Small Changes <i>Can</i> Lead to Expensive Consequences

No one should be surprised by singer Jimmy Buffett's e-commerce success (in addition to his side gigs in music and in the restaurant business).

And it's no surprise, either, that his hit song, “Changes in Latitudes, Changes in Attitudes” highlights the risks that online firms face constantly after so-called typical business decisions: “nothing remains quite the same” ' including these companies' ability to conduct their regular business.

For many businesses, the advice that “a change would do you good” (in the words of Sheryl Crow) is terrifically good ' if costly processes of day-to-day and other types of business can be streamlined through e-commerce transactions.

After all, as has been well documented in this publication and elsewhere, e-commerce has helped many firms to cut costs, improve efficiency and provide immediate access to competitive intelligence.

Not All Perks, Though

But not everyone has reaped only benefits. Besides the many people in commercial sectors whose business model was decimated ' music sellers and travel agents, at the dawn of e-commerce, and, more recently, publishers of books and music ' sometimes that change can hurt any business and its people, and for no good reason.

Consider, for example, the recent case of a technology firm whose principals decided to relocate the company from New York to Pennsylvania, for everyday tax planning. At the corporate level, the move was done through a typical reincorporation merger, in this case, of the existing New York entity into a newly formed Pennsylvania shell company ' as plain vanilla as the practice of corporate law ever gets. Yet the business owner was shocked to discover that such “routine” tax planning would cost him his SSL certificate, a critical intellectual property right for any firm with any Web presence (such as most e-commerce ventures).

Why did this occur? Because of heightened post-9/11 security procedures, the firm that administered the company's SSL certificate, GeoTrust, initially refused to renew the existing certificate to the merger survivor, because of “discrepancies” in the company's information. As a result, GeoTrust required a potentially expensive opinion of legal counsel to assure it that the holder of the certificate (and the security that it provides) was still entitled to that benefit. The client's request said, in part:

You have been asked by your client to provide a legal opinion to aid them in obtaining a GeoTrust Extended Validation SSL Digital Certificate [see, http://en.wikipedia.org/wiki/Extended_Validation_Certificate]. The Extended Validation (EV) SSL Certificate standard is intended to provide an improved level of authentication of entities that request digital certificates for securing transactions on their Web sites. A new vetting format, which all issuing Certification Authorities (CAs) must comply with, ensures a uniform standard for certificate issuance. This means that all CAs must adhere to the same high security standards when processing certificate requests. (Author's note: for the non-systems administrators reading this article, the use of an EV SSL Certificate is indicated by the secure green address bar.)

Because of the heightened assurance level of this product GeoTrust must take added steps, as detailed in the industry standard CA/Browser Forum EV SSL Certificate guidelines http://www.cabforum.org/EV_Certificate_Guidelines.pdf.

Despite the length of this request, it was quite easy for the firm's counsel to satisfy, because its counsel had formed the company, and represented it continuously.

Of course, when dealing with corporate counsel, “easy” does not mean “cheap” or “free.” Unfortunately, the request for identity confirmation was couched as a request for an “opinion” ' which for lawyers means a specific, stylized document applying specifically stated laws to particular facts for a particular purpose. And because opinions are commonly used to sue law firms when a deal goes sour, a request for advice in the form of an “opinion” costs several times more than would a less formal format for receiving the same advice.

However, the desired opinion had nothing to do with law ' parsing through the above quoted language reveals that it simply is a request for confirmation of facts from a source perceived to be trustworthy (outside counsel for the certificate applicant). Notwithstanding the lawyers' warning that an opinion on facts should never be given, a letter meeting the detailed request from the SSL certificate-issuing agency was assembled, reviewed and approved by the law firm's opinion committee.

As a result ' a result for which the e-commerce firm had not budgeted anything, other than the actual filing fee (who budgets legal expense for what appears to be a routine permit renewal?) ' the firm spent several hours of legal time, and tremendous anxiety over what was initially perceived as a threat to the firm's existence. In short, a routine change ' and not even a technological one, such as a server relocation or similar critical job ' became a material expense, and a source of much unneeded stress.

State Regulatory Impact

Another example of how a routine, non-technical change created the specter of potential meltdown occurred in a firm engaged in a business highly regulated at the state level follows. In each state where the firm did business, licenses ' and annual renewal fees ' were required, several times over in many states because of acquisitions of subsidiaries over the years. As a result, a consolidation was planned to take advantage of the significant (seven-figure) annual cost-savings that would occur if only one set of such licenses had to be renewed each year. Another driving factor for the consolidation was the rapid adoption of information technology in the business, which had transformed many largely paper-based processes into highly automated ones performed at a central location rather than at separate offices, additionally enhancing the competitive benefits of the quickly achieved cost-savings.

As simple as that concept appears to be on paper, the proverbial devil was in the details. As the company had grown over time through acquisitions, it had relied heavily on marketing initiatives using new fictitious names, which the company is required to register in each state where it conducts business. That meant that when counsel analyzed the legal requirements for the consolidation, it had to compute the cost of updating those filings to match the desired final corporate structure. While none of the changes was substantively difficult, each change required many filings ' and the payment of more fees, particularly expediting fees to ensure that all of the simultaneous changes occurred in a timely fashion to satisfy the requirements of regulators in several states (the “to do” checklist itself was many pages long).

To complicate matters even more, the business had many contracts with other regulated firms, which, as is typical in many industries, could not be transferred without prior written consent. As if the thousands of dollars of filing fees (in a cost-saving deal) were not insult enough, the legal expense to analyze each contract to determine what consents would be required was itself a significant expense (albeit not enough to deter anyone from proceeding with the consolidation to achieve the ongoing annual savings from the licensing consolidation). As in the case of the merger affecting the ability to renew an SSL certificate, here, what appeared to the business executives to have the makings of a simple deal (and from a balance sheet perspective, it was uncomplicated) had costly legal ramifications.

PA Supreme Court Ruling

A recent Pennsylvania Supreme Court ruling, in a case involving a software firm that went through several structural and ownership changes while it was being sued by a client because its software failed to perform, illustrates a similar complication from corporate changes (as well as how longstanding legal rules can change without warning). In Fizzano Bros. Concrete Products, Inc. v. XLN, Inc. ' A.3d. ', 2012 WL 1020945 (Pa., 2012), the software licensee sued the second removed purchaser of the software developer's assets over the problems with the program. Although the purchasers of the developer's assets used standard contract language that stated it assumed no responsibility for the obligations of the original developer, the state supreme court allowed the case to proceed because a de facto merger could have occurred, even in the absence of any continuity of ownership. The court did not eliminate the obligation to show continuity to hold the transferee liable ' it simply allowed the claimant to show evidence of such continuity other than through traditional equity ownership. Here, the unexpected aspect of change was not in the way the licensor's business operated, but rather in the ground rules of liability. The court justified its break from precedent because of a desire to be “attuned to the transactional realities” of modern deals.

Not All Smiles, After All

Another case of a business doing something that seemed simple, and in accordance with common sense, illustrates yet a different aspect of how making changes to a business' basic form of operation can have unexpected consequences. In Goldberg v. Bureau of Professional and Occupational Affairs (bit.ly/IzzX6b), a 2011 Pennsylvania Commonwealth Court case, a dentist, Dr. Steven Goldberg, formed a professional corporation with the name American Dental Solutions, PC, that did not include his own name (e.g., Dr. Steven Goldberg, DMD, PC). Presumably, he chose that name for marketing purposes, including online marketing ' “Dental Solutions” is much more likely to be returned in a search than “Goldberg.”

Because he did business under the exact name of his professional corporation, Dr. Goldberg apparently did not see the need to register a fictitious name with the state corporate bureau or with the state Board of Dentistry, which was his undoing. Even though he practiced under the exact legal name of his entity, the court reasoned that because that name was not the name of the licensed individual dentist, he was still required to register the name of his professional corporation as a fictitious name with the Board of Dentistry. Although one member of the appellate panel wrote a lengthy dissent on the bizarre ruling, it was to no avail. The court applied a literal (and seemingly nonsensical) interpretation of the regulators' name rules to sanction the dentist and his corporation for using a prohibited name.

Clear Messages

Fictitious Names and Marketing

For e-commerce firms and their counsel, the lesson is clear: When trying innovative marketing concepts, whether as simple as using the name American Dental Solutions rather than Dr. Steven Goldberg, DMD, PC, carefully analyze the firm's obligations under contract, under applicable regulations and under common law, to be certain, to the extent possible, that whatever benefits the entity expects to realize from the program do not trigger new registration or other legal obligations.

While an intermediate appellate court decision on a non-technical issue such as a dentist's office name may seem irrelevant to e-commerce firms, I think that it instead stands for the proposition that firms planning any change, no matter how small or seemingly within the rules, must plan for change, and even more so where e-commerce and the Internet are involved.

'Structural Changes'

Financing. Stepping back from these bad-scenario cases, what other unexpected duties might an e-commerce firm have when making changes in its business, or legal, structure? Some are obvious, and others are less so. For example, any firm that depends on bank debt, particularly lines of credit to finance inventories or expansion, must be conscious of typical covenants in its loan documents requiring consent before doing anything to change the business approved by the lender when it made the loan. Most “structural” changes of the type described in the foregoing cases would run afoul of typical loan covenants requiring the lender's consent, much like the industry contracts in the restructuring case described above.

Acquisitions. For e-commerce firms that may frequently engage in acquisition activity, or need to issue additional equity or increase borrowings, lender consent or agreement will almost always be needed. Similarly, exit strategies are a common concern of entrepreneurs ' and of bankers or key investors who need those individuals as guarantors, or simply to provide comfort that adults are running the show. Other transactions that commonly trigger such consent requirements include assignments of critical rights, asset sales, mergers and change-of-control transactions.

Employee Issues. Turnover of key personnel is another change that often plagues e-commerce firms. Some executives stay in only long enough to cash out their initial investment, with a premium. Others may leave if their stock options sink in a marketplace sand trap so that they can seek another swing at a financial hole in one. Others may be restless serial entrepreneurs who simply need to move on to new challenges rather than stay with any firm for an extended time.

What, for instance, happens if those people are named on key agreements, or on registrations of rights? While registering a domain name or other key item of intellectual property in the name of an individual rather than in the company's name is certainly not good corporate practice, the reality is that it happens, even in firms that are run well. Some such registrations are made in the ordinary course by relatively junior staff, rather than by executives. They may rarely be reviewed by counsel, who is more focused on proper documentation of the firm's key assets, or transactions outside the ordinary course of business.

But in whatever way the firm arrived at that position, the problems cannot be ignored. While there would not likely be any question of ownership between the firm and the former employee, practical problems will arise when access to a firm's key assets is needed on short notice ' for a lender or deal partner, for example ' but cannot be obtained because the registration was made in the former employee's name.

Social Networking Considerations. The same risks apply when key social networking sites on LinkedIn or Facebook are created as individual accounts rather than as company ones (see, for example, “The Cult of Personality: How 'Building Your Brand with Social Networking Can Destroy It,” in the August 2009 edition of e-Commerce Law & Strategy, concerning an employee's social media site used to communicate extensively with clients that was turned over to the former employer only after expensive litigation; subscribers, go to bit.ly/IzECFg).

Draft Good Forms. Some of these employee issues caused by changes can best be avoided by drafting good forms in the first place. A strong pro-employer employment, confidentiality and assignment agreement, which every employee involved in a tech firm's business operations should be required to sign ' from the CEO to the most junior intern ' should not only make clear that all such rights are the sole property of the firm, but also contain the employee's power of attorney and authorization for the employer to file anything required to act concerning any such assets or rights. The same concerns apply all the more to independent contractors ' especially to overcome any presumptions that the creative work of an independent contractor is a work made for hire owned by the contractor, rather than owned by the firm. In that case, the former independent contractor can charge her former firm to sell back the asset the firm believed it had paid her to create for it ' a common pitfall of technology firms that rely heavily on independent contractors (to control payroll costs).

Negotiate Contract Rights. Similarly, negotiating for the right to assign key contracts without consent, in general or in connection with major transactions, such as an asset sale or refinancing, can eliminate the gift of negotiating leverage to the other party. The “Assignment” clause is often buried in the boilerplate at the end of an agreement, but in practice may not be read ' until after, when counsel points out what was not negotiated into the contract to avoid precisely this problem.

This concern is especially true with non-competition and non-solicitation agreements, which in sales-oriented businesses may be a firm's most valuable asset. In many states, the right to enforce such agreements may not be assigned by the employer (or principal in an independent contractor arrangement) unless such assignability has been approved in advance, in writing, in the original agreement.

Establish Addresses ' 'e' and Otherwise. A potentially critical part of this puzzle is making sure that all registrations use an e-mail address (and, to a lesser extent today, particularly in e-commerce firms, mailing address) that will always be current and monitored, regardless of whether the employee who established it is still with the firm by the time a notice must be sent, or simply may be on vacation.

Official notices can be important, whether simply to renew a registration in a timely fashion, or to act on potential problems sent by the applicable government office (for example, an opposition to a pending trademark registration). Also, having a central repository for such notice addresses can be a tremendous time-saver if, for example, the firm moves, or people in the marketing department decide to change the firm's domain name. In other words, no IT director wants to explain to the CEO why the domain name for the firm's key product was allowed to lapse, and must now be bought back at a premium from a foreign-based pornography website speculator (an unfortunate but true chain of events suffered by one of our clients several years ago).

Conversation Instead of Court. Another practical way to avoid the problems caused by such changes is to recognize that they often may be more amenable to a business resolution rather than a legal one. In the case of the consolidation described earlier in this article, the firm avoided having to seek consent hat-in-hand from major firms in a notoriously cutthroat business by pointing out to such firms the volume of business they did together ' with the implicit threat that such work would slow or be diverted to a competitor if the requested consent were not forthcoming.

Keep Change in Mind. Unfortunately, however, such strategies make a lot of sense ' after the fact. Unless an e-commerce entrepreneur builds her business from the beginning with the necessity of change in mind, she may be best described by another successful singer ' David Bowie ' in his ode to the stress that “Changes” cause for all of us in life: They apply to and cause us stress in business, too. Bowie warned what will happen to businesspersons who don't plan for such inevitable change: “Ch-ch-changes, don't want to be a richer man,” which should never be anyone's e-commerce plan.

Just as with computer malfunctions, the question is not if e-commerce business must adapt to many types of changes in technology and in the economy. After all, as I have written over the years, the only constant in e-commerce, and technology generally, is change. No, the real questions are when those changes will affect a business ' if they have not done so already ' and, more important, if a business is prepared to recognize them and adapt to prevent problems.

Conclusion

My goal in writing this article has not been to try to identify every type of business change whose legal consequences, intended or not, could affect an e-commerce firm ' that would be impossible because of the dizzying pace of changes in technology and the law governing it. Instead, I have tried to highlight some real-world examples of changes that have created problems, so that e-trepreneurs can be better prepared to anticipate potential legal requirements affecting their own firms as a result of such changes in the future, and as they occur. The person who can anticipate such needs will, indeed, become a “richer man.”

No one should be surprised by singer Jimmy Buffett's e-commerce success (in addition to his side gigs in music and in the restaurant business).

And it's no surprise, either, that his hit song, “Changes in Latitudes, Changes in Attitudes” highlights the risks that online firms face constantly after so-called typical business decisions: “nothing remains quite the same” ' including these companies' ability to conduct their regular business.

For many businesses, the advice that “a change would do you good” (in the words of Sheryl Crow) is terrifically good ' if costly processes of day-to-day and other types of business can be streamlined through e-commerce transactions.

After all, as has been well documented in this publication and elsewhere, e-commerce has helped many firms to cut costs, improve efficiency and provide immediate access to competitive intelligence.

Not All Perks, Though

But not everyone has reaped only benefits. Besides the many people in commercial sectors whose business model was decimated ' music sellers and travel agents, at the dawn of e-commerce, and, more recently, publishers of books and music ' sometimes that change can hurt any business and its people, and for no good reason.

Consider, for example, the recent case of a technology firm whose principals decided to relocate the company from New York to Pennsylvania, for everyday tax planning. At the corporate level, the move was done through a typical reincorporation merger, in this case, of the existing New York entity into a newly formed Pennsylvania shell company ' as plain vanilla as the practice of corporate law ever gets. Yet the business owner was shocked to discover that such “routine” tax planning would cost him his SSL certificate, a critical intellectual property right for any firm with any Web presence (such as most e-commerce ventures).

Why did this occur? Because of heightened post-9/11 security procedures, the firm that administered the company's SSL certificate, GeoTrust, initially refused to renew the existing certificate to the merger survivor, because of “discrepancies” in the company's information. As a result, GeoTrust required a potentially expensive opinion of legal counsel to assure it that the holder of the certificate (and the security that it provides) was still entitled to that benefit. The client's request said, in part:

You have been asked by your client to provide a legal opinion to aid them in obtaining a GeoTrust Extended Validation SSL Digital Certificate [see, http://en.wikipedia.org/wiki/Extended_Validation_Certificate]. The Extended Validation (EV) SSL Certificate standard is intended to provide an improved level of authentication of entities that request digital certificates for securing transactions on their Web sites. A new vetting format, which all issuing Certification Authorities (CAs) must comply with, ensures a uniform standard for certificate issuance. This means that all CAs must adhere to the same high security standards when processing certificate requests. (Author's note: for the non-systems administrators reading this article, the use of an EV SSL Certificate is indicated by the secure green address bar.)

Because of the heightened assurance level of this product GeoTrust must take added steps, as detailed in the industry standard CA/Browser Forum EV SSL Certificate guidelines http://www.cabforum.org/EV_Certificate_Guidelines.pdf.

Despite the length of this request, it was quite easy for the firm's counsel to satisfy, because its counsel had formed the company, and represented it continuously.

Of course, when dealing with corporate counsel, “easy” does not mean “cheap” or “free.” Unfortunately, the request for identity confirmation was couched as a request for an “opinion” ' which for lawyers means a specific, stylized document applying specifically stated laws to particular facts for a particular purpose. And because opinions are commonly used to sue law firms when a deal goes sour, a request for advice in the form of an “opinion” costs several times more than would a less formal format for receiving the same advice.

However, the desired opinion had nothing to do with law ' parsing through the above quoted language reveals that it simply is a request for confirmation of facts from a source perceived to be trustworthy (outside counsel for the certificate applicant). Notwithstanding the lawyers' warning that an opinion on facts should never be given, a letter meeting the detailed request from the SSL certificate-issuing agency was assembled, reviewed and approved by the law firm's opinion committee.

As a result ' a result for which the e-commerce firm had not budgeted anything, other than the actual filing fee (who budgets legal expense for what appears to be a routine permit renewal?) ' the firm spent several hours of legal time, and tremendous anxiety over what was initially perceived as a threat to the firm's existence. In short, a routine change ' and not even a technological one, such as a server relocation or similar critical job ' became a material expense, and a source of much unneeded stress.

State Regulatory Impact

Another example of how a routine, non-technical change created the specter of potential meltdown occurred in a firm engaged in a business highly regulated at the state level follows. In each state where the firm did business, licenses ' and annual renewal fees ' were required, several times over in many states because of acquisitions of subsidiaries over the years. As a result, a consolidation was planned to take advantage of the significant (seven-figure) annual cost-savings that would occur if only one set of such licenses had to be renewed each year. Another driving factor for the consolidation was the rapid adoption of information technology in the business, which had transformed many largely paper-based processes into highly automated ones performed at a central location rather than at separate offices, additionally enhancing the competitive benefits of the quickly achieved cost-savings.

As simple as that concept appears to be on paper, the proverbial devil was in the details. As the company had grown over time through acquisitions, it had relied heavily on marketing initiatives using new fictitious names, which the company is required to register in each state where it conducts business. That meant that when counsel analyzed the legal requirements for the consolidation, it had to compute the cost of updating those filings to match the desired final corporate structure. While none of the changes was substantively difficult, each change required many filings ' and the payment of more fees, particularly expediting fees to ensure that all of the simultaneous changes occurred in a timely fashion to satisfy the requirements of regulators in several states (the “to do” checklist itself was many pages long).

To complicate matters even more, the business had many contracts with other regulated firms, which, as is typical in many industries, could not be transferred without prior written consent. As if the thousands of dollars of filing fees (in a cost-saving deal) were not insult enough, the legal expense to analyze each contract to determine what consents would be required was itself a significant expense (albeit not enough to deter anyone from proceeding with the consolidation to achieve the ongoing annual savings from the licensing consolidation). As in the case of the merger affecting the ability to renew an SSL certificate, here, what appeared to the business executives to have the makings of a simple deal (and from a balance sheet perspective, it was uncomplicated) had costly legal ramifications.

PA Supreme Court Ruling

A recent Pennsylvania Supreme Court ruling, in a case involving a software firm that went through several structural and ownership changes while it was being sued by a client because its software failed to perform, illustrates a similar complication from corporate changes (as well as how longstanding legal rules can change without warning). In Fizzano Bros. Concrete Products, Inc. v. XLN, Inc. ' A.3d. ', 2012 WL 1020945 (Pa., 2012), the software licensee sued the second removed purchaser of the software developer's assets over the problems with the program. Although the purchasers of the developer's assets used standard contract language that stated it assumed no responsibility for the obligations of the original developer, the state supreme court allowed the case to proceed because a de facto merger could have occurred, even in the absence of any continuity of ownership. The court did not eliminate the obligation to show continuity to hold the transferee liable ' it simply allowed the claimant to show evidence of such continuity other than through traditional equity ownership. Here, the unexpected aspect of change was not in the way the licensor's business operated, but rather in the ground rules of liability. The court justified its break from precedent because of a desire to be “attuned to the transactional realities” of modern deals.

Not All Smiles, After All

Another case of a business doing something that seemed simple, and in accordance with common sense, illustrates yet a different aspect of how making changes to a business' basic form of operation can have unexpected consequences. In Goldberg v. Bureau of Professional and Occupational Affairs (bit.ly/IzzX6b), a 2011 Pennsylvania Commonwealth Court case, a dentist, Dr. Steven Goldberg, formed a professional corporation with the name American Dental Solutions, PC, that did not include his own name (e.g., Dr. Steven Goldberg, DMD, PC). Presumably, he chose that name for marketing purposes, including online marketing ' “Dental Solutions” is much more likely to be returned in a search than “Goldberg.”

Because he did business under the exact name of his professional corporation, Dr. Goldberg apparently did not see the need to register a fictitious name with the state corporate bureau or with the state Board of Dentistry, which was his undoing. Even though he practiced under the exact legal name of his entity, the court reasoned that because that name was not the name of the licensed individual dentist, he was still required to register the name of his professional corporation as a fictitious name with the Board of Dentistry. Although one member of the appellate panel wrote a lengthy dissent on the bizarre ruling, it was to no avail. The court applied a literal (and seemingly nonsensical) interpretation of the regulators' name rules to sanction the dentist and his corporation for using a prohibited name.

Clear Messages

Fictitious Names and Marketing

For e-commerce firms and their counsel, the lesson is clear: When trying innovative marketing concepts, whether as simple as using the name American Dental Solutions rather than Dr. Steven Goldberg, DMD, PC, carefully analyze the firm's obligations under contract, under applicable regulations and under common law, to be certain, to the extent possible, that whatever benefits the entity expects to realize from the program do not trigger new registration or other legal obligations.

While an intermediate appellate court decision on a non-technical issue such as a dentist's office name may seem irrelevant to e-commerce firms, I think that it instead stands for the proposition that firms planning any change, no matter how small or seemingly within the rules, must plan for change, and even more so where e-commerce and the Internet are involved.

'Structural Changes'

Financing. Stepping back from these bad-scenario cases, what other unexpected duties might an e-commerce firm have when making changes in its business, or legal, structure? Some are obvious, and others are less so. For example, any firm that depends on bank debt, particularly lines of credit to finance inventories or expansion, must be conscious of typical covenants in its loan documents requiring consent before doing anything to change the business approved by the lender when it made the loan. Most “structural” changes of the type described in the foregoing cases would run afoul of typical loan covenants requiring the lender's consent, much like the industry contracts in the restructuring case described above.

Acquisitions. For e-commerce firms that may frequently engage in acquisition activity, or need to issue additional equity or increase borrowings, lender consent or agreement will almost always be needed. Similarly, exit strategies are a common concern of entrepreneurs ' and of bankers or key investors who need those individuals as guarantors, or simply to provide comfort that adults are running the show. Other transactions that commonly trigger such consent requirements include assignments of critical rights, asset sales, mergers and change-of-control transactions.

Employee Issues. Turnover of key personnel is another change that often plagues e-commerce firms. Some executives stay in only long enough to cash out their initial investment, with a premium. Others may leave if their stock options sink in a marketplace sand trap so that they can seek another swing at a financial hole in one. Others may be restless serial entrepreneurs who simply need to move on to new challenges rather than stay with any firm for an extended time.

What, for instance, happens if those people are named on key agreements, or on registrations of rights? While registering a domain name or other key item of intellectual property in the name of an individual rather than in the company's name is certainly not good corporate practice, the reality is that it happens, even in firms that are run well. Some such registrations are made in the ordinary course by relatively junior staff, rather than by executives. They may rarely be reviewed by counsel, who is more focused on proper documentation of the firm's key assets, or transactions outside the ordinary course of business.

But in whatever way the firm arrived at that position, the problems cannot be ignored. While there would not likely be any question of ownership between the firm and the former employee, practical problems will arise when access to a firm's key assets is needed on short notice ' for a lender or deal partner, for example ' but cannot be obtained because the registration was made in the former employee's name.

Social Networking Considerations. The same risks apply when key social networking sites on LinkedIn or Facebook are created as individual accounts rather than as company ones (see, for example, “The Cult of Personality: How 'Building Your Brand with Social Networking Can Destroy It,” in the August 2009 edition of e-Commerce Law & Strategy, concerning an employee's social media site used to communicate extensively with clients that was turned over to the former employer only after expensive litigation; subscribers, go to bit.ly/IzECFg).

Draft Good Forms. Some of these employee issues caused by changes can best be avoided by drafting good forms in the first place. A strong pro-employer employment, confidentiality and assignment agreement, which every employee involved in a tech firm's business operations should be required to sign ' from the CEO to the most junior intern ' should not only make clear that all such rights are the sole property of the firm, but also contain the employee's power of attorney and authorization for the employer to file anything required to act concerning any such assets or rights. The same concerns apply all the more to independent contractors ' especially to overcome any presumptions that the creative work of an independent contractor is a work made for hire owned by the contractor, rather than owned by the firm. In that case, the former independent contractor can charge her former firm to sell back the asset the firm believed it had paid her to create for it ' a common pitfall of technology firms that rely heavily on independent contractors (to control payroll costs).

Negotiate Contract Rights. Similarly, negotiating for the right to assign key contracts without consent, in general or in connection with major transactions, such as an asset sale or refinancing, can eliminate the gift of negotiating leverage to the other party. The “Assignment” clause is often buried in the boilerplate at the end of an agreement, but in practice may not be read ' until after, when counsel points out what was not negotiated into the contract to avoid precisely this problem.

This concern is especially true with non-competition and non-solicitation agreements, which in sales-oriented businesses may be a firm's most valuable asset. In many states, the right to enforce such agreements may not be assigned by the employer (or principal in an independent contractor arrangement) unless such assignability has been approved in advance, in writing, in the original agreement.

Establish Addresses ' 'e' and Otherwise. A potentially critical part of this puzzle is making sure that all registrations use an e-mail address (and, to a lesser extent today, particularly in e-commerce firms, mailing address) that will always be current and monitored, regardless of whether the employee who established it is still with the firm by the time a notice must be sent, or simply may be on vacation.

Official notices can be important, whether simply to renew a registration in a timely fashion, or to act on potential problems sent by the applicable government office (for example, an opposition to a pending trademark registration). Also, having a central repository for such notice addresses can be a tremendous time-saver if, for example, the firm moves, or people in the marketing department decide to change the firm's domain name. In other words, no IT director wants to explain to the CEO why the domain name for the firm's key product was allowed to lapse, and must now be bought back at a premium from a foreign-based pornography website speculator (an unfortunate but true chain of events suffered by one of our clients several years ago).

Conversation Instead of Court. Another practical way to avoid the problems caused by such changes is to recognize that they often may be more amenable to a business resolution rather than a legal one. In the case of the consolidation described earlier in this article, the firm avoided having to seek consent hat-in-hand from major firms in a notoriously cutthroat business by pointing out to such firms the volume of business they did together ' with the implicit threat that such work would slow or be diverted to a competitor if the requested consent were not forthcoming.

Keep Change in Mind. Unfortunately, however, such strategies make a lot of sense ' after the fact. Unless an e-commerce entrepreneur builds her business from the beginning with the necessity of change in mind, she may be best described by another successful singer ' David Bowie ' in his ode to the stress that “Changes” cause for all of us in life: They apply to and cause us stress in business, too. Bowie warned what will happen to businesspersons who don't plan for such inevitable change: “Ch-ch-changes, don't want to be a richer man,” which should never be anyone's e-commerce plan.

Just as with computer malfunctions, the question is not if e-commerce business must adapt to many types of changes in technology and in the economy. After all, as I have written over the years, the only constant in e-commerce, and technology generally, is change. No, the real questions are when those changes will affect a business ' if they have not done so already ' and, more important, if a business is prepared to recognize them and adapt to prevent problems.

Conclusion

My goal in writing this article has not been to try to identify every type of business change whose legal consequences, intended or not, could affect an e-commerce firm ' that would be impossible because of the dizzying pace of changes in technology and the law governing it. Instead, I have tried to highlight some real-world examples of changes that have created problems, so that e-trepreneurs can be better prepared to anticipate potential legal requirements affecting their own firms as a result of such changes in the future, and as they occur. The person who can anticipate such needs will, indeed, become a “richer man.”