S&A Newsletter Winter 2012
Internet Defamation is Serious Business!

Businesses spend a lot of time and money on marketing and public relations to build their brand, so it can be devastating to find that someone has posted a harsh statement on the Internet that is outright false. For all of the efforts that a business puts into its websites, social networking and online ads, one bit of misinformation can sometimes topple its credibility.

Two common grievances include businesses being accused of dishonest practices and discrimination. Competitors and disgruntled individuals are usually the ones blamed for trying to undermine the business’ reputation on online chatrooms, Facebook, “protest websites”, and via mass e-mails. But to show that a business is a victim of defamation, it must show that the published statement was false and resulted in a loss.

As soon as a business realizes that the unflattering material is on the Web, it should keep thorough records of what is being posted and compile a list of all of the websites that have the defamatory statements on them. This will be useful evidence in court and/or for takedown letters. Also, keep records of sales numbers from before and after the harsh content appeared on the Web. This will help show the loss incurred and aid the court in calculating damages.

And do not fall into the knee-jerk reaction of trying to threaten the author, publisher or website. While a lawyer can help you get the bad content removed, your threatening the other party and having the police at your door to calm you down may only make matters worse and can potentially create a claim against you. Moreover, keep in mind that Section 230 of the Communications Decency Act protects webmasters and hosting companies from being held liable for what another user posts on their website unless it can be proven that the specific individual was responsible for its publication. An Internet company that permits criminal acts or intellectual property infringement may be held liable.

In order to protect the business, a company may seek to serve the offender with a civil action alleging defamation and libel. However, because many businesses do not know who harmed them as oftentimes the degrading postings are by anonymous authors, businesses may have no choice but to provide a notice in whatever medium the original posting was made to make the anonymous author aware of their wrongdoing before any subpoena is enforced. Otherwise, the case will initially be against a “John Doe” defendant and through the process of discovery, ISP records and other pertinent information will reveal that party’s true identity.

It is not uncommon for the victim to win monetary compensation and/or an injunction that forces the author or website to remove the offending material and refrain from defaming the business in the future. Otherwise, the author could be fined or jailed for contempt of court.

Private Placement Memorandums
When a company is looking to raise funds without an initial public offering, a private placement memorandum (PPM) is often one of the best ways to raise capital. A company must closely follow the regulatory rules and exemptions of the Securities and Exchange Commission (SEC) before this can be done, and will further need an information memorandum. Because of the complexity of the SEC rules and of the final documentation presented to investors, it is highly advised to not go at this process alone unless you have an extensive background in this arena.

PPMs can be an excellent sales tool to attract investors, which will also be known as subscribers in this formal document. This document will show that the company, its directors and officers are serious about their business endeavors, that they have the professionalism, knowledge and team necessary to succeed in their particular industry, and that they are committed to having quality products and/or services, no matter what sector they are in. The content will be highly focused on information that will allow the investor to make an informed investment decision. Some of the information will be required by law, whereas other information should be used strategically to entice their interest.

The length of a PPM will be greatly influenced by the caliber of angel investors sought and the amount of capital needed. All PPMs should be very polished, professional documents. The company must disclose all material and relevant facts. No half truths, omissions, or false statements of facts are tolerated. Otherwise, making material misstatements can lead to a securities fraud claim that can affect the company as well as the company’s directors and officers. The SEC can also levy civil and criminal penalties for securities fraud. Thus, taking the time to create and thoroughly review the PPM is well worth the effort and money.

A PPM has numerous technical sections. These include:

• Summary of Offering Terms: Usually laid out via a term sheet
• Issuer Description: Describes the company and its structure, a short overview, a cap table and context of the offering
• Business plan: Contains information on the company’s position in the market, its unique value proposition and products, as well as the sales and marketing plan, financials, intended use of proceeds, and management
• Risk factors: Details potential and actual risks that could affect the investor; cautionary language should also be included about investment risks in general with unregistered securities; and conflicts of interest should also be described
• Supplemental information: Any additional information should be included that is critical for the investor to make an informed decision
• Subscription procedures: Describes the steps for investors to participate in the offering

Properly prepared, this document can serve as an excellent vehicle to fund your endeavor and make your dream a reality.

Music Artists Line Up to Reclaim Hit Songs from Record Labels
Musicians who want to regain control of their hit songs from the mid 1970’s can now reclaim them due to the copyright law termination rights. As long as artists apply for these rights two years before the 35th anniversary of the songs being copyrighted, they can reclaim them. Music labels are livid about this development, but musicians have been awaiting this opportunity for decades. Award-winning musicians such as Bruce Springsteen, Van Halen, Billy Joel, and Steve Miller have made millions for record companies and songs from 1978 are now in the two-year time frame.

“In terms of all those big acts you name, the recording industry has made a gazillion dollars on those masters, more than the artists have,” said Don Henley, from the Eagles and a founder of the Recording Artists Coalition. “So there’s an issue of parity here, of fairness. This is a bone of contention, and it’s going to get more contentious in the next couple of years.”

The big record companies such as Universal, EMI, Sony BMG, and Warner Brothers are ready to battle this copyright provision. They believe these songs and records are classified as works for hire. Musicians are thus employees and not independent performers for the record label from their viewpoint.

The Recording Academy is growing quite concerned, however, about termination rights disputes overwhelming the courts. Musicians are getting legal representation now to send termination rights notices to labels and get ready for 2013. As it presently stands, record labels are not giving in. Some onlookers predict the issue might even make it to the U.S. Supreme Court in due time.

Next year, musicians will be able to send notices for songs made in 1979, and with each passing year more hits will be up for grabs. When a song qualifies for the 35-year expiration, an author has five years to claim it; otherwise the right to reclaim it passes. This issue also brings up questions of what a song author is – do record producers, foreign artists (think Led Zeppelin), and songwriters who write for big names have the right to request termination rights from labels?

As many of these songs and artists from 1978 defined their generation, this issue also becomes important for licensing rights. Many of these songs are coveted by advertisers, used in TV and film, and for ringtones and video game soundtracks. This copyright law will certainly be a topic of conversation and heated debate for years to come.

DISCLAIMER: The information provided herein is intended to provide general information and does not constitute legal advice. You should not act or rely on such information without seeking the advice of an attorney and receiving counsel based on your particular facts and circumstances. Some of the legal principles mentioned might be subject to exceptions and qualifications which are not necessarily noted. Furthermore, laws are subject to change and vary by jurisdiction. Please see our entire web site disclaimer, available in our menu options and incorporated herein by this reference.
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