Here is my video regarding what are, in my experience, the Top 5 Mistakes made in Operating Agreements https://youtu.be/YkS3t4x-ajM
OPPORTUNITY FOR ENTREPRENEURS IN INTERACTIVE MEDIA AND ENTERTAINMENT TO PRESENT BUSINESS PLANS TO INVESTORS
ROB HASSETT AND ANDREW GREENBERG
This notice is for creative entrepreneurs, who are trying to raise funds to start or grow businesses that are in interactive media or entertainment. If you are such a person, you may want to consider applying to be a presenter at the seventh (7th) consecutive annual Investment Day at Siege to be held on Friday, October 6. It is part of the annual five (5) day SIEGE Conference (A/K/A the Southern Interactive Entertainment and Game Expo). The 11th consecutive annual SIEGE Conference will be held from Tuesday, October 3 until Sunday, October 8. Last year we had eight teams pitch to forty (40) investors and other people with connections to funding sources. This year we are planning to increase the number of panelists/ judges to 50. The event is free to all participants. There is likely to be increased interest from investors in this year’s presenters because it has become much easier for developers of interactive media to qualify for tax credits offered by the State of Georgia which can total to as much as 30% of expenditures to develop the product. For a list of prior presenters and panelists and instructions on how to file an application to be a presenter, go to www.siegcon.net/investment-conference/.
Rob Hassett is an attorney in Atlanta and the Co-Chair and a Co-founder of, the Investment Day at SIEGE. For more information about Rob Hassett, see his law firm website, http://businesslawpartners.com.
Andrew Greenberg, executive director of the Georgia Game Developers Association, has been making his living as a game developer since 1990. Best known for designing computer games and roleplaying games, he is lead developer on the upcoming Fading Suns: Noble Armada mobile and tablet game. A fellow with the Mythic Imagination Institute, Andrew is also organizer of the Southeast Interactive Entertainment and Games Expo (SIEGE). He serves on the Georgia Film, Music and Digital Entertainment Commission and chairs the DeKalb County commission of the same name. More information about SIEGE is available at http://siegecon.net
Here is my video about which type of entity to use for your new business: https://www.youtube.com/watch?v=LBNUh7gXa4Qere
TAX INCENTIVES FOR THE ENTERTAINMENT INDUSTRY IN GEORGIA
June 12, 2017
On May 9, 2017 Georgia’s governor signed two bills into law that substantially strengthened and expanded the tax incentives available to the entertainment industry for producing works in Georgia.
We have had an incentive tax credit program for the film and television industries in Georgia since 2005. Many other states have had similar programs. North Carolina had one of the most favorable for the film industry and had become a movie powerhouse. Then conservative legislators in North Carolina revoked the incentives and North Carolina’s movie industry has about disappeared. Meanwhile, the Georgia legislature fought back against attempts to remove the incentives for film here. As a result Georgia has become one of the top ranked centers for movie and television production in the world – by some measures, number 3 among the states after California and New York and by at least one measure, number one.
We have also had an incentive tax credit program for interactive entertainment for a few years, but it was not very helpful in incentivizing developers to start their companies here or to relocate here. It was mostly helpful in enticing companies to remain here. In its most recent form, prior to the recent amendments and additions, it required companies to spend $500,000 on payroll the year before they could start counting expenditures to which credits could apply. The most important changes that the 2017 legislature made to the incentives for interactive entertainment were that the requirement of meeting a threshold in payroll the year before expenditures could be counted in connection with the calculation of incentives was eliminated and the threshold was reduced to $250,000 and applies only to payroll for the first year for which the credits are claimed.
The legislature also added a new incentive tax credit statute for postproduction activities, which greatly expanded the availability of the incentives available under the film and television credit, and added a new statute that provides incentives for live touring productions and music recordings.
The amendments and additions will be effective beginning January 1, 2018. If the amount you spend in Georgia for any one entertainment project your company may work on may exceed a threshold of $100,000 over one tax year, then you may have a possibility of benefiting from the credits and should talk to an attorney or accountant with an understanding of how they work. In some situations it’s advisable to apply for any credits effective the first business day of the new year. You may not file earlier and you would not want to file later in those situations. At the time you file, you will need to have spent the time necessary to determine what you are required to file and how to answer many questions. Starting more than three months before the first business day of 2018, which will be Tuesday, January 2018, is recommended.
At the time of this interview in 2009, the average caseload of each bankruptcy judge in the Northern District of Georgia exceeded five thousand.
INTERVIEW OF JUDGE PAUL BONAPFEL
ROB: This is Rob Hassett with btobmagazine.com. Today, I’m going to be interviewing Judge Paul Bonapfel who is a bankruptcy judge in the Northern District of Georgia. Judge, it’s good to have you on today.
JUDGE: Good morning. I’m glad to be here.
ROB: Judge, now how long have you been a bankruptcy judge in the Northern District of Georgia?
JUDGE: Actually, today marks the seventh anniversary, so it’s been seven years.
ROB: How do you become a bankruptcy judge?
JUDGE: The Court of Appeals in our circuit, the 11th Circuit, is the body that makes the appointment. The Court of Appeals is the Court that takes appeals from the District Courts, part of the federal system.
ROB: And how long is the appointment?
JUDGE: Fourteen years.
ROB: How many bankruptcy judges do we have in the Northern District of Georgia?
JUDGE: There are eight.
ROB: Of course right now we’re in a recession. Has that increased the number of bankruptcies in Georgia?
JUDGE: The bankruptcies have been increasing over the past couple of years, actually. Nationally, there was an increase from 2007 to 2008 of 31%, from about 851,000 cases to 1,100,000 in 2008. And Georgia has had a similar type of increase. We don’t have numbers, actually, for the first quarter of 2009, but our internal numbers indicate that case filings are going up even over last year’s.
ROB: About how many cases does each bankruptcy judge handle?
JUDGE: Well, I can give you the total for 2008. There were 40,122 cases filed in the Northern District, so at any given time I guess we’ve probably got five or six thousand.
ROB: That sounds overwhelming.
JUDGE: Well, many of them just go through on more or less of a routine basis. There’s judicial oversight all along the process, but many of the things are handled on more or less of a routine basis without the need for any particular judicial Court involvement as far as a judge looking at the matter. Of course, there’s a trustee in each case and they work through them on that basis. So it’s not like I see five thousand cases a year.
ROB: How does somebody become a trustee?
JUDGE: Well, actually, there are three types of trustees. In the Chapter 7 cases, there’s a panel of trustees who are appointed by the United States Trustee for this region. The United States Trustee’s Office is part of the Department of Justice. They interview and select usually members of the Bar, although business people and accountants and others are sometimes chosen to be trustees. They are selected and then they serve on what’s called the panel. And in a Chapter 7 straight liquidation case, the trustee is selected from that panel that the U.S. trustee appointed. In the Chapter 13 context, we have standing trustees and they are selected by the United States Trustee also, and that is a full time job for those folks. And they have a staff of people who assist them, and the U.S. Trustee selects the Chapter 13 trustees also. And in the Chapter 11 case, there is not the same type of regular appointment. Many times, a trustee is chosen from the Chapter 7 panel. Other times, there are people who have worked in bankruptcy cases in the past, and have developed expertise in the area: workout people, restructuring people, crisis managers, those types of folks, and they may be appointed to be a Chapter 11 trustee.
ROB: What kinds of different types of bankruptcies are there and what are their purposes?
JUDGE: Well, for present purposes, there are three and maybe four. Chapter 7 is what used to be called the straight liquidation bankruptcy case. That’s for individuals or business corporations. In a Chapter 7 case, a trustee is appointed, and the trustee’s job is to take the debtor’s assets except what the debtor is entitled to keep. The debtor can keep some property, and that’s called exempt property. The trustee then sees if there are assets that can be sold and then distributed to creditors in accordance with their priorities. That’s, again, a liquidation case. Then there’s, for individuals, a Chapter 13, and in a Chapter 13 the idea is that the debtor will propose a plan to pay some or all of his or her debts which will pay at least the amount those creditors would get in a liquidation case over a period of two to five years. That’s available only for individuals, and there are debt limitations that are applicable that limit the relief. Then, in a Chapter 11 case, it can be for individuals, but it’s usually used by corporations or partnerships or limited liability companies and the like. And Chapter 11 is designed to provide an opportunity for a business to reorganize much as a Chapter 13 provides that opportunity for an individual, although Chapter 11 is far more complicated. Creditors are entitled to vote by class, for example. And then, infrequently used in Georgia, there’s a Chapter 12 which is for a family farmer.
ROB: What does it typically cost for a debtor to file for relief under Chapter 7?
JUDGE: For an individual debtor in a Chapter 7 case, the typical fee would probably range from maybe $750 to $1500, perhaps more depending on the complexity. The more debt, the more assets, the more potential problems that a debtor may have, and problems that a debtor may have tend to increase with the amount of debt and the amount of assets and the amount of income; the fee could be as high as $2500 or maybe $5000.
ROB: Is that fee subject to the bankruptcy judge’s approval?
JUDGE: All bankruptcy fees are subject at some point to review by the Bankruptcy Court, but in a Chapter 7 case, that does not happen very often . That’s typically a matter between the debtor and his or her attorney, unless somebody thinks that it’s a really outrageous amount and brings it to the Court’s attention. Or, in some instances, Courts will come across a fee that the debtor has charged and will inquire into it and determine whether it’s reasonable under the circumstances.
ROB: And what does it cost to file a Chapter 13 on average?
JUDGE: Chapter 13, probably an average case would be between $3-4,000, maybe as high as $4500. The reason for that is that Chapters 13s are more complicated than Chapter 7s, and the debtor’s lawyer is looking at having to represent the debtor over the life of the case, which usually is at least three years, and in some cases as much as five years. So there’s a significantly greater time commitment for a debtor’s attorney in a Chapter 13.
ROB: And what about for a Chapter 11? We read about these huge legal fees. I’m sure it depends on the case.
JUDGE: Well, it does depend on the case, and you’re right. Those fees can get up in to what many people would think was just the stratosphere. Bear in mind that part of this is that in a Chapter 11 case, all of the professionals employed by the debtor are subject to Court approval and Court review of all of the fees, so those numbers that get reported included not just the fees of the bankruptcy or reorganization counsel or other professionals. They include all of the ordinary course of business lawyers as well in many instances. But those fees vary widely depending on the amount of assets, the amount of debts, and the problems that are anticipated in the case.
ROB: And they are sometimes in the millions right?
JUDGE: Oh, yes.
ROB: If a debtor was trying to save their house and they’re behind on their mortgage, they would be more likely to file a Chapter 13, right?
JUDGE: An individual behind on the house would probably file a Chapter 13 if they are unable to work something out with their lender prior to filing. I don’t have any statistics on this, but anecdotally, I think that in today’s economy there’s more of a desire on the part of lenders to try to work things out with borrowers who have the ability to get back on some sort of a payment schedule. But if a debtor is behind and cannot get something worked out with the lender, then Chapter 13 is an alternative because it permits what we call a cure and reinstatement, in that the plan can provide for the payment of the arrears that are due as of the time of filing over the life of the plan, which again is between three and five years. And then the debtor picks up the regular payments and continues to make them on a post-petition basis.
ROB: Of course, that’s probably often a long shot because if the debtor had got behind on payments, it would be unusual that they would be able to pay not only the back payments, but start paying again the monthly payments.
JUDGE: It is, in many instances, difficult for a debtor to do that, especially if the debtor has become unemployed and is facing continued unemployment or has a medical problem and is facing continued medical problems. I think, at least as originally contemplated, and Chapter 13 goes back to the ‘30s, the idea was that where there’s been some sort of temporary problem that has arisen, it is now fixed or is going to be fixed so that the debtor’s income has come back to a stable point that Chapter 13 provides the opportunity to catch up and get things rolling on a regular basis again. And the other thing is debtors may have been struggling with other debts and trying to keep all the balls in the air, so to speak, maybe debts that are on cars and the car is too expensive from what they can now afford. The payment is too high, so they could surrender that car and not have to make that car payment so that that would free up some money to make house payments, and then they could try and get a cheaper car. Or they may have been trying to keep up on their credit card payments as another example, and a Chapter 13 filing will permit possibly an elimination of some or all of that debt, or at least will stretch out those payments and eliminate, potentially, the interest on the credit card. So that may free up some cash flow on a monthly basis that would permit a debtor to keep the house.
ROB: Got it. Now, in a lot of situations, a debtor would just rather file a Chapter 7 and that would not allow him or her to keep anything that was above the exemptions that are allowed. But that would mean that if they didn’t have any fraudulently procured debt or anything like that, they would be able to obtain a discharge and have all their debts wiped clean and not have to make any payments.
JUDGE: If a debtor is relatively current on house payments or car payments, or at least on the payment on the house or car that the debtor wants to keep, then Chapter 7 may be a better alternative for that debtor than a Chapter 13. And the reason is that Chapter 7 permits a debtor to agree with a creditor, and of course that takes the creditor’s agreement, to reaffirm a debt, which means to continue to pay it and to remain liable on it, notwithstanding the filing of the bankruptcy case. So if the value of the debtor’s property is less than the amount of the exemption, in other words if the debtor can keep it without the trustee wanting to sell it, Chapter 7 may be the right choice for that debtor because he or she doesn’t have to spend three to five years in a Chapter 13 case and can get rid of all of the other debt and then reaffirm the house or car debt on the property that they want to keep.
ROB: But sometimes those people who file Chapter 7 are not allowed to stay in Chapter 7. They are required to convert to a 13, right?
JUDGE: Yes. This is a result primarily of the 2005 legislation which is called the Bankruptcy Abuse Prevention and Consumer Protection Act, and it’s frequently called BAPCPA for the initials. But BAPCPA brought in what is commonly referred to as the means test, and it provides a statutory test to measure the debtor’s income against statutorily permitted expenditures to determine how much over a five year period a debtor could pay to unsecured creditors. And if that amount exceeds statutory thresholds, then the debtor cannot stay in Chapter 7 so the Court either dismisses the case or, with the debtor’s consent, converts it to a case under Chapter 13 so the debtor can propose a plan to pay debts.
ROB: Judge, in this time of recession, a small to medium sized corporation that is engaged in business has overwhelmingly secured debt and cannot survive without reduction of the debt, what’s available to them in bankruptcy?
JUDGE: That’s a difficult situation for that small or medium sized business to be in. And it depends in part on the nature of the collateral for the debt. If the debt is part assets: equipment, machinery, real estate, that’s one thing. If the collateral is also accounts receivable inventory, that’s another. Because the inventory and accounts receivable situation gives rise to what is called cash collateral. And in the case of cash collateral, a debtor can’t use it without getting Court approval and/or with the lender’s consent and providing to the lender what’s called adequate protection. And adequate protection is a term of art that generally means that the lender won’t suffer a loss as a result of the bankruptcy case. Well, if all of the debtor’s assets are tied up in favor of the lender, there’s no other asset that the debtor can give to provide that adequate protection and so if the business is in a situation where it is losing money and is likely to continue to lose money, that makes it a very difficult situation for a lender to agree to permit its collateral to continue to fund those losses, and it makes it difficult for the Court to find that there is, in fact, any kind of adequate protection that would permit the use by the debtor of the lender’s collateral. So it’s a difficult hill for a debtor to climb when dramatically over-encumbered. Now often in that circumstance, a lender will prefer to have the debtor in a bankruptcy case either to liquidate or to reorganize on some basis, because the lender realizes that it is more likely that they can get more out of the collateral through an orderly liquidation process than foreclosing on it. But a debtor in that circumstance, without the cooperation at least of the lender, will have a very difficult time getting out particularly if the cash flow of the business is negative.
ROB: You had mentioned that in a Chapter 7 there are exemptions in Georgia that the debtor is permitted to keep and the various kinds of exemptions. What are the main exemptions?
JUDGE: Well the main exemption is, of course, for the debtor’s house. And the debtor can exempt $10,000 of equity in a residence. Actually, it can be a condominium or a co-op unit as well as a house. But that’s $10,000 for an individual debtor, $20,000 if the debtor is married. So that’s the primary exemption. There’s an exemption for household goods, personal effects and the like. There’s an exemption for automobiles. They are somewhat limited. There’s an exemption for jewelry. IRAs, 401Ks, those are exempt as a matter of federal law also.
ROB: What about cash?
JUDGE: Cash is not exempt. There is what’s called a wild card exemption which is the unused portion of the residential exemption up to $5,000. So if a debtor either doesn’t have a house or doesn’t need to use all of the exemption for the house, then that so-called wild card exemption is available for cash.
ROB: Now exemptions vary from state to state and are set by the state legislatures, right?
JUDGE: That’s correct.
ROB: So we always hear about people moving to Texas and Florida that are having financial problems. What is the advantage there?
JUDGE: Well, Florida does not have any limits on the homestead exemption for a residence and Texas does not either. And so a debtor who lives in Texas or Florida and gets in to trouble with the creditors, the creditors cannot levy on or take the house to satisfy their debts. That doesn’t apply, of course, if it’s a mortgage. IF there is a mortgage then it can be foreclosed. But generally a debtor can keep the house regardless of its value in Texas and Florida. The BAPCPA (The Bankruptcy Abuse Prevention and Consumer Protection Act) limits the ability to use exemptions in a very complicated way, so anyone who has that particular issue needs to talk to the lawyer about it.
ROB: A bankruptcy lawyer?
ROB: If somebody in Georgia has a lot of cash but a lot of debt and is about to file bankruptcy, could they move to Florida, buy a million dollar house, wait six months or so to become a resident of Florida, then declare bankruptcy and keep the house?
JUDGE: There’s a lot of problems with that type of scenario. That is one of the things that Congress thought was going on to a large degree and prompted the passage of the 2005 legislation, the Bankruptcy Abuse Prevention and Consumer Protection Act. And in the 2005 legislation, there are limits on the availability to move in to a state and use that state’s exemptions. And there are limitations on the property that can be exempted when it has been recently acquired. So those are very complicated provisions of the new legislation that are really beyond the scope of this discussion and anyone interested in that subject needs to talk to a bankruptcy lawyer.
JUDGE: That’s another way of saying I’m not sure if I could completely explain all those provisions. Those provisions do not usually apply in Georgia because Georgia’s exemptions are limited, and Georgia is not a state that someone would want to move in to in order to take advantage of the exemption law.
ROB: Now in a Chapter 11, you mentioned that you need a vote of creditors to get approval. Chapter 11s are used for businesses generally, you had mentioned. If a corporation goes into a Chapter 11, what vote of creditors do they need to get their plan approved?
JUDGE: The voting is by classes, and the classes are determined by the rights of the creditors. In a typical case, the secure lender will be in a class by itself, although in some instances, the secure lender may itself be a group of creditors. So theoretically at least, they could vote among themselves. The main class in a Chapter 11 case is the unsecured creditor class, and in that instance the vote is the majority in number, and 2/3 in amount. In the context of stockholder interests, it’s simply a vote based on the number of shares. In a small case, the stockholder vote usually doesn’t matter because the stockholders are the family or a small group of people in a closely held corporation.
ROB: And they often may lose something themselves or they may get wiped out. In a large Chapter 11, the stockholders often get wiped out, right?
JUDGE: Stockholders usually get wiped out in a Chapter 11 case of a publicly held corporation. And that’s the danger that some people have fallen in to because the filing of a bankruptcy by a public corporation does not in and of itself stop the trading on the exchanges. So Delta, for example, when it filed, they continued to trade and people continued to buy and sell. Well the people who bought and sold after the bankruptcy case were surprised once the bankruptcy case went through its whole process that the existing stock, the pre-confirmation stock, got completely wiped out. And the reason is that creditors have a first call on the assets of a corporation. So if the assets are not sufficient to cover all of the debts, then the creditors, unless they agree otherwise, get to take over the ownership of the company.
ROB: Judge, with respect to a Chapter 7 versus a 13, I understand that in a Chapter 7 there are certain situations in which the debtor cannot receive a discharge or certain debts that can’t be discharged, but which they can be discharged in a Chapter 13 if they propose a plan that’s approved. Is that right?
JUDGE: Yes. That is true. Although the differences have been significantly narrowed as a result of the 2005 legislation, the Bankruptcy Abuse Prevention and Consumer Protection Act. Prior to that, there was in Chapter 13 what was called the Super Discharge. And a number of debts that were excepted from discharge in Chapter 7 were nevertheless discharged in Chapter 13. Originally, the concept behind that was if the debtor was making an effort to pay debts in a Chapter 13 case, the case ought not to be bogged down by litigation over whether a debt is going to be discharged, and that the debtor having made an effort to pay debts ought to receive a discharge at the end of the case that would include everything. The problem arose because some debtors would propose a Chapter 13 plan to pay little or nothing on unsecured debt, and nevertheless receive a discharge and thereby get rid of debt that could not have been discharged in a Chapter 7 case. And that led to a great deal of litigation over good faith and other issues. The 2005 legislation for the most part eliminates, in many instances, that argument because the Chapter 13 discharge is now narrowed so that the primary exceptions to the discharge of a debt that is in a Chapter 7 case that usually occur in a consumer case are now excluded from the Chapter 13 discharge as well. For example, debts for fraud that are excepted from the Chapter 7 discharge and used to be not excepted from the Chapter 13 discharge, are now excepted from both. A primary example of the difference that currently exists is that an obligation for property settlement is excepted from discharge in a Chapter 7 case, but in a Chapter 13 case, a property settlement obligation is dischargeable. Alimony or child support continue to be excepted from discharge in both chapters.
ROB: Got it. Judge, what is the automatic stay and when does it apply?
JUDGE: The automatic stay is a statutory provision that says when a bankruptcy case is filed, almost all actions against a debtor and the debtor’s property by creditors to try to collect debts must stop on a temporary basis, pending what goes on in the bankruptcy case. So for example, if a creditor is foreclosing on a house or trying to repossess a car or garnishing a debtor’s wages or bank account and a bankruptcy case is filed, that creditor has to stop that enforcement activity because of the bankruptcy case. And the reason is one, to give the debtor what’s called a breathing spell to try to figure things out, and two, basically to protect other creditors. For example, in the foreclosure situation, it may be that if the property could be sold at an orderly sale, it will generate more money than the foreclosure sale and would make money available to pay other creditors besides the foreclosing lender. So those are the two reasons that the automatic stay exists. It’s in order to permit an administration in a judicial process in an orderly way of the debtor’s assets, and to provide the debtor an opportunity to try to keep the assets in a Chapter 11 or Chapter 13 situation, work out a plan to pay some or all of the debts in accordance with the bankruptcy code. It applies generally to the collection of debts. One academic once said that if you have a question about whether the automatic stay applies, it probably does. It is very broad. There are some exceptions for police and regulatory activities, criminal activities, certain activities or judicial proceedings in the domestic area, for example, termination of paternity is not stayed. Collection of child support from property that is not property of the estate is not stayed. In a Chapter 13 case, that does not help the collecting spouse much because the wages of the debtor are property of the estate in a Chapter 13 case. But there are exceptions to the stay. If a creditor is being harmed by the stay or thinks that for some reason the stay should not be continued, the creditor files a Motion with the Bankruptcy Court seeking relief from the stay, and a hearing is held. At that point, the Court will determine whether or not the stay should be continued or whether it should be lifted. For example, going back to our foreclosure situation, if it appears that the property is not worth more than the debt, then the stay will probably be lifted unless the debtor is in a Chapter 13 case and is trying to do a plan to cure the arrearage and bring the debt current and continue to make regular monthly payments. But continuing that situation, if the debtor has been in bankruptcy and has defaulted again and it doesn’t look like the debtor is going to be able to make the payments on a regular basis, then it’s quite probable that the automatic stay will be lifted to let the lender foreclose.
ROB: Judge, if a business has equipment pledged as security for a loan and the business files a Chapter 11 bankruptcy, what’s the range of time a debtor can expect that the stay will continue without having to make payments?
JUDGE: Well, in the case of equipment, you would typically find that the lender is not going to be moving real aggressively like on the first day. But if a lender is concerned about its equipment and it’s depreciating, that’s the big question. If it’s depreciating in value, then the lender is going to move for relief from the stay or, in the alternative, for adequate protection payments. And many lenders are satisfied, they may not be happy, but they are satisfied if, during the course of bankruptcy case, they are receiving some sort of payment with regard to their collateral to guard against depreciation. And the other thing they’re going to be concerned about is making sure that the property is insured and making sure that it is being properly maintained and is not being abused or misused. That’s typically a big, big, big issue on all those fronts when equipment is rolling stock or a tractor or trailer or moving equipment. But how long the debtor will be able to keep the property will depend on the ability to make adequate protection payments if required, and the progress that is made in the case. Bankruptcy is not a permanent solution. It is a temporary stop on the way to restoring financial health and the ultimate objective of a Chapter 11 case is to propose a plan that deals with all of the debt. So depending on the complexity, some of the public company cases can take years. And some of the smaller cases, likewise, will take a considerable period of time. But it’s not an indefinite process. It’s difficult to say exactly how long it would be, but the bottom line measuring stick is there needs to be some progress towards a solution to the debt problem that will work either because the debtor can get a plan approved over a creditor’s objection or the creditor is happy with the treatment that is being proposed. In many instances, the debtor and creditor are able to work something out because the creditor is interested in getting payments from the debtor, not the collateral. So there is an incentive on both sides for them to come to some sort of agreement as to what the debtor can realistically afford to pay and what will be at least acceptable to the creditor and better than foreclosing or repossessing the collateral.
ROB: Judge, do you have any other suggestions for small to medium sized business owners relating to the bankruptcy issues in this time that we’re having the recession?
JUDGE: This is a very difficult time for everyone, and particularly small business people. When I was in practice, which was before this type of situation, we did not have this type of economic situation when I was in practice. But what I would tell my debtor clients was one, they really have to be candid and up front with the lender because in most instances it is difficult, if not impossible, to litigate with a lender and come out of Chapter 11. And the reason is not because you can’t win, although that’s a problem because in many instances the law and facts are often on the side of the lender. But the mere uncertainty and the cost of the litigation itself may make it such that it’s not possible to go forward with the reorganization effort. It’s difficult enough being in an insolvent financially distressed circumstance without having to go to Court on a regular basis to argue with your lender. So one of the things that is very important is to try and get an agreement with the lender, and that requires honesty and candor with the lender so that the lender has confidence at least in the debtor’s basic integrity. One thing that will justifiably drive lenders nuts is a debtor who is dishonest and the lender thinks that the debtor is stealing the collateral basically. So that’s probably the key — having a good relationship with the lender. Beyond that there are a lot of details that have to be done in a bankruptcy case, and a lot of situations arise that are unique in a bankruptcy case that don’t frequently arise in the regular ordinary course of business. So particularly as bankruptcy laws have gotten more complicated, I think it is important to have, in addition to a good lawyer, a good financial consultant or someone who is able to come in and be able to recognize how to deal with the bankruptcy accounting problems and the bankruptcy business issues on a day-to-day basis. So in addition to a lawyer, I think some sort of assistance in the accounting and business consulting area. In some instances, a company will appoint a chief restructuring officer. That obviously adds a layer of cost that may not be feasible for a small to medium sized business. In that circumstance, I still think it’s helpful to find some sort of financial or accounting person who, if not a chief restructuring officer, is nevertheless available to provide some advice and assistance on what do I do today in response to this creditor threatening to cut me off. So those are some of the suggestions I would have. The main suggestion is find a good lawyer out there.
ROB: Judge, thanks a lot for being on today. I really appreciate it.
JUDGE: I have enjoyed it. Thank you very much.
Interactive Online Entertainment Law
By: Rob Hassett, Suellen W. Bergman and Lori M. Brill
Analog – derived from the word “analogous.” Applies in electronic transmission and storage of audio, visual and audio-visual works. The transmitted and/or stored version is similar to but not actually the same as the original. Quality degrades with serial copying.
Clickwrap – an agreement formed by a purchaser manifesting assent to the terms of an agreement online by pointing and clicking a mouse.
COPPA – Children’s Online Privacy Protection Act of 1998. The Act takes effect on April 21, 2000, and is not retroactive. According to Senator Richard Bryan (D –NV), who introduced the Act, the primary goals of the legislation are to enhance parental involvement in children’s online activities, maintain the security of personally identifiable information of children collected online, and protect children’s safety and privacy.
COPA – Child Online Protection Act. This was an anti-pornography act that was enacted by Congress but was held unconstitutional the first time a court reviewed it for violating the free speech clause of the First Amendment.
Cybersquatter – one who attempts to profit by registering a domain name which incorporates the trademark of a trademark owner with the hope of selling the mark at a profit back to the owner. This term is frequently used to describe anyone who registers domain names in bad faith.
Cybersquatting – the act of being a “cybersquatter.”
Digital – electronic technology that generates, stores, and processes data in terms of two states: positive and non-positive (positive is expressed or represented by the number 1 and non-positive by the number 0). Relevant here is that audio, visual and audio-visual works may be stored digitally (in other words as data), enabling one to create exact (quality does not degrade with serial copying) copies.
Dilution (Trademark or Service Mark) – use of the same or a similar mark in a manner which may or may not be deceptive or confusing but which lessens the capacity of the mark to identify and distinguish goods or services or which tarnishes the mark. Such action is not prohibited under federal law unless the mark meets the definition of “famous.”
DMCA – Digital Millennium Copyright Act of 1998, among other things, designed to implement the treaty signed in December 1996 at the WIPO Geneva Conference.
Domain Names – word names for Internet addresses (e.g., “www.ecommerce.gov”) which map to unique Internet Protocol (IP) numbers (e.g., 22.214.171.124) that serve as the actual routing addresses on the Internet.
DNS – domain name system; translates Internet names into the IP numbers needed for the transmission of information across the network.
DNSO – refers to the domain name supporting organization of ICANN. It is divided into groups which are charged with the responsibility of providing advice and consultation to ICANN on various topics. For example, Working Group C is responsible for providing ICANN with advice and consultation regarding whether and under what circumstances additional top level domain names should be allowed.
DVD – Digital Video Disk.
Ethernet – a local area network (LAN) developed by Xerox, Digital, and Intel; it is the most widely used LAN access method.
EU – European Union.
Framing – the act of splitting a browser window into multiple, independently controllable regions.
Hijacking (of domain name) – registration of a competitor’s mark as a domain name.
HDML – Handheld Device Markup Language; allows a Web site to be portable so visitors can view the site on their mobile phones, pagers, and other small devices.
Home Page – the first Web page that is supposed to be displayed upon bringing up a Web site with a Web browser.
HTML – Hypertext Markup Language; the authoring language used to create documents on the World Wide Web which defines the structure and layout of a Web document.
Http – Hypertext transfer protocol; the underlying protocol used by the World Wide Web. Http defines how messages are formatted and transmitted and directs how Web browsers and servers should respond to various commands.
Hypertext – a linkage between related text commonly used on World Wide Web pages.
ICANN – The Internet Corporation for Assigned Names and Numbers; the non-profit organization that is responsible for domain name registration. (This responsibility was assigned to ICANN by the United States government.)
Internet – an internet is a large network made up of many smaller networks; the Internet is comprised of interconnected networks in over seventy countries and connects individual, academic, commercial, government, and military networks.
Internet Address – format for addressing a message to an Internet user.
ISP – Internet Service Provider; a company that provides access to the Internet. For a monthly fee, the ISP gives a user a password, username, software package, and access phone number.
Link (Hyperlink) – a direct connection between Web sites, Web pages or places on the same Web page.
Markup Language – a computer language that describes how a Web page should be formatted.
Metatag – a hidden word or label in a file of a Web site used to draw the attention of Internet search engines to that Web site.
MP3 – MPEG-1 Audio Layer-3; a standard technology and format for compressing a sound sequence into a very small file (about one-twelfth the size of the original file) while preserving close to the original level of sound quality when it is played.
Napster – available at www.napster.com, this software can be used to find and download MP3 versions of freely available music (legal) and/or commercial proprietary music (illegal). With necessary technological protections, a version of Napster, or something similar, that allows payment by credit card for downloaded versions of music will likely recharge the industry.
NSI – Network Solutions, Inc.; the largest domain name registrar and the manager of the registry for the gTLD’s.
RAM – Random Access Memory; a computer’s primary work space.
Register – to reserve a domain name.
Registrar – companies, such as NSI and Register.com, that have been authorized by ICANN to register top level domain names for the public.
Registry – a database of top level domain names. NSI manages the “registries” for .com, .net and .org, among others.
Ripper – software which enables the user to digitally copy songs from a CD into MP3 and other formats.
Rio – a brand of portable MP3 player.
ROM – Read Only Memory; a memory chip which permanently stores instructions and data.
SDMI – Secure Digital Music Initiative; the SDMI was established to protect music companies’ copyrights on the Web and was designed to prevent serial copying.
Search Engine – a directory which retrieves Web sites responsive to a user’s search request.
Shrinkwrap License – license agreements included under the shrinkwrap covering of software packages.
Spam – unsolicited bulk e-mail.
TCP/IP – A communications protocol developed under contract from the U.S. Department of Defense to internetwork dissimilar systems. It is currently used to connect computers over the Internet.
TLD – Top level domain name; the Internet domain name space is constructed as a hierarchy which is divided into top-level domains (TLDs), with each TLD then divided into second-level domains (SLDs), and so on. More than 200 national, or country-code, TLDs (ccTLDs) are administered by their corresponding governments or by private entities with the appropriate national government’s acquiescence. A small set of gTLDs (generic TLDs) do not carry any national identifier, but denote the intended function of that portion of the domain space (for example, .com was established for commercial users, .org for not-for-profit organizations, and .net for network service providers). (Registrars do not screen for the actual function of the entity and will register gTLDs to entities without regard to whether the domain space properly corresponds to the identifier; i.e. many commercial entities have registered an Internet address ending in “.org.”)
UCITA – Uniform Computer Information Transactions Act; a proposed uniform commercial law for the information economy that would apply to computer software licensing and certain online transactions. The Virginia legislature has passed a bill to enact a version of the UCITA in that state, and it has been signed by the governor.
UETA – Uniform Electronic Transactions Act. UETA grants legal recognition of electronically produced and transmitted signatures, records, transactions, and contracts. A version of UETA has been enacted in California and Pennsylvania.
URL – Uniform Resource Locator; identifies the address where a Web page is stored.
Web Browser – a computer program which allows a user to view pages on the World Wide Web.
Webcasting – live or delayed streaming of audio or video on the Internet.
Web Page – a document on the World Wide Web. Each Web page is identified by a unique URL.
Web Server – a computer with software that can respond to a Web browser’s request for a page and sends the page to the Web browser through the Internet.
Website – a related collection of Web pages and files that includes a home page.
WIPO – World Intellectual Property Organization. An agency of the United Nations. WIPO is responsible for promoting the protection of intellectual property throughout the world and administers international intellectual property conventions and various multilateral treatises dealing with administrative and legal aspects of intellectual property.
World Wide Web – an Internet system that links documents by providing hypertext links from server to server.
©2000, Rob Hassett, Atlanta, Georgia. All Right Reserved.
SELECTION AND PROTECTION OF TRADEMARKS
(Should You Do It Yourself, Hire An Attorney or What?)
As is the case with a lot of areas of law, but more so than in most, protecting a trademark or service mark is a lot like playing chess. In connection with clearing and registering a mark, there are numerous choices to make many of which are of high strategic importance beginning, with respect to applying to register the mark, as in chess, with the opening move.
If you are choosing a slogan or other mark and it would not be a problem to be required to stop using it in the future, you could run your own clearance and apply to register the mark yourself. You would need to be alert to all deadlines. If the mark is your brand name or is otherwise very important to you, you should hire an attorney who, among other things, understands the relationships between and among common law and registered marks, registrations in the USPTO, registrations in one or more states and/or one or more other countries, rights to internet domain names, the role of courts and the effect of international treaties) and devotes time and attention to each registration (not a mill) to clear and protect it.
I encourage all clients to run a preliminary trademark search themselves mostly relying on searching the database of USPTO.gov and google.com to see if there are any obvious problems. I then charge hourly for discussion or review of anything found.
If there are no obvious problems, I charge $500 to $1,000 for legal fees and pass on the $129 to $650 out of pocket artificial intelligence computer based search fee, for what we call a “full search.” The computer based search is much more effective than a human search because it will pick up similar words with different spellings and different words with similar meanings.
A computer based search will usually be more than 200 pages which I will summarize in 2 to 5 pages.
The legal fees are based on the likelihood of more versus less problematic “hits.” Common words like “Apple” are going to have more similar marks that I will need to spend time reviewing than made up words like “Google.”
There are a variety of search services which vary in price. I will discuss the choices with the client and give the client my recommendation.
I charge $900 to $1500 to prepare and file an initial application to register a mark in the United States Patent and Trademark Office. That does not include filing fees of $325 per class.
In about 6 to 12 months after the filing of the application it is likely that the examiner will require changes and may determine that the mark may not be registered for many reasons. Additionally, competitors and others may raise objections.
I charge hourly to respond to these types of requirements and assertions.
It is at this stage that I am often consulted about a filing that has been made by someone other than a traditional trademark lawyer. Most of the time less than optimal decisions have been made regarding the initial application which increases the amount of work needed and the likelihood of a less favorable outcome.
If requirements are successfully negotiated and objections overcome and the filing was for a mark already in use, the mark will usually issue without additional cost or expense. If the mark was filed before use, there will be additional costs and expense to file an example of use. Those costs and expenses will be from $300 per class to much more if extensions must be filed because use of all goods and services the applicant wishes to include have not begun within the amount of time ordinarily allowed.
By Rob Hassett
Frequently asked questions about intellectual property and corporate law:
Question: I have two ideas that I am interested in selling. One is for a new television series that is based, in part, on historic and scientific knowledge. The other is for a new technology for a battery that would be able to power a golf cart across the country with one charge. Can I make money selling or licensing my ideas? If so, how?
Answer: You would have a much better chance of selling the battery idea than the television show. Even the smaller cable networks receive, on average, more than 100 pitches for television shows per day.
In order for you to make money by selling or licensing an idea, the prospective user needs to have a good reason to pay you. Here are some things you can do to make sure your idea pays off:
1. You could apply for a patent. A patent can protect an idea. It’s very unlikely that the idea for the television show could be patented, but it’s likely the battery technology could be. If you were able to obtain a valid and sufficiently broad patent for the battery, there is a good chance you would be able to sell or license your invention for a large sum of money or a substantial royalty.
2. You could think of a unique and clever name and have it registered with the United States Patent and Trademark Office to prevent theft. This is more important with respect to the television show than the battery technology. If a network representative wants to use the name for the show, and it’s been registered as a mark, he or she is more likely to enter into an arrangement with you.
3. You could require that any prospective buyer or licensee enter into a non-disclosure agreement before disclosing your concept. If an idea is truly confidential, a properly crafted non-disclosure agreement will prevent anyone that signs the agreement from using or disclosing the concept. If you can demonstrate the superiority of your battery, you can probably obtain a signed non-disclosure agreement before disclosing how the battery works.
On the other hand, regarding the television program, most television networks will generally not sign a non-disclosure agreement. In fact most networks will insist that anyone that would like to submit an idea for a show, first sign a release providing that the network is not liable for using the show unless the network uses copyrightable material (copyrights protect only expression and not ideas). The network could then use the main idea of the show without violating any copyrights and therefore without having any obligation to you.
4. You may be able to offer more than just the idea. For example, if you are a recognized authority on batteries, even without applying for a patent, the purchaser/licensee may want your help and input in commercializing the battery. If you have a record of creating desirable shows or, if the show is about history or science and you are an expert in the field who could appear on the show, the purchaser/licensee will likely be more inclined to do a deal with you.
If you want to sell your idea, you should do your best to add some legal protections and otherwise take the steps indicated above. If you are not able to take any of these steps, you should probably either use the idea to start your own business or think of another idea.
Rob Hassett is an attorney in technology, entertainment and corporate law with the Atlanta law firm of Casey Gilson P.C. He also teaches in the professional education program at Georgia Tech and is the co-author of a volume on Internet Law of a leading treatise on entertainment law. If you have a question about intellectual property or corporate law, you may contact him at firstname.lastname@example.org.
This column and any answers provided are being provided for general information only, and do not, and will not, constitute legal advice. Readers should always discuss legal matters with their attorneys.
First Published in the Fulton County Daily Report in May of 2010
by Rob Hassett
Congress should enact legislation that discourages executives of financial firms and funds that are not regulated by the FDIC or other agencies from incurring unacceptable risk. Otherwise those unregulated financial firms are going to repeat the behavior that resulted in the collapse of Bear Stearns, Lehman Brothers and others.
During the week of May 3, 2010 James Cayne, the former chairman and chief executive officer of Bear Stearns, was quoted as saying in testimony before the congressionally chartered Financial Crisis Inquiry Commission:
[Bear Stearns’ collapse] was due to overwhelming market forces that Bear Stearns [could not survive].
Bear Stearns’ collapse was not only unavoidable but was inevitable. Bear Stearns’ business model, which is typical of financial firms and hedge funds, was to borrow many times the value of its equity mostly in overnight markets at low short term interest rates and place the money in long term investments at higher rates. I have seen reports that its ratio of assets to equity was over 35 to 1 before the collapse began. As a result of carrying so much leverage, its profits were immense. For example, with that ratio, if its investments paid 1% more than what it paid to borrow money, as a result of the high leverage, its profit on its equity investments, before compensation to employees, would equal about 35% per year. Each year the high level employees would receive very high compensation based on the huge profits.
Everything worked well so long as investments paid off at least marginally better than what was paid to the overnight lenders and the overnight lenders were comfortable renewing the loans. Of course even wise investments are not always successful and with such high leverage it was inevitable that at some point something would go wrong and the overnight lenders would refuse to renew their loans causing Bear Stearns to collapse.
Other Wall Street firms like Goldman Sachs also had outrageous asset to equity ratios, just not anywhere close to as high as Bear Stearns. Goldman Sachs survived because it was like two hunters being chased by a bear. Neither hunter has to run faster than the bear just faster than the other hunter. Likewise, Goldman Sachs just had to survive long enough for the government to be sufficiently shaken up by the failure of other firms to bail out the firms that remained.
The Wall Street firms and hedge funds that are not regulated are still operating under the same business model that resulted in the meltdown, although, for now, less aggressively. If things continue as they currently are, the incentive to increase leverage will inevitably result in another collapse, probably worst than the last one. To avoid another collapse, the incentives should be changed.
I suggest that Congress consider one or more of the following: (1) require any financial firm or hedge fund above a certain size, not already regulated, with an asset to equity ratio above a set number for more than thirty (30) consecutive days to pay a percentage of its annual profits, plus compensation above a set amount per employee, into an insurance fund to protect other parties in the event of a default, (2) provide that executives in any such firm or fund, which reaches an asset to equity ratio of greater than a set number for more than thirty (30) consecutive days to be personally liable to the extent of their compensation above a minimum amount for that year.
Taking steps like the ones suggested would create incentives for financial firms and funds to avoid taking on excessive debt as compared to their equity and thereby help avoid another financial crisis.
Rob Hassett is an attorney in technology, entertainment and corporate law with the Atlanta law firm of Casey Gilson P.C.
By Rob Hassett
Casey Gilson, P.C.
Six Concourse Parkway, Suite 2200
Atlanta, GA 30328
Background and Summary
This article first appeared in the December 5, 1983 issue of Computer World and addressed the decision of the U.S. Court of Appeals for the Third Circuit regarding the Apple Computer v. Franklin Computer Corporation lawsuit. This was a very important case both to copyright law in general and to the evolution of the computer industry. (3 Pages)
On August 30, 1983 the U.S. Court of Appeals for the 3rd Circuit filed an opinion deciding that operating system computer programs contained only within computer hardware (in this case on chips) can be the subject of copyright.
According to the opinion, engineers at Franklin Computer Corp. copied operating system programs developed and used by Apple Computer, Inc. so that programs designed for the Apple II computer could also be run on the Franklin Ace computer. Apple Computer filed suit claiming copyright infringement. Apple Computer requested that the trial judge bar Franklin from using, copying or selling those programs until the trial of the case, an understandable request inasmuch as the final trial could be delayed for years.
In deciding whether to grant a request of this type, the courts generally consider two factors. First, is the moving party likely to prevail on the merits of the case at the trial? Second, what are the relative harms that will occur to each of the parties if the motion is granted, as opposed to if the motion is denied?
In addition to the usual legal arguments on procedure, Franklin’s attorneys argued that the programs, or portions of the programs, were not protectable under the copyright laws anyway. They launched a four-front attack.
First, they argued that at least a portion of the programs were written in machine language, more an engineering than a written phenomenon. Since copyright laws apply to expressions, not engineering phenomena, the programs were not subject to copyright.
Second, some of the programs were contained on a read-only memory (ROM), which was only a three-dimensional device rather than in a written code that could be protectable under copyright laws.
Third, the operating system programs constituted ideas as opposed to mere expressions, copyright laws not being applicable to ideas.
Franklin’s attorneys also argued the “big guy, little guy” point that Franklin might be out of business if the motion were granted. If the motion were denied, Apple Computer would suffer, at the most, only the loss of some sales.
The trial court had denied Apple Computer’s motion. It reasoned that it was unclear at the juncture that the copyright laws applied. It bought the “big guy, little guy” argument that the harm to Apple Computer of denying the motion was greatly outweighed by the harm to Franklin of granting the motion. The stage was thus set for the appeal by Apple Computer.
Reversed the Ruling
The 3rd Circuit Court of Appeals reversed the ruling of the trial judge and sent the case back down for further determinations. The Court of Appeals held that: Programs in machine language were copyrightable.
Whether programs were contained on a ROM chip or anywhere else made no difference.
The court also said that where properly “copyrighted material was concededly copied,” the balancing of harm tests normally applied in the determination of whether to grant a preliminary injunction was inapplicable: So much for the “little guy” whose actions were taken with wide open eyes. The Court of Appeals left two questions open for further determination by the trial judge.
First, the Court of Appeals restated the doctrine that it is only the expression of ideas, and not the idea themselves, that can be copyrighted. The court went on to adopt the rule that if an idea may be expressed in only one way, the idea and expression are said to be the same thing and, in that situation, even the expression may not be copyrighted.
Subject of Debate
The question of what is an idea has long been the subject of debate; but the Court of Appeals went on to say that the general function of translating source code into object code qualifies as an idea. The court cautioned that even though the function of translating such code in general was an idea, the function of translating any particular programs, such as Apple-compatible software, was not covered by this noncopyrightability rule if translation of other non-Apple-compatible software could be accomplished by different expressions.
Second, the court left it to the trial judge to decide whether Apple Computer had properly complied with the statutory formalities pertaining to copyright registration.
Although Apple Computer has overcome major obstacles in the lawsuit, it would, for the following reasons, be premature to say that Franklin has lost the case at the trial level:
It may be determined that one or more of the most important operating programs were governed by the idea-expression merger doctrine and are, therefore, not copyrightable.
It may be determined that various copyright registrations procedures were not followed.
It should be noted that if Franklin does lose the lawsuit, but survives the damages awarded, Franklin can be positioned to develop its own programs to obtain Apple Computer compatibility.
Indications are that the operating systems for the other major compatible systems were not copied. This decision would, therefore, be unlikely to affect companies manufacturing most of the other compatibles. There is a question of how well the “non-copy” compatibles work.
If Apple Computer ultimately prevails, what effect, if any, will this decision have on purchasers of the Franklin Ace? Will these people be considered to be infringers of the Apple Computer operating system? Are these systems subject to seizure?
Every case must be considered on its own facts. However, the copyright laws bar copying or publishing materials without permission of the owner, not the use of them. The few appellate courts that have decided the issue have held that wrongfully copied materials in the possession of subsequent purchasers are not subject to seizure for copyright infringement, with limited exceptions related to imported copies. Note that the use of application software generally requires that the application software be copied onto RAM which would seem to arguably make users of application software liable for infringement.
Regardless of the ultimate outcome of this case, the opinion will presently discourage any producer or intended producer of compatibles from copying operating system programs. In most cases, the risk will far outweigh the development cost savings.
The above information is provided for general educational purposes and not as legal advice. Laws in areas in which we practice change continually and also vary from jurisdiction to jurisdiction. Therefore no visitor to our site should rely on any of the articles provided for legal advice, but should always consult their own attorney regarding legal matters.
The information above is provided for general educational purposes and not as legal advice. Laws in areas in which we practice change continually and also vary from jurisdiction to jurisdiction. Therefore no visitor to our site should rely on any of the articles provided for legal advice, but should always consult their own attorney regarding legal matters.
© 1983 Rob Hassett, Atlanta, Georgia. All Rights Reserved.