Sunday, May 17, 2009

New Trade Secrets Podcast Available

The third podcast in CTF's series on trade secrets and non-disclosure agreements ("NDAs") is now available. With one multi-million dollar verdict having been awarded in a high-profile trade secret case in California within the past several weeks, and with another high profile case seeking hundreds of millions of dollars on trial in federal court in Atlanta, the new podcast is timely. The podcast covers trade secret litigation from the pre-suit investigation to a possible appeal. The podcast covers the claims and defenses that are likely to be raised, the procedural issues that may arise, and how trade secret litigation may ultimately be resolved. The podcast is available at www.ctflegal.com/podcasts.html or www.ctflegal.blip.tv.

John Watkins to Speak to Chamblee Business Association on May 21, 2009

CTF Shareholder John Watkins will speak at the breakfast meeting of the Chamblee Business Association on Thursday, May 21, 2009. The meeting starts at 7:45 a.m. (doors open at 7:30) and ends at 9:00 a.m. at the Chamblee Civic Center on Broad Street in Chamblee. John will be speaking on Common Legal Mistakes and How to Avoid Them. The presentation will focus on legal mistakes commonly made by small and medium-sized businesses (and sometimes by larger businesses). The presentation will last approximately thirty minutes, with a question and answer session to follow. The meeting is open to non-members.

Wednesday, May 13, 2009

Are "Go Shop" Clauses Trending Up in M&A Transactions?

By Tom McLain

Although they have been around since about 2005 and are part of the "standard" arsenal of clauses that M&A lawyers use, "go shop" clauses may be gaining some additional popularity in the current economic environment when one considers transactions such as Barclays' $4.2 billion sale of iShares to CVC Capital Partners (see Financial Times article). Generally, "Go shop" clauses are loved by Sellers but are not too popular with Buyers.

As the name suggests, a "go shop" clause allows the Seller to accept a high bid in a non-binding letter of intent, but still continue to shop for an even better bid. One of the distinct advantages to a public company Board of Directors is that a "go shop" clause limits later shareholder criticism that the Board failed to obtain the maximum price. Some argue that a "go shop" clause may actually expedite the sale of a company because the Board may be less hesitant to accept a bid and because the Board may be able to avoid or minimize other necessary due diligence such as obtaining a fairness opinion. Others argue that "go shop" clauses can slow a transaction because the Buyer waits until the "go shop" until the period of time in which the Seller can solicit new bids expires before it begins pursuing the transaction in earnest.

Buyers almost always prefer to use a "no shop" clause because it theoretically prevents the Buyer from being outbid. Additionally, Buyer argue that a "no shop" clause is necessary for them to commit to spend the time, money and effort to complete due diligence and draft a definitive agreement. Those arguing against "go shop" clauses say that they tend to have a chilling effect on the bidding because no Buyer wants to submit a price and then be the target of other bidder's efforts to buy the seller. However, particularly in the case of a public company, the insulating effect of a "go shop" clause may protect the successful bidder from subsequent shareholder suits that seek to enjoin a sale.

While it is always risky to predict trends, "go shop" clauses could become a bit more commonplace in the current economic environment. Companies that are effectively being forced to sell or merge due to dire financial conditions already have disappointed shareholders who have lost considerable value as compared to market prices of several months back. As a way of satisfying some of those shareholder concerns and perhaps heading off shareholder claims that the Board sold at a price below market value, public company Boards may be drawn quickly to "go shop" clauses. As the M&A market continues to slowly reestablish itself, we will see whether "go shop" clauses become more prevalent.

The One Almost Universal Rule

by John Watkins

There are very few absolute truths in the legal profession. For every legal rule, there is at least one exception. There is one truth that is pretty close to universal, however, about how clients use lawyers. That rule is that it is almost always less expensive and more effective to involve the lawyer earlier in the process than later. As a litigator, there are countless examples I have seen in which a client could probably have avoided litigation if it had, for example, consulted with its lawyer about drafting a contract or structuring a transaction instead of trying to go it alone. Although it is not a perfect analogy, it is a bit like preventative medicine.

Many clients, apparently thinking they will decrease costs, try to use a lawyer like a fire axe that is kept behind glass: Break glass and use only in the event of a fire. Other clients try to limit the information they give to a lawyer, trying to "define" the problem, but lacking the training and experience necessary to do so. The result is almost invariably a less than optimal outcome at a higher overall cost.

Clients who achieve optimal results find an experienced lawyer and use the lawyer as part of their business team. Those clients involve the lawyer early in planning and structuring a transaction. As a result, they tend to avoid mistakes in negotiating and in structuring that are more costly to correct at a later date, if they can be corrected at all. These clients also make sure that a contract or relationship is structured as clearly as possible at the outset. These businesses realize that proactive legal assistance is part of their overall effort to reduce risks and to reduce costs. Although structuring a transaction or contract carefully does not absolutely guarantee there will be no future disputes, it lessens the probability. In addition, proper structuring almost always strengthens a company's position in the event of litigation.

Sunday, May 3, 2009

Mediation Comes to Italy

by John Watkins
In May of 2003, I attended a seminar on international dispute resolution sponsored by the Center for International Legal Studies in Heidelberg, Germany. The participants included lawyers from most of western Europe, the U.S., Brazil and Argentina. At the time, most of the participants from outside the U.S. were unfamiliar with mediation. Mediation is a structured settlement negotiation process in which the parties meet with a neutral third party called a mediator. The mediator cannot impose a settlement on the parties, but tries to assist the parties in reaching a voluntary settlement. Particularly when the parties participate on a voluntary basis (as opposed to being referred by a court), mediation has proven to be very effective in resolving disputes. For more basic information about mediation, see http://www.ctflegal.com/mediation-basics.html. For more advanced topics, see http://www.ctflegal.com/advanced-mediation.html. Or check out www.watkinsmediation.com.

The international participants at the Heidelberg conference were very familiar with international commercial arbitration, which is a time-honored method of resolving commercial disputes outside of a country's court system. Unlike mediation, arbitration (at least in its traditional form), is a binding dispute resolution process, in which arbitrators (usually lawyers or retired judges, although sometimes business people) decide the case in the place of a judge or jury. To U.S. lawyers, arbitration and mediation have gone together for many years as the two most prominent forms of "alternative dispute resolution" or "ADR" (meaning dispute resolution outside of the civil court system). So, it was surprising to me in 2003 that our European colleagues were so unfamiliar with one form of ADR (mediation) when they had used another form (arbitration) for many years.

Apparently, as Bob Dylan might say, the times are changing. I just attended a conference on international agency and distribution agreements sponsored by the Contract Section of the Union Internacionale des Avocats (International Association of Lawyers, or "UIA"). At this conference, I had the good fortune to meet Carlo Mastellone, the founder of Studio Legale Mastellone in Florence, Italy. Carlo, an elegant man born in London, explained to me that there is a huge backlog of civil cases in Italy, and that he and his colleagues hope to help resolve the situation through the use of mediation! Carlo is helping organize the effort in Florence, and they even have a website, http://www.conciliazionefirenze.org/. The website is in Italian, which makes it a little difficult for me to use (I would have a slightly better chance with German). However, I really like the artwork, which was done by an artist friend of Carlo.

In any event, I am glad that mediation has landed in Europe. In fact, I am glad we were finally able to export something to Europe relating to our legal system -- although it is actually about avoiding our legal system -- that may actually be appreciated! Now, if I can just get a case in Florence ....