Many of the Founders I have met with have asked me about New York State's Start-Up NY program. The program is fairly new and could offer some companies a significant tax savings should they found/move/expand their company to designated zones within the State and partner with a designated University in the area. However, the program has many limitations. For instance, many businesses are ineligible for the program, including:

• Retail and wholesale businesses
• Restaurants
• Law and accounting firms
• Medical or dental practices
• Real estate management companies/brokers
• Hospitality
• Retail banking
• Utilities and energy production businesses

It should be noted that because the program is fairly new, there is limited information on its efficacy, or lack thereof. However, the program is worth keeping an eye on as it grows over time. 

For comprehensive information about Start-Up NY, how to apply, and to find out if the program is right for your business, click here: http://startup.ny.gov/ 

Last week, my blog post regarding equity for endorsements focused on the benefits and disadvantages of the athlete/celebrity endorser. This post will focus on the companies, and why they should or shouldn't offer equity for endorsements.

Startups have long sought celebrity endorsements under the misguided notion that the endorsement will equate to the company's success by harnessing the celebrity's star power. In fact, there are many articles on how to attract celebrity endorsers (See here and here) Not surprisingly, offering equity for endorsements is a common suggestion on these "How To" articles. But, companies should be mindful of how they distribute their equity, as a celebrity endorsement does not always work out well for the company (see here). 

Benefits

• Does not require available cash- Many startups are strapped for cash during their first few years, and few can afford the high prices of celebrity endorsements for money. Offering equity for celebrity endorsements may be the only way the company can secure such an endorsement. 
• Potential synergy- A well selected celebrity endorsement will create a synergy between the company and/or its products with the celebrity, allowing the endorsement to come across naturally and potentially harness the endorser's fan base. This could lead to greater sales figures.
• Perceived credibility- Let's face it. Customers are more likely to attribute credibility to a company that is endorsed by a celebrity they "trust." 

In sum, all of the benefits of getting endorsements for equity necessitate sales increases and discount the loss of equity.

Disadvantages

• Being tied to the celebrity- Giving equity for celebrity endorsements, and the extensive marketing campaign required to utilize the celebrity endorsement, ties the company to the celebrity for better or worse. Should the celebrity become embroiled in a scandal, or engage in some manner which hurts their image, the company could also be damaged through its association with the endorser (unless the endorsement agreement contains a well-drafted morals clause). 
• Divestiture- Equity for endorsement deals are investments to the celebrities, which can eventually be cashed in. Granted, a well drafted endorsement for equity agreement will have provisions as to how and when the endorser can divest their equity, the sale of the stock can occur at a bad time for the business, ultimately damaging it.
• Less equity can be used for other purposes- By offering equity for endorsements, the company is limiting the amount of equity it can distribute to other channels, which may be more beneficial. For instance, companies can offer equity to woo experienced employees or for venture capital funding. Granted, both of those equity offers have their own benefits and disadvantages, each company is unique, and may be better served by using the equity they would exchange for celebrity endorsements in a different manner. 
• Risk- Although some companies have found success with celebrity endorsements, not all celebrity endorsements result in a financial boon for the company. Further, should the celebrity breach their endorsement agreement in some way, the litigation costs could quickly mount for a cash-strapped startup. 

Equity should be carefully guarded by a company, especially a startup, because there is a limited amount to distribute. Some founders may wish to distribute as little equity as possible, and/or retain a greater amount of equity for themselves. Before agreeing to anything for equity, especially endorsements, the proposed agreement should be carefully vetted to determine if it fits with the company's plan moving forward. 

Protecting one's intellectual property online can seem like an onerous task. This is especially the case with copyrighted content. However, content creators can help protect their copyrights by taking several actions.

Keep in mind that according to the U.S. Copyright Office, a copyright is a "form of protection grounded in the U.S. Constitution and granted by law for original works of authorship fixed in a tangible medium of expression. Copyright covers both published and unpublished works."  Notably, copyrights protect the expression of ideas, and not the ideas themselves. Additionally, copyrights attach immediately when the work is fixed in some form of tangible medium of expression (like a book, recording, painting, blog post, etc.) Although it is not necessary to register a copyright for protections to attach, a registered copyright has additional benefits should someone infringe. For more information on what a copyright is, see my earlier post here.

So what steps can you take to protect your creative, copyrighted works? 

Place a copyright notice on your work. In the context of protecting copyrights online, you can place a copyright notice alongside your work. This need not be complicated, and can simply state "Copyright (your business' name) 2014. All Rights Reserved." Although this isn't necessary, it informs potential infringers that you are aware of your rights with respect to the work, potentially discouraging them from infringing. For photos, this can be effectively accomplished by watermarking your images. 

Define others' rights in utilizing your work. Create a policy (and place a link to it on your site) that tightly defines how people may use your content with and without your permission. Effectively, this creates a route for potential infringers to utilize your work in a manner that respects your copyrights by offering them a limited license under terms you decide.  Even better, these terms establish how other people can freely advertise your work.

Consider registering your copyright. Some content, especially if used as a means of generating income, may warrant a Federal Copyright Registration. This is purely optional, although there are benefits to registering a copyright which primarily manifest during litigation. Some of the added benefits of registration include: the ability to sue for attorney's fees; the ability to sue for statutory damages (which is easier to prove than actual damages); a presumption (after 5 years) that the copyright is valid and all facts in its registration are true;  the registration itself constitutes notice that said content is copyrighted. Additionally, registration may allow you to transfer copyrights easier. 

Find out if your copyrighted material is being infringed upon. Once you are aware that your work is being infringed upon, you can take steps to have the infringing work taken down, or at least attribute credit to you, whichever you deem appropriate. There are many different tools you can use to find out if your works have been infringed upon. Not surprisingly, a Google search is a great place to start as the search engine has both text and image search capabilities. Sound recordings are much more difficult to police as there can be multiple copyrighted elements, in addition to the technical difficulties of searching audio recordings. 

Contact the infringer. Generally, there is some manner available to contact someone that improperly posts your content, be it via email, comment, or message. Utilize whatever method you believe to best contact the infringer and request that they remove your content, or point them in the direction of your use policy and request that they abide. If they fail to remove the content or fail to adhere to the policy, locate the website's ISP information. To do so, you can use this site or this site. Once you have the ISP's information, send a Takedown notice (free samples can be easily found through a Google search) to the ISP, which states that one of the sites it is hosting contains infringing material. The Digital Milennium Copyright Act allows for an ISP to be held liable for hosting infringing content. Generally, once the ISP is notified that they are hosting an infringing work, the website will be taken down so the ISP can avoid liability. 

When to hire an attorney. If the ISP fails to remove the content, or take down the website, then you may wish to hire an attorney to prosecute your claim of intellectual property infringement. If you have yet to register the copyright of your protected content, then you may have to do so before any litigation may commence. 

Following these steps will help you protect your copyrighted content online, allowing you to only worry about creating more content to share with the world. 

Earlier this week, the New York Post reported that the Union Street Guest House, a hotel in Hudson, New York, had a unique method of controlling negative reviews online. According to the New York Post, the hotel's website stated that “If you have booked the inn for a wedding or other type of event . . . and given us a deposit of any kind . . . there will be a $500 fine that will be deducted from your deposit for every negative review . . . placed on any internet site by anyone in your party.” However, the money would be refunded if the negative review is removed. 

Effectively, this policy means that if a wedding guest posted a negative review of the hotel on the internet, then the couple whose wedding took place at the hotel would be fined $500.

Although the hotel's owner stated that the company policy was a joke, a Yelp review from November 12, 2013 (notably several months before the New York Post article) states that the reviewer received an email threatening to enforce the policy.

Businesses are always seeking to protect their reputations, especially online. However, this hotel's policy is not legally sound.

Challenging the hotel's policy
Should the hotel have enforced this policy, it could have been successfully challenged in court as the policy is an unconscionable contract. New York courts have defined an unconscionable contract as being "so grossly unreasonable...in light of the mores and business practices of the time and place as to be unenforcible [sic] according to its general terms" (Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 10, 537 N.Y.S.2d 787, 791 [1988]).

In order to determine whether a contract is unconscionable, New York courts utilize the following two-part test:

1. The procedural element- the court examines the contract formation process, including whether or not the complaining party had a choice to enter into the contract.
2. The substantive element- whether deceptive or high pressured tactics were used in forming the contract, the use of fine print in the contract, the experience and education of the complaining party, and if there is a disparity in bargaining power. 

Essentially this means there must be a showing of an absence of meaningful choice with contract terms that are unreasonably favorable to one party. The substantive element allows a court to analyze whether the contract unreasonably favors the Defendant. 

Should the Union Street Guest House's policy be challenged in court, it would fail the above test. Procedurally, it does not appear as if a complaining party would have had any choice to enter into the contract if they wished to hold a wedding at the hotel. Nothing has been reported as to the negotiability of this policy, and placing the policy on the hotel's website creates the impression that it is a standard policy of the hotel. 

However, analysis of the substantive element provides much stronger evidence for the policy to be found unconscionable. First and foremost, it is unclear whether any couple holding a wedding at the hotel was made aware of the policy. If the policy truly was a joke as the hotel owner stated, then it likely would not have been found on, or annexed to, any of the other contracts the couple would have signed. Additionally, should the policy have only been located on the website, it can be argued that the hotel was deliberately hiding the policy from couples seeking to hold their weddings at the hotel. 

The terms of the policy, as written, are unreasonably favorable to the hotel. The policy has the effect of limiting the speech of third parties to the contract, which is odd, unexpected, and a violation of society's mores and business practices. On public policy grounds, the court would likely find the policy unenforceable because society wants to encourage speech about businesses to empower consumers. 

Potential recourse for Union Street Guest House's negative viral publicity
Shortly after the New York Post article was published, news of the hotel's policy went viral on the internet. As a result of this negative viral publicity, internet users quickly took to websites such as Yelp to post one star reviews citing the hotel's policy for negative reviews as the reason.  

Although approximately 5 pages of such reviews on Yelp have been removed in the past few hours, there are negative reviews that have been posted subsequent to the hotel's viral publicity that discuss previous stays at the hotel. Should these reviewers be lying in their negative posts, the hotel could potentially have recourse against them. As previously discussed here, businesses can sue reviewers for false, negative reviews on defamation grounds. 

If some of the recently posted negative reviews are based on lies, it would be difficult for the hotel to succeed. One of the elements of a defamation claim is proof of damages that resulted from the false statement. Given the fact that the hotel has experienced a great deal of negative publicity in the past few days, it would be extremely difficult to prove that any false reviews caused damage to its business. Nonetheless, the hotel should continue to monitor its reviews, especially as time distances the hotel from its viral notoriety. 

Conclusions
It is difficult for businesses to protect their online reputations, but they should employ legally sound measures to do so. Instead of threatening $500 fines, the Union Street Guest House should have engaged its negative reviewers in a positive manner. If the hotel received negative reviews that contained lies, it could have then proceeded with a defamation suit against those reviewers. Hopefully, the Union Street Guest House's policy to limit negative reviews, and the viral notoriety it spawned, serves as a cautionary tale to other business owners.  

Recently, several startups I've spoken with have informed me that they use independent contractors instead of traditional employees. However, many startups are not aware that independent contractors can still be deemed employees by the Courts. 

So why are the startups hiring independent contractors as opposed to employees? Here are some of the benefits: 

• Independent contractors cost less- Although generally paid a higher hourly salary than employees, businesses save money because they don't have to pay benefits, Social Security and Medicare taxes, unemployment compensation insurance, and worker's compensation insurance.
• Decreased lawsuit liability- In certain circumstances, businesses can be found liable for the actions of their employees. However, as independent contractors are not employees, a business is protected from being sued for the contractors actions. Also, independent contractors are not protected by the totality of employee protection laws, thus protecting the business from getting sued by the contractor themselves. 
• Hiring and firing- Independent contractors can be hired for specific tasks, as well as for a duration of time. This allows a business to staff itself on an as-needed basis, and allows for flexibility.

Due to these benefits, some businesses abuse the label of 'independent contractor.' For that reason, New York courts have employed two different tests to determine whether a worker is an independent contractor or employee.

The Economic Realities Test is as follows:

• The degree of control exercised by the employer over the workers
• The workers' opportunity for profit or loss and their investment in the business
• The degree of skill and independent initiative that is required to perform the work
• The permanence or duration of the working relationship 
• The extent to which the work is an integral part of the employer's business

This test looks at the totality of the answers to the above questions to determine whether an employee/employer relationship exists. 

The Common Law Test is as follows:

• Whether the worker works at his/her convenience
• Whether the worker was free to engage in other employment
• Whether the worker received fringe benefits
• Whether the worker was on the employer's payroll
• Whether the worker was on a fixed schedule

The factors of the Common Law Test are not exhaustive, and the Court will explore additional inquiries if it feels necessary. An example of an additional factor that could be considered is whether the worker is required to wear a uniform. In the Common Law Test as well, no single factor itself is dispositive of an employee/employer relationship.

Effectively, this means that workers who are classified by a business as being an independent contractor may not be classified as independent contractors by the Court. Should the Court find that an employee/employer relationship exists, then a business loses all benefits of hiring the independent contractor (with respect to that person only) and is subject to the totality of laws involving employee/employer relations. Therefore, the business incurs increased costs and liability. 

If your business decides to use independent contractors, ensure that the written agreement with the worker incorporates the factors the Courts could use in determining whether an employer/employee relationship exists.