Don't Assume Your e-Profits Away

Perhaps we all have heard the warning given by my late high school geometry teacher about what “U and Me” become when we make an (unwarranted) assumption.

I was reminded of that advice when I read The Wall Street Journal columnist Holman Jenkins's recent comments on Microsoft's planned acquisition of Skype. In particular, he was skeptical about what he considered an assumption underlying Microsoft's strategy ' the ready availability of a broadband connection as an “unmetered resource.” He also noted how many online business models now rely on the same assumption, from Netflix's streaming movies to YouTube videos.

Fortunately for e-commerce firms (and fans of streaming content), Jenkins concluded that the bandwidth caps in place or proposed by many providers would not likely affect most online users.

But I found his own assumption equally interesting, before even considering the effect of usage limits ' sufficiently widely available and affordable high-speed Internet connections to make such e-commerce, based on streaming of large data files, possible at all.

Perhaps this assumption is just a specific application of selling where your customer is located ' sellers of dollar-store items are unlikely to look for customers online, because those potential customers may not have Internet access, or may not be willing to pay shipping charges on small purchases. But as someone who began working on a dial-up connection, I have never taken broadband for granted, and have appreciated how it has revolutionized my legal practice. Other than some of the few remaining court filings that are required to be sent on paper, I don't think I have received a significant legal document on paper in many years (and when I have, I had already acted on it days earlier when I got the electronic transmission).

However aged my former teacher's “assume” joke may have been, I think it is an excellent reminder of why overt and implied assumptions underlying
e-commerce must be considered in making business plans.

In fact, one such assumption hit home in our practice a few years ago (described later in this article). Today, almost all court and governmental filings are required to be made electronically. Filing “traditionally,” on paper, is not an option seen often these days. Eliminating the bureaucracy necessary to process the reams of paper filed each day has been one small way to control the spiraling costs of litigation.

e-Filing also lets all parties have access to court filings instantly, without waiting for delivery of these documents by the U.S. Postal Service or other delivery business.

The World As It Is

But consider all the prerequisites for an e-filing system to work (and that would be necessary to replace the paper-oriented system that has worked well for literally thousands of years).

To begin with, the court system itself has to have software capable of receiving and posting all those filings, and doing it on a timely and reasonably prompt basis, so as not to prejudice any party due to delayed access to the information in the documents, or delayed access to the delivery method itself.

The court also must have sufficient bandwidth to handle not only the routine day-to-day filings, but also the transient spikes in activity that occur during high-profile cases when many parties may be checking each day's filings with the court. That software must have strong security as well to prevent hackers from interfering with the public business of the courts (an enterprising hacker could forge his or her own acquittal document, for instance, and then post it and transmit it, and then walk away from justice if court administrators could not quickly spot such frauds in the system).

Finally, and perhaps most basically, all of the above have to be continuously connected to the Internet, so that all parties can work whenever, and from wherever, they may choose to keep up with the relentless schedule of the courts.

Assumptions, Assumptions

Always Available Internet

What if that access wasn't available? In fact, that is exactly what happened to the federal courts in late 2008. As I understand the explanation, due to a business dispute between two competing telecommunications networks, users of one network ' including my firm ' could not access the federal docket system, and, therefore, could not file motions and briefs when they were due.

In fact, many courts have had to establish special procedures and rules to protect litigants from having cases decided not by decisive facts or compelling arguments, but by whose computer system took longer to fail (as computers will inevitably do). For example, consider the following language from one federal court's procedures manual (the Western District of Wisconsin):

G. TECHNICAL ERRORS
A Filing User whose filing is made untimely as the result of a technical failure of the ECF website may seek appropriate relief from the court by filing a declaration that the Filing User was unable to file in a timely manner because of technical difficulties. The Filing User should print, if possible, a copy of the error message received and submit it with the declaration. Known ECF outages will be posted on the court's website and announced via e-mail to Filing Users.
Technical problems with the Filing User's facilities, such as phone line problems, problems with the filer's Internet Service Provider (ISP), hardware or software problems, do not constitute a technical failure under these procedures or excuse an untimely filing.
A document that could not be timely filed due to a technical failure of the ECF website must be filed on the first day the court is open for business following the original filing deadline. (www.wiwd.uscourts.gov/cmecf/AdministrativeProcedures.html#Technical.)

Determining What Is What

Of course, a priori, how can one distinguish between the excusable “known ECF outage,” and the unforgivable and potentially fatal (to your case, at least) “technical problems with the Filing User's facilities”?

One Washington court has even upheld an adverse ruling because an attorney failed to check his e-mail or the docket for developments in the case. See, Blackburn v. U.S. Dep't of Agric. and Forest Serv., No. C04-1404RSM (W.D. Wash, 2005). A Univeristy of Washington Shidler School of Law law review article ' and not even a recent one ' has speculated whether failure to check e-mail in a world of electronic filings rises to the level of malpractice (see, Jessica Belskis, Electronic Case Filing: Is Failure to Check Email Related to an Electronically Filed Case Malpractice?, 2 Shidler J. L. Com. & Tech. 13 (Dec. 16, 2005), at www.lctjournal.washington.edu/Vol2/a013Belskis.html). (However, one court's procedural manual expressly provides a safe-harbor rule against letting an IT glitch decide a case: “A technical failure that precludes a party's compliance with electronic-filing procedures cannot be a basis for disposing of any case” (www.supreme.courts.state.tx.us/miscdocket/11/11903200.pdf).)

In my firm's case, fortunately, the problem was fixed relatively quickly, albeit not without much aggravation (see, www.cogentco.com/news/press-releases/149-sprint-and-cogent-reach-agreement-on-exchange-of-internet-traffic). In addition, the litigation attorneys (and their adversaries) were forced to return to something they had always done before e-filing ' talking to one another ' until the system was restored. It was certainly less convenient than it would have been if we were still working in an e-filing world, but the outage did not stop the business of the courts. The incident also reinforced the importance of paper backups, or at least of keeping local copies of e-filings (i.e., on a firm's own servers, rather than exclusively on the court's system) as a way to prove compliance with the procedural rules, as well as to proceed with the case when the technology does not work.

Instant EINs

I learned of another flawed assumption just in the last month. Today, most new entities get their EIN (or tax identification number, the business equivalent of a Social Security Number) through the IRS online system that generates a number instantly. As a result, the business world now expects that level of service, because an EIN is necessary to open a bank account and start other normal business processes. Rather than request the EIN in advance, to be ready, EINs are frequently obtained “just in time.” But for several months, the IRS's systems have been unable to process the volume of online EIN requests, particularly for limited liability corporations (“LLCs”). According to the IRS website: “Due to a high volume of requests for EINs, the IRS will begin limiting the number of EINs assigned per day to a responsible party. Effective April 11, 2011, a responsible party will be limited to five (5) EINs in one business day. This limit is in effect whether you apply online, by phone, fax or mail.”

While this may be an example (from the IRS's perspective) of being careful what you wish for, it illustrates several fallacies of the e-world ' among them that doing normal procedures online is always preferable, and that today everything can be done quickly and instantly. But for businesses and, particularly law firms that must obtain such numbers for their clients every day, this problem may force them to give parts of the their work “back” to their clients who may not be subject to the daily EIN limit. Here, the expectation that e-systems will always work for routine matters not only has forced changes in normal workflow, but has also created the potential for changes in billing and responsibilities with professional service providers.

We Still Need Paper

Indeed, the assumption that in the era of the digital “paperless” office there is no need to retain some items on paper is itself another such fallacy (whose office is truly paperless?). While electronic copies can generally be proven to be acceptable substitutes for paper originals under federal and state laws passed at the start of the dot-com era in the late 1990s, keeping originals of some documents makes good sense from a legal and business perspective ' it remains a frequent occurrence that some potential evidence in electronic format is lost. For example, original wills and trusts, and signatures on contracts, may be needed in a dispute.

From a less litigious perspective, many firms prefer to send traditional printed newsletters or marketing materials because they are more likely to be read than an electronic version that is perceived as just another piece of spam that may never reach the intended recipient's Inbox because of always-vigilant anti-spam software by which many attorneys and others have come to live by. Product catalogs and price lists may also fit into this category, because it can be easier to shop for some items by turning pages than by clicking through Web pages, and customers may need more certainty about colors than is possible to attain with the variations in shade transmitted through various computer monitors or laptop screens ' or smaller display areas.

In fact, the subject of when and why to maintain paper copies of critical legal documents, even in the age of the allegedly paperless firm, could be the subject of a separate article. There has even been a substantial amount of litigation over the attempts to bypass the traditional deed-recording system with MERS', the Mortgage Electronic Recordation System (see, www.mersinc.org), and the effect of that system on the integrity of public real estate records of title and ownership.

Having paper records can be helpful, if not invaluable, when attorneys and others must sort out problems created by attempts to simplify business records with technology. (One might even argue that the assumption that technology creates improvements is itself unwarranted, given the many examples of such upgrades run amok, from sophisticated business control systems that create financial losses to something as simple as a digital television upgrade that rendered all of my family's VCRs useless.)

IP Assumptions

Not surprisingly for the world of e-commerce, I have also often seen assumptions about how intellectual property rights undermine “normal” business planning.

For instance, entrepreneurs with what they think are good ideas often speak to counsel after they have created business plans premised on the belief that they have something valuable that can be legally protected (whether by patent, trademark or copyright, or just traditional trade secret law).

Unfortunately, however, the technical aspects of such laws often make it impossible to get as much protection as the entrepreneur thinks he or she can ' or should ' get. For example, if someone has an invention that is patentable, presenting it to potential investors (or, as in more than one real-life case in our office, in a student business competition) could foreclose getting that protection under the critical rules about patent disclosures, if the presentation is not followed with a patent filing within the mandatory one year window to do so.

Even more important: Can the results of the invention be reproduced by another method, whether by reverse engineering or changing claims of the potential patent? For any of these reasons, the assumption that the business has valuable intellectual property may simply be wrong ' and lead to unrecoverable development expenses, not to mention time lost on modifying the idea until it becomes something that could be protected. Instead, early collaboration with patent counsel is critical to understand how to proceed with business development, and, more generally, whether the law will provide any real protection, or whether the legally protectable aspects of an invention can easily be bypassed or copied without risk of infringement.

Behavior Is a Guessing Game

Another area of IP law that can lead to mistaken business assumptions is the perhaps na've belief that people will follow the law ' or contracts. For example, in my experience, executives who feel wronged by former employees they must sue to enforce confidentiality or a non-competition agreement, which they have paid counsel to draft, often cannot understand why they now must consider the much greater costs of litigation to enforce the agreement against someone who has violated it. (See, “IP Litigation: What Is It Good For? Absolutely Not Business!” in the September 2009 edition of e-Commerce Law & Strategy, at http://bit.ly/izfndQ, and “Stop in the Name of ' the IP Police? Real-World Ding Law for the Online Business,” in the August 2010 edition of e-Commerce Law & Strategy, at http://bit.ly/m5ulMa.) This problem can be a particular concern for those with a technology or science background ' people who live and work in a world bounded by “rules that must be obeyed.”

Most people, in contrast, rarely behave so predictably, and any sound business strategy must take the human factors into account, as well as consider the cost in legal fees and delays of going to court to force employees, or former employees or freelance workers, to do what they agreed to in their basic-form contracts but have chosen to do nonetheless for possible business advantage.

One client, for example, does not wait until a violation to incur legal fees to remind employees that the company will hold them to the standard forms each must sign once they are employed. Not only does the company use very strong documents tailored to protecting the company's key assets, but it also sends each departing employee a detailed list of what he or she agreed not to do, immediately after departure. Failure to honor those obligations can quickly lead to another “friendly reminder” warning sent to the person's new employer. If the prohibited activity continues, a lawsuit is promptly started ' and carried through to completion.

The point is not to terrorize employees, but (as is common with many companies) to create a business culture of protecting the firm's IP, including deterring continuing employees from thinking about departing to go into competition using the intangible assets developed using the firm's resources.

Boilerplate

Unfortunately, the example offered above leads to another “fallacy by assumption”: that boilerplate legal forms will always stand up in court.

Certainly, courts will often enforce boilerplate, even when it is one-sided and aggressive. But there are some situations in which courts will not do so, in which the court may feel the firm that wrote the contract overstepped its bounds, or did not deal fairly with the other party. (I discussed factors courts use to determine when boilerplate becomes unconscionable at some length in “Web Site Terms and Conditions: Adhesion Contracts or 'Offers You Can't Refuse'? Is This Approach Best for e-Commerce Firms?” in the November 2008 edition of e-Commerce Law & Strategy, http://bit.ly/l6Rqf3.)

The point to remember, however, is that simply having a form does not mean that a company will get its way in court; instead, authorized agents of any company are wise to take the possibility of a courtroom loss into account in all business dealings, and to behave accordingly. No corporate user of a form contract wants to find itself trying to defend the contract's more onerous or obnoxious provisions (but which generally would have been upheld in court) in the face of truly offensive actions by the contract's author that offend the court's standards of decency and fair play.

Blind Ambitions Lead to Collisions

Of course, not all assumptions underlying an e-commerce business plan relate to legal matters. An entrepreneur's expectations about how potential customers will find or use his or her site may be grounded in reality from careful market studies and research ' or they may simply be full of hope and expectation based on the entrepreneur's own excitement about the new business. (I recall a former client who was excited to open his first business ' a frozen yogurt shop ' in September, in an obscure location. Despite his hard work, best efforts and a good product, he couldn't last until the weather turned warmer because his enthusiasm blinded him to an objective assessment of his business reality.)

An excellent 2008 article about such self-analysis from a marketing perspective comes from Palmer Web Marketing (see, http://bit.ly/BJXV). Another article, from Advantage Media, looks at Web-design assumptions that people make about e-commerce customers (see, http://bit.ly/j88AlD). Both articles list many assumptions about how e-commerce customers behave and that website planners must take into account, but which may be so “obvious” that no one ' businessperson or techie ' sees reason to challenge. I particularly appreciated the assumption that “everything will go as planned.” As someone who has often said that the phrase “computer problem” is an oxymoron, I think any online planning must account for the costs and delays of technical glitches and failures.

Pricing and Costs

A business assumption of a different sort enters into e-commerce pricing. Today, remote payment systems have become an integral part of any e-commerce site, whether for acceptance of traditional credit cards, debit cards or online payment services such as PayPal. Each of these mechanisms, though, costs the merchant money, and surprisingly much of it ' each step in the processing of payments is usually accompanied by a fee, as financial institutions have sought to maximize as many revenue sources as possible after the tightening of rules on such charges in the Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 (see, e.g., reports from Consumer Reports (http://bit.ly/lUGCdy), The New York Times (http://nyti.ms/99QV0V), and the White House (http://1.usa.gov/4vpfHm)).

However, an e-commerce merchant accustomed to processing transactions without such layers of fees and charges may not realize the significant amount of margin that must be built into pricing to cover such overhead; the savings from not having to pay for bricks-and-mortar may just go to finance clicks and swipes instead.

Assume, Then Apply Reason

Certainly, the creators and masters of any new business, or of the expansion of an existing business, must apply diligence to their quest for success. Whether called a for-profit business plan or non-profit case statement, an analysis of what a business must do to succeed ' and the risks it faces ' helps to provide advance solutions to contingencies expected and unexpected.

However, as in any planning process, the success or failure of the plan depends on its assumptions ' about the underlying market and the hard facts, and about how customers and competitors will behave.

But because of the perceived need for speed in online business, the captains and lieutenants of e-commerce firms may not always honestly or fully assess the reality of their assumptions ' in which case they may learn the lesson taught many years ago by my geometry teacher, but at a much greater expense in money, time and wasted effort.

Perhaps we all have heard the warning given by my late high school geometry teacher about what “U and Me” become when we make an (unwarranted) assumption.

I was reminded of that advice when I read The Wall Street Journal columnist Holman Jenkins's recent comments on Microsoft's planned acquisition of Skype. In particular, he was skeptical about what he considered an assumption underlying Microsoft's strategy ' the ready availability of a broadband connection as an “unmetered resource.” He also noted how many online business models now rely on the same assumption, from Netflix's streaming movies to YouTube videos.

Fortunately for e-commerce firms (and fans of streaming content), Jenkins concluded that the bandwidth caps in place or proposed by many providers would not likely affect most online users.

But I found his own assumption equally interesting, before even considering the effect of usage limits ' sufficiently widely available and affordable high-speed Internet connections to make such e-commerce, based on streaming of large data files, possible at all.

Perhaps this assumption is just a specific application of selling where your customer is located ' sellers of dollar-store items are unlikely to look for customers online, because those potential customers may not have Internet access, or may not be willing to pay shipping charges on small purchases. But as someone who began working on a dial-up connection, I have never taken broadband for granted, and have appreciated how it has revolutionized my legal practice. Other than some of the few remaining court filings that are required to be sent on paper, I don't think I have received a significant legal document on paper in many years (and when I have, I had already acted on it days earlier when I got the electronic transmission).

However aged my former teacher's “assume” joke may have been, I think it is an excellent reminder of why overt and implied assumptions underlying
e-commerce must be considered in making business plans.

In fact, one such assumption hit home in our practice a few years ago (described later in this article). Today, almost all court and governmental filings are required to be made electronically. Filing “traditionally,” on paper, is not an option seen often these days. Eliminating the bureaucracy necessary to process the reams of paper filed each day has been one small way to control the spiraling costs of litigation.

e-Filing also lets all parties have access to court filings instantly, without waiting for delivery of these documents by the U.S. Postal Service or other delivery business.

The World As It Is

But consider all the prerequisites for an e-filing system to work (and that would be necessary to replace the paper-oriented system that has worked well for literally thousands of years).

To begin with, the court system itself has to have software capable of receiving and posting all those filings, and doing it on a timely and reasonably prompt basis, so as not to prejudice any party due to delayed access to the information in the documents, or delayed access to the delivery method itself.

The court also must have sufficient bandwidth to handle not only the routine day-to-day filings, but also the transient spikes in activity that occur during high-profile cases when many parties may be checking each day's filings with the court. That software must have strong security as well to prevent hackers from interfering with the public business of the courts (an enterprising hacker could forge his or her own acquittal document, for instance, and then post it and transmit it, and then walk away from justice if court administrators could not quickly spot such frauds in the system).

Finally, and perhaps most basically, all of the above have to be continuously connected to the Internet, so that all parties can work whenever, and from wherever, they may choose to keep up with the relentless schedule of the courts.

Assumptions, Assumptions

Always Available Internet

What if that access wasn't available? In fact, that is exactly what happened to the federal courts in late 2008. As I understand the explanation, due to a business dispute between two competing telecommunications networks, users of one network ' including my firm ' could not access the federal docket system, and, therefore, could not file motions and briefs when they were due.

In fact, many courts have had to establish special procedures and rules to protect litigants from having cases decided not by decisive facts or compelling arguments, but by whose computer system took longer to fail (as computers will inevitably do). For example, consider the following language from one federal court's procedures manual (the Western District of Wisconsin):

G. TECHNICAL ERRORS
A Filing User whose filing is made untimely as the result of a technical failure of the ECF website may seek appropriate relief from the court by filing a declaration that the Filing User was unable to file in a timely manner because of technical difficulties. The Filing User should print, if possible, a copy of the error message received and submit it with the declaration. Known ECF outages will be posted on the court's website and announced via e-mail to Filing Users.
Technical problems with the Filing User's facilities, such as phone line problems, problems with the filer's Internet Service Provider (ISP), hardware or software problems, do not constitute a technical failure under these procedures or excuse an untimely filing.
A document that could not be timely filed due to a technical failure of the ECF website must be filed on the first day the court is open for business following the original filing deadline. (www.wiwd.uscourts.gov/cmecf/AdministrativeProcedures.html#Technical.)

Determining What Is What

Of course, a priori, how can one distinguish between the excusable “known ECF outage,” and the unforgivable and potentially fatal (to your case, at least) “technical problems with the Filing User's facilities”?

One Washington court has even upheld an adverse ruling because an attorney failed to check his e-mail or the docket for developments in the case. See, Blackburn v. U.S. Dep't of Agric. and Forest Serv., No. C04-1404RSM (W.D. Wash, 2005). A Univeristy of Washington Shidler School of Law law review article ' and not even a recent one ' has speculated whether failure to check e-mail in a world of electronic filings rises to the level of malpractice (see, Jessica Belskis, Electronic Case Filing: Is Failure to Check Email Related to an Electronically Filed Case Malpractice?, 2 Shidler J. L. Com. & Tech. 13 (Dec. 16, 2005), at www.lctjournal.washington.edu/Vol2/a013Belskis.html). (However, one court's procedural manual expressly provides a safe-harbor rule against letting an IT glitch decide a case: “A technical failure that precludes a party's compliance with electronic-filing procedures cannot be a basis for disposing of any case” (www.supreme.courts.state.tx.us/miscdocket/11/11903200.pdf).)

In my firm's case, fortunately, the problem was fixed relatively quickly, albeit not without much aggravation (see, www.cogentco.com/news/press-releases/149-sprint-and-cogent-reach-agreement-on-exchange-of-internet-traffic). In addition, the litigation attorneys (and their adversaries) were forced to return to something they had always done before e-filing ' talking to one another ' until the system was restored. It was certainly less convenient than it would have been if we were still working in an e-filing world, but the outage did not stop the business of the courts. The incident also reinforced the importance of paper backups, or at least of keeping local copies of e-filings (i.e., on a firm's own servers, rather than exclusively on the court's system) as a way to prove compliance with the procedural rules, as well as to proceed with the case when the technology does not work.

Instant EINs

I learned of another flawed assumption just in the last month. Today, most new entities get their EIN (or tax identification number, the business equivalent of a Social Security Number) through the IRS online system that generates a number instantly. As a result, the business world now expects that level of service, because an EIN is necessary to open a bank account and start other normal business processes. Rather than request the EIN in advance, to be ready, EINs are frequently obtained “just in time.” But for several months, the IRS's systems have been unable to process the volume of online EIN requests, particularly for limited liability corporations (“LLCs”). According to the IRS website: “Due to a high volume of requests for EINs, the IRS will begin limiting the number of EINs assigned per day to a responsible party. Effective April 11, 2011, a responsible party will be limited to five (5) EINs in one business day. This limit is in effect whether you apply online, by phone, fax or mail.”

While this may be an example (from the IRS's perspective) of being careful what you wish for, it illustrates several fallacies of the e-world ' among them that doing normal procedures online is always preferable, and that today everything can be done quickly and instantly. But for businesses and, particularly law firms that must obtain such numbers for their clients every day, this problem may force them to give parts of the their work “back” to their clients who may not be subject to the daily EIN limit. Here, the expectation that e-systems will always work for routine matters not only has forced changes in normal workflow, but has also created the potential for changes in billing and responsibilities with professional service providers.

We Still Need Paper

Indeed, the assumption that in the era of the digital “paperless” office there is no need to retain some items on paper is itself another such fallacy (whose office is truly paperless?). While electronic copies can generally be proven to be acceptable substitutes for paper originals under federal and state laws passed at the start of the dot-com era in the late 1990s, keeping originals of some documents makes good sense from a legal and business perspective ' it remains a frequent occurrence that some potential evidence in electronic format is lost. For example, original wills and trusts, and signatures on contracts, may be needed in a dispute.

From a less litigious perspective, many firms prefer to send traditional printed newsletters or marketing materials because they are more likely to be read than an electronic version that is perceived as just another piece of spam that may never reach the intended recipient's Inbox because of always-vigilant anti-spam software by which many attorneys and others have come to live by. Product catalogs and price lists may also fit into this category, because it can be easier to shop for some items by turning pages than by clicking through Web pages, and customers may need more certainty about colors than is possible to attain with the variations in shade transmitted through various computer monitors or laptop screens ' or smaller display areas.

In fact, the subject of when and why to maintain paper copies of critical legal documents, even in the age of the allegedly paperless firm, could be the subject of a separate article. There has even been a substantial amount of litigation over the attempts to bypass the traditional deed-recording system with MERS', the Mortgage Electronic Recordation System (see, www.mersinc.org), and the effect of that system on the integrity of public real estate records of title and ownership.

Having paper records can be helpful, if not invaluable, when attorneys and others must sort out problems created by attempts to simplify business records with technology. (One might even argue that the assumption that technology creates improvements is itself unwarranted, given the many examples of such upgrades run amok, from sophisticated business control systems that create financial losses to something as simple as a digital television upgrade that rendered all of my family's VCRs useless.)

IP Assumptions

Not surprisingly for the world of e-commerce, I have also often seen assumptions about how intellectual property rights undermine “normal” business planning.

For instance, entrepreneurs with what they think are good ideas often speak to counsel after they have created business plans premised on the belief that they have something valuable that can be legally protected (whether by patent, trademark or copyright, or just traditional trade secret law).

Unfortunately, however, the technical aspects of such laws often make it impossible to get as much protection as the entrepreneur thinks he or she can ' or should ' get. For example, if someone has an invention that is patentable, presenting it to potential investors (or, as in more than one real-life case in our office, in a student business competition) could foreclose getting that protection under the critical rules about patent disclosures, if the presentation is not followed with a patent filing within the mandatory one year window to do so.

Even more important: Can the results of the invention be reproduced by another method, whether by reverse engineering or changing claims of the potential patent? For any of these reasons, the assumption that the business has valuable intellectual property may simply be wrong ' and lead to unrecoverable development expenses, not to mention time lost on modifying the idea until it becomes something that could be protected. Instead, early collaboration with patent counsel is critical to understand how to proceed with business development, and, more generally, whether the law will provide any real protection, or whether the legally protectable aspects of an invention can easily be bypassed or copied without risk of infringement.

Behavior Is a Guessing Game

Another area of IP law that can lead to mistaken business assumptions is the perhaps na've belief that people will follow the law ' or contracts. For example, in my experience, executives who feel wronged by former employees they must sue to enforce confidentiality or a non-competition agreement, which they have paid counsel to draft, often cannot understand why they now must consider the much greater costs of litigation to enforce the agreement against someone who has violated it. (See, “IP Litigation: What Is It Good For? Absolutely Not Business!” in the September 2009 edition of e-Commerce Law & Strategy, at http://bit.ly/izfndQ, and “Stop in the Name of ' the IP Police? Real-World Ding Law for the Online Business,” in the August 2010 edition of e-Commerce Law & Strategy, at http://bit.ly/m5ulMa.) This problem can be a particular concern for those with a technology or science background ' people who live and work in a world bounded by “rules that must be obeyed.”

Most people, in contrast, rarely behave so predictably, and any sound business strategy must take the human factors into account, as well as consider the cost in legal fees and delays of going to court to force employees, or former employees or freelance workers, to do what they agreed to in their basic-form contracts but have chosen to do nonetheless for possible business advantage.

One client, for example, does not wait until a violation to incur legal fees to remind employees that the company will hold them to the standard forms each must sign once they are employed. Not only does the company use very strong documents tailored to protecting the company's key assets, but it also sends each departing employee a detailed list of what he or she agreed not to do, immediately after departure. Failure to honor those obligations can quickly lead to another “friendly reminder” warning sent to the person's new employer. If the prohibited activity continues, a lawsuit is promptly started ' and carried through to completion.

The point is not to terrorize employees, but (as is common with many companies) to create a business culture of protecting the firm's IP, including deterring continuing employees from thinking about departing to go into competition using the intangible assets developed using the firm's resources.

Boilerplate

Unfortunately, the example offered above leads to another “fallacy by assumption”: that boilerplate legal forms will always stand up in court.

Certainly, courts will often enforce boilerplate, even when it is one-sided and aggressive. But there are some situations in which courts will not do so, in which the court may feel the firm that wrote the contract overstepped its bounds, or did not deal fairly with the other party. (I discussed factors courts use to determine when boilerplate becomes unconscionable at some length in “Web Site Terms and Conditions: Adhesion Contracts or 'Offers You Can't Refuse'? Is This Approach Best for e-Commerce Firms?” in the November 2008 edition of e-Commerce Law & Strategy, http://bit.ly/l6Rqf3.)

The point to remember, however, is that simply having a form does not mean that a company will get its way in court; instead, authorized agents of any company are wise to take the possibility of a courtroom loss into account in all business dealings, and to behave accordingly. No corporate user of a form contract wants to find itself trying to defend the contract's more onerous or obnoxious provisions (but which generally would have been upheld in court) in the face of truly offensive actions by the contract's author that offend the court's standards of decency and fair play.

Blind Ambitions Lead to Collisions

Of course, not all assumptions underlying an e-commerce business plan relate to legal matters. An entrepreneur's expectations about how potential customers will find or use his or her site may be grounded in reality from careful market studies and research ' or they may simply be full of hope and expectation based on the entrepreneur's own excitement about the new business. (I recall a former client who was excited to open his first business ' a frozen yogurt shop ' in September, in an obscure location. Despite his hard work, best efforts and a good product, he couldn't last until the weather turned warmer because his enthusiasm blinded him to an objective assessment of his business reality.)

An excellent 2008 article about such self-analysis from a marketing perspective comes from Palmer Web Marketing (see, http://bit.ly/BJXV). Another article, from Advantage Media, looks at Web-design assumptions that people make about e-commerce customers (see, http://bit.ly/j88AlD). Both articles list many assumptions about how e-commerce customers behave and that website planners must take into account, but which may be so “obvious” that no one ' businessperson or techie ' sees reason to challenge. I particularly appreciated the assumption that “everything will go as planned.” As someone who has often said that the phrase “computer problem” is an oxymoron, I think any online planning must account for the costs and delays of technical glitches and failures.

Pricing and Costs

A business assumption of a different sort enters into e-commerce pricing. Today, remote payment systems have become an integral part of any e-commerce site, whether for acceptance of traditional credit cards, debit cards or online payment services such as PayPal. Each of these mechanisms, though, costs the merchant money, and surprisingly much of it ' each step in the processing of payments is usually accompanied by a fee, as financial institutions have sought to maximize as many revenue sources as possible after the tightening of rules on such charges in the Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 (see, e.g., reports from Consumer Reports (http://bit.ly/lUGCdy), The New York Times (http://nyti.ms/99QV0V), and the White House (http://1.usa.gov/4vpfHm)).

However, an e-commerce merchant accustomed to processing transactions without such layers of fees and charges may not realize the significant amount of margin that must be built into pricing to cover such overhead; the savings from not having to pay for bricks-and-mortar may just go to finance clicks and swipes instead.

Assume, Then Apply Reason

Certainly, the creators and masters of any new business, or of the expansion of an existing business, must apply diligence to their quest for success. Whether called a for-profit business plan or non-profit case statement, an analysis of what a business must do to succeed ' and the risks it faces ' helps to provide advance solutions to contingencies expected and unexpected.

However, as in any planning process, the success or failure of the plan depends on its assumptions ' about the underlying market and the hard facts, and about how customers and competitors will behave.

But because of the perceived need for speed in online business, the captains and lieutenants of e-commerce firms may not always honestly or fully assess the reality of their assumptions ' in which case they may learn the lesson taught many years ago by my geometry teacher, but at a much greater expense in money, time and wasted effort.