involved reading your emails, analyzing your legal issues based upon the attorney’s knowledge, possible research, and responding to your questions with the right answers.
On the other hand, there are matters that can be billed at a flat rate. For example, you can pay a flat fee for your initial consultation with an Internet lawyer.
If you need website legal documents drafted (e.g. privacy policy) or a contract that doesn’t require negotiations by your attorney, you can often get this work done by a qualified Internet lawyer for a flat fee.
The amount of that fee can vary based upon the unique needs of your business. For example, some businesses require more complex Internet legal documents to protect them than others. Regardless, you can get the work done for a flat fee based upon what you’ve described to your Internet lawyer during a consultation.

7. Bargain Hunting or Long-Term Relationships?

There are two common types of clients – bargain hunters and relationship builders.

Bargain Hunters

First, there are the bargain-hunting clients who are always looking for a better deal. To them, legal representation is a commodity rather than a professional service. They will switch lawyers at the drop of a hat if they think there’s a better deal to be had.
Bargain hunters are constantly searching for excellent legal representation at Wal-Mart prices. For these clients, attorneys are the hired help, a necessary nuisance, but there’s no real relationship between the client and the Internet lawyer.
Price is usually mentioned in the first or second sentence of any initial contact with the Internet lawyer. And as soon as the work is done, chances are the client will simply disappear.

Relationship Builders

Other clients are looking for an Internet lawyer to represent their interests long-term. As time goes by, the attorney learns more about the client’s businesses and can often warn the client about new Internet laws.
This type of client treats the Internet lawyer as a trusted advisor looking out for the client’s business interests.
Which type of client are you?
There’s no “right” answer to this question.
But you should answer it truthfully before you start your search for an Internet lawyer to represent you. Otherwise, you won’t know what you’re really looking for…
Remember these three key points when hunting…
There are Internet attorneys who will work for bargain-hunting clients and treat them accordingly. Legal services are traded for money. As soon as the project is done, both attorney and client forget each other.
Some attorneys who don’t know Internet law will pretend to be Internet attorneys in order to represent bargain hunters because these attorneys are hungry for new clients. They usually are identified when they claim to be able to represent clients in just about any area of law.
There are also Internet attorneys who focus on building long-term “win-win” relationships designed to protect their clients’ businesses.

Your Next Steps…

When you’re ready for an Internet lawyer to protect your online business, here are four steps that you can take…
1. Identify whether you’re a bargain-hunter or relationship-building client.
2. Identify the type of Internet lawyer you need (e.g. ecommerce trial attorney or Internet business transactional lawyer).
3. Find an experienced Internet lawyer using the criteria you have identified in Steps 1 and 2.
4. Schedule your initial telephone consultation with the Internet lawyer you selected.

Licensing Agreements: How to License Your Products for Extra Income in 3 Easy Steps

licensing agreements
Licensing agreements are a powerful way to earn extra money with your products

When you use licensing agreements, you can get others to sell your products for you, deal with the related sales taxes and paperwork, and pay you a percentage of each sale made (sometimes called a “royalty” or “licensing fee”).

Here are three simple steps to setting up a licensing program for your products.

Step 1 – Identify the markets where your products already sell and potential markets you haven’t tapped.

Step 2 – Approach key players in those markets about becoming licensees. If you don’t have a pre-existing relationship with these prospective licensees, you may want to consider sending a personalized snail mail letter and make a follow-up telephone call instead of sending a blind email that could be treated by recipients as spam.

Step 3 – Have your Internet lawyer prepare a licensing agreement that covers all of the key terms, including what’s being sold, what you get paid on each sale, etc. If you’re offering the same terms to all licensees, you can have a licensing contract template prepared to use with multiple licensees. For unique licensing arrangements, your Internet attorney can customize the template as-needed.

What about using an affiliate program instead of licensing agreements?

You can actually do both.

Nothing prevents you from having an Internet affiliate program and also licensing your products to others to sell.

However, it’s a time-consuming pain in the butt to run an online affiliate program where you pay commissions on sales driven by your affiliates. Even if you can afford to pay an affiliate manager, chances are Internet sales taxes and other paperwork associated with operating such a program is a major time suck.

You can even let your licensees run affiliate programs for your products and pay a cut of their own profits to their affiliates rather than having your own affiliate program.

What if you don’t have any products to license?

Find an ecommerce business that has products you want to sell and approach the owner about becoming a licensee. Have your Internet lawyer prepare a license agreement that favors you as the licensee.

Are You Ready to Sell Your Internet Business?

sell internet businessInternet Lawyer Mike Young helps entrepreneurs sell their companies for a fair price while reducing the legal risks (including nonpayment).

Here are some of the common ways that Mike can help you sell your Internet business.

Determine your desired outcome

Although you may have a sales price in mind, there’s a lot more that goes into selling an e-commerce company than simply transferring assets or equity in exchange for payment.

For example, are you wanting to be paid a lump sum or willing to accept installments? Will you provide full or partial seller financing for the sale? Do you intend to stay on as a consultant or employee post-sale? If so, under what terms?

Mike will use his experience as an Internet business attorney to help you structure a deal that’s right for what you want to achieve.

Pre-sale website legal compliance review

A company website that violates the law can prevent a sale or seriously devalue an online business. Mike can perform a Professional Website Legal Diagnostic to address legal compliance issues before you try to sell your company so that you can maximize the sales price.

Revise prospective buyer’s letter of intent (LOI)

Accepting a potential buyer’s letter of intent at face value is rarely a good idea for any seller. Mike will review and make suggested revisions to the offer contained in the LOI in order to protect you from frivolous prospects or efforts by competitors to sabotage your Internet company using the due diligence process.

Handle due diligence inquiries from prospective buyers

Working with your accountant and your business broker (if you have one), Mike will help field questions from your company’s potential purchaser during the due diligence process. This enables you to focus on your business operations while providing the prospect with the information needed to bring the deal to the virtual closing table.

Protect you with the right legal documents

Ideally, you’ll want Mike to draft the ecommerce agreements that will be used to make the deal happen because he has the experience and understands ecommerce. By having Mike prepare the docs, you’ll get more legal protections than would be provided in documents drafted by the buyer’s attorney.

If the buyer’s legal counsel prepares the documents for closing there deal, you’re likely to face two significant problems.

First, most attorneys lack the experience to properly draft the documents needed to complete the sale of an Internet business. Mike can identify the gaping holes in these documents and fill them with language to protect you.

Secondly, documents written by the buyer’s legal counsel is likely to heavily favor the purchaser to your disadvantage as the seller. Mike can review these docs and provide revisions to make the documents fair to you rather than being one-sided in favor of the buyer.

Help you get paid for your ecommerce company

It’s not enough to sell your Internet company on paper. You’re going to want to get paid. Mike knows how to structure Internet company sales in such a way as to minimize your risk of nonpayment, both at closing and for any future payments due if financing terms are provided.

What’s the next step in getting Mike to help you sell your Internet business?

When you’re ready to sell your Internet company, the first step is to set up a telephone appointment with Mike to get the ball rolling. He looks forward to hearing from you.