1. Software licensing: what type of license should I use?

    At its core, a license is permission from one party to another to perform an activity which would not otherwise be permitted. An intellectual property (IP) license is an agreement between two parties (a licensor and a licensee) for the use, which would otherwise infringe on legal protections, of intellectual property. Put another way, an IP license lets a licensee use protected IP without being sued for infringement of copyright, patent, or trademark protections.

    Since most protection for software in the United States is under copyright law, a software license is permission, by contract, for the use of copyrighted IP (the software); use without a license would be an infringement, actionable under US law, of copyright protections.


    There are two main schools of thought that form the vast majority of software licenses: proprietary software licenses and free-and-open-source software (FOSS) licenses.


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    Proprietary licenses usually involve an End User License Agreement (EULA) that grants the licensee no right to the software beyond the use of it for a specific the term and territory. Generally, the EULA will limit where and how many times you can install the program, if you can copy or redistribute the software, and if you can modify it in any way. When software is distributed with a proprietary license, users generally are not given access to the source code (the actual programming of the software).

    FOSS licenses, by definition, maintain access to the source code as an integral part of the rights being licensed. Keep in mind that the FOSS licenses protect the users’ rights to use and redistribute software, not the authors’. Also, open source does not equal free. The Free Software Foundation (FSF), in a comment made about the differing philosophies between ‘free’ and ‘open source’ software, highlights the similarity of the two paradigms: “nearly all free software is open source, and nearly all open source software is free”.

    While the particulars of the many varied FOSS licenses can be overwhelming, there are some fundamental differences.

    There are two primary categories of FOSS licenses: recursive - or copyleft licenses - and everything else. Copyleft licenses are recursive in that they require any successive distributions that have used the initial software in any way also to be released under the same permissive license as the original; in other words, that any successive modifications are also released as FOSS.

    Some copyleft licenses, such as the GNU General Public License (GNU GPL; http://www.gnu.org/licenses/gpl.html), are strong copyleft licenses; they require that any derivative work also be released under the same license. The FSF maintains a list (http://www.gnu.org/licenses/license-list.html) of licenses that are compatible with the GNU GPL. Software released under licenses it deems compatible can be combined with software released under the GNU GPL and maintain the GNU GPL license. Keep in mind that you can use or modify any GNU GPL software and use them privately without ever releasing them to the public. The copyleft nature comes into play when you decide to release the modification.

    Weak - or partial - copyleft licenses, such as the GNU Lesser General Public License (GNU LGPL; http://www.gnu.org/licenses/lgpl.html) allow the software to be linked, or used in conjunction with the GNU LGPL licensed software, without any requirement for the new software to be licensed in a particular way. In other words, if you use some software licensed under the GNU LGPL as part of software you author, you can still license your software in any way you wish to. The only caveat is that the part that was licensed under the GNU LGPL is still under that license.

    All other FOSS licenses are permissive to the extent that they allow the user to do what they will with the software, including incorporating it into proprietary software. The Modified BSD license (http://opensource.org/licenses/BSD-3-Clause), a permissive FOSS license, allows redistribution, with or without modification, if the redistributed software includes the same notice of copyright permission and does not coopt the original author’s name without permission. The Apache License Version 2.0 (http://www.apache.org/licenses/LICENSE-2.0) is also a permissive FOSS license, with additional patent termination and indemnification provisions to further protect users.

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    Choosing a license under which to release your software can be difficult. While the details between the various FOSS licenses are important and need to be considered, the general differences discussed above should help get you pointed in the right direction.

    The FSF maintains a short page on its license recommendations, http://www.gnu.org/licenses/license-recommendations.html; the OSI likewise maintains an FAQ to help navigate the FOSS waters, http://opensource.org/faq.

  2. Skype’s New Terms of Use

    Over the five months that the Docracy Terms of Service Tracker has been up and running, Skype has changed its Terms of Use six times.  The most significant development between versions has been the addition (and subtraction and addition) of a binding arbitration agreement and class action waiver for Pay by Mobile customers in the US.  The TOS Tracker initially recorded Skype’s introduction of the clause on January 24th, 2013, as well as its quick retraction on January 31st, just a week later.  However, on April 10th, Skype reintroduced the clause, and it looks like it’s here to stay.

    The arbitration and class action waiver agreements are written into a new section of Skype’s Terms of Use governing Pay By Mobile accounts, an option to pay for certain Skype services via your mobile phone bill.  While both binding arbitration and class action waivers are not unusual, they do significantly affect your legal rights and remedies, and it’s well worth a minute to understand what they are.


    The Clause: Agreeing to Binding Arbitration & Class Action Waiver [Paragraph 20.3 (a-i)]

    Any dispute you may have relating to your use of Pay By Mobile services may be resolved either through informal negotiation or in small claims court (in NY, small claims may not exceed $5,000).  However, if those fail or are otherwise insufficient forums for handling your claim, you are now expressly required to resolve your dispute through binding arbitration.  The clause states this succinctly: “You are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury.”  It also provides that all claims must be filed, in small claims court or arbitration, within one year from the date on which it could first be filed.


    Arbitration

    Arbitration clauses are common enough and, for general purposes, they’re not necessarily a bad thing: most people will not need to litigate an expensive claim arising out of Pay By Mobile.  The costs of a lawsuit in time and resources often outweigh the value of the harm to the individual.  You’ll probably get more out of a negotiation or small claims proceeding than you would if you put your claim to the test before a court of law.

    For an individual with a large enough claim, Skype’s Terms of Use require resolution through binding arbitration.  Most commercial arbitration is governed by the Federal Arbitration Act of 1925, which validates contractual agreements that mandate arbitration.  The Act also substantially limits the right to appeal an arbitration award in the courts.  Skype’s new Terms require all arbitration to be conducted by the American Arbitration Association, and provide additional arbitration procedures and details here.

    Class Action

    The class action waiver is more controversial.  The class action is one of the most effective legal options for consumers to settle disputes against large service providers.  Essentially, a class action enables consumers who have been wronged in the same way to join together in a lawsuit.  By bringing together a mass of small individual claims, consumers who have been harmed can seek redress while keeping their own, and the court’s, costs down.  

    By agreeing to Skype’s Terms of Use, you are not only giving up your right to litigate in court individually, you are also giving up your right to join with another party in any proceeding in any forum.  That is, if you and another each had the same problematic experience, you can’t join together in small claims court.  You can’t arbitrate together.  And you sure as heck can’t join in a class action.  Your only option is individual arbitration.

    The new section does contain an “opt out” by which, after agreeing to the present Terms, you can reject future changes to the Terms by sending notice to Skype through US Mail.  However, you will remain subject to the Terms to which you’ve already agreed - it’s not a true “opt out” since you have no choice but to opt into the current Terms.  

    Since these provisions are written by companies on a take-it-or-leave-it basis and significantly affect your rights, there is a risk that they could be found by courts to be unconscionable.  Other companies that have recently added binding arbitration to their Terms - like EBay, Instagram and StubHub - have provided their customers with a limited window to opt out completely.  Because Skype hasn’t offered such an opt out, they appear to be somewhat uncertain of the legality of this tactic.  They seem to have hedged their bets by adding a severance clause, which would effectively strike from the contract any clause in 20.3 that was found to be illegal or unenforceable.  It’ll certainly be interesting to see if any legal challenges arise from the the lack of an opt out clause, and whether Skype will be forced to retroactively give their customers the option.

    Conclusion

    So, all you Skypers out there using Pay By Mobile - what say you?  How does it feel to know that if one day you discover you’ve been subjected to unreasonable or fraudulent practices, that your only remedy will be before an arbitrator who’s been exclusively retained by Skype?  There’s not much hope that lawmakers in the courts or capitals will force companies like Skype to sit its customers at the bargaining table.  For now, keep your eyes open to the effects of these provisions and let your voices carry your opinions loudly.  They can’t contract away your right to be heard - and, after all, you can always opt out completely.

     

  3. What is a patent?

    Many people, when they think of patents, think of an invention. The truth of the matter is slightly different.

    While a patent is granted based on a particular invention, a patent is actually a set of legal rights being granted to the patent’s inventor. A patent allows the invention’s creator (the inventor) to prevent anyone else from benefiting from the invention without the inventor’s consent. This right can then be sold, licensed, or assigned to another party.

    There are three different types of inventions that the United States Patent and Trademark Office (USPTO) will grant a patent for:

    (1), Utility patents for processes, machines, composition of matter, or articles of manufacture (or improvements to any of these);

    (2), Design patents for ornamental designs for an article of manufacture; and,

    (3), Plant patents for asexually reproduced plants.

    process: a process, act, or method; a way to do something (primarily includes industrial or technical processes)

    composition of matter: a composition of two or more substances (produced by either mechanical or chemical means); e.g. a synthesized chemical compound or transgenic mouse

    articles of manufacture: an article produced from raw or prepared material giving the material new form/property/quality/combination; e.g. ceramics, cast metal objects, gloves, envelopes

    Provisional patent applications do not result in a patent, rather they grant a 12 month pendency period during which a non-provisional application can be filed which takes advantage of the provisional application’s filing date. Essentially, the provisional application indicates to the USPTO an intent to file a non-provisional application and establishes an earlier effective filing date (the date at which patent protection begins once a patent has been granted).

    In order for the patent to be granted, the USPTO has to be shown that the invention is new, useful, novel, and nonobvious. For these reasons, each application for a non-provisional (read: 20 year) patent must include a written document with a specification (read: description and claims), any necessary drawings, and an oath (stating that the inventor is the original and first inventor).

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    The specification is the meat of the application; it provides the primary means of understanding the invention. It begins with a full, clear, concise, and exact description of the best way to carry out the invention so that someone knowledgeable in the appropriate field could understand it and make use of the invention. Following the description is a claims section where the inventor points out the particular parts of the description that are the actual invention.

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    Oftentimes drawings are necessary to clarify and help in the understands of the invention.

    Lastly, an inventor must make a declaration that the application was made or authorized by the person on the application and that the inventor believes himself or herself to be the original inventor of the invention in the application.

    When the USPTO examines a patent application, one of the things it looks at in determining whether a patent should be granted is “prior art”. Prior art - the body of existing knowledge - is basically any patents already granted, any publications where the invention was described, or anywhere the invention was used in public view; basically any disclosure to the public - the worldwide public - of the invention before the application was filed qualifies as prior art.

    If the USPTO determines that there is prior art, the patent won’t be granted unless the prior art falls under a small set of exceptions. The USPTO has a series of four videos - with accompanying powerpoint presentations - describing prior art and these exceptions, found here.

    It’s incredibly important to be as accurate as possible (while still trying to keep the description and claims broad) in order to give the application a high chance of success.


    So remember, being granted a patent gives you, the inventor, the legal right to prevent anyone else from benefiting from your invention. Understanding what constitutes a patent and for what the USPTO will grant a patent is essential to an effective and successful patent application.

     

  4. Guest post: Should you incorporate as a Benefit Corporation?

    A Benefit Corporation is a new type of corporate entity available to businesses choosing to incorporate in California. Inder Comar, a Docracy contributor who represents small businesses and startups there, recently published his sample Articles of Incorporation and the following useful information, to help you figure out if this business entity is right for you.

    There are important differences between Benefit Corporations and more traditional C-Corporations:

    Public benefit: A Benefit Corporation is required to create a general public benefit, something which must be specifically stated in the articles of incorporation. A Benefit Corporation may also promote a specific public benefit as well, which can similarly be included in the articles of incorporation.

    Measurable goals: Benefit Corporations are required to asses their overall social and environmental performance in accordance with a third-party standard. The assessment does not need to be audited or certified by a third party.

    Annual benefit report: Along with such assessment, the Benefit Corporation is required to provide an “annual benefit report” to shareholders, explaining the ways in which the Benefit Corporation pursued a general public benefit and specific public benefit (if any).

    Changes to board fiduciary duties: The California Benefit Corporation statute changes board fiduciary duties in significant ways. In a traditional C-Corporation, corporate managers are required to make decisions that maximize profit. In a Benefit Corporation, directors must take into account the impact of any action or proposed action on shareholders, employees, customer interests, community and societal considerations, the local and global environment, the short- and long-term interests of the Benefit Corporation and the ability of the Benefit Corporation to accomplish its general and specific benefit purposes. Corporate directors are thus statutorily required to take factors other than short-term profit maximization into account when making decisions. A director is shielded from monetary damages in performing such duties.

    Benefit enforcement proceeding: Finally, any shareholder or director may bring a “benefit enforcement proceeding” against the company to force the Benefit Corporation to comply in creating a general public benefit. Monetary damages are not available, but a court in its discretion can award attorneys’ fees.

    Check Inder’s blog for further information!

  5. Developer Contracts in the Real World →

    A handy list of popular contracts for developers, as featured on SitePoint

  6. How to Form an LLC

    So you want to form an LLC? Great! Here is some information about how to get going.

    What is it?

    A Limited Liability Company (LLC) is a business entity created under the laws of a particular state to incentivize commerce and investment. Essentially, a LLC is an organization of made up of its owners, referred to as members. The number of members can be as few as one or as many as you’d like, and may consist of natural persons, corporations and other LLCs. The LLC structure provides a limit to the personal liability of members for debts incurred or lawsuits filed against the company. Another benefit of creating an LLC is that it is considered a “flow-through entity” - business income is taxed federally only after it is distributed to each of the members, as personal income.

    Each state has its own legal rules governing the formation and operation of LLCs, so be sure to check the specifics for the state in which you intend to organize. For instance, New York requires an LLC to publish notice of its formation for six consecutive weeks in two different newspapers. You should check the requirements for your state.

    Image credits to Julian Hankrov

    Articles of Organization

    Initially, the members must file Articles of Organization (or alternatively, Certificate of Formation) with the state government. The example provided here is for New York State - along with a fee, all you need to do is submit:

    • a valid company name,
    • the county in which your LLC will operate
    • the address to which legal notices should be sent (usually a registered agent)

    Some states have additional requirements, such as the names and addresses of the members. If changes need to be made after organization (i.e., you change the name of the LLC), you will need to file an Article of Amendment, a similarly simple document that will vary by state.

    Operating Agreement

    At the outset, one of the most important considerations is management structure. How many members will be in your LLC? Will it be managed by the members or by managers selected by the members?

    In addition to the state and federal rules governing LLCs, the framework by which the members of the LLC abide is called an Operating Agreement - the primary source of rules for the business.  This document will differ depending on the management structure of the LLC - single-member, multi-member, and manager-managed.  Single-member and multi-member LLCs differ in that the former is owned by a single member whereas the latter is owned in proportion between each of the constituent members.  However, they will all commonly describe:

    • The organization and purpose of the business
    • The capital contributions of the members
    • The allocations of profits and losses between members
    • The identities and powers of the managers
    • Banking, legal and accounting services
    • The process by which meetings are held and records kept
    • The limits to liability and indemnification
    • How transfers and withdrawals of interests in the business are handled
    • How the business may be dissolved or liquidated
    • The process for amending the agreement and adding new members

    The main difference between member-managed and manager-managed LLCs is that the members do not take part in the day to day operations of the latter. The managers are elected by the members and exercise control over business arrangements like managing company assets and employment. The difference is usually compared to other business entities: member-managed LLCs operate like a partnership whereas manager-managed LLCs are more akin to corporations. As in corporate entities, managers are generally shielded from personal liability for business decisions, but have a duty to the company to perform according to the best interests of the business.

    Conclusion

    There are some good reasons to start an LLC: it’s easy, flexible, limits personal liability and provides certain tax benefits. The members of the LLC are beholden only to themselves and the terms they agree upon and are only taxed on income once. However, some of the characteristics that make LLCs attractive may also turn off investors. Investing in an LLC may complicate tax filings or subject an investor to an unwanted and unforeseen tax. While LLCs are convenient and come with some attractive benefits, it’s important that you see the whole picture before you choose an entity for your business.

  7. Essential Contracts for The Modern Writer →

    My guest post for The Urban Muse, one of the best blogs for writers!

  8. Docracy’s Term Sheet Guide →

    We published a really special topic page today: the Term Sheet Guide.

    We have many publicly available term sheets on Docracy, including forms from Series Seed, Techstars and Foundry Group. The thing is, a term sheet is a fairly complicated legal affair, and we felt like there was a need for some comprehensive, entrepreneur-friendly explanation. Therefore, we put together this rich, clear and detailed guide to term sheets and venture capital funding, from the point of view of the entrepreneur.

    It features an in-depth look at the main provisions, with sample language and links to the best blog posts on the topic. It includes useful definitions of technical terms, and a “checklist” to go through to make sure your term sheet is a fair deal. It’s a pretty long document, so you might want to download it in PDF form and study it via your device of choice, for free.

    We believe this is a great, highly-needed resource for the startup community. We promise to keep it updated, with your help as well: share comments and suggestion in the comments!

  9. Top Five Contracts Small Businesses Should Have

    As featured in Small Business Bonfire!

    What are the five most important types of contracts for a small business? The (short) answer to this and every other legal question is: it depends.

    The top five contracts for someone in construction might differ than a CPA or a dentist. That said, let’s look at some of the more basic agreements that small businesses typically run into.

    1. Non-Disclosure Agreement. Also known as “NDA”, this agreement simply binds someone to keep a secret. NDAs can be very useful if you are in a highly competitive market. If an employee has knowledge of proprietary information for competitive advantage, you will want to bind that individual to secrecy if they leave your employ. A disclosure by a departing employee who now works down the block for your competitor might be a fiscal blow from which it would be hard to recover. An NDA can be unilateral (one-way) or mutual.

    2. Non-compete. Similar to the NDA, a non-compete agreement is very important if you are hiring sales people or employees that deal with your customers. This contract would restrict an employee from working in the same field for a specific term and within a set geography. Note that states differ on the scope of what constitutes a valid agreement and will strike those that are too broad or prohibit an individual from making a living at their chosen trade. This agreement also usually prohibits an employee from taking customer lists, internal documents, or other propriety material when he or she leaves. You can add a non-solicitation clause: the ex-employee will be prohibited from contacting your existing customers for a term of one year or as allowed by law. See a sample non-compete agreement.

    3. Sales Contract or Subscriber Agreement. If you are selling something other than a small retail item, you’ll want to have one of these. Any high-dollar product should be sold pursuant to a sales agreement. This agreement will dictate the sales terms, such as installment payments, warranties, and other rights and responsibilities. If you are offering a service, such as a web-based subscription model—that is the buyer pays to use your service on a regular basis for a pre-determined amount of time and charge—you also will need to have all of those details in writing. This can be accomplished with a number of different agreements, like Terms of Service, License, or EULA (End User Agreement).

    4. Independent Contractor Agreement. If you are running a business that depends on other businesses, you might have the need for this type of agreement. For example, you run a print shop and have a project to print a hard cover book. You shop does not have the equipment or expertise to make the hard cover, so you sub-contract that part of the project to another printer. There’s no real trick to this agreement—it’s just your agreement to pay for the services of another for a mutually agreeable price. Keep in mind that this subcontract is typically coming out of the estimate or award you made for the entire book. You’ll need to watch your profit margin and make sure that the subcontract fits into the overall book project as far as cost, timing, and quality. In this example, the delivery date of the covers is critical to completing the project for the customer on time. See an example Independent Contractor Agreement.

    5. Employment Letter. This is an essential document that you will need in your business if you hire a staff. This letter is also known as an “Offer Letter” and should spell out the details of employment (salary/wage, benefits, start day, vacation, etc.). This helps avoid confusion or questions later on. An important part of this letter is the disclaimer language to the effect of:

    This letter represents an initial offer of employment; however, this document does not constitute a guarantee of continuing employment for any term.

    This makes sure the employment is “at will”, meaning that both the employer and the employee can terminate the agreement at any moment. An employment offer letter can be used for part-time jobs as well.

    It goes without saying that every contract we have discussed, as well as any other contract you make in your small business, should be in writing. Handshakes are nice, but you can’t afford to spend your time, energy, and money arguing over who said what. A written document signed by both parties eliminates that hassle and allows you to concentrate on making your business a success.

    DISCLAIMER: This article wants to be useful and informational, but keep in mind it is not legal advice and all the legal documents cited are only to be used as a starting point.

  10. Bring Your Own Device Policy: do you need one?

    If you have a business that requires employees to access company data from their own devices, you many want to consider a Bring Your Own Device (BYOD) policy.  The idea is simple: instead of a company providing its employees with a laptop or a smartphone, BYOD allows employees to access work-related information and systems from their own devices while requiring certain security measures to ensure company data is protected.  A BYOD policy contains the terms of the agreement and rules of behavior for the parties to the agreement: the company and the employees. Even the White House has a BYOD policy, so you can guess this is a pretty popular solution, especially in the private sector, and indeed BYOD was a requested document on Docracy.

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    Pros


    Implementation of a BYOD policy has its benefits:

    - Employers can avoid the costs of procuring and maintaining its stock of computing devices, reducing the need for in-house IT as a primary care solution.

    - Employees can do their work on their preferred device while eliminating the burden of carrying extra hardware.  

    - Reports state that workers who use their own devices are more productive and are more satisfied with their jobs.  

    Cons


    However, BYOD is not without its costs.  Using one’s own device may be convenient, comfortable and cost-effective, but:

    - Who will bear the expense of the device, its maintenance, and the data plan? With a full BYOD program, the employee will shoulder these costs and the employer will provide some degree of reimbursement.

    - Employees may lose some privacy and flexibility by integrating their personal and work lives on the same device.  For instance, will employers be able to access or erase personal information?  The White House sample policy contains a provision that requires employees to allow access to their device under two circumstances: for security control or for discovery during a legal proceeding.  However, private employers generally have broad latitude to monitor employee use of company hardware and networks.  In a BYOD program, there is no certain legal answer to the question of who owns the device (especially when an employer subsidizes it).  Also, will there be limits to the software and applications that may be installed on a device?  The sample policy requires employees to install certain security systems that may preclude use of preferred applications.

    - By allowing personal devices to access sensitive company information, employers face an increased risk of breaches of confidence.  Requiring programs that allow employers to remotely lock access to and wipe data from the device can reduce the risk of loss.  The possibility of harsh consequences for violations of the policy may provide a significant disincentive for employees to be lax about security.

    - The variety of devices used by employees may necessitate a sophisticated and costly IT reconfiguration to securely accommodate a diversity of operating platforms.

    The Basics of BYOD


    Some key business and technology considerations for anybody who’s thinking of implementing a BYOD policy are:

    - The range of acceptable devices. How technologically sophisticated is your company? Are your systems robust enough to support various operating platforms? Which devices can you trust?

    - The degree of IT support your company will offer employees. Will employees be required to troubleshoot tech problems directly from the developer or will the company provide substantial IT support? Will the company reimburse employees for technology costs or provide a stipend for paying bills?

    - The strength and intrusiveness of security protections. How closely will you monitor employee usage? Will you require certain anti-virus and security systems? What about password protection?

    - Contingencies for security breaches. Will you employ a mechanism to contain breaches like remote locking or data-wiping?

    Should You Adopt a BYOD Policy?


    If your company spends a lot of money for hardware on which your employees are expected to access sensitive company information, BYOD may be a good choice.  However, reducing short-term technology costs is not the only end of BYOD; implementation requires compromise in order to be successful.  It is paramount that a BYOD policy seek to maximize the security of company information while preserving the personal character of the employee’s technology experience.  For the cost savings to be realized, the complexity of managing a secure system that allows maximum individualized access must be approached earnestly.  

    What if your company has no written BYOD policy, but nevertheless allows its employees to use their devices for work?  Remember, a BYOD policy is a mechanism by which companies can cost-effectively secure their data networks while giving their employees the flexibility and familiarity afforded by working from their own devices.  If you are already allowing employees to access company information from their personal devices, it would probably be a good idea to set some minimum policy by which you can secure that information without incurring additional costs or alienating your workforce.   

    Note that a full BYOD program (where the employees are totally responsible for the device) is not the only way to go. Several approaches to BYOD have been implemented successfully.  For a detailed view of BYOD policies, check out a report from the Chief Information Officer of the Unite States, available here as a pdf.