There is was again.  The justification for why legal stuff was a business roadblock.  They preferred to be blinded by success instead of immobilized by fear.  I understand.  It’s less work and a whole lot more fun to bask in the glory.

These entrepreneurial marketers are not alone.

The Rhythm Watch Co. appears to have a similar philosophy.  Who’s Rhythm Watch?  They are the watch maker who took the cell phone ringtone idea and applied it to clocks.  Their “Grand Nostalgia Clock” chime rings includes songs by famous artists, including Paul Simon’s “Bridge Over Troubled Waters.”

The Grand Nostalgia Clock concept was good.  The execution was not so good.  Nostalgia Clock failed to license Paul Simon’s song and now he has sued them for copyright infringement. 

Some folks will tell you that it’s easier to beg for forgiveness than to ask for permission.  Lawsuit math doesn’t work that way.  According to the Complaint filed by Simon, a song as famous as “Bridge Over Troubled Water” could command a licensing fee of at least $1 million.  The suit seeks damages of $10 million and that doesn’t include the cost of the lawyers to defend the case and management’s time to help locate documents (i.e. evidence) and testify in court or at depositions.

Bigger companies have bigger financial shock absorbers than small businesses.  Those extra resources make it easier to handle litigation speed bumps.  For small businesses, however, a suit like Simon’s could be devastating. 

While marketers are always looking for innovative ways to reach their customers, it’s wise for you to look both ways before crossing the street.  That doesn’t mean you need to be lawyers or engage in minutia.  It only means you need to recognize potential problems before you get flattened by them.  Otherwise, the street you cross could become a “Bridge Over Troubled Water.” 

Charles Koppelman, chairman of Martha Stewart Living Omnimedia and former music executive on why MSLO’s business performance needs to be looked at from the perspective of what the company was on the verge of becoming before Martha’s legal problems with the Feds and how far its come back.

Martha, you may recall, was convicted of obstruction of justice, fined, and sentenced to jail for her role in some ill-timed sales of Imclone stock.  At the time, the brouhaha was a big black eye to her brand and her company’s reputation.  Advertisers fled her magazine, her TV show was cancelled, and she lost her leadership position in the company she founded. 

Yes, we’ll never really know where her empire would have been today if her career hadn’t missed a beat with a timeout at Club Fed.  By the time you get out of jail things have changed and you don’t necessarily get to pick up where you left off.  In her case, the lost momentum is a lost opportunity cost she is still in the process of recovering. 

It just goes to show you how lost momentum is yet another consequence of ignoring the foul lines of legal playing field all businesses operate on.  Luckily you don’t have to fall victim to the same unintended fate.  You can use Legal Literacy to manage your legal risk before it manages you.  Why not order your copy today.

Even scarier is having a grand jury subpoena land on your desk. 

Today, however, in an excellent article appearing in Texas Lawyer, Greg Saikin and Sara Tubbs, provide some guidance on what to do if you’re hit with a grand jury subpoena.  Their sound, practical advice makes the process less frightening.

Hopefully you’ll never need to use.  But if you do, you can find it here.

Apologizing may sound like a totally a counter-intuitive move.  However, some academic medical centers have discovered they can substantially cut their litigation costs by acknowledging preventable errors and apologizing for their mistakes instead of making excuses and denying them.    

It’s been reported that at the University of Illinois only one patient out of 37 sued after receiving an apology and at the University of Michigan Health System claims and lawsuits declined from 262 to 83 between 2001 and 2007, resulting in a 2/3 drop in legal costs.  Now that’s a cost savings you can take to the bank, including the drop in malpractice premiums.  

The issue of disclosure through apology is not an academic one confined to university hospitals.  Groups like the American Medical Association, the American Hospital Association, and the Joint Commission which accredits hospitals have adopted standards encouraging transparency and disclosure and many hospitals have written policies in compliance.   

Maybe these smarty pants doctors may be on to something.  They are recognizing that nothing morphs a reasonable patient into an indignant one — one who is ready to pull the pin out of the lawsuit hand grenade – than denial and concealment of an error.  Denial provokes fear that it can happen again and the concealment is nothing more than disrespect of the other party.     

Let’s face it.  No one likes being lied to, especially if they are paying the price for your mistake.  It makes them angry.  It provokes outrage.  It’s the kind of negative energy that sends them running to lawyers’ offices.     

You don’t need to be in the medical profession to benefit from the hospitals’ experiences.  The next time a contract dispute arises with a customer or vendor, ask yourself whether a mistake was made.  Be honest with yourself.  The same goes for an employment dispute, or any other business/ legal problem.     

In the end, a sincere and well timed apology can turn negative energy into positive energy.  It’s a lot cheaper than a lawyer and you can get on with your business.  

Interestingly, the feedback was positive from entrepreneurs and negative from law firms.  The dichotomy suggests that there is room for improvement in the relationship between law firms and their clients.  Mr. Mendelson promises to post some updates in the coming weeks with suggests for how venture capitalists and lawyers can work together more effectively.

In the meantime, my own contribution for how lawyers can add more value to the client relationship, can be found my article appearing in the current issue of ABA’s The Young Lawyer.

Contract often evolves the same way.  A recent article in the NY Times discusses how builders dealing with prima donna homeowners add contract clauses to avoid repeating prior bad experiences. 

Take for example the contractor who leaned a material delivery up against a fence.  The added pressure made the gate to pop open and the family dog wandered off causing the homeowner to launch into an abusive tirade.  The dog came back in the middle of the argument, but, to avoid becoming a verbal punching bag the next time there is now a clause that says workers “shall not be expected to keep gates and the like closed for animals and children.”

Another contractor got burned when a client withheld $10,000 due to a missing kitchen cabinet door knob.  Now their contracts reads “final payment is due upon substantial completion.”

On the flip side, as a homeowner, if you’ve ever had to call a contractor umpteen to get them to finish a project, the “substantial completion” language may be a problem.  It therefore pays to read contracts and to seek clarification about mutual expectations — even the ones that seem obvious to you. 

It’s cheaper than a lawsuit and will save a lot of frustration.  

An enforceable system of contracts and reliable property rights provides the stability necessary to support solid economic growth and prosperity.  The process of accountability creates trust and confidence.  It is precisely that trust and confidence that lets a business deal be a calculated risk instead of a gamble.

Indeed, the consequences of a developing rule of law and the business risk it creates was driven home last week by Home Depot’s top legal beagle, Jack A. VanWoerkom, who shared his views about the risk of doing business in fast growing foreign markets.  His views were informed by his international experiences at Home Depot as well as the chief legal positions he has previously held at three other global companies.

Here are a few of his candid observations: 

Sao Paolo is a very dangerous place to do business, if you are in Brazil, you operate with a body guard.  [One of my former employer’s competitors in Brazil] paid bribes, the other [competitor] didn’t pay taxes.  It was widely accepted and considered a competitive advantage

[Indian] courts are overwhelmed.  I have great concerns about the enforceability of contracts.  [Extreme poverty and separation of people into social and economic groups causes] people to either manipulate or buy justice.

China has only had property ownership for about 15 years, [its economy and business infrastructure is] very immature.

I did not buy a business in Russia because the level of corruption was so great it just didn’t seem worth it.

Doing business in the world’s fastest growing markets sounds very good; but when things go bad they can go bad very quickly simply because there is no effective recourse when contracts are breached.  Unfortunately, there is no foolproof way to contract around the law of the jungle. 

Unfortunately, this “toy story” is an example of how cheap off-shore labor in unregulated environments can have unintended consequences when the exports subsequently land in markets with higher safety standards.  These disappointed expectations create legal liability, triggering product recalls and lawsuits.  It’s a cautionary tale of how the cheapest solution is not always the least expensive.  But in this case, one company is turning lemons into lemonade. 

Instead of trying to fight the lead paint battle by challenging test results, trivializing their significance, or blaming suppliers, Toys “R” Us took initiative last week and in a judo style flip turned the issue into a marketing coup.  

It voluntarily imposed strict guidelines on its vendors to insure compliance with higher safety standards aimed at reducing lead content in toy coatings.  It also executed a pre-emptive strike on another hot button issue: cadmium.  It instructed its vendors to take immediate steps to eliminate the use of nickle-cadmium batteries from all products manufactured exclusively for Toys “R” Us.  

Being proactive in addressing this product liability issue turns a growing concern and legal liability into a competitive advantage.  It helps build consumer confidence and helps burnish the company’s image as trustworthy.  It also distinguishes Toys “R” Us favorable by carving out a market segment and establishing itself as a leading source for safer toys.  As a new grandmother, I can tell you that such peace of mind is priceless.

Best of all, the company gets mileage out of regulating itself before Congress does it for them and making the announcement on the eve of the Annual American International Toy Fair to maximize buzz probably didn’t hurt either. 

Turning a legal liability into a competitive edge is what Legal Leverage(R) is all about; but you can’t achieve legal leverage without sufficient legal literacy to know where you’re at risk. 

A big Legal Literacy tip of the hat goes to Toys “R” Us this week.  Bravo!

Footnote:  These cultural differences also present an interesting challenge when managing a diverse workforce.   

The social pressures are huge, and some of the good risk procedures are thrown by the wayside.

Richard Dunn, a former risk control chief at Merrill Lynch quoted in The Wall Street Journal on Jan. 25, 2008 about the $7.2 billion loss generated by the rogue trader at Societe Generale SA. 

Social pressures?  What is this?  High School?

As the sorry mess surrounding rogue trader Jerome Kerviel continues to unfold I can’t help but wonder why his “activities prompted questions from risk managers several times last year, but that the bank never began an investigation because his explanations defused any suspicions.”  Isn’t that like asking the fox to give you the hen house inventory report?