Today’s Wall Street Journal has an interesting article about how Toyota is leveraging it’s investment in product development with patents.  More specifically, Toyota has been diligently patenting the inventions resulting from the engineering developments associated with its best-selling hybrid Prius brand automobile. 

According to the Journal, Toyota has applied for more than 2,000 patents and is building a castle wall around its technology.  Raising the barriers to entry in this segment of the car market not only makes it more difficult for competitors to enter the field.  It also tees up Toyota’s patents (if and when they issue) for licensing and royalty potential.  It’s a great example of legal leverage.

For more information about the power of patents and how to use them for strategic business advantage, click here.

The past few years I’ve been to NYC I’ve been unable to get tickets to the Broadway show Jersey Boys, the story about the rise to success of Frankie Valli and the Four Seasons.  When the Broadway South series recently brought the show to Raleigh, NC my husband surprised me with tickets for my birthday.  What a show!  (And yes, he scored big points for the perfect gift.)

You’re probably wondering what all this has to do with Legal Literacy.  Well, part of the Four Season’s story is the remarkable relationship between the lead singer Frankie Valli and fellow founding member, songwriter, Bob Gaudio.   The two had a side agreement separate and apart from the group, a verbal agreement, sealed with a handshake - not a written contract.   According to the playbill, their collaborative efforts to this day are still governed by a handshake.

The audience applauded when the bit about the handshake deal was revealed on stage.  It made me realize that we’d all like to live in a world where your word is your bond and a deal is sealed with a handshake.  Written contracts and lawyers only appear to “complicate” matters. 

To make an arrangement like Valli’s and Gaudio’s work requires both parties to have a high degree of trust and integrity coupled to an uncompromised core set of values.  That’s easier to achieve when individuals are acting in their own capacity, than as agents for corporations that often represent a collection of competing interests. 

Not all entertainers are as fortunate.   The late Michael Jackson, for example, has left behind a legacy of litigation, including contract disputes. 

Contracts don’t create litigation, unresolved misunderstandings do.  Written contracts are merely roadmaps to reminding everyone about who is responsible for what.

A tip of the hat goes to the law firm of Howrey LLP who announced a new apprenticeship type program for new associates.  More specifically, program aims to train the novice lawyers on the firms’ dime, not the clients’.  That’s great news for client budgets . . . and for the associates who will be more likely to hit the ground running when they are turned loose. 

I give that initiative two thumbs up!

In a classic example of what not to do, fellow blogger Michael D. Young tells how iFreedom Communications International Holdings Ltd wound up with a whopping $4.1 billion arbitration award against it in a case involving the termination of a senior level employee without cause.  That’s not a typo.  Seriously, its billions with a big bucks capital B.

In an interview on the topic with the National Law Journal, Young explains how iFreedom ended up on the nosebleed section and had the arbitration award affirmed by a Los Angeles Superior Court judge.  It makes for interesting reading and offers some great legal literacy lessons:

1. Legal literacy lesson #1: Arbitrations are not dress rehearsals.  They are the real deal and can be as binding as a jury trial, if not more binding.  After this decision, you’re bound to see more arbitration clauses including a right of appellate review.

2. Legal literacy lesson #2: fail to produce requested documents at your peril.  If you watch a lot of TV crime dramas and think you have the right against self incrimination — you’re absolutely right — in a criminal case.  But in a civil context, you do have a legal duty to produce self incriminating documents and if you don’t produce them the law rightfully assumes you failed to do so because they’re highly incriminating.  That means ”they can’t prove it” can work against you the same way those missing minutes did on the Watergate tapes. 

Here the defendant failed to produce requested financial information.  The financial data was important because the plaintiff’s compensation agreement said he was going to be paid a commission of 5% of gross sales.  There was also a sweetener in the agreement that provided for commissions to be paid on an ongoing and permanent basis if the employee was terminated without cause. 

Without the company’s financial documents, the arbitrator and the plaintiff looked to available public information about the company’s sales.  What they found was a letter iFreedom sent to its shareholders announcing a monthly revenue of $535,000 and a growth rate of 10% per month.  The information caused the numbers to multiply into the eight figure range very quickly.

3.  Legal literacy lesson #3: know the rules.  Not knowing that negative inferences could be made in a civil case from missing evidence probably had a lot to do with the fact that iFreedom fired its attorney and the owner elected to represent the company.  If you don’t know the rules of evidence and of court, it’s probably best you hire someone who does to represent you.

4.  Legal literacy lesson #4: recognize when you’re in over your head.  One of the challenges of any leadership position is to “know” your limits and what’s outside your area of expertise.  This is a corollary to lesson #3.  When faced with a legal issue, particularly a lawsuit, you need to be represented by competent counsel.  A lawyer would have been able to advise iFreedom about the potential for punitive damages that could, and in this case did, triple, the underlying base award — and that’s how it got to $4.1 billion.

5. Legal literacy lesson #5: check your ego at the door.  Don’t have a hissy fit and not show up at the arbitration the way iFreedom did.  Putting your head in the ground ostrich style only make your hind quarters stand out as a bigger target than it already is.

Avoid iFreedom’s pitfalls and you’ll put yourself and your company in a more defensible position.