Monday, June 30, 2003

VIEWLESS JUDGES Andrew Sullivan argues that judges who have strong opinions on issues of public importance should not be judges. While his argument is about what he perceives as Justice Scalia's anti-homosexuality attitude, I wonder if Sullivan's formulation of what makes a good judge would have kept desegregationist judges from the Court? It seems ridiculous to demand that judges be both intelligent and intellectual, yet not have considered positions on the major issues of the day. We don't want our Justices to have the same qualifications as we've been getting in our juries.

Wednesday, June 25, 2003

CONNECTICUT LITIGATION SETTLEMENT Let's take a break from law talk and and focus on a business of real importance. College sports. ACC expansion. Here's a basic principle that should be no surprise to Big East commissioner Mike Tranghese: if you cobble together a conference with 14 universities, 6 of which don't even play Division I football program, expect to fail. When your conference is held together by duct tape and rubber bands, don't be surprised when a well-run, top tier conference like the ACC takes an interest in some of your football schools.

Let this be a message for Conference USA too, which will be poached by the Big East when the ACC adds Miami and Va Tech, without any irony (unless C-USA acts to protect itself). The major money-making sports in college are football and men's basketball, it makes little sense to organize conferences with different membership rosters in these important sports. The Big East has known plenty of tension between its Georgetowns and Villanovas and its BCs and Virginia Techs and Temples (oops, they kicked Temple out). The Big East basketball-only schools should be in a conference that doesn't have to worry about football, doesn't have to worry about positioning for a BCS berth. The football schools should move to conferences where they can participate in both football and basketball. Sure, it would take action by the NCAA to make this happen, but, here's my suggested alignment anyway (schools new to a conference are in red):

Big East
Notre Dame
Seton Hall
St. Johns
St. Louis

Then, Conference USA and the ACC will be able to each play football and basketball among all of their members, and C-USA gets the BCS berth previously awarded to the Big East. The Big East gets out of football and becomes a top tier basketball conference.

Florida State
Georgia Tech
NC State
North Carolina
Wake Forest
Virginia Tech

East Carolina
Southern Miss
Boston College
West Virginia

I understand that this would leave out Army, Alabama-Birmingham and South Florida, but if you're upgrading C-USA, these would have to go find the MAC or be independent. Heck, if we put together enough 12 team conferences with championship games, then those games could serve as a first round of a playoff. But, then, I'm dreaming.

Tuesday, June 24, 2003

WHO GETS TO BE SPIKE? It looks like another Spike doesn't want Spike Lee to claim to be the only Spike with rights to the name Spike. Bet Johnnie Cochran didn't think of that (after all, he's a criminal defense lawyer, not an IP type).

Friday, June 20, 2003

SHELTON WINS AGAIN It looks like the New York court issued a preliminary injunction, stopping The New TNN from changing its name to Spike TV, because Spike Lee (né Shelton) thought it infringed his use of the name. TVGuide had the best legal analysis:
JEERS to being so vain he thinks the channel is about him. Spike Lee is suing Spike TV, formerly TNN, for using his name without consent. Why he thinks the new channel was named for him and not the vampire from Buffy the Vampire Slayer or Snoopy's brother from "Peanuts" or Spike Jonze or a killer volleyball slam is something only Spike (Lee) knows for sure.
Then there's this Federal Review:
Now, the real drama begins. Will Gordon Sumner sue the WNBA's Charlotte Sting? Will Cherilyn La Pierre sue the French for unauthorized use of her name? Will Liza sue any number of Lizas throughout the country, whose parents named them without consulting the good Judge Tolub? Will Madonna sue the Vatican?

Spike Lee posted a $500,000 bond to cover Viacom's costs if he loses his claim at trail. Expect Viacom's lawyers to be running the bill, because their client won't be paying.
Marty Schwimmer over that The Trademark Blog is looking for your comments.

Thursday, June 19, 2003

MUSIC PIRACY I don't know if I understand this from a law professor at Stanford:
Three-fourths of the files in the directory were not music files. Yet he was sued by record companies, demanding hundreds of millions in damages.

When they discovered that he had saved $12,000, they gave him a classic Sopranos-like choice: Either defend yourself in court (which would cost his family over $200,000) or pay us $12,000. He handed over the $12,000.
So, he "saved" $12,000 or he "stole" $12,000 worth of the hard work of multiple artists? Sure, the RIAA is acting like a bully going after so small a criminal fish, but so too is the government when it pulls me for speeding when there are rapists loose and so is the SEC when it pursues Martha Stewart for a $48,000 trade in a world of Enrons and Worldcoms.

Wednesday, June 18, 2003

Unlike the dusty, wind-blown prose you find here on the Business Law Weblog, there's some good reading over at Corp Law Blog. Follow the Hall of Absurdly Great Deals:
From time to time, Corp Law Blog will highlight absurdly great deals because (1) I like to read about absurdly great deals and (2) reading about absurdly great deals will hopefully teach me how to avoid being on the other end of absurdly great deals.
My nominee comes from a client's sale of his business 1999 -- Absurdly Great at the time, no so much now. I'll try to remember to go into details later.

HACKER HATCH OR IS THAT 0Rr1n DstRuCt0r? Senator Orrin Hatch is interested in technology that destroys the computers of downloaders of protected intellectual property. Despite my usual defense of intellectual property rights and confusion about why many bloggers argue that I should have the right to copy and make derivative works out of Steamboat Willie, I'm not confused about the potential abuses from such a self-enforcement mechanism.

ROE WANTS IT OVERTURNED Regardless of what you think about the right to abortion or the different issue of whether Roe v. Wade was correctly reasoned, it seems to me that the Norma McCorvey affidavit raises some important questions about the actions of her attorneys in the case, Sarah Weddington and Linda Coffee (asking her to sign an affidavit with full knowledge that she hadn't read it, failing to involve her in the case, feeding her pizza and beer while she was pregnant, taking advantage of her ignorance for political gain etc.). While I don't expect the case to be opened up 30 years later, I also don't expect the bar to take note of the allegations of how the attorneys took advantage of their client. The attorneys have not yet commented, so it will be interesting to see if they confront these allegations or simply argue about the importance of the rights that Justice Blackmun set forth.

Tuesday, June 17, 2003

YOU GET WHAT YOU PAY FOR It still amazes me, and it happened again today, that some clients will call with a highly convoluted, Wile E. Coyote scheme for raising money or rewarding employees, but with the caveat that the company is in "no position to invest in legal." Have you ever seen a better example of when a retainer should be required? And that retainer will serve to educate the client about the value of legal services prior to the date when the merger falls through because no one can explain who the Company's stockholders are. If they don't want to pay the retainer, then you don't have to worry about the merger, because it will never happen.

NO MORE BULL HOCKEY What a great idea -- software that flags the bullshit that is overwhelming corporatespeak, as pointed out here just last week. Here's a story on this imminently impactful solution to all those outside the boxers in the business space. I would suggest that all VC's get this sofware so they can better understand when they are being bullshitted (is that word) by some 1998-style business plan that projects no profits during the perpetuities period. "Perpetuities period" is legalese for "during the life of anyone currently existing plus 21 years." Apologies to you non-lawyers out there.

Thursday, June 12, 2003

GOOD DUE DILIGENCE PRIMER Check out VentureBlog's review of what a venture capital firm looks for in its due diligence investigation of a company. Keep in mind though, that this isn't all of the due diligence that will be performed...there's still the legal due diligence. While legal due diligence in a venture deal may be much less comprehensive than in an M&A deal, it still has its place, and will involve analysis of the company's organizing documents, capitalization and equity issuances, employment and third party contracts to ensure that they are enforceable and don't overburden the company with potential liability, and issues related to ownership of real estate, tangible and intangible property, as well as the quality of licensing agreements (so don't get your sales guy to draft them).

INNOVATIVE SOFTWARE BUSINESS SOLUTIONS A story today on a company that "provides innovative business process management solutions." Hasn't the shelf-life on "solutions" expired yet? What happened to terms with actual meaing? This should read "innovative business process management software" or "product" or, heck "accounting and inventory software" or whatever it is. I just want to know, at the end of the day and thinking outside of the box, what these companies bring to the table in the software space.

Oops, I just had a fit of meaningless business clichés.

Wednesday, June 11, 2003

Under the leadership of board chair Ralph Whitworth (whose day job is principal of Relational Investors, one of the few groups that have used short slates in the past decade), Apria became the 1st company to voluntarily allow shareholders to nominate directors directly (last month, Hanover Compresser did it as part of a lawsuit settlement). Holders of 5% or more will be able to nominate up to 2 directors which will be placed on the ballot opposite 9 management nominees.
This sounds like a good way for anti-capitalists like Ralph Nader to Noam Chomsky to show up on some Boards. Interesting.

FRIGHTENING, MONOLITHIC MEDIA Broadcasting & Cable reports that there is only one station in the Cincinnati DMA that "is eligible to become the junior partner" of another stitoin in the market. Only one! That's it? B&C goes on to say there are a total of 73 potential duopolies in 43 markets. Despite what the fretting of other bloggers, pundits and Senators, this doesn't sound like the run-away media concentration that we were warned about.

Monday, June 09, 2003

PATIENCE, YOUNG SKYWALKER A good argument to encourage gradual -- and constant -- change and not look for the immediate fix over at VentureBlog, discussing Dell. Good advice for CEOs, shareholders and VCs. And remember, these kinds of goals can be written into investment documents...just be realistic.

Friday, June 06, 2003

DETRIMENTAL RELIANCE Big East schools are suing Miami, Boston College and the ACC, claiming they spent money of football because they thought Miami was staying. A lessons on the limits of the free market, on PR statements and trying to survive by not being complacent. I wonder if the Atlantic 10 is condering a suit against Big East, Rutgers, Virginia Tech and West Virginia for the severe damage their leaving has caused. I would expect the ACC to despose some Atlantic 10 folks.

Thursday, June 05, 2003

FIRST CROSS-OWNERSHIP MediaNews Group exercises an option to buy the Fairbanks, Alaska NBC affiliate, where it already owns the newspaper.
William Dean Singleton's MediaNews Group Inc., which publishes The Fairbanks (Alaska) Daily News-Miner, has triggered its three-year-old option to buy KTVF-TV, a NBC affiliate in Fairbanks owned by Clear Channel Communications Inc. The option had been contingent on an end to the cross-ownership restriction on the common ownership of a newspaper and broadcast property in the same market.
Look for more similar options that were contingent on a change of ownership rules to be exercised in the coming days and months.

Wednesday, June 04, 2003

WHY NOT ANTI-DILUTION PRICE PROTECTION? Last week I discussed anti-dilution price protection and suggested that there may be a time when an Investment Bank / Venture Capital firm or other investor would not want this protection written into the Certificate of Incorporation.

Consider this. You are a VC firm and you were one of 3 investors buying Series A stock. And you got some good anti-dilution price protection. But the company runs into the trouble and needs another infusion of money or its going under and all three Series A investors are going to lose their investments. No outsider wants to invest, so your VC firm decides that its time for the Preferred Shareholders to act to shore up the Company. Of course, you negotiate a lower pre-money valuation than the Series A round, so the Series B round will be a down round. But one of the Series A investors decides that it's not going to poney up some more bucks for the Series B. It figures that you'll put in enough money to protect yourself. Even worse, that other investor refuses to waive its anti-dilution protection.

So, now you're stepping up to the plate and the other investors aren't, but they suddenly get a nice healthy increase in their shares for sitting on their hands, freeloading on your generosity. So, if you enter with multiple parties in one round, consider whether they will be there for the Company in the bad years when deciding how the anti-dilution price protection is going to work.

Tuesday, June 03, 2003

WHAT'S SO WRONG ABOUT MEDIA CONSOLIDATION? Have you noticed that no one can really tell you why media consolidation is bad? I mean, where are the examples? People like Sen. Byron Dorgan can talk in broad generalities and make assertions without backing them up with any evidence. Here's how he argued against the FCC's relaxation of the ownership rules on PBS's Newshour last night:
Well, the fact is the Federal Communications Commission is supposed to be a regulatory agency. They're supposed to wear the striped shirts and have the whistle. I mean they took their shirts off and did a half gainer right into the pool with the big economic interests.
And here's an example of Terence Smith's probing interview:
SEN. BYRON DORGAN: Well, you know, we've already had some of that play out. In 1996 we had the 1996 Telecommunications Act. I fought then against increasing the ownership limits on television stations. I lost. We've had massive concentration of television.

Dorgan continues repeating himself, but doesn't tell us why concentration is bad.
The point is we've had galloping concentration. And I’ll guarantee you that as a result of what the FCC did today, there will be an orgy of mergers and concentration once again. In fact, I read this weekend one of the media giants said they own newspapers, said, "look, in every city where we own a newspaper we will intend to want to buy the television station." And so I just think these rules are counterproductive. They're going to injure this country because concentration in the media, as I said, affects everything Americans see and hear and read.
Really, can anyone point to a merger or instance of media consolidation in the past and the direct negative effects resulting from the consolidation? When Viacom purchased CBS or when Disney acquired ABC, what was the negative effect? Byron Dorgan would say the negative effect was "media concentration" and then stare at you like he's made his point. Did CBS News suffer? Did ABC News? Did 60 Minutes, Everybody Loves Raymond or 20/20?

In 1975 everyone got his news from 3 television sources and the local papers. Now, the New York Times and USA Today and any number of papers can be delivered to almost 100% of the country (but Disney cannot reach more than 45% with TV stations it owns, and that's under the new "relaxed" rules), and there are 4 all news channels, not counting the coverage of issues of public interest from PBS to A&E to Discovery and the History Channel to MTV News. Oh, and when Viacom bought CBS, did it merge CBS News into MTV News, thereby reducing the number of "voices?"

Viacom buys CBS and its ratings skyrocket, yet it owns UPN too. But that doesn't mean they cancelled 60 Minutes and replaced it with WWE Smackdown. NBC and ABC are doing fine. The diversity of programming on cable is unprecedented regardless of the ownership of cable channels by AOL/Time Warner, Viacom, USA Networks, etc. My Time Warner cable systems carries (finally) Fox News channel (though when TWC refused for a long time to carry it in New York City, I don't remember the "diversity of programming" hysterics then).

Really, someone show me some tangible, negative results of consolidation. E-mail me here and I'll post relevant comments (even if they utterly destroy my argument -- let me know if you would like attribution or anonymity).

Monday, June 02, 2003

MEDIA CONSOLIDATION The FCC eased its consolidation limitations today. A move that should have the effect of preserving the existence of some stations in smaller markets while homogenizing some programming in others. But whether AOL/Time Warner, GE, Viacom and NewsCorp are on the verge of stamping out all dissent in favor of their money-grubbing big company views is yet to be seen. Suprisingly, those who argue against consolidation tend to scream about the squelching of free speech while giving no actual evidence of it beyond allegations that Clear Channel took corporate action to squash the Dixie Chicks (I've yet to find real evidence). (Why Republicans voting for rules that are alleged to give CBS, NBC, ABC and CNN more power to influence national debate?)

But now that the deed is done, let's watch to see if the sky falls. While I expect some negatives to result, I'm not preaching the end of the world because I know that there will be tangible benefits in the saving of small television in small markets and the realization of economies of scale among stations and newsrooms. Maybe there will be the possibility of TV stations starting up newspapers to compete with the existing newspaper monopolies.

Meanwhile, Tom Shales, the TV reviewer, ventures into the realm of law and economics and parrots the chicken little stories without any real investigation, and certainly no balance. "Economies of Scale" are unknown to Tom's sources who baldly assert "History shows that when you borrow a lot of money to buy new properties, you plow profits back into debt service and you cut costs. And viewers suffer." Shales reporting continues with the harrumph of Barry Diller, late of Fox -- now averse to NewsCorp's support of these revised limits:
Diller scoffs. "Anybody who thinks they're in trouble hasn't read the profit statements of those companies," he says. "The only way you can lose money in broadcasting is if somebody steals it from you."
I've seen income statements and I've seen balance sheets and if you aren't USA Networks (Diller's current home) and don't have the resources from a larger diversified business to support a small station in, say, western Nebraska, then you do lose money.

I wonder if Shales would like for the Washington Post to spin off its Newsweek magazine and end its relationship with MSNBC. After all, the diversity of voices (if not viewpoints, clearly) seems to be the top priority.