An Ideal Client Brings New Challenges, Cooperation . . . and Excitement!

You know the old saying: “You can choose your friends but not your family”? Well, what about clients? Someone asked me the other day, what is my ideal client? That’s an easy one. They are a client I recently picked up from a referral, which is how I develop a majority of my business.

My new client is an asbestos abatement company located in south King County here in Washington. They were contracted by a very large company in China, to train and certify their workers to become licensed asbestos handlers. The Chinese operation must put together a team of workers to abate asbestos on worldwide ocean-going vessels. As you might expect, China can perform the abatement tasks at about two-thirds the cost of doing the work in Seattle.

This is exciting territory for me! Thanks to this American enterprise, it’s a great opportunity for the Chinese company, and I’m right in the center of the action, serving as a legal liaison. I just love it! Initially, I drafted the letter of intent outlining basic parameters and the provisions for a confidential non-disclosure agreement regarding the business venture. I just finished the third phase, which is the training service agreement. My client will be dispatching four or five instructors to China to reside there full-time and train workers.

I also drafted the licensing agreement for the use of the manuals and training materials by the Chinese, assuring that the American company will keep full ownership of its intellectual property. There is going to be a host of other contracts to develop, too, as we move forward with this business arrangement.

So far, my observations are quite optimistic. I am seeing firsthand how this business is going to evolve. I have a very good relationship with my client and an equally good relationship with the party in China. Fortunately, this is not a case where you are battling with the terms of agreement. This is the ideal situation in which you’re discussing matters of importance with both sides — what they each want to accomplish with the agreement. And I get to memorialize it in simple, easy-to-understand language that is going to help everyone move forward and understand their working relationship

In terms of the business contract, all legal provisions are based on American law via a choice-of-law provision, which is why it was very wise of my client to take the initiative in developing the first round of draft agreements. This entire process will be governed by Washington state law, and we’ve placed a choice-of-law provision in the contract, to guarantee this. Not only is this good business sense, it is a sound practical move. Licensing for asbestos abatement falls under the strict guidelines of the U.S. Environmental Protection Agency, and the Chinese company is seeking accreditation under an American licensing system. This, of course, will give the Chinese more credibility when they’re marketing their services to international shipping companies.

As part of my oversight responsibilities, trust is a vital issue. We have incorporated provisions into the contract regarding payment and have clearly set forth an agreement that payment is due within 15 days upon invoicing. I consider this matter to be the most contentious, potentially speaking. If there’s a dispute along the way, it will probably be over payment issues.

The larger concern focuses on the intellectual property rights to the manuals and training materials that are being licensed. You quite often hear about the Chinese knocking off other companies’ research, patents and property rights. Again, there’s the matter of trust; we are hoping that this Chinese company is not going to mass-produce these manuals and materials, thereby undercutting my client’s ability to do business in China.

To contractually safeguard against this violation, we have assigned this business arrangement a finite two-year term, with the ability to renew or not renew after that period of time. Within two years, we’ll certainly know whether any piracy issues have surfaced. If any do, we’ll just pull the plug on the contract. However, I believe it is beneficial for the Chinese to work with my client and abide by the rules, so I’m going to keep an optimistic outlook.

Deeper Into the Licensing Abyss

In an earlier post I touched upon the importance of proper contracting language, but I barely poked the surface. Today I thought I’d delve a little deeper so you can better understand some of the ways licensing agreements can affect a business.In life sciences, one area where attorneys can be particularly useful is helping Clinical Research Organizations (CROs) with licensing agreements.

A CRO, for those unfamiliar, is sort of a middle man. It contracts up with a sponsor, a company producing a new drug or device or what have you, and then contracts down with subcontractors to use and test the new technology. Subcontractors include clinics and clinical research assistants, who go to medical sites where the new drug or device is being used and make sure data are properly maintained.

Licensing agreements are made between the sponsor and its subcontractors — sometimes passing through the CRO as well — granting them the right to use the new technology for testing purposes, but without conveying any ownership interest in it.

For example, right now I’m dealing with a company that came up with technology that uses genetics to measure the rate at which an individual metabolizes a drug. To test its device, the company will grant a license to a clinic to use it, but the license won’t transfer any patent rights, or any intellectual property rights.

Where I also get involved with a CRO is when a sponsor sometimes tries to include some type of licensing fee, which, in my opinion, is inappropriate in the context of a licensing agreement for testing drugs or equipment. Think about it: CROs aren’t making a profit from the use of a new technology, they’re simply testing it. If they're being paid to test a device, why should they also have to pay a licensing fee while seeing if it works?

Attorneys can also make a big difference by ensuring that the contract language of a licensing agreement is consistent between biotech companies, CROs, vendors, clinics and clinical research assistants. In other words, if there is a licensing agreement between a CRO and sponsor company, the subcontractors need to be similarly bound to the terms of that licensing agreement. Otherwise, there could be situations where subcontractors are using a particular device or software and think they have ownership interest in it, maybe even modifying it and putting their name on it.

For instance, a client of mine was running a licensed biostatistical software program to process data on the efficacy of a particular experimental drug. The client hired a subcontractor, but didn't tell him about its licensing agreement. He started tweaking the software and wanted to use it for other clients.  This was not a good situation:  the client did not have a work for hire provision in its subcontractor agreement, so technically the subcontractor had ownership, but that ownership was adverse to the licensing agreement with the sponsor. 

Fortunately, I was able to negotiate a resolution to the competing claims of ownership, and draft licensing language for my client to avoid this situation in the future.  If you deal with licensing agreements in your particular line of work, make sure to get legal advice.

The Importance of Insurance

When people hear the term “insurance,” they automatically assume that it is some form of coverage broadly defined in general terms. What many do not realize is that insurance is so much more than simple coverage for accidents and other unforeseen events, and being properly insured is an important aspect of doing business.

Insurance should perform a very crucial function: to protect a person or business entering into a transaction. One cannot always shift risk and responsibility to another party in the transaction.

The type and amount of insurance necessary is critical. Those who may have insurance may not be covered for what is actually needed, and those who have the proper type may not have enough to cover the potential damages one is exposed to in a business transaction. The specifics are dangerous traps, and many do not read between the lines where they should.

For instance, I have a Clinical Research client I formed in 2008. Clinical Research Organizations (CROs) assist in the testing of experimental drugs from conception through FDA approval.Once the company was up and running, they spoke with a broker who obtained an insurance policy.Six months later, they asked me to evaluate whether they were property covered for their particular line of work.

They were not.

The broker had simply procured them a medical malpractice policy, even though a CRO does not practice medicine. There was a specific exclusion in the policy precluding testing for administration of drug trials, which is exactly what a CRO does.

For six months they were operating with no insurance protection. I was able to put the client in touch with a qualified broker and obtain a full refund of the premium they had paid for the useless coverage. Legal advice regarding the adequacy of insurance is critical.

I have another client who contracted with a tile contractor who worked on condominiums for six full years before realizing that the insurance company had included a condominium exclusion that the contractor was unaware of. Unfortunately, the exclusion was discovered too late and my client and the tile subcontractor incurred substantial unanticipated costs due to the exclusion. Although the condominium exclusion was never blatantly stated, it was clearly within the policy and no coverage was provided.

The bottom line is, if you want protection during your transactions, you need to have the right insurance. And to get the right insurance, legal advice regarding the adequacy and sufficiency of insurance is critical.

Life Sciences, in Lieu of Chocolate

Science and technology fascinate me. Perhaps this isn’t the first sentiment you imagine hearing from an attorney, but it occurs to me daily. My enthusiasm for the life sciences industry and the intelligent people who make up its moving parts is one reason why I look forward to coming to work every day.

I was tempted to surprise the whole industry with a box of chocolates, but for today I’ll simply share a few pieces of what I value most.

I entered life sciences law with a strong desire to help companies start from scratch. As I mention on the website, my first client in this field was a Clinical Research Organization (CRO). The four individuals behind it have backgrounds in different areas of the field: pediatric oncology, managing FDA compliance issues and pharmacy. These clients fill the room with brain power, but as good as they are at what they do, they’re not attorneys. Companies in this industry have so many moving parts; they need someone on their side who understands contracts and licensing. For example, they need an operating agreement to explain how the business will run and how decisions will be made. This particular company has taken off in leaps and bounds in the four years since we started working together.

Always Changing

Due to fluctuations in venture capital and government funding, life sciences is a continuously changing environment. As soon as someone gets funding, everyone in the industry knows who they are and wants to start a new business with them or buy their existing operation. This is why new companies should involve an attorney from day one. Clients come to me knowing as much about indemnity, choice of entity and portion of liability as I know about biostatistics. This doesn’t prevent me from handling their agreements and licensing. We teach each other, and it’s in those learning experiences that I find my job so much fun!

Always Innovating

The intellectual abilities of my clients keep me on my toes. Every innovation brings a new set of issues to address on the legal side. I’m good at dealing with these issues. When you have smart people from varied backgrounds coming together and creating something new that’s financially viable, it’s an exciting thing to be a part of. These companies have a bright future not only in Seattle and San Francisco, but nationwide.

Always Building

The ultimate reward of working with life sciences companies from the very beginning is watching their rapid growth. Legally secure, my clients have a strong foundation to build on. The potential is huge because nothing can come up and bite them from behind. As their business grows, my business grows. Once the legal corners are squared, my role is to make sure the company is moving in the right direction.

The life sciences draw all kinds of curious people. Working with sponsors and vendors, or negotiating biotechnology agreements and software licenses allows me to hear about advancements directly from the source. In an industry that’s always changing, innovating and building, I get to learn something new about the world every day.

Small Business Pitfalls: Why Attorneys Make Cents – Part II

In my last post, I began making the case for retaining a qualified attorney to help you start and grow your business. You know by now the complexities of business law but may be still stuck on price and value. To you, I offer some of the insights I’ve gained that illustrate why it’s cheaper in the long run to have an attorney on your side.

Counting the Costs

The hazards of starting and running a successful small business are many. And frankly, they are all really expensive. Startup clients often call me midway through their attempt to start an LLC. They’ve done something wrong and they’re stuck. More often than not, charting the right course from the outset is a lot cheaper than untangling a mess. I also get questions down the line from established small business owners who’ve yet to understand when they are signing a document, they can be representing both themselves and the company — setting both up for liability.

Another source of panic calls I get is from people who’ve set up with the wrong structure, are in trouble and need help keeping their personal assets separate from company assets. I also counsel clients on choosing the proper insurance.

Furthermore, licensing requirements are another source of pain for new businesses caught unawares in legal dramas. For example, if a contractor goes into business as a landscaper and doesn’t have a contractor’s license, he can’t sue if he doesn’t get paid. I don’t think a lot of people know that. You may think you can just open a business and start working. But a contractor, for instance, has to have a bond to be licensed with the state of Washington for a minimum amount of $6,000.00 or $12,000.00, depending on the type of business.

Been There, Still There

One of the biggest benefits of developing a long-term relationship with an attorney is that he or she will know your company well whenever a problem arises. Waiting to call an attorney when you’re in trouble or being sued virtually ensures you’ll pay more because the lawyer will clock more hours getting up to speed. Moreover, I especially enjoy the continuity of advising on startup through to contract negotiations and as businesses grow, handling mergers and acquisitions.

If you’re going to spend the enormous amount of time required to start and build a business, and stake your future on it, you should make sure your legal foundation is solid. The myriad laws surrounding taxes, licensing, permits, new regulations, intellectual property, franchising, advertising, hiring non-citizens, contracts, operating online, environmental codes, workplace safety, acquiring and selling real estate and others are just plain confusing. The best way to ensure you start on the right foot is to sit down with a qualified attorney who explains everything in plain English and goes through the pros and cons of each issue so that you can make the best decisions possible.

Small Business Pitfalls: Why Attorneys Make Cents

Most small business owners hesitate enlisting the help of an attorney until they’re forced to. It may be a cost perception, or it may feel like an indulgence your growing company can’t afford. There are a number of reasons, however, why having an experienced business law attorney at your side makes not just sense, but cents.

Here’s the first of a two-part series offering a number of reasons it makes the most sense to have an attorney right from the start.

Avoiding Unnecessary Complications

From the moment you decide to start a business, you begin reaching out to experts in a variety of areas to help you make sure you start out properly. Hiring the right attorney is likewise a sound investment in the future of your business. Working with new business owners is perhaps one of the most enjoyable aspects of my practice, because I can help you bring great ideas and exceptional talents to a waiting market while avoiding the snares and legal pitfalls that await you as you navigate the minefields of running a profitable operation.

Right Business Structure

My first step in helping a new business is to consult with you and discuss the different options available. Choosing what type of entity: corporation, limited liability company, or general partnership, is a crucial step. While most new business owners operate from the assumption that they may have to form a corporation, I work with my clients to understand the many reasons why an LLC can be a much sleeker way to do business for many, avoiding the annual reporting requirements while still getting many of the tax advantages of an S corp.

Filing Requirements and Contract Negotiations

When starting a new business, it’s absolutely crucial to understand the paperwork required - requirements not only from the IRS but at the state and local level too that you might not even be aware of.

I really appreciate when clients come to me asking for guidance about employment issues and contracts. Constantly changing laws have made the employer–employee relationship more complex, especially for businesses that hire independent contractors. If the contractor-employee line is crossed, it can create an IRS nightmare and an unpleasant exchange with the Washington Department of Labor and Industries. Not only will carefully considered policies and practices help your business avoid litigation, but they allow you to instill a sense of trust and leadership that will help you as you grow. When you care about your people and your partners, you must think about your legal relationships with them.

Next month, I’ll share more about the cents in hiring a business attorney.