April 10, 2008
Michelle Leder has the scoop on Jim Cramer's new contract with TheStreet.com, which includes this wonderful new language: the Company "acknowledges and agrees that sharp and caustic commentary and behavior is a part of Cramer's persona and appeal and ... shall not constitute Cause for termination."
Inspired by Don Imus?
April 03, 2008
As summer approaches, my mind is slowly turning to the study of contracts. My article describing "Organizational Perspectives on Contracts" (with Brayden King) will be placed by the end of this week, and we are starting to implement some of those ideas through our study of Wisconsin cheesemakers. But I was reminded again today why empirical studies of contracts are so rare: it's tough to get your hands on the things.
Take the new contract being negotiated between Live Nation and Jay-Z and similar contracts that Live Nation concluded with Madonna and U2. Live Nation has not filed any of the existing contracts with the SEC, and I doubt they will file the Jay-Z contract when it is completed. Are these contracts not material? Pshaw! For some reason, perhaps simply benign neglect, the SEC does not routinely police the filing of material contracts. For purely selfish reasons, I wish they would get on the ball.
A few years back, The Wall Street Journal ran a story about a major new alliance between a couple of internet companies. My memory fails me, but I believe Yahoo was involved. In any event, I called the companies to ask whether they would be filing the agreement with the SEC. No, they said, they didn't want any of their competitors knowing what was in the agreements. So the companies were able to get the benefit of the publicity (based on a press release, not a contract document) without any of the accountability of a filing. In the wake of the foregoing experience, I asked a lawyer friend why Internet companies routinely announced alliances without filing the related contracts with the SEC. He responded, "Because the contracts don't bind them to do anything!" Vapor contracting!
That may be slightly hyperbolic, but not much. Many alliance agreements are highly contingent, and you are left wondering about their value. So what do the Live Nation contracts look like? Or the contract between IBM and Linden Lab?
I wish I could tell you.
P.S. I would be happy to be corrected and pointed to any of the contracts discussed above. I checked the SEC's EDGAR database and didn't find them. I also tried a number of Google searches, but was unable to locate the documents.
April 02, 2008
My friend Nate Oman has a new paper on SSRN entitled "Specific Performance and the Thirteenth Amendment." This paper includes a fascinating tour of the history of the term "involuntary servitude," which will be of interest to teachers of Contracts for the reasons Nate describes:
For more than a century, the assumption that ordering specific performance of a personal service contract would constitute involuntary servitude under the Thirteenth Amendment has hung over the law of contract remedies. While the claim has generally been coupled with more traditional objections against such orders, it has had the effect of ossifying development of the law, precluding courts from critically examining the merits of specific performance in the employment context. A recovery of the original meaning of "involuntary servitude" coupled with a reading of the cases construing the Thirteenth Amendment, however, reveals that the argument against specific performance cannot be sustained in any but the most extreme situations. Freed from the analysis-numbing effects of constitutional claims, the arguments supporting a per se rule against specific performance in the context of personal services turn out to be quite weak, and substantial reasons counsel in favor of awarding such orders in at least some cases. Accordingly, courts should abandon the per se rule against specific performance of personal service contracts, and begin applying the ordinary rules of contract to such agreements. This would result in specific performance where there is no significant practical difficulty and equitable remedies provide a superior remedy to money damages.
Good stuff.
March 02, 2008
SI describes the plight of Daniel Smith (no relation), a young man from Boise who orally accepted an offer of a football scholarship from the University of Hawaii last April. After Hawaii Head Coach June Jones decided in January to accept an offer to coach Southern Methodist University, one of the assistant coaches at Hawaii called Smith to rescind the scholarship offer. According to Smith, he had promised Hawaii that he wouldn't entertain offers from other schools, so he was left without a scholarship for this fall. Smith sued.
Anyone who follows college football knows that the rules governing recruiting are heavily regulated by the NCAA, but the system of extending "offers" and receiving oral "acceptances" is very fluid. A player often "commits" orally to play for one school, then changes his mind and "commits" to another school. Likewise, many coaches make offers, only to rescind the offers when a better prospect comes along. In short, while severing relationships is not pleasant, most everyone involved in the process seems to understand that the commitments made during recruiting are non-binding. The deal is done only when the player, his parents, and an institution's athletics director all sign a "letter of intent" (LOI). That letter commits the school to providing financial aid for one year -- assuming the athlete is admitted -- and it marks the point at which recruitment of the athlete by other schools must cease. (More here.)
Stories about jilted athletes and coaches are legion, but this is the first time I have seen such a case go to court. Smith's attorney is relying on the doctrine of promissory estoppel, and according to Smith, the promise from then-defensive line coach Jeff Reinebold went something like this: "If we offer you a scholarship, we want you to be 100 percent committed to us, and we'll be 100 percent committed to you." While SI quotes one source suggesting that such a promise would be out of character for Reinebold, that sort of talk is consistent with many recruiting stories with which I am familiar. In any event, let's assume for the sake of argument that Reinebold made the statements. Does Smith have a viable claim under promissory estoppel?
Smith seems to have strong case of reliance (he stopped working with other football programs), and his reliance appears to have been detrimental (he missed out on the possibility of other scholarships). But the question remains: was Smith justified in relying on Reinebold's purported promise?
Well, first there is the matter of agency law. Was an assistant coach authorized or apparently authorized to make such a statement? According to the SI story:
Daniel said he never spoke to Jones, Hawaii's head coach. And while most schools require the head coach to sign off on any scholarship offer, Hawaii's assistants under Jones sometimes did offer scholarships on their own. Greg Brown, a Las Vegas personal trainer, said Miano offered his son, Corbin, a scholarship last year. Corbin, a safety from Spring Valley High, called Miano in September to commit to Hawaii.
Good facts for Smith. But what about the fact that everyone knows that pre-LOI commitments are non-binding? Maybe Smith is so new to the system that he doesn't know what everyone knows. Or perhaps Hawaii was signaling its intention to transact on a different basis from other schools, to allow itself to be bound where other schools would not. Nevertheless, I have a hard time imagining a court siding with Smith in this case, largely because Hawaii will bring all sorts of evidence showing that these pre-LOI arrangements are not the basis for reasonable reliance. Even if Reinebold made a statement like the one above, it looks more like salesmanship than contract. Given the emphasis during recruiting on the formal LOI, Smith probably should have understood that the oral "commitment" was nothing more than rah-rah talk.
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February 08, 2008
Fred Tung and I will be presenting papers at the Fourth International Conference on Contracts tomorrow morning. Today is the first day of the conference, which being held at McGeorge School of Law in Sacramento.
Fred and I will appear on the same panel. Fred will present The New Death of Contract: Creeping Corporate Fiduciary Duties for Creditors and I will present Contracts as Organizations. The other panelist is Daniel Kleinberger, who is discussing Contract Relationships and Fiduciary Relationships: The False Dichotomy. I am interested to hear that presentation because I don't think that there is a false dichotomy, as I explain in The Critical Resource Theory of Fiduciary Duty.
Other than that odd panel on business organizations tomorrow morning, I am feeling like an imposter here. Though I teach Contracts, I don't write much about contract law, and as far as I can tell, everyone else here is talking about contract law. I write about contracts. Are Contracts professors interested in contracts?
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January 29, 2008
The Times is right: bail bonds are weird.
“It’s a very American invention,” John Goldkamp, a professor of criminal justice at Temple University, said of the commercial bail bond system. “It’s really the only place in the criminal justice system where a liberty decision is governed by a profit-making businessman who will or will not take your business." ...
Most of the legal establishment, including the American Bar Association and the National District Attorneys Association, hates the bail bond business, saying it discriminates against poor and middle-class defendants, does nothing for public safety, and usurps decisions that ought to be made by the justice system.
But the Times likes to report on bottom feeding finance, and economists like to study the same thing. I'd pair this story on the bail bonds industry with the same paper's not-so-recent story about new consumer suits against mortgage brokers to the poor. And, heck, its obsession with Wal-Mart, which is an important part of one reporter's retail beat.
On the economist side, I'm confident Alex Tabarrok will have something to say about bail bonds, given that he has written on the subject. It is, of course, at least possible that financial institutions that target the poor (payday lenders, bail bondsmen, subprime lenders, and so on) do not enjoy windfall profits from the high-risk loans that can put their borrowers in difficult straits. And those people who worry about the interest should have a look at the rates that noble microcredit institutions in the mold of the Grameen Bank charge.
January 25, 2008
I just saw a wonderful presentation on trends in private equity deal terms, part of Emory's M&A Workshops sponsored by our Center for Transactional Law and Practice. Two M&A lawyers from Paul Hastings in Atlanta, Frank Layson and Erik Belenky, presented results of a study of 48 private equity acquisitions of public companies signed between January '06 and May '07. Deal trends for the period reflect a marked shift in bargaining power toward sellers and away from buyers. No surprise, given the easy financing and wealth of buyers in the market during the sample period. To the M&A lawyer, these trends may be old news, but we academics don't always get down to (or even near!) the front lines as much as we'd like. What was especially appealing about this talk was that instead of the standard offering of war stories and impressionistic assessments, they actually had data! Pie charts and everything!
Interesting trends include the following:
1. Reverse break-up fees:
74% of the deals contained reverse break-up fees, payable by the buyer for failing to close or failing to perform a material covenant or obligation. Fees ranged between 1% and 4% of the deal value, and often mirrored the amount of the seller's break-up fee.
An interesting legal question is the interplay between the reverse break-up fee and other affirmative buyer obligations (e.g., best efforts clauses). Is the fee the equivalent of an option for the seller to walk away from the deal? Or might there be additional liability for failing to exert best efforts? See the recent Delaware Chancery Court decision in United Rentals, Inc. v. RAM Acquisition Corp. (Cerberus).
2. No financing contingencies:
98% of the deals contained no financing contingency.
3. Financing commitment letters delivered at signing:
96% of the deals required delivery of commitment letters, with sellers often enjoying either third-party beneficiary status to sue the lender or a provision requiring the buyer-sponsor to take enforcement action against a breaching financer.
4. Sponsor guarantees of obligations and covenants of the acquisition vehicle (66% of deals).
5. Go-shop provisions:
66% of deals contained a go-shop clause, which allows the seller to solicit competing bids for some period post-signing.
Our next M&A workshop is on February 22. Emory's own Bill Carney will be debating Chancellor William Chandler on the continuing value of Delaware corporate law. Also don't forget our Center's conference next May on Teaching Drafting and Transactional Skills: The Basics and Beyond. For information on our events and activities, please contact Tina Stark, who directs the Center.
UPDATE: Steven Davidoff, the newly minted NYT Deal Professor, has a post today on M&A deal points as well. He looks at 4 recent private equity deals (announced since December, as compared to the not-so-recent deals covered in the study I describe above), and it appears that the credit crunch has not affected deal terms too much.
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December 29, 2007
I don't teach the Baby M case in Contracts, but this story from Marketplace about surrogacy in India and the current conflicted state of the law in the US may make me reconsider.
A quick search of Westlaw reveals a staggering amount of legal writing on various aspects of surrogacy. This is an area that seems ripe for an empirical study of surrogacy contracts, if one could assemble a meaningful collection. Especially if "commercial surrogacy" is not really about the money:
Despite the fact that nearly all commercial surrogacy arrangements involve compensation, studies in which surrogates have been asked about their motivations find that most reject money as motivation for their participation. Even if financial motivation is a factor, only a handful of women mention money as their primary motivation for entering into an agreement.
Katherine Drabiak et al., Ethics, Law, and Commercial Surrogacy: A Call for Uniformity, 35 J.L. Med. & Ethics 300, 303-04 (2007).
Does this non-monetary aspect of the relationship manifest itself in the contract provisions?
December 13, 2007
This past May I blogged about a proposal to the Professional Development Committee of the Association of American Law Schools for a "Workshop on Transactional Law." Earlier this week, I was invited to serve on the Planning Committee for that Workshop, which is to be held at the Mid-year Meeting of the AALS in 2009.
Transactional law is hot! And I couldn't be more pleased. In addition to this Workshop, Fred recently blogged about Emory's new Center for Transaction Law and Practice, which is hosting its own conference next May on Teaching Drafting and Transactional Skills: The Basics and Beyond.
One of my goals upon entering academe in 1994 was to bring a transactional perspective to my teaching and scholarship. I was inspired by Ronald Gilson's famous article, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239 (1984), and by the AALS Workshop on the Transactional Approach to Law, held on October 13-15, 1994. I hope that this new conference will inspire a new generation of law scholars to take transactions seriously.
With regard to legal scholarship, I would be remiss if I didn't mention my paper (with Brayden King) on Contracts as Organizations. Since posting that paper, I have connected with a number of young scholars who have an interest in the empirical study of contracts, and I look forward to reading more such work in the near future.
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October 30, 2007
Earlier today, I discovered Lawrence Friedman's Contract Law in America: A Social and Economic Case Study, written while Friedman was at Wisconsin. It is a study of over 500 contract cases decided by the Wisconsin Supreme Court. This is a portion of the Preface:
Probably nothing has so crippled historical study of American law as the traumatic effect of some fifty jurisdictions. Nothing, that is, unless it is the devastating obsoleteness of legal education, which (except for some meager palliatives in upper-class seminars) tends to develop notions and habits of thought inimical to the study of law either as a branch of human behavior or as a chapter in the book of human ideas. Legal education, in general, seeks to teach students 'how to think and act like lawyers' and turns its back on imparting 'mere facts.' 'Mere facts' (if this means rote learning) should of course not be the prime goal of education; but overemphasis on skills training has severe drawbacks of its own. It substitutes manipulation of data for understanding of data. In general, the law schools fail to teach the legal system as a whole, let alone the legal system as part of society; they teach disjointed fragments of a fragment.
The publication date of the book is 1965, and the breadth of Friedman's indictment (touching all of legal education except a few upper-class seminars) suggests that "skills training" had a broader meaning for him than it has today.
What I really love about this passage, however, is Friedman's vision of the study of law "as a branch of human behavior or as a chapter in the book of human ideas." In an attempt to convey this idea to my first-year Contracts students, I placed the following aspirational statement at the front of my Contracts syllabus (some of the following is taken from the casebook for the course, Stewart Macaulay et al., Contracts: Law in Action):
This is an introductory course on the law of contracts. Note the italics. Despite the unqualified title of the course – "Contracts" – we are not much interested in the structure or content of contracts. This is not a course on contract negotiation or drafting, and we rarely read more than a short excerpt from any contract documents. We study the law of contracts, which encompasses the technical legal rules found in statutes, regulations, and judicial opinions that, among other things, prescribe the requirements of contract formation, provide certain bases for avoiding performance of contracts, and describe various legal and equitable remedies for breach of contract.
But there is more to our study than the mastery of legal rules. We are interested in the law in action. Knowing legal rules is like learning to play scales on a musical instrument. While playing scales may be an essential step in becoming a musician, mastering the scales is not the end goal. Similarly, while knowing legal rules is essential in becoming a lawyer, mastering those rules is not the end goal. We must become experts in understanding how legal rules express themselves in the lives of real people. This requires us to treat the study of law as more than a series of logical puzzles. In the final analysis, our goal is to develop a better understanding of human behavior.
This is a difficult aspiration to fulfill, and I know that I have not always done so. But it is a worthy goal. And it makes for more interesting classes, too.
October 26, 2007
I am reading some old Karl Llewellyn articles, including one from the Harvard Law Review entitled "Across Sales on Horseback." Here is the first paragraph:
It is possible that there are fields of our law more fascinating than that of Sales, but I find the possibility difficult to credit. For packed into this small sector of the law is the course of our history over a century and a half, reflected with a range which the narrowness of the subject matter would seem offhand to make impossible, reflected with a precision which rivals even that of the constitutional law field. And because the work is the work of a multitude of courts, inexpert, busy chiefly on other things, average shrewd and more than average honest, but with no supreme authority over them, the picture yielded is a picture of the democratic process in law-making which the constitutional law field can never rival.
Does this resonate with you? Or do you read Llewellyn and think, "Surely he must be kidding!"? When I read the first sentence, I thought he was joking, but this passage resonates with me. I feel the same way about studying contracts and fiduciary law. During law school, I was a Con Law junkie, so I can see the attraction, but now I much prefer to read about private ordering.
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October 20, 2007
After 12 years as the manager of the New York Yankees, Joe Torre is walking away. On Thursday, Yankees' owner, George Steinbrenner, offered Torre a one-year contract to continue as manager, but the contract would have cut Torre's based salary by $2.5 million (to $5 million), offering instead $3 million in performance-based incentives and an $8 million option for 2009 if the Yankees won the 2008 AL pennant.
In declining the offer, Torre's responded: "I just felt the contract offer, the terms of the contract, were probably the thing I had the toughest time with -- the one year for one thing, the incentives for another thing. I've been there 12 years and I didn't think motivation was needed."
I am no Yankees fan, but I am a Joe Torre fan. If you remember Steinbrenner's Yankees pre-Torre, you will appreciate what an amazing job he did with the team. Here is the graphic from ESPN:
Still, is it true that Joe Torre needs no additional contract-based motivation? Is the desire for fame, on-field success, and eventually (when a longer-term contract expires) contract renewal enough to produce the requisite effort?
More from Torre: "Yes it was a very generous offer, but it wasn't the type of commitment that 'we're trying to do something together,' as opposed to 'let me see what you can do for me.'" Torre touches on the standard rationale for long-term contracts: they encourage investment. But also, if you are interested in the symbolic aspects of contracting, this is classic. Notice how the form of the contract sent a message beyond the bare terms. If I am reading this correctly, Torre was insulted because he has proven himself a competent and diligent manager without the sort of contract-based incentives proposed in the new deal. Whether Steinbrenner intended to send the message that Torre received, I don't know, but it wouldn't take too much imagination to conclude the Torre would respond in this way.
October 16, 2007
That's Stamos Arakas of Posy Floral Design Studios, commenting on a lawsuit by Elana Elbogen, nee Glatt, an attorney at Kelley Drye in New York. The W$J Law Blog flagged the story, which appeared in the NYT and NY Post. According to the NYT,
The bride, Elana Glatt, says her florist committed a series of faux pas at her wedding on Aug. 11. In the most "egregious," Ms. Glatt says in a lawsuit alleging breach of contract, the florist substituted pastel pink and green hydrangeas for the dark rust and green hydrangeas she had specified for 22 centerpieces.
...
Not only was the color wrong, Ms. Glatt said in the lawsuit, filed on Friday in State Supreme Court in Manhattan, but the hydrangeas were wilted and brown, and arranged in dusty vases without enough water.
Their pastel colors clashed with the linens, favor boxes, wedding cake and décor at Cipriani 42nd Street, the luxurious restaurant where she and her husband, David, held their reception, Ms. Glatt said.
Of course, stories like this always have two sides. According to the Post,
Posy owners Paula and Stamos Arakas were stunned by the suit.
"I can't believe this. I put my heart and soul into this wedding," a teary-eyed Paula told The Post.
Stamos blamed the "completely unwarranted" suit on Glatt's lawyer bride, Elana. "She's being a Bridezilla," he fumed, claiming that Elana would order elaborate arrangements that her future mother-in-law, who was paying for the flowers, would then trim down.
"They sent us 200, 250 e-mails changing things up until the last minute. We did everything they wanted," he said.
The cost of the flowers: $27,435.14.
Estimated damages: $400,000.00.
The damage issue is the interesting one. According to the Post account, the complaint alleges that the floral flub caused the plaintiffs "extreme disappointment, distress and embarrassment." Assuming the florists did not commit a tort, should the plaintiffs receive such damages?
New York courts sometimes award damages for emotional distress or embarrassment as a remedy for breach of contract. For example, in 1998 the City Court of the City of Yonkers awarded $500.00 for the "disappointment, humiliation and annoyance" suffered by the bride when her preferred wedding singer didn't show and was replaced by an inadequate substitute. In a section of the opinion entitled "Weddings Are Special," the court reasoned:
Weddings are unique and, hopefully, once in a lifetime events. Equally important is the wedding reception where family and friends celebrate and congratulate the newly married couple. Notwithstanding some judicial skepticism, brides, grooms and parents spend extraordinary sums and expect the wedding and the reception to be magical and memorable in every respect. Generally, the Courts agree.
At any rate, the allegations in this latest case should not be hard to prove. With 22 centerpieces, there must be plenty of witnesses.
October 11, 2007
Dennis Franchione's Texas A&M football team is 5-1 on the season, but his job is in jeopardy. For the past three years, "Coach Fran" has been selling a newsletter called the VIP Connection for $1,200/year to selected boosters without the knowledge of Texas A&M Athletic Director Bill Byrne. According to ESPN, Byrne said:
I think the whole thing started as something well-intended, to keep a number of people who were good donors to the university forever informed about things that were going on. It just got out of control.... My supposition is someone came to Fran and said, 'You mind if we do something like this for some people?' His thought was, 'No. Go ahead.' My guess was he never saw it after that. He concentrates on football.
Let me get this straight: Franchione sells what purports to be inside information about the football program, but he has nothing to do with generating that information? I suppose Franchione could have some lackey write the newsletter, but for $1,200/year, I would expect a bit more.
According to A&M, Franchione's activities generated $80,000 of revenue and a net profit to Franchione of $37,806.32. This for a fellow whose contract [UPDATE: It appears that this contract is not Franchione's current contract (see comments). Though many of the non-numerical provisions seem to be the same as those discussed below, Franchione apparently received a raise in 2006.] provides for an annual salary of $1,700,000/year, plus two vehicles, a country club membership, and incentive payments for winning the Big 12 Championship ($37,500), appearing in a bowl game ($37,500 for a non-BCS bowl, $75,000 for a BCS bowl, or $100,000 for the "national championship" game), being named Coach of the Year ($25,000 for Big 12 coach of the year and $50,000 for national coach of the year), or winning the national championship ($100,000). Did I mention the $3 million life insurance policy? Or $12,000/year expense allowance?
Forget Aggies. How about Hogs?
But did he breach the contract? Almost certainly. Here are some possibilities:
- "Franchione will not ... engage in any business transactions or commerce ... that may cause discredit to the University."
- "Franchione will not ...knowingly engage in, support, or tolerate any action violative of any governing constitution, by-law, rules, regulation,policy or procedure of the Conference or the NCAA or the University."
- "Franchione will not ... accept or receive any monies, benefit or any other gratuity whatsoever from any University booster club or other benefactor if such action would be a violation of NCAA legislation now or hereinafter enacted."
- "Franchione shall report annually in writing to the President of the University through the Athletic Director ... all athletically related income from sources outside the University.... This disclosure of outside income is required by Article 11.2, of the NCAA Bylaws."
- "Franchione may not be compensated by an individual or commercial business outside the University for employment or assistance in any manner or from any source where such outside or third party compensation would be in violation of NCAA Rules or the rules of the rules of the Conference with which the University is affiliated."
Again from ESPN: "The AP also obtained copies of Franchione's annual outside income reports, and none include income from Web sites." The ESPN story also lists other possible NCAA and Big 12 rules violations connected to the newsletter.
If Franchione is fired for cause based on the breach of contract, he would lose his right to liquidated damages under the contract. That's $141,667/month until the contract expires. The bright side is that the contract expires in December 2008. [UPDATE2: According to news reports, Franchione's new contract, granted in 2006, extends through 2012.]
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October 03, 2007
Yesterday I blogged about the Sprint advertisement for "the first $10.5 million cell phone." Remember: "For a limited time, buy a Blackberry 8830 World Edition Smartphone for $10.5 million, and we'll throw in your very own private island." As noted in that earlier post, I felt that the advertisement was structured in a manner that would allow Sprint to actually deliver on its offer. But one of my students (Adam Pomeroy) wasn't content with speculation. He emailed Sprint and asked: would you uphold the offer? This was Sprint's response:
Thank you for your inquiry regarding the $10.5 million smartphone with island. Regarding your question on the legal issues, this is actually a real offer and if someone is interested in purchasing an island, a island broker will contact them for further details.
Kind regards,
The Private Island Offer Team
The Private Island Offer Team? That's pretty funny, especially since the offer was expressly limited to the "100 wealthiest people on planet earth." If one of those people called, you would definitely want to have a team waiting for them.
October 02, 2007
Today in Contracts, having just finished the chapter on remedies, we finally reached the discussion of contract formation. One of the discussion problems in my book is based on the famous Kimba Wood opinion, Leonard v. Pepsico, in which the plaintiff attempted to claim a harrier jet based on this television commercial. (Thanks to Val Ricks for providing the videos.)
The plaintiff lost and was subjected to Judge Wood's barb: "Plaintiff's insistence that the commercial appears to be a serious offer requires the Court to explain why the commercial is funny."
A few weeks back, this case prompted a discussion on the contracts listserv regarding this more recent advertisement from Sprint. Is that an offer?
The usual citation in cases like these is Lefkowitz v. Great Minneapolis Surplus Store, 86 N.W.2d 689, 691 (Minn.1957), in which the Minnesota Supreme Court held that an advertisement is an offer when it is "clear, definite, and explicit, and leaves nothing open for negotiation." (In Lefkowitz the plaintiff, Morris Lefkowitz, prevailed in a lawsuit alleging that the following newspaper advertisement was an offer: "Saturday 9 AM Sharp, 3 Brand New Fur Coats, Worth to $100 .00, First Come First Served $1 Each.")
The Sprint advertisement looks like an easy case under Lefkowitz. While the advertisement is obviously intended to be humorous, the terms are "clear, definite, and explicit," and the advertisement "leaves nothing open for negotiation." [UPDATE: We continued our discussion today in class, and I am less enthusiastic about the definiteness of the offer. Among other things, the island is not specified. The oft-quoted standard from Lefkowitz does not exhaust the analysis. As the court noted in Leonard, the objective theory of contract formation would also cause us to ask if this were a serious offer.]
Early on in the advertisement, the narrator defines the main terms of the offer: "Introducing an exciting offer for the 100 wealthiest people on planet earth: the first $10.5 million cell phone." If you accept the offer, you get a Blackberry 8830 World Edition Smartphone, introduced earlier this year, and Sprint will throw in your own private island. ("For a limited time, buy a Blackberry 8830 World Edition Smartphone for $10.5 million, and we'll throw in your very own private island.")
The distinctive feature of the Sprint advertisement is that the terms of the offer would be easy for Sprint to fulfill if a smart-aleck plaintiff like Leonard surfaced. Private islands can be had for much less than $10.5 million. (If you are curious, here are some islands you can rent for less than $500 per week!) Of course, that smart-aleck plaintiff would have to be one of the "100 wealthiest people on planet earth," so Sprint won't have to deal with a run on the store in any event.
September 26, 2007
Interesting interview with a very busy CEO selling some pretty desirable content:
- The content is global: "International TV rights were 10 per cent of our income, and are now 28 per cent of our income. We could be at 50 per cent of our income in three years' time"
- It is also kept private: "Reuters would love to ... take pictures ..., and syndicate them on a world news service – for nothing paid to us. Their argument is that we are of such interest to the world now that it is news."
- Which means that the provider doesn't like the internet: "We have a class action against Google and YouTube in the US. They have no appetite for taking down clips."
What is this CEO selling?
He is selling soccer - specifically, the English Premier League, the richest soccer league in the world, and - I confess - my latest sporting obsession, in that as of last year, I take in the weekly match on cable without fail. Which means that it is a good thing that Liverpool will definitely be winning the league this year, because you could make the case that I've been rooting for them since a school trip to Merseyside at age 7. Via.
September 16, 2007
The latest edition of Nate Oman's new legal scholarship podcast (Law Talk) features a conversation with yours truly about my paper "Contracts as Organizations" (with Brayden King), which is available on SSRN. Thanks to Nate for being a gracious host. Contrary to popular belief, I don't much like listening to myself, but I listened to the first part of our conversation and thought it came out fine. Beyond the value of this particular show, however, I think Nate is onto something good with the Law Talk program, and I encourage you to subscribe.
September 14, 2007
Ed Foster wonders about email disclaimers: "Do e-mail
confidentiality notices serve any real purpose? Do they actually have
any legal standing? And if not, why do so many people -- particularly
lawyers -- routinely append them to all the messages they send out?"
Ed analyzes the issue from a contract perspective, concluding that "confidentiality notices certainly seem to have what the lawyers would call contract formation issues." But in a recent article on protecting email privacy, Ned Snow suggests a property analysis:
Contrary to popular belief that email disclaimers are of no legal effect, an email disclaimer that requests an unintended recipient to destroy an email does appear to merit legal recognition: gift law and finders law imply that the email sender retains a property interest in the email. The following simple email notice appears to have legal effect: "If you are not the intended recipient of this email, the email sender requests that you destroy this email." Because the unintended recipient never receives a property right superior to the email sender, the unintended recipient must comply by deleting the email.
Hmm.
There seems to be precious little case law on this subject. Strange, given that email disclaimers have generated a fair amount of commentary. While we await definitive resolution of this issue, we might as well have fun with it, especially if we can include a reference to Sarbanes-Oxley. This comes from a followup on Ed's column:
But what if we all treated e-mail messages exactly the way the dumb disclaimers tell us to? One reader gave an example from his own company. "In our recent Sarbanes-Oxley process we were dealing with a company who attached this phrase to every e-mail: 'Any disclosure, copying, or distribution of this message, or the taking of any action based on it, is strictly prohibited.' So when I received an e-mail asking me to go to a meeting, I didn't go. And when I received an e-mail saying 'Please call me.' I didn't call. That would have been taking an action based on the e-mail. The employee who had been sending me the e-mails was quite taken aback when I explained that. Normally I would have ignored such nonsense, but since this was for Sarbanes-Oxley, I figured I had to take the process seriously."
September 04, 2007
In my Contracts class, we just finished our discussion of the Shirley MacLaine case, the first case in the casebook. If you studied contracts in a law school, you probably encountered the case, which involves a contract between MacLaine and Twentieth Century Fox (TCF). Under that contract, MacLaine agreed to star in the movie version of the popular Broadway musical Bloomer Girl. The movie was never made, but TCF offered to place MacLaine in the lead role of another movie entitled "Big Country, Big Man." She refused, and that film was never made, either. (By the way, MacLaine turned down the opportunity to appear in Casino Royale because she was under contract for Bloomer Girl.)
MacLaine sued for payment under the contract. According to the California Supreme Court, "the sole issue is whether [MacLaine's] refusal of [TCF's] substitute offer of 'Big Country' may be used in mitigation." So conceived, the case turned on whether "Big Country" was "inferior employment" to "Bloomer Girl." The majority felt that "no expertise or judicial notice is required" to see that "Big Country" was inferior, but the dissent observed, "It is not intuitively obvious … that the leading female role in a dramatic motion picture is a radically different endeavor from the leading female role in a musical comedy film." And off we go, discussing the rationales for the "duty to mitigate."
Victor Goldberg's new book, Framing Contract Law, has a chapter devoted to the case, in which he discusses the following "pay-to-play" provision from MacLaine's contract:
We shall not be obligated to utilize your services in or in connection with the Photoplay hereunder, our sole obligation, subject to the terms and conditions of this Agreement, being to pay you the guaranteed compensation herein provided for.
Goldberg observes:
By posing the problem in terms of the "different or inferior" question, the California Supreme Court deflected attention from the essence of the contract. The contract had a "pay-or-play" provision, common in the motion picture industry. The studio had, in effect, purchased an option on her time; they would pay her to be ready to make a particular film, but they made no promise to actually use her in making the film. When Fox canceled the project, they did not breach; they merely chose not to exercise their option. There was no breach and, therefore, there was no need to mitigate.
Interestingly, this theory was presented in the lower courts in the MacLaine case. The Superior Court held that TCF waived the right to have damages mitigated. (Though any actual earnings by MacLaine during the contract period would have to be deducted from the contract price.) At the Court of Appeal, however, a unanimous court found an "implied condition that [MacLaine] mitigate [TCF's] obligation by accepting other suitable employment," but concluded, "It is obvious that the two plays differed widely."
This set the stage for the opinion that appears in my Contracts book, which focuses exclusively on mitigation. Of course, the existence of the pay-to-play provision doesn't do much to deflate the value of that opinion to our discussion of mitigation, but Goldberg's insight reinforces the notion that [appellate] opinions are fables. It also raises more troubling issues about the relationship between transactional work and litigation: "Why did the California Supreme Court ignore the purpose of the relevant contract language in determining whether Shirley MacLaine had to mitigate? Does the disjunction between contract law's analytic boxes and transactional lawyers' practical concerns lead to systematic error in contract litigation?"
August 22, 2007
The NYT describes the contract signed by parents of the children who participated in "Kid Nation" (first discussed on this blog here), the controversial new reality show on CBS:
The 22-page agreement leaves little room for parents to argue that they did not know what their children might encounter. As is standard in such agreements, the parents and the children agreed not to hold the producers and CBS responsible if their children died or were injured, if they received inadequate medical care, or if their housing was unsafe and caused injury.
But while such agreements might be standard for adult participants in a reality show, it also takes on a different tone when the minor and the parent are being held solely responsible for any "emotional distress, illness, sexually transmitted diseases, H.I.V. and pregnancy" that might occur if the child "chooses to enter into an intimate relationship of any nature with another participant or any other person."
The agreement also imposes extensive confidentiality requirements on the parents and the children, including that any interviews they grant must be approved by CBS. Those confidentiality conditions extend for three years beyond the end of the show, not the individual 13-episode cycle in which a child participates but the entire series, however many cycles it includes. The producers of "Kid Nation" have already begun interviewing children to take part in the second installment.
Violating the confidentiality agreement carries a $5 million penalty. CBS and the production companies, Good TV Inc. and Magic Molehill Productions, retained the rights to the children's life stories "in perpetuity and throughout the universe." And that right includes the right to portray the children either accurately or with fictionalization "to achieve a humorous or satirical effect."
To ensure that parents and the children abide by the agreement, the payment of the $5,000 stipend promised to the children who complete the series and the $20,000 that some of them received for being voted the best participant in each of the 13 episodes can be withheld, according to the contract, until after the broadcast of the entire series.
The contract also specifies that the children are able to leave the production at any time, but that in doing so they will lose their right to receive payment and will still be bound by confidentiality provisions.
A couple of points. First, it would be nice to see the actual contract, not just a reporter's summary of the contract. I know, I could just request it from the New Mexico Attorney General, wait several days, and shell out a few dollars for the contract. But the NYT has already done that, so why not provide the document?
Second, in some respects, this contract sounds like the releases that I sign when my children want to play sports at school. Such releases generally cover negligence, not recklessness or willful misconduct. Interestingly, some courts have invalidated even releases of negligence on "public policy" grounds. A key case here is Tunkl v. Regents of the University of California, 383 P.2d 441 (Cal. 1963), which discerned in prior cases a "rough outline of that type of transaction in which exculpatory provisions will be held invalid":
It concerns a business of a type generally thought suitable for public regulation. The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence. Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents.
By that standard, CBS would have trouble with a lawsuit by parents. In this instance, however, the New Mexico Attorney General is investigating whether "the show's producers might have violated state labor laws and licensing requirements for child housing." An exculpatory provision has no value against those charges.
UPDATE: The actual contract can be found here. Thanks to Elizabeth Winston for the tip. I looked through it briefly and didn't see anything that would change what I wrote above.
July 17, 2007
My wife's cousin works for a large regional bookstore, and yesterday she described some of the elaborate security measures taken by Bloomsbury to protect the newest installment of Harry Potter. Today, in an email to the Contracts professors listserv, Elizabeth Winston conveniently linked to a story about the security measures in The Economic Times, which describes the booksellers' contracts near the end:
London-based Bloomsbury,which publishes the Potter books in Britain, has hired secure sites across the country to house the book prior to distribution early this week. Several dozen security teams will protect the sites round the clock. Experts say security staff will earn up to £30 an hour with a guard dog, up to £20 without.
Print factory workers in Britain have been threatened with the sack if they leak any details,while German publishers banned mobiles and even packed lunches in the printing plant. Some employees reportedly had to work in near-darkness to prevent them reading the book. It is from Tuesday, however, when copies begin to be sent out to retailers, that the most crucial part of the security operation will come into effect.
The trucks Bloomsbury will use are fitted with satellite tracking systems costing up to £1,000 pounds,which will reveal whether any of the vehicles deviate from their intended route. The books are on sealed pallets fitted with alarms to prevent tampering. At one of the world’s biggest booksellers, Barnes and Noble in America, the books are being kept in padlocked trucks at the insistence of Scholastic. Amazon, the online retailer, has cordoned off special sections of its warehouse to ensure restricted access.
All retailers have had to sign a legal embargo preventing them from divulging any of the book’s content or selling copies before the release time. A spokesman for Bloomsbury said: “we have a litigation specialist poised 24 hours a day, seven days a week to deal with any breaches. It is our intention to enforce the embargo vigorously and seek an immediate injunction if required.” While experts put the cost of all this at £10 million, the lengths to which publishers have gone are not surprising.
Four years ago, Donald Parfitt, a fork-lift driver from Suffolk, was ordered to do 180 hours community service after he admitted stealing pages from Harry Potter and the Order of The Phoenix from the printing plant where he worked. Last year, one Aaron Lambert was jailed for 4 1/2 years for stealing copies of Harry Potter and The Half-Blood Prince and trying to sell them. Rowling has reportedly received letters from people asking her to reveal the ending of the seventh book because their terminally-ill relative may not live until Saturday.
If you are that desperate, you may be able to find an advance copy on BitTorrent. I am waiting for Saturday, when I will get my copy at Barnes & Noble. Everyone seems to think that Harry is a goner, but I am not so sure. Rowling is nothing if not surprising.
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May 18, 2007
For the past five years, I have been teaching Contracts at the University of Wisconsin Law School using "the Wisconsin materials" (i.e., Stewart Macaulay et al., Contracts: Law in Action). The Wisconsin materials are idiosyncratic in many ways, but one of the most noticeable is that they devote very little space (in the first course) to offer, acceptance, and consideration. In the discussion of Contracts casebooks over at PrawfsBlawg, Ethan Leib notes that he uses the Wisconsin materials, but supplements those topics with Farnsworth. Is that necessary?
Some Contracts casebooks devote a large portion of the text to offer, acceptance, and consideration, and I suspect that this choice is motivated in part by the desire to teach legal reasoning, rather than the desire to convey useful information. That is, information that would be useful beyond the bar exam. The basic themes relating to offer, acceptance, and consideration are easy to grasp, though the variations on those themes are endless, mind-numbing, and irrelevant to most lawyers.
One of the great things about the Wisconsin materials is that they highlight the importance of contracts, not just the "law of contracts." And, as readers of Conglomerate know, I think contracts are pretty interesting and important.
May 04, 2007
According to Martin Garbus, Don Imus' lawyer, Imus' contract with CBS states that his services "are of a unique, extraordinary, irreverent, intellectual, topical, controversial and personal character" and that programs containing these elements "are desired" by CBS and "are consistent with company rules and policies."
But that's not the whole story, according to WaPo:
But other contract language, obtained by The Washington Post, will be used by CBS lawyers to argue that the company had "just cause" to dump Imus. These clauses cover "any distasteful or offensive words or phrases" that CBS believes "would not be in the public interest" or could jeopardize its broadcast license, as well as language that brings the company or its advertisers "into public disrepute, contempt, scandal or ridicule, or which provokes, insults or offends the community or any group or class thereof."
In response, Garbus observed, "CBS's interpretation of the contract, stringing together words from here and there, would render the clause meaningless. Contracts are not interpreted that way."
Ann is right. This is an interesting contracts case. It would be a lot more interesting if we could actually see the contract. (WaPo has "obtained" the "contract language" ... so do they have a copy of the contract? If they have it, is there some reason they would feel comfortable quoting from the contract, but not making a copy available?)
One aspect of the case that interests me is the role of Imus' apology. As we all remember, Imus apologized to the Rutgers women's basketball team, calling his initial remarks "thoughtless and stupid." I don't read the contract language highlighted by Garbus as a blank check for Imus. Though the line between "controversial" and "distasteful or offensive" admittedly is pretty fuzzy, didn't Imus admit that he crossed the line?
March 11, 2007
The much anticipated day is here. Contracts as Organizations -- my paper with Brayden King -- is now available on SSRN. We have submitted the paper to law reviews, but we welcome further comments. Here is the abstract:
Empirical studies of contracts have become more common over the past decade, but the range of questions addressed by these studies is narrow, inspired primarily by economic theories that focus on the role of contracts in mitigating ex post opportunism. We contend that these economic theories do not adequately explain many commonly observed features of contracts, and we offer four organizational theories to supplement – and in some instances, perhaps, challenge – the dominant economic accounts. The purpose of this Article is threefold: first, to describe how theoretical perspectives on contracting have motivated empirical work on contracts; second, to highlight the dominant role of economic theories in framing empirical work on contracts; and third, to enrich the empirical study of contracts through application of four organizational theories: resource theory, learning theory, identity theory, and institutional theory.
Outside the economics literature, empirical studies of contracts are rare. Even management scholars and sociologists, who generated the four organizational theories just mentioned, largely ignore contracts, both in theoretical and empirical analysis. Nevertheless, we assert that these organizational theories provide new lenses through which to view contracts. While economic theories of contracting focus primarily on one purpose of contracts – mitigating ex post opportunism – the four organizational theories help us understand the multiple purposes of contracts.
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February 25, 2007
I have been reading lots of empirical work on contracts lately, and I am fascinated by the observation that some contracts are "sticky," meaning that the drafters do not change the contracts, even when they contain suboptimal provisions. My paper on the interpretation of venture capital contracts offers an example from the Benchmark case.
Pierre Azoulay and Scott Shane provide another example in their 2001 paper on exclusive territory provisions in franchising (Entrepreneurs, Contracts, and the Failure of Young Firms, 47 MGMT. SCI. 337 (2001)):
Despite the benefits of exclusive territories, some entrepreneurs fail to adopt this policy. The reason is not that they face higher costs of adoption. Rather, their limited knowledge of contracting leads them to overlook the importance of the franchisor encroachment problem when designing their contracts. Because franchise agreements are sticky, and bounded rationality prevents these entrepreneurs from identifying the payoffs associated with adoption, we often observe nonexclusive arrangements persisting until failure.
Why are contracts sticky? Azoulay and Shane attribute the stickiness of franchise agreements to bounded rationality and transaction costs:
Entrepreneurs will persist with initially selected routines until they fail…. First, entrepreneurs cannot change their routines unless they first recognize that those routines are flawed. This recognition requires an understanding of the cause-effect relationship between organizational design and firm performance, which many entrepreneurs lack. Second, even if an entrepreneur recognizes that a routine is flawed, he or she may be unable to change it. The changing of contract provisions involves incurring significant transaction costs that make the provisions sticky to adjustment.
This is very similar to the explanation that Brayden King and I offer in our soon-to-be-posted paper on the empirical study of contracts:
As an organization creates more and more routines, those routines become increasingly layered and interconnected, such that a change in one routine necessitates changes in other routines in the organization. Considering contracts as a particular type of routine helps us understand why changing contracts or adapting them to specific circumstances can be a very difficult and costly action. If the contract’s form is intertwined with dozens of other organizational processes, then it is conceivable that over time a particular contract form will become increasingly rigid and subject to inertia.
November 28, 2006
In my Contracts class, we read Sullivan v. O'Connor, in which a woman sued a doctor for contract damages in connection with a botched operation on her nose. According to the doctor, the woman "had a tremendous nose -- the biggest nose I've ever seen in my whole life." What she wanted, according to the doctor, was a "Hedy Lamarr nose."
What she got, according to the court, was a nose with a "concave line about to the midpoint, at which it became bulbous; viewed frontally, the nose from bridge to midpoint was flattened and broadened, and the two sides of the tip had lost symmetry."
Sullivan won her case, but what of Hedy Lamarr? Most of my students have never heard of Hedy Lemarr prior to reading Sullivan v. O'Connor, but there was more to Hedy Lamarr than a beautiful nose. Indeed, I was surprised earlier this year to learn that she is a patentee, and "Lamarr's frequency-hopping idea served as the basis for modern spread-spectrum communication technology used in devices ranging from cordless telephones to WiFi Internet connections."
No wonder Emily Shurr thinks Lamarr would be a shoo-in if nominated in Wired's "sexiest geek" competition.
Thanks to Connor Sabatino for the tip.
November 08, 2006
From an interesting discussion on the AALS Contracts listserve, I was directed to a story about how the people who appear in Borat got there:
They would be contacted by a woman calling herself Chelsea Barnard from a fictional film company, One America Productions.
They would be told about the foreign correspondent making a film about life in the US, with the pitch tailored to each person's specialist subject.
Then on the day of the interview, they would be presented with a release form at the last minute, be paid in cash and, finally, Borat would amble in, beginning with some serious subjects before starting his provocative routine.
That release form mentioned in the last paragraph is here. One obvious problem with the release jumps off the page: One America Productions is fictional!
Is Sacha Baron Cohen a "foreign correspondent"? Well, he is British.
The release has a merger clause, but I am wondering about a fraud claim. I think Nate is wondering the same thing.
UPDATE: Here is a complaint filed in California. The first cause of action: fraud.
October 19, 2006
Over the past several years, I have been spending a great deal of time reading sophisticated financial contracts, mostly in the venture capital arena. More than once I have asked myself, "What makes a well-drafted contract?"
- Internal consistency? This is a modest aspiration, but if you don't live in the world of contracts, you might be surprised to learn how often it doesn't happen.
- Accuracy in memorializing the agreement of the parties? Perhaps, though most (all?) sophisticated financial contracts must be much more than that since these contracts contain many terms never discussed by the parties.
- Effectiveness in guiding future actions of the parties without generating disputes over the meaning of the contract? This would be a significant accomplishment, I suppose, even though we know that contracting parties often make midstream adjustments to their relationship. Implicit in this standard is the idea that a well-drafted contract could be interpreted by an independent third party (i.e., a judge) to discover the terms of the bargain.
In his classic article, Value Creation By Business Lawyers: Legal Skills And Asset Pricing, 94 Yale L.J. 239 (1984), Ron Gilson suggests a more ambitious standard: a well-drafted contract economizes transaction costs. In Ron's words: "the tie between legal skills and transaction value is the business lawyer's ability to create a transactional structure which reduces transaction costs and therefore results in more accurate asset pricing."
If you were reading closely, you may have noticed that Ron connects legal skills with transaction value, thus raising the obvious question: why are legal skills required to perform "transaction cost engineering"? Ron has an answer:
The critical importance of transactional structure for purpose of regulation provides the core of an explanation for lawyers' domination of the role of transaction cost engineer. Because the lawyer must play an important role in designing the structure of the transaction in order to assure the desired regulatory treatment, economies of scope should cause the nonregulatory aspects of transactional structuring to gravitate to the lawyer as well. Knowledge of alternative transactional forms and skill as translating the desired form into appropriate documents are as central to engineering transactions for the purpose of reducing transaction costs as for the purpose of reducing regulatory costs; indeed, if these purposes is one or another way conflict, facility at both tasks should result in more optimal trade-offs between them. Viewing the matter from this perspective, it would have been surprising if lawyers had not dominated the field.
This is very clever, and I think it also has the virtue of being right. Which leads me to Usha's post from last week in which she despaired of being "lost in a casebook world." In 1984, Ron asked, "why have law schools done so bad a job in training business lawyers?" His answer was that the absence of a theory of private ordering made classroom instruction no more valuable than apprenticeship. The advent of transaction cost economics, however, emboldened Ron to "present a fairly optimistic picture of the future of this component of the legal academy and profession."
Has that promise been fulfilled? My sense is that things have changed significantly since 1984, partly due to Ron's and Victor Goldberg's initiative in starting the Deals course at Columbia, a version of which Vic still teaches. That course (which was discussed at a AALS conference on transactional law held during my second year of teaching) inspired much of my experimentation with teaching transactions, and I know that many other law professors are also teaching transactional courses and introducing transactions into mainstream courses. The proliferation of business law clinics is also a happy development.
Yet, I believe we have some distance to travel before we obtain Ron's aspiration for the training of business lawyers. The vast majority of law students still graduate without significant transactional training. Standards for "best practices" in transactional training do not exist, and as a result, training opportunities vary widely, from heavily theoretical to almost exclusively practical. Finally, materials are mostly homemade, thus requiring a significant investment of additional time to teach such a course.
Where do we go from here? I would be very interested to hear thoughts about next steps. Not just baby steps, like using HBS case studies in Bizorgs, but big steps. How do we take transactional training to the masses?
Oh, and if you would be interested in helping me to organize another AALS conference on transactional law, let me know. It's overdue.
September 21, 2006
George Geis of the University of Alabama presented his paper, "Business Outsourcing and the Agency Cost Problem," here on Tuesday. George has a number of things going on in this paper, but I was most interested in his description of outsourcing contracts, which seem to resemble other alliance agreements and, to some extent, franchising agreements. I hope that George will continue to work with outsourcing agreements to produce richer data on the terms, but this paper is a good first step down that road.
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September 05, 2006
My daughter just started working yesterday at Jamba Juice. Christine's post on Dyson Vacuums reminded me that my daughter was asked to sign a confidentiality agreement. She can't reveal how the drinks are made, but isn't that revealed every time a drink is ordered? They make the drink right out in the open. And they list all of the ingredients for each drink on the website. (See, e.g., Strawberries Wild.) The proportions would not be hard to guess. Maybe they are worried about the Boosts?
August 14, 2006
I spent a good chunk of Saturday revising my comment on Vic's case study of the MasterCard IPO, with some references to his earlier work on the "branding effect" of deal structures. I am interested in the difference between the "branding effect" and other governance mechanisms. I wrote:
[B]randing may be a form of signaling, but the "branding effect" identified by Fleischer also has a function unrelated to signaling.... Brands in this latter context are not focused on the transmission of information, but on the creation of meaning. Thus, branding often is described by reference to emotional – or even religious – concepts. Brand meanings are created through stories, and those stories have many authors. Fleischer justifiably adds “deal structures” to the list of stories that contribute to a brand’s identity.
This seems right to me, but I would be interested in more thoughts about this.
Another example of a "branding effect" that jumps out at me is the use of coops by organic farms. See, e.g., Organic Valley. Why choose the cooperative form? My sense is that this decision has as much or more to do with branding (coops communicate certain values) as with governance.
The comment should be available for download shortly.
June 27, 2006
One of the testy and recurring issues in franchising has to do with how the franchisor uses the funds collected from the franchisees for marketing. Subway established a trust in 1990 to manage those funds, but the trust is now suing Subway's founder and Doctor's Associates Inc. (the franchisor) for changing the franchise agreement in a manner that disregards earlier commitments. I will try to track down the complaint and/or the franchise agreement here because the news stories are too sparse for much analysis, but this looks like it could be an interesting case.
Thanks to former student Juan Lozano for the tip.
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June 25, 2006
Brad Feld discusses a "Compelled Sale Right," which he found in a term sheet that recently crossed his desk.
Corporate lawyers are familiar with the doctrine of "minority oppression," which aspires to protect minority shareholders against "squeezeouts" and other abusive tactics by majority shareholders. The "Compelled Sale Right" turns the tables, allowing a minority shareholder (in this case, as low as 10%) to sell the company over the objections of the majority shareholders.
The minority investor has to wait seven years before the provision is active, but still ... I have never seen a provision quite like this one.
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March 24, 2006
This story in yesterday's WSJ struck me as interesting, maybe because I teach a case from Gordon's case book involving a similar fact pattern. Here, James Gordon, a top exec at ML left and eventually went to MS. Now, o