Who Owns Social Media Accounts? Follow the Sage Advice of Noah Kravitz

Your business has discovered the value of using social media platforms like Twitter, Facebook, and LinkedIn to market and promote products and services. But who owns these accounts and what happens when an employee with a Twitter handle, LinkedIn account, or legions of Facebook followers leaves? What monetary value can be assigned to “likes” and followers?

Until you’re able to get all the answers from the forthcoming Minnesota Small Business Assistance Office publication being authored by Gray Plant Mooty entitled “Legal Guide to Social Media,” a few recent cases may offer some guidance to businesses using social media (and who isn’t):

• In Eagle v. Morgan, Dr. Linda Eagle sued her former employer, Edcom, Inc., for its continued use of her Linked In account. She sought damages for lost business opportunities, damages to her reputation, and diminished value in her LinkedIn account. The Pennsylvania court found in her favor on several state claims, including unauthorized use of her name, invasion of privacy by misappropriation of identity, and misappropriation of publicity. The court noted that while the company had urged employees to create LinkedIn accounts and had guidelines covering on-line content, the company had never informed employees that their LinkedIn accounts were the property of the employer. Unfortunately for Dr. Eagle the court awarded no damages.

• In Phonedog LLC v. Noah Kravitz, Phonedog went after a former employee who continued to use a Twitter account that had been initially created for use by the company. Phonedog is a business that provides mobile news and reviews of products and services of mobile phone carriers through a website and uses a variety of social media , including Twitter, Facebook and YouTube, to market and promote its services to potential users. While an editor employed by Phonedog, Kravitz created a Twitter account. Kravitz used the handle @phonedog_Noah to disseminate Phonedog marketing material and reviews of mobile devices. Kravitz left Phonedog and simply changed his Twitter handle to @noahkravitz. At that time the Kravitz Phonedog Twitter account had reached 17,000 followers. Phonedog sued Kravitz alleging that the Twitter account belonged to Phonedog and included confidential business information. Phonedog also asserted the value of Twitter followers at $2.50 per follower per month and sought damages of $340,000. The parties reached a settlement agreement and Kravitz was allowed to retain custody of @noahkravitz. After the settlement Kravitz issued the following statement:

“If anything good has come of this, I hope it's that other employees and employers out there can recognize the importance of social media to companies and individuals both. Good contracts and specific work agreements are important, and the responsibility for constructing them lies with both parties. Work it out ahead of time so you can focus on doing good work together -- that's the most important thing."

Lessons Learned: Listen to Noah. Have a corporate policy in place governing use of social media. If your employees are asked to use social media to market and promote your business’s products or services, have written agreements that make it clear that the company owns the account, including customer lists, friends, and followers, and that the employee relinquishes any rights to the account when they leave.

I guess the settlement of the Phonedog case means we still don’t know what a Twitter follower (or a “like”) is worth…

Nail Down Your IP So You Can Sleep Soundly

As I was reading this article in The Minneapolis/St. Paul Business Journal, I was reminded again how a failure to button down intellectual property (IP) often leads to later problems. The article describes a lawsuit against My Pillow, Inc. and Steve Lindell, the Company’s CEO and founder, by investors in a predecessor company, Night Moves Minnesota. The plaintiffs claim that they own 42% of My Pillow because that’s what they were promised by Night Moves when they loaned it $70,000 in 2006.

I don’t know much about My Pillow, although I do recall meeting Mr. Lindell several years ago when he was looking for angel investments at a conference put on by RAIN Source Capital.  He seemed like a good guy and it seemed like an interesting product, although I can’t recall whether it seemed like a good investment at the time. I’m guessing some of the angels who turned him down may be wishing they got in on the business, now poised to generate almost $100 million in annual revenue from selling pillows! I haven’t slept on a My Pillow, but I understand it is different from the Sobakawa pillow, which a close friend once told me was so loud that it kept her awake at night. I may just have to get a pet pillow for the newest member of our family (see my recent post for more details).

Before all this talk of pillows puts you to sleep, let me get back to the issue at hand. Why would these investors in the prior company believe they own 42% of My Pillow? The lawsuit claims that they invested in and therefore own the intellectual property behind the pillow. Apparently, the patent was issued in Lindell’s name and never transferred to Night Moves and the trademark was originally registered by Night Moves and later transferred to the new company (allegedly without their consent).

These types of IP issues are common in early-stage ventures. Often, in an attempt to maintain control over technology, founder inventors will want to grant a “worldwide, perpetual, royalty free, transferable” license to the business, rather than assigning the IP outright. In my experience, savvy investors typically will not accept such a scenario and force an outright assignment before writing a check. They reason that any value in the IP, even if the enterprise fails, should be shared by the stakeholders, rather than having the IP revert to the inventor is so that s/he can monetize it.

It appears one key issue in the My Pillow litigation will be whether the investors knew the status of the IP ownership at the time of their investment. If they did, then they may be out of luck on the patent rights because the business didn’t own them. If they didn’t, I’m not sure it means that they own 42% of My Pillow, but they might have a claim relating to inadequate disclosure (something we lawyers call “securities fraud”). At a minimum, it is likely to cost a lot and cause plenty of distraction to figure it all out.

If everyone had focused on and dealt with these issues early, nobody would have to lose any sleep over them today...

Minnesota Angel Tax Credit Update

If you saw my last blog post, you know that I’m a fan of the Minneapolis/St. Paul Business Journal.  I recently saw another article in that paper that I thought would be interesting to readers of this blog.

The article is actually a summary of the 2012 Annual Report for the Minnesota Angel Tax Credit Program prepared by the Minnesota Department of Economic Development (DEED).  Here is a link to the actual report.

I found a few things in the report interesting.  First, it notes that 117 different companies received more than $46.1 million of investments, resulting in $11.4 million of angel tax credits being issued.  In 2011, there were fewer companies receiving qualifying investments (113), but the amount of capital raised through qualifying investment was larger ($63.1 million) and more angel tax credits were issued ($15.8 million).  Of course, in 2011 DEED had more tax credits available to issue than it did in 2012.  So, the decline in the number of tax credits issued in 2012 is not a sign that the Angel Tax Credit Program is waning in interest.  Rather it’s a reflection of the lower number of tax credits available in 2012.  Indeed, the fact that more companies received qualifying investments in 2012 than 2011 suggests that the Angel Tax Credit Program is gaining in popularity and has better recognition among Minnesota’s entrepreneurial community.  

As further evidence of the increasing popularity of the Angel Tax Credit Program, DEED’s website indicates that, as of April 17, 2013, $7.5 million of this year’s $12.7 million of tax credits available for allocation have already been issued, and only $5.2 remain available for issuance.  So, if you were planning to utilize the Angel Tax Credit as part of your capital raising strategy for 2013, you had better begin that process now.

Another interesting thing is the concentration of investments by sector.  Software received the largest amount of eligible investments, at $14.34 million, followed by medical device ($11.67 million) and biotechnology ($5.98 million).  The number of clean technology companies receiving qualifying investments in 2012 (7) was down from 2011 (11), and the amount of qualifying investments made in clean technology companies in 2012 ($2.1 million) was substantially down from the amount made in 2011 $(13.0 million).  

Those of us who work with clean technology companies know that capital raising activity in that space has become more challenging, and these numbers, unfortunately, provide further evidence of that difficulty.  Hopefully those numbers will turn around for the clean technology space in 2013.

Blair Waldorf-ing Life

A couple of weeks ago, I mentioned on Facebook that I was tired of Blair Waldorf-ing everything in my life. Blair Waldorf  is a character in a show that I am a little embarrassed to admit I just watched all six seasons of in January. I didn’t mean Blair Waldorf in a  blackmailing, yogurt throwing, mean girl kind of way. I also didn’t mean I wanted to give up headbands, colorful tights, Valentino, or macarons (my absolute favorite). I meant that I was tired of over-forcing and over-planning every aspect of my life.


Blair was famous for thinking she had to plan and manipulate everything that would happen to her, and she could accomplish anything with just the right amount of plotting. She went after everything that way and hardly ever took a break between plans. 

Like any good type-A person, I am a little like Blair Waldorf. I am often so busy planning the next step or the new goal that I forget to enjoy any steps I have accomplished, or I fail to have the flexibility to deal with any setbacks. It is like planning to lose 40 pounds, losing 10 the first week, and being upset that you didn’t lose the whole 40. Or, thinking that if you could just get on the Biggest Loser, pick up mono, or buy a new scale, you would have to lose the 40 pounds. Ridiculous and unrealistic, and you will always be disappointed with the results (or lack thereof) of a plan like that. 

This is why I know I deeply understand the drive and needs of entrepreneurs—but I will probably never be one. A new venture almost never goes according to plan. People who over-plan almost never become successful entrepreneurs. A person who over-plans takes a personality test in college that says she should be a lawyer, takes the LSAT when she is two years from graduating from college, and then promptly becomes a lawyer at 25. True story.

I know people like their lawyers to be planners, and I am certainly not advocating less planning. Don’t forego the buy-sell or the succession plan just to “see what happens.” My point in this is that I know there is another side to my brain that I too often neglect. I used to love to paint, I was a great figure skating choreographer in another life, and I am a Pisces for gosh sake. I know I have some creativity and a free spirit in me somewhere that is begging to be used at least some of the time. 

Crowdfunding: Legal Eagles Take a Chicken Little Approach

When it comes to crowdfunding, the legal community has taken a “sky is falling” view of the proposed funding mechanism for startup companies. Crowdfunding has created an enormous buzz within the startup finance community. In fact, my fellow authors on entreVIEW blog have written about it enough that it’s among the top 20 most frequent tags since we launched our blog for entrepreneurs a couple of years ago. However, regulators and practitioners have not only thrown cold water on the idea, they have also begun to squawk about its approaching perils. If you’re excitedly expecting that crowdfunding will fundamentally transform the way companies raise capital, the legal community is telling you to think again.

Unlike traditional donation-based Crowdfunding through sites like Kickstarter, equity Crowdfunding involves the sale of ownership interests in a company to a large number of investors via the Internet (or other means of “general solicitation”). Crowdfunding was included in the federal JOBS Act passed more than a year ago to facilitate capital raising of up to $1 million annually by early stage companies. Companies selling shares are currently prohibited from “general solicitation,” which involves the offer of shares to people you don’t know via public means such as offers made via the Internet, advertisements, or cold call. The enormous change proposed by Crowdfunding in the JOBS Act is the removal of the prohibition on general solicitation to unsophisticated potential investors . This means that companies could be permitted to offer shares of their stock on websites, billboards and radio ads, just like kitchen gadgets, life insurance and Viagra. 

The startup and fundraising communities are excitedly waiting for Crowdfunding to become effective. However, the legal community is taking an entirely different view. I recently attended a national legal education seminar on private company financings. The expert panel included representatives of the SEC, which is responsible for adopting regulations to give effect to Crowdfunding but has not done so after more than a year of waiting. Also on the panel were state securities law administrators who are responsible for investigating fraudulent capital raising activities.  

Simply put, federal and state regulators are horrified at the prospect of Crowdfunding. One state regulator acknowledged that she and her 49 state counterparts are “freaking out” about the impending rampant investor fraud and the lack of resources to address the problem, which they believe will lead to a decrease in investor confidence and less investment. State regulators view the world as being full of unscrupulous fraudsters waiting to prey upon unsuspecting widows and orphans. They have the right to be concerned as there are certainly a number of these fraudsters separating the elderly and unsophisticated from their retirement funds.  

Representatives of the SEC made it clear that they are not in a hurry to adopt regulations that will commence Crowdfunding. If it were up to them, it seems to me that they would wait forever. Congress, on the other hand, has reportedly been getting impatient.

Whether Crowdfunding will have a significant positive impact on financing will depend on the scope of the regulations adopted by the SEC. Onerous regulations requiring audited financial statements, extensive offering disclosure documents and limits on amounts that can be invested (all telegraphed as possibilities by the JOBS Act legislation) will put Crowdfunding six feet under, similar to the Small Corporate Offering Registration (“SCOR”) adopted ten years ago for similar purposes. Burdensome requirements that eviscerate Crowdfunding seem like counterproductive overkill. Many practitioners believe the Crowdfunding regulations will be “unworkable.” Companies struggling to raise money could use a little help. But help from Crowdfunding does not appear likely. 

Unlike the doomsday view of equity Crowdfunding the regulators and practitioners (much like my colleague, Dan Tenenbaum in this prior post) gave a much warmer response to permitting general solicitation of accredited investors under Rule 506, which was also part of the JOBS Act. Accredited investors are wealthy persons or entities who are viewed as being more sophisticated and able to sustain a loss of investment in risky ventures based on their income or assets. They can also be referred to as “angel” investors. Most companies raising capital in private securities offerings today do so exclusively from accredited angel investors. Permitting general solicitation to reach these persons is a logical extension. What is really important is that investors are actually accredited (and the SEC has proposed regulation for “verification” of  accredited status) and not whether the investor learned about an investment from a web site or an advertisement. Based on the feedback of regulators and practitioners, general solicitation of accredited investors is likely to have a significant impact on startups raising capital in the future. 

The unfortunate truth is that Crowdfunding may be DOA and startup companies will continue to face the challenges of raising capital through more traditional means. However, based on my more than 20 years of experience, unsophisticated investors gained through Crowdfunding will be more numerous, demanding, bothersome and litigious than accredited angel investors anyway. Perhaps the premature death of equity Crowdfunding is a blessing in disguise.

8th Annual MinneBar “Unconference” a Hit

This Saturday I attended the 8th annual MinneBar conference held at the Best Buy Corporate Headquarters in Richfield. With over 80 panels, presentations, and sessions on technology and software scheduled in 50-minute intervals across the span of eight hours, and what was rumored to be over 900 attendees, there’s no doubt the organizers – and attendees – considered the conference an unqualified success. 

Actually, the event is touted as a “Bar Camp,” or an “unconference” – terms I was not familiar with before Saturday. I have to admit, the loose plans for the event (anyone and everyone can sign up to present, and we weren’t given the schedule of sessions until less than a day prior to the start time) was initially a bit off-putting. However, from the moment I walked in, I noticed an energy and excitement that are not typically present at a traditional conference. 

Apparently the idea for the “open space” format of unconferences was first developed in the mid-1980s by a man named Harrison Owen, though some compare the experience to science fiction conventions that have been held since the 1930s. The key characteristics dictate that an agenda is created by the attendees upon arrival rather than prior to the event, and anyone who wants to sponsor a discussion on a topic can set up a time and a space. The open discussion format works best when attendees are highly knowledgeable and experienced in the field around which the conference is centered. The term “unconference” wasn’t first officially used until almost 2000, and was popularized in the context of the BloggerCon convention first held in 2003. The phrase “Bar Camp” is a related term, referencing more specifically open-to-the-public forums centered around technology and the internet. 

I was ultimately convinced that there is no better format to use for an entrepreneurial, unconventional crowd (pun intended). MinneBar’s website promoted the feel for this event, stating on their website that no “spectators” were allowed – only participants. The event was free for anyone to attend or make a presentation. And while we were somewhat nervous about who would show up to our law firm presentations on technology agreements and intellectual property basics, the first session, at least, had over 50 attendees, including those sitting on the floor and standing in the doorway. They were even kind enough to laugh at our jokes relating to source code (“Why would we need that if we’re buying a new software system and the vendor will soon be going out of business?”) and Lotus 1-2-3. 

In fact, even the location for the event – the Best Buy corporate headquarters – catered to the entrepreneurial crowd and the unconference vibe. Despite obviously being a fortune 500 company with a 1.4-million-square-foot corporate headquarters, Best Buy is decidedly hip. Having worked there for two years in the mid-2000s, I was reminded upon returning that the company embraces its humble beginnings with a huge memorial wall, and its playful attitude with a large gaming area complete with multiple video game stations, pin ball, and a pool table. And as we’ve all seen in the news in recent weeks, Best Buy’s original founder is returning to the helm of the company, proving that no matter how big you get, an entrepreneurial spirit and founder attitude may be the best thing for a company, even one with annual revenue of close to $50 billion. 

Needless to say, I have no doubt that the “conference” I will be most looking forward to in 2014 won’t be a conference at all. I will definitely be a participant in next year’s MinneBar!

A Post by Karen Wenzel, Guest Blogger

Virus as Extortion

I was looking forward to getting some work done at home last week when we were struck by a ransomware virus – a type of malware that restricts access to your computer unless you pay a “fine” to resolve the problem.

In this case, I was just opening the internet connection when the screen went black and there was an ominous message from the FBI stating that my computer was blocked for one of three reasons: (1) I have violated copyright laws by illegally using or distributing copyrighted content (citing a specific section of the “Copyright of the Criminal Code of United States of America;” (2) I have been viewing or distributing prohibited pornographic content (in violation of the Criminal Code of United States of America;) or (3) illegal access was initiated from my computer without my knowledge or consent  in violation of “the law On Neglectful Use of Personal Computer”.  I was pretty sure that I wasn’t guilty of the first two, but that third one…

To avoid fines from “two to five hundred minimal wages” (for copyright infringement) up to $100,000 (for the neglectful use of my computer) or “a deprivation of liberty” for anywhere between two and twelve years, I must buy a MoneyPak for $300 (available at Walmart and various convenience stores) and the FBI will remove the block.  I was initially outraged by the demand for $300, but when you think about it, that’s not bad to avoid going to prison.  If not for the fact that my computer had been turned into a big brick, this would have been funny.   

This was the first time that my computer fell victim to one of these viruses, but I read about these scams all the time.  I admit being surprised at the number of people taken in by them.  Aside from poor grammar, bad spelling, odd phrasing such as “deprivation of liberty” instead of “imprisonment” or “jail,” and the just plain silly reference to a criminal penalty for “allowing” your computer to be infected – could anyone seriously believe that $300 would buy them out of a real crime?  Sadly, the success of these scams means we are doomed to see more for some time.

If in doubt, it is easy to check on these matters.  Simply type in some of the odd phrases and all of the articles exposing the scam pop right up – although this is admittedly problematic if your only access to the internet is locked.  I used other electronic devices to find out what I could about this scam, and was pleased to find instructions for removing the block.  Unfortunately, my computer had other issues that were accelerated by this virus and I was unable to fix it on my own.  Now – five days later – the $300 MoneyPak is beginning to look like a bargain.  Maybe that was the point all along.