Are the NFL Rules (and Those Who Enforce Them) Getting as Unpredictable as the Tax Code?

Coming off the heels of Monday night’s interesting finish  to the Packers-Seahawks game, I have started to wonder if the NFL rules have become so complicated, and the turnover of officials so frequent, that tracking the outcome of a football game is starting to get as difficult as tracking the changes to the tax laws. We are looking, once again, at potentially significant changes to our tax laws after 2012, what with an upcoming election that could change those who shape and enforce those tax laws.

I have spent the last two years discussing pending changes to the tax laws with clients and with my colleagues. We talk about what provisions are going to sunset, what provisions we are supposed to pretend never existed, what rates might fluctuate, what techniques still work, etc.  We try to guess at what might change next. I have in-depth discussions about proposed bills in committees and obscure Senate races as we try to picture what the tax rules may look like next year. I have clients waiting to sell their entire businesses until “after the election” just to see who will be creating and enforcing those tax rules next year.

Are we destined to have a 2013 that resembles the NFL games from this weekend? Will we be able to tell how many time-outs a team gets, or what a simultaneous catch really looks like?  Are the rules so complicated that we can’t add replacement enforcers without serious implications to the outcomes of the game?

I still have no idea what the tax laws will look like next year.  I also have no idea how the election will shake out.  But I do know that, like football, there will always be taxes and there will always be rules.   I might just have to learn the difference between a force-out and the new overtime rules, to accept the inconsistencies and unknowns of new officials, and try to continue to guide clients on the probable outcomes of the game.

American Innovation: Baby Bottom Art, Snake Walkers and Rounded Edges on iPhones

Pinch & zoom, bounceback, and the cool rectangular case with rounded edges of your iPhone were some of the innovations considered by the jury when they recently awarded $1.05 Billion to Apple in its patent infringement litigation against Samsung (see this prior entreVIEW post on the topic by Lori Wiese-Parks).

This well publicized case brought back memories of my front row seat on the hard benches of a federal courtroom in Richmond Virginia in 2010 as Judge Payne and a jury decided the fate of Lawson Software, where I served as in house legal counsel. In that case, the plaintiff alleged the infringement by Lawson of patent claims that covered basic supply chain management software—the ordering of supplies through the internet. What made the case even more interesting was that the patents at issue were in reexamination by the United States Patent Office (USPTO), a process specifically established to allow the USPTO another opportunity to reconsider the validity of certain patents and if necessary to correct its mistakes.

 
Early results of the reexamination indicated that the patents and relevant claims at issue were likely to be invalidated. However, Judge Payne denied a motion to stay (postpone) the litigation pending the outcome of the reexamination. He also prohibited the jury from even being informed of the USPTO reexamination. The jurors deliberated without knowing that the patents at issue were under further review and that some of the key claims had already been deemed invalid by the USPTO. Plaintiff’s lawyers were still able to wave in front of the jury the blue ribbon certificates of the patents previously issued by the USPTO.

No damages were awarded. The judge denied the plaintiff any damages (over $20 million was sought) because their expert witness had handpicked from earlier settlement agreements ignoring those with lower amounts.  

However, the jury found infringement and Lawson was enjoined from selling and servicing certain software products. The litigation cost Lawson large legal fees, resulted in enormous business disruption, including time and expense of key personnel involved as witnesses, in depositions, development of non-infringing alternatives, and extensive customer services including training and education related to the litigation.

I will let others debate the merits of the Apple patents and whether or not that jury verdict was a correct one. These cases do however make you wonder whether (i) judges and juries are appropriate for resolving these types of patent disputes and (ii) the patent system as it currently exists is effective at rewarding intellectual achievement and enhancing innovation.

Patents can be extremely valuable for large corporations and entrepreneurs. They can serve as an incentive to invest in innovation and result in breakthrough ideas. If, however, a mistake is made in the issuance of a patent (even the USPTO will admit to mistakes) the reexamination process should be expedited and utilized as necessary to mitigate and avoid litigation.

Now for some fun.

Can you pick the one patent below that was issued and later invalidated through a reexamination by the USPTO ? 

1.  Motorized Ice Cream Cone (#5,971,829).  A novelty amusement eating receptacle for supporting, rotating and sculpting a portion of ice cream or similarly malleable food while it is being consumed comprising: a hand-held housing, a cup rotatably supported by the hand-held housing and adapted to receive and contain a portion of ice cream or food product of similar consistency, and a drive mechanism in the hand-held housing for imparting rotation upon the cup and rotationally feeding its contents against a person's outstretched tongue.

2.  Pet Display Clothing (#5,901,666).  A vest or belt is integrally formed with tubular, pet receiving passageways which extend around the wearer's body and terminate in pocket-like chambers for feeding and retrieval. Outer wall portions of the passageways are transparent so that a pet moving along the passageways can be seen by a spectator. Graphics or indicia depicting the pet's habitat or a pet story are marked on the vest and extend across portions of the passageways masking delineations or depicting the passageways as burrows.

  

3.  Sealed Crustless Sandwich (#6,004,596).  A sealed crustless sandwich for providing a convenient sandwich without an outer crust which can be stored for long periods of time without a central filling from leaking outwardly. The sandwich includes a lower bread portion, an upper bread portion, an upper filling and a lower filling between the lower and upper bread portions, a center filling sealed between the upper and lower fillings, and a crimped edge along an outer perimeter of the bread portions for sealing the fillings therebetween. The upper and lower fillings are preferably comprised of peanut butter and the center filling is comprised of at least jelly. The center filling is prevented from radiating outwardly into and through the bread portions from the surrounding peanut butter.

4.  Snake Walker (#6,490,999).  Collar apparatus enabling secure handling of a snake by tether [see drawing above].

5.  Painting Kit and Related Method (#6,213,778).  A unique painting process and an associated kit including the materials required for practicing the method. The method includes the acts of providing a background media providing a paint source, dipping the posterior of the infant in the paint, and stamping the posterior on the background media to create stamping prints. The kit of the present invention includes a flat, flexible backing piece, at least one paint bottle attached to the backing piece, at least one reservoir attached to the backing piece, at least one painting tool attached to the backing piece, and a plastic cover having a periphery, the plastic cover positioned over the protective cover, plurality of paint bottles, plurality of reservoirs, and plurality of paint brushes, and attached around its peripheral edge to the backing piece.

If you selected the Sealed Crustless Sandwich you are correct. The USPTO issued a reexamination certificate for this patent and cancelled all claims. Smuckers built a large manufacturing plant (prior to the invalidation of the patent) and continues to produce the unpatented sandwiches under the brand “Uncrustables®”.

What Do Entrepreneurs Have In Common With Their Fantasy Football Team

I’m sure it’s not just me, but I have been made acutely aware over the past few days that the 2012-2013 NFL season has officially begun. Not only is my husband in at least four Fantasy Football leagues (with buy-ins of $100 or more – where does this money come from?), but this is also the guy whose college DLP TV had the “ESPN” logo permanently burned into the bottom right-hand corner of the screen so that you could see it even when the TV was off. Oh, he’s also a die-hard Packers fan (sorry about the start to the season). Needless to say, I had my fair share of football over the weekend; and while I was dutifully contemplating this upcoming blog post (with Faith Hill warbling in the background), I started thinking: I wonder what connections there might be between professional football and entrepreneurship?

It turns out there are many more than I would have imagined. A simple Google search using the terms “NFL” and “entrepreneur” yields multiple “Top 10” lists of NFL players turned entrepreneurs – complete with information on how and why they ended up in their new professions and some even with specific financial information on just how successful these athletes have become off of the field (see “The NFL’s 10 Richest Entrepreneurs”). The endeavors include everything from car dealerships to restaurants and franchises, liquor stores and wineries, construction companies, technology products and services, non-profit organizations, sports and fitness-related businesses, and even an advertising and design firm (owned by Dhani Jones, an NFL linebacker, and coincidentally one of highest valued at $3 million).

I found it fascinating to read through the varied endeavors and motivations of the likes of Drew Brees, Donte Stallworth, and Daniel Wilcox, to name a few. Brees owns a Jimmy John’s franchise, and explains that it started with simply a true love for the product that began during his freshman year in college at Purdue. Wilcox owns a residential and commercial remodeling business, and notes that part of his entrepreneurial passion stemmed from the desire to be his own boss. Another noted the desire to prove that his was “more than just a football player.”

Competition was also an explanation by many of the athletes for their entrepreneurial pursuits. Rosevelt Colvin, a Super Bowl champion with the Patriots, is quoted as saying, “As an athlete, you’re always competitive. You look for another challenge to tackle, to be a part of.” Professional athletes are groomed to maintain a high level of discipline, perseverance, and focus on teamwork – all characteristics that serve entrepreneurs well (see also "The Best Entrepreneurs Are Hyper Competitive and Hate Losing" and this article on what playing sports can teach about entrepreneurship).

The NFL itself even recognizes the synergy between players of its beloved sport and entrepreneurialism. In 2005, it founded the NFL Business Management and Entrepreneurial Program, which provides both current and former footballers week-long intensive courses at prestigious business schools like Harvard and Northwestern’s Kellogg School of Management. Course topics range from business plan assessment and human resource management, to property management and personal investments. According to one article, since the program’s inception, close to 700 players have undergone the program, and testimonials on the program’s website indicate that players have found it truly valuable. An article from 2008 stated that 48% of participants in the program become interested in starting a business, and since completing the program, 25% of the players have started their own businesses.

Unfortunately, I can’t say that this newfound knowledge of the NFL’s entrepreneurial spirit will make watching endless hours of football over the coming months that much more enjoyable. However, I do have a renewed sense of appreciation for the players, and their aspirations both on and off of the field. I also have an inkling that, the next time I’m watching Drew Brees throw a touchdown pass for the Saints, I may get a craving for Jimmy John’s.

I wonder if anyone in our Entrepreneurial Services Group is up for a fantasy league where we draft former and current NFL players and get points for their successes as entrepreneurs?

A Post by Karen Wenzel, Guest Blogger

Sequestration Looms

Go ahead and Google “Sequestration.”  As of the completion of this post, the hits for “sequestration” are around 7.2 million hits, a very modest number by Google standards (for a cross reference, Google hot dog eating contest and consider the incomprehensible 35 million hits).  My first thoughts about sequestration take me to a trial setting where a court can order isolation of a jury during a high profile criminal trial (John Grisham’s Runaway Jury anyone?). 

The contrast to sequestration as portrayed in a Grisham novel and the reality of sequestration as it will occur on January 2, 2013, couldn’t be more stark and, frankly, alarming.

Many of us have tried desperately to repress the memories of the partisan debate regarding the debt ceiling and the fallout resulting in the passage of the Budget Control Act of 2011 (“BCA”).  The BCA is slated to take effect on January 1, 2013, when through a measure called “sequestration” discretionary spending caps will kick in and be effective for the ensuing 10 years, all in an effort by Congress to reduce the deficit by over $1 trillion (US) dollars.  The net effect of sequestration on the Department of Defense would be immediate budget cuts of nearly $500 billion and much, much more to come in ensuing years—this in addition to the already recommended $500 billion in recommended cuts.  For those of you who may be wondering, the US Defense budget is about 19% of the overall US budget and the Department of Defense will take about 50% of the sequestration hit.

Under sequestration, the amount of funds otherwise appropriated to a branch of government is "sequestered" by the US Treasury and not delivered to the agencies to which Congress originally appropriated the funds.  Up until now, certain categories of government spending were exempt from sequestration, including defense.  Not anymore.  According to the Foundry, if implemented, the impact of sequestration in accordance with the BCA “would be devastating, with a significant disruption of ongoing programs and initiatives, facility closures and substantial additional personnel reductions that would severely impact advanced manufacturing operations, erode engineering expertise, and accelerate the loss of skills and knowledge….”

Even more ominously, in a November 2011 letter, Secretary of Defense Leon Panetta warned lawmakers that sequestration [enacted over the next 10-year period] will be “devastating,” yielding “[t]he smallest ground forces since 1940,” “a fleet of fewer than 230 ships, the smallest level since 1915.”  According to most defense analysts, sequestration in accordance with the BCA will quietly eliminate the long-standing US defense policy of being able to engage in a two-front war.

The “fiscal cliff” (which you will hear a lot about in the months leading up to the election) is a perfect storm which includes (1) sequestration (immediate cuts on January 2, 2013), (2) Bush-era tax rates expiring (December 31, 2012), and (3) the absence of a budget (the reason why we have the BCA is due to the inability of Congress to pass a budget for consecutive years).  The American public sector and private sector will get a preview of the significant effect this fiscal cliff—and, more specifically, sequestration—will have on October 1 of this year.  The reason why can be summed up by taking a quick look at the Worker Adjustment and Retraining Notification Act.

The Worker Adjustment and Retraining Notification Act (“WARN”) was passed to protect workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.  Employees entitled to notice under WARN include managers and supervisors as well as hourly and salaried workers.  WARN requires that notice also be given to employees' representatives, the local chief elected official, and the state dislocated worker unit.  Advance notice gives workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain other jobs, and, if necessary, to enter skill training or retraining that will allow these workers to compete successfully in the job market.  Several states require an additional thirty 30 calendar days’ notice in addition to 60-day notice required by WARN.

Because the sequestration contemplated by the BCA takes effect on January 2, 2013, contractors and subcontractors who know that their funding will be at best tied up due to sequestration (and at worst that there may be no funding at all) will have to make a decision to notify employees of the pending layoff.  The 60-day notice deadline will conveniently occur right on November 1, only days before the November 6 federal and state elections. 

Mackenzie Eaglen makes a compelling case that such cuts are devastating to the Department of Defense and provides a comprehensive listing of what the cuts mean to the military.  Projects that are in process will likely be discontinued, the cancellation of contracts that are not deemed to be exempt will lead to personnel layoffs, and there will likely be a massive influx of early retirement of servicemen and servicewomen looking for new careers in an already suffering employment sector.  Even worse, a logical place for veterans to serve is on the civil side of the defense industry, precisely where the greatest concentration of retraction of jobs and other opportunities will be felt.

What’s more, direct cuts to the military will magnify the effect that sequestration will likely have on the thousands of government contractors and subcontractors in the private sector.  According to the Governmental Accounting Office, in 2009 there were approximately 766,000 service contractors, which number (according to my reading) does not include the chain of subcontractors that manufacture components or provide one-off services to government contractors.  Most of the companies affected are not the companies that produce billion dollar planes and things that explode.  On the contrary, many of those companies are small companies started by entrepreneurs that have never set foot on a military base but are integral partners in keeping America safe.

To say that sequestration will have a major impact on the economy is an understatement.  Many changes loom large for the defense-related industry and they are quickly approaching.  Stay tuned.