What does Consideration mean in a Contract?

WhaQuestion for Trademark lawyert does it mean for a contract to be not enforceable because of a lack of consideration?

Answer: In order for a contract to be enforceable, the mutual promises of the parties must be supported by “consideration”. Considerations means each party gives something of value to the other.  The reason that the courts and legislatures generally require some form of consideration is to insure that the promises being made are not merely a casual statement, and accident, or gratuitous – in short – to make sure the people making the agreement really mean it. Consideration looks at whether the parties have assumed an obligation on the condition of an act or forbearance of another. Except in cases of employment matters, Minnesota courts generally do not look at the adequacy of the consideration being offered – only whether some consideration has been exchanged. For written agreements, the court presumes valid consideration. While adequacy of consideration is not usually analyzed, vague or indefinite terms of consideration (including other conditions of the agreement) may invalidate an agreement, unless it is clear from the subsequent actions.

In contracts related to copyrights and trademarks, this mean that things like royalties might be subject to discontinuance if the only thing that it does is to grant a right to use the IP and it turns out the licensor in fact does not have the rights in the first place (assuming the licensor did not know that the rights were invalid). However, if the contract also goes on to provide that the licensor will discontinue use of the rights for their own use, this forbearance may be enough to be deemed adequate consideration to enforce the contract.

Consideration is important as a part of any contract.   When setting up a licensing arrangement it’s important that you evaluate what the parties are exchanging.

Minimizing Your Risk Related to Administrative Tasks and Payroll

Thinking of adding an employee but not sure how to handle the day to day administrative issues related to pay and insurance?   Employees are a responsibility for any business.  When you take one on, they may be there to make you money, but in return you have an obligation to treat them right.  As a result there are a variety of administrative and bureaucratic rules to help make sure things go smoothly. One option to consider to avoid this extra burden is to hire a reputable payroll services.

On time payment and record keeping: While it may seem obvious, small business owners often forget that their employees expect to be paid on a regular schedule and may not care that the boss is on vacation and hasn’t gotten around to writing out the checks.  Services handle this for their customers automatically and will mail out checks or make the appropriate online deposits upon request.

Withholding: One major issue overlooked by many businesses is their obligation to withhold taxes and to pay them into the government.  Miscalculating these fees, or worse, withholding them and using them for other business purposes is a huge problem.  A common statistic is that one in three businesses are penalized for missing tax deadlines.   Additionally, If you have employees, you also have an obligation to send annual statements to both the employee and the government about wages paid and taxes.  By having a service handle this, the risk of common errors is greatly reduced, thereby lowering the employers potential to make costly legal errors.

Signage: If you have workers, you are most likely required to post signage at your work place advising your employees of their rights under the law regarding things like overtime pay and worker compensation.  Failure to display proper signage is a common error for employers and can lead to fines.  Most services will provide you with   appropriate signage and can be a resource for understanding what may required of you.

By no means is this an exhaustive list of your payroll obligations, but they do demonstrate that these tasks sometime take you away from doing core parts of your business.   For a relatively low fee, many services will perform these services for you, as well as many other parts of the hiring process, thus putting this highly bureaucratic process into the hands of people that handle it on a day to day basis and can handle it far more efficiently than you might be able to.  When evaluating services consider their experience level, their ease of use, the scope of their services, and their fees.

Considerate Contracts

While it may seem like a simple question, sometimes its worth reviewing just the same – when is a contract a contract? General speaking it is when two or more parties exchange mutual promises. Often the determining factor is whether the mutual promises of the parties are supported by consideration. Consideration involves the giving of something of value, rather than a mere promise. The reason that the courts and legislatures generally require some form of consideration is to insure that the promises being made are not merely a casual statement, an accident, or gratuitous – in short – to make sure the people making the agreement really mean it. Consideration looks at whether the parties have assumed an obligation on the condition of an act or forbearance of another. Except in cases of employment matters, Minnesota courts generally do not look at the adequacy of the consideration being offered – only whether some consideration has been exchanged. For written agreements, the court presumes valid consideration.

In contracts related to intellectual property rights this means that things like royalties might be subject to discontinuance even if the only thing the licensor does is grant a right to use the IP and it turns out the licensor in fact does not have the rights in the first place (assuming the licensor did not know that the rights were invalid). However, if the contract also goes on to provide that the licensor will discontinue use of the rights for their own use, this forbearance may be viewed as adequate consideration.

Piercing the Corporate Veil in Minnesota

piercing the veilThe term “piercing the veil” is a reference to a method of holding a company or individual responsible for the liabilities of a corporation or other business entity despite the company being a separate corporate entity with limitations on its liability.  Saint Paul attorney Jack Roberts on his Minnesota Business & Real Estate Law Blog recently had a great post laying out many of the issues related to piercing the corporate veil and some sound advice on preventing it from happening. Jack’s article can be found here.

8th Circuit Adopts Fair Housing Council CDA Analysis.

When Cozy Kitten Cattery spotted what it felt was defamatory comments concerning their business on complaintsboard.com it raised their hackles and the fur started flying.  After a series of complaints were filed in state and federal courts, the district court dismissed the complaint against InMotion after raising, Sue Sponte (on its own), the issue of whether 47 U.S.C. 230 of the Communications Decency Act shielded InMotion as the ISP which hosted the offending website. (on its own), the issue of whether 47 U.S.C. 230 of the Communications Decency Act shielded InMotion as the ISP which hosted the offending website.

Noting that the case was the first opportunity for the 8th Circuit Court of Appeals to hear a case involving Section 230, the court adopted the reasoning of of the 9th Circuit that it interpreted as holding that CDA immunity did not apply to websites that are designed to encourage or facilitate defamatory, or other wrongful speech, however, CDA immunity does apply to voluntary information and speech created by third parties and not required by the website ISP.  Citing, Fair Housing Council of San Fernando Valley v. Roommates.com, LLC, 521 F.3d 1157, (9th Cir. 2008).     Most commentators have noted that the tension that the reasoning of Fair Housing Council creates by not allowing absolute immunity to ISP’s is that courts must weigh when affirmative actions in facilitating comments crosses the line into becoming an active participant, rather than merely a conduit.

The CDA was initially drafted in response to a series of court cases which began placing liability on ISP if they took on the role of a publisher through editing and affirmative management of comments.  Recognizing that it was bad policy to hold ISPs liable because the elected to try and take steps to mitigate harm, Congress enacted the CDA (which was largely thrown out in subsequent challenges – with section 230 surviving) to provide ISP with a means of managing content without assuming liability. Fair Housing Council recognized the intent of of Congress, while recognizing that the lines between conduit  and speaker is sometimes blurred.  While retaining the CDA’s intent to protect ISPs and allow them to exercise control over speech that occurs on their watch, Fair Housing Council strips websites attempting to hide behind it when they take an active roll in shaping the speech in the first place.

 

Ringtone Copyright Royalty Rates


“Answer the phone, answer the phone” – that’s what my cell phone screams in the voice of my daughter whenever someone tries to reach me. I recorded it a while back and it amuses me and everyone around me every time it plays. What happens, however, when you record someone else’s creative work as your ring tone?

Under US copyright law, users of compositions must pay copyright owners when recording a composition. When the recording party and the copyright owner do not negotiate a license, Section 115 of the Copyright Act provides that the Copyright Royalty Board can establish a predefined rate which allows the recording party to record the composition without the explicit permission of the owner of the composition’s copyright. In traditional recording settings, this is often refereed to as a mechanical.

In the recent decision DC Circuit decision Recording Indus. Assn. of Am. v. Library of Cong., No. 09-1075 ruled that the Copyright Royalty Board’s decision that royalties paid for use of compositions as ring-tones should be be paid as 24 cents per recording (penny-rate) rather than as percentage of the wholesale rate (the RIAA argued the rate should be 15% of the whole rate charged). The court affirmed the reasoning of the Copyright board who found that “that a single penny-rate structure is best applied to ringtones as well as physical phonorecords and digital permanent downloads” because of “the efficiency of administration gained from a single structure when spread over the much larger number of musical works reproduced.”

The basic reasoning – which I agree with – was that a flat penny rate is the fairest and simplest method of compensating individual songwriters. This is usually true for most creatives. Keeping licensing of copyright and trademarks as simple as possible reduces disputes over the method of calculations.

Does theTwitter ToS dedicate everything you post to public domain?? – NO!

I use to say that it was a myth that if it was on the Internet it was free to use. While still a myth, photojournalist Daniel Morela may have reason to question whether this in fact still true.

Morla was recently sued by Agence France Presse (AFP) for “antagonistic assertion of rights” for accusing AFP of violating his copyright in several photos taken following the January earthquake – Morela has counter sued for copyright infringement. AFP has asked for summary judgment that it did not infringe on Morela’s copyrights (complaint). AFP’s claims are interesting because, in part, they note that since Morela used Twitter to distribute the photos (which he did not – he used Twitpic), the Twitter Terms of Service (ToS) granting Twitter the right to distribute the photos should be extended to AFP as well. Besides the fact that AFP appears to have little understanding of the facts of their own case, this reading of the Twitter ToS is a little odd.

The Twitter ToS provide that:

    You retain your rights to any Content you submit, post or display on or through the Services. By submitting, posting or displaying Content on or through the Services, you grant us a worldwide, non-exclusive, royalty-free license (with the right to sublicense) to use, copy, reproduce, process, adapt, modify, publish, transmit, display and distribute such Content in any and all media or distribution methods (now known or later developed).

    You agree that this license includes the right for Twitter to make such Content available to other companies, organizations or individuals who partner with Twitter for the syndication, broadcast, distribution or publication of such Content on other media and services, subject to our terms and conditions for such Content use.

While it is possible that AFP is making the argument that the second clause which allows Twitter to make the content available to partners and that they in fact are partners, it is clear from anyone’s reasonable reading that this scenario is not what is intended by this agreement.

The much sparser Twitpic ToS has a similar clause, but its sparser writing style makes the intent of these types of clauses much more clear. The Twitpics Terms of Services specifically notes:

    By uploading your photos to Twitpic you give Twitpic permission to use or distribute your photos on Twitpic.com or affiliated sites

    All images uploaded are copyright © their respective owners

While I believe that AFP’s arguments are weak (though other claims raised by AFP may have more merit), they do help to illustrate that Creatives that use various forms of social media or SaaS solutions related to the creation or distribution of their work should be aware of, and understand, the ToS for those sites. Otherwise, you risk obscure boilerplate agreements giving away your work for free – or at least claims to that effect by multinational corporations.

Who can Sue when a Freelancer is Discriminated Against?


Freelancers take note: Under Minnesota Law if you have formed an LLC or other business entity and you experience discrimination at the hands of one of your clients, as an individual you cannot make a claim under Minnesota’s Human Rights Act (Minn. Stat. § 363A.17 (2008)), which authorizes parties to a business contract to sue for business discrimination in the performance of that contract.

The Minnesota Supreme Court reasoned in Krueger v. Zeman Construction Co. that the focus of the statue was the relationship of the parties, not on the individual subject to the discrimination. As a result, the court argued that an individual employee, even one that is a single member owner of an LLC, is not the intended beneficiary of the statute and therefore they cannot file a lawsuit in their individual capacity.

While I generally believe freelancers should consider business entities like LLC over that of sole proprietorship, this case provides a stark example of how there are some disadvantages to forming a separate legal entity and an evaluation of the advantages and disadvantages should always be considered.

Bringing Conciliation Court Cases

Conciliation court was created to allow citizens to bring legal actions for smaller claims that would normally be difficult to bring due to the expense and knowledge needed to bring a suit in district court. Generally, these courts allow individuals to bring claims of up to $7,500 ($4,000 in cases involving commercial consumer credit transaction), or order the return of property. However, these claims may not include claims for title to real estate, libel or slander, class actions or medical malpractice.

Additionally, since these are state courts, they can not hear matters of federal law such as disputes over copyright ownership. They can, however, hear cases involving breach of contract that involves copyrighted material. This means that the conciliation court can not hear a case involving ownership of a copyright, but it can hear a case involving whether a party has paid what they owe for the creation of copyrighted material.

An important thing to remember before you file a conciliation court matter is whether you will be able to collect anything in the event that you win your case. If a person has no money, collecting the judgment may be next to impossible. However, keep in mind that judgments are good for a period of ten years.

In the event you do decide to sue and you win the court will not automatically collect the money from the defendant. In order to collect your money you will be required to get a writ of execution from the court. A writ will not be issued until after the time for the defendant to appeal has passed and until certain documents are provided to the court.

Once the writ has been issued, plaintiffs need to locate property to be seized and inform the sheriff’s office where the property can be found so that they can carry out the writ. Defendants can be forced to disclose assets when a plaintiff files an order for disclosure. This process will take approximately thirty days. In the event that a defendant has been sued by other people, the sheriff will first execute writs on behalf of the prior plaintiffs.

Additional information on the conciliation court process can be obtained from your local county court office and at http://www.mncourts.gov/.

Audit & Record Keeping Provisions

Whether you have partners, or are contracting for royalties from another party, one of the most common provisions in any licensing & partnership contracts is one that provides a means and method of keeping financial records of the project or business. The exact language will differ slightly depending on the specifics of your circumstances, but common terms will include what types of books are kept, how and when audits may occur, and a description of what is to happen in the event of a problem with the records.

Records
While there are a variety of record-keeping methods, typical contract provisions regarding record-keeping will simply provide that the books are complete and accurate. In most cases it is understood that the books will be kept in accordance with “generally accepted accounting principles.” Furthermore, in some circumstances, state statutes may regulate how the books are kept.

Audits
Once it is decided what and how records are kept, one of the most important elements of a record-keeping provision is one that allows audits of the records. This is useful in keeping everyone on their toes, and it provides a means by which everyone can feel comfortable that everyone is being treated fairly. However, it is important to remember the difference between an audit and the right to inspect the records. While the right of a party to inspect records is often unequivocal and required by statute, the right to audit can be more easily limited. Audit provisions typically address when an audit may occur, who can ask for one, and who will pay for the audit. Often the number of times a party can request an audit during a specific time period is limited and how much notice is needed before an audit can occur also varies. Audit provisions usually provide that the party requesting the audit bear the cost of the audit.

Resolution
The last element of a record-keeping provision is one that spells out what happens in the event that an audit uncovers a problem. This element should lay-out how corrections will be handled in the event that the audit uncovers either overpayment or underpayment of funds. In addition, the provision can also provide that in the event that there is an underpayment in excess of a certain amount (5-10%), the cost of the audit shifts to the responsible party.

Providing an orderly way to handle potential disputes over money is a great way to resolve disputes before they start.

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