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This is our blog, where we post stories, insights, and (hopefully) interesting content for everyone to enjoy. Alec is the primary author of all of these posts, he posts about every three weeks. If you have any questions about anything you read, please don’t hesitate to contact us for more information.

Red Flags to Look for When Buying a Business

September 5, 2019 — Auz Burger

It is easier to buy a small business than it is to start one from the ground up, because the business already has equipment, inventory, employees, customers, and a — hopefully good — track record. When you look at it like this, it all sounds great, right? There are still risks involved in buying a small business that you need to watch out for, so you do not end up buying a ship that is already sinking.

Discretionary Income

Take a look at their discretionary income, which is the amount of money the owner makes after paying the business expenses. While the books may show that all expenses are being paid and business is consistent, the discretionary income may be declining. If it has been declining, that is a serious warning that the business may be in trouble.

If the discretionary income is less than you can live by, you also may want to reconsider purchasing the business. Putting yourself in a position that you know will cause you to struggle is going to cause you unnecessary stress.

Another red flag with the discretionary income is if the owner is not being forthcoming with you about the numbers, they may be attempting to hide accounting problems or something funny with the money.

Employee Satisfaction

When you are buying a business, it is important to talk to the existing employees — especially any leads or managers. This can give you a good idea about the culture of the business. Try to find out if the employees are happy, what their complaints may be, and if they plan to stick around after the business changes hands.

Talking to the employees can also give you a better picture of any skeletons in the business’ closet that the current owner does not want to share. If the business was ever a crime scene or had legal problems, you need to know, and the employees can help you learn about these things. You may learn the real reason the owner wants to sell the business, assuming they were dishonest with you about their reasons.

Bad or Old Equipment

Is the equipment getting old and starting to fall apart? Does the furniture look like a 70s reject? If your answer to either of these is “yes,” you need to discuss this with the owner.

Sometimes, when someone decides to sell their business, they stop bothering to invest money in it to keep the equipment running smoothly and help the business keep growing. Looking at the expenses over the last 12 months can help you determine if anything is being neglected. When looking at the expenses, do not just focus on equipment, also see if other parts of the business are being neglected, like advertising and staff training or hiring.

If you need to replace or repair equipment or furniture right away, you may end up having some big expenses on top of what you are paying to buy the business. You may be able to negotiate replacing the equipment as part of your purchase contract, but you need to know it needs replacing first. Talking to the employees can help with that too. They are the ones who use the equipment every day, so they know all of its quirks and problems.

The Dos and Don’ts of Moonlighting Your Startup

August 9, 2019 — Auz Burger

Many entrepreneurs begin their startup businesses while moonlighting a day job. While this is a common occurrence, and it helps keep your cash flow going until your startup is off the ground, it is important that you be cautious about Intellectual property (IP) laws. This is something that can break your startup before it even gets off the ground. Here are a few dos and don’ts to help you navigate IP laws while getting your startup off the ground.

Do: Hire a Business Lawyer Early

Getting your startup off the ground can be difficult, so hiring a lawyer, in the beginning, is a good way to help you navigate getting your startup running. Make sure you hire the right lawyer. Hiring a litigation lawyer or one who practices family law is not going to be the best fit for you. Look for a lawyer that handles business law, startups, IP, or something else along those lines. Those lawyers know what they are doing and are the best suited to help you.

Do: Read All Agreements Related to Your Current Employer

Most employers will make you sign several documents when you are hired, and many people simply sign without paying much attention to the content. All of these documents are intended to protect your employer by making sure you do or do not do certain things.

When you decide to begin moonlighting your startup, you need to sit down and read every single document you have from your employer before you begin your side project. Having a lawyer go over everything with you is also a good idea, because they can help you determine what you can and cannot do, in terms of your startup.

Some employers will include in these documents that any inventions you create while under their employment, even on your own time and with your own resources, are the property of the employer. You may be able to get a written release from your employer so that they cannot claim ownership of your inventions. Even if this is not included, you may still want to ask your employer for something in writing that says they will not attempt to claim ownership of your product.

If you determine that you need some sort of permission from your employer to work on your project, make sure it is an amendment to the current agreement, not a simple document. Making it an amendment gives it a better legal standpoint for if you have trouble with your employer later on.

This is why it is vital that you have your lawyer go over the documents with you, so they can advise you on your best course of action in this instance.

Do: Make a Clean Break

Leave your employer as early as you can, and make sure you make a clean break. The longer you stay with your employer while working on your startup, the stronger their legal claim can potentially get. Try to leave on amicable terms; if your departure from the company gets ugly, the employer may attempt to claim ownership out of spite.

Don’t: Use Your Employer’s Equipment or Time

If you use company time or equipment on your side project, your employer may attempt to claim the rights to your IP. Even if you have finished all of your work for the day and have a couple of hours to kill before you are off work, do not touch your project when you are on the clock. Anything that is linked to your employer in any way, including a work laptop, phone, or email address must stay away from the project.

Working on your side project on the company’s time or equipment can give your employer an opening to claim ownership of your project.

Don’t: Ignore Securities Laws

When you begin your startup, you need to make sure you follow securities laws, because if there is an error in them, it can harm your investment opportunities down the road. Wait to begin looking for investors until you are truly ready to, and make sure you have a good lawyer to help you with this. If you do not follow the securities laws, you will run into trouble when looking for bigger investments.

Don’t: Use Your Employer’s IP to Benefit Your Project

Moonlighting your startup can be tricky. IP is the biggest difficulty here, because if your product is too closely linked to your employer’s, they may be the owner of the IP, not you. This will especially come into play if you are going to be competing directly with that employer. It is important to be cautious here and make sure you have not copied any IP from the employer.

This does not just include products created by your employer, but even things like customer lists or pricing options could be considered your employer’s property, depending on your employment contract.

You can still use the knowledge and skills you have gained from your employer for your project. This is much different than using their confidential information for your project.

There can be a fine line between the general knowledge you have acquired and what your employer considers confidential, so that is important to keep in mind. Consulting your attorney can help you determine where the line falls in certain cases.

The Fine Line Between Fashion and Cultural Appropriation

July 13, 2019 — Auz Burger

The Urban Outfitters Navajo line.

There has been a debate for years about whether different fashion items are cultural appropriation or appreciation, with some countries or cultures actually suing fashion designers over what they see as their intellectual property.

The basic idea behind cultural appropriation is that a group, nationality, or ethnicity developed a practice and only people in that group are allowed to practice it. Anyone who is outside of that group cannot engage in the practice. If then a dominant culture adopts elements of this practice from this marginalized culture, especially if it is used outside of the original cultural context, it is considered cultural appropriation. This is often done without crediting the culture that inspired the work and sometimes it is even done against the culture’s wishes.

Claims of cultural appropriation are often linked to fashion week, because of how many new styles are debuted during that time. Outside of fashion week, these claims can be frequently found as viral posts on social media. Some say these are inspired by the cultures or are done in appreciation of the culture, but since social media has become the judge on the matter, the term is often misused and can end up harming a business.

The Problem with Finding a Legal Standpoint

The Nike workout clothes based on Samoan tattoos.

One of the problems with finding a legal standpoint with cultural appropriation is that it is essentially focusing on the rights of a group, and saying that this group owns this practice, even if members of the group did not actually participate in the development of this practice. For example, claiming that because people in India developed Yoga means that only people from India can practice it and the country has a special claim to it, even though it was developed by a small group of people who were from that country.

Another issue is the claim that if a person develops a practice, they have exclusive rights to practice it, which does not necessarily work. An example of this is if a specific hairstyle is seen mostly in one culture, does that mean that nobody else can ever style their hair that way, because doing so is cultural appropriation?

The World Intellectual Property Organization (WIPO) currently excludes the majority of traditional cultural expressions from its protections; these include any motifs, patterns, or other designs that an Indigenous or traditional culture created. These designs do not fall under to protection of copyright laws for the most part, because the designs are passed down through generations, so they do not have enough evidence to prove the designs are the original work of their culture.

“Copying traditional design motifs without consent can erode a community’s identity and cause profound harm,” says Brigitte Vezina, author of a study on the matter. “From a copyright standpoint, traditional cultural expressions are considered to be in the public domain and that makes them freely available for anyone to use.”

Since copyrighting these expressions would make them public domain now, there is only one avenue left that may protect them legally: intellectual property laws.

Is There a Legal Standpoint?

Earlier this year, a global think tank in Waterloo called for stricter intellectual property laws to “protect Indigenous arts and traditions from cultural appropriation in the fashion industry.”

There have been several cases in the United States in recent years where cultures fought corporations adopting their traditions into fashion.

In 2013 Nike had to pull a fashion line that resembled traditional Samoan tattoos after receiving severe backlash.

The Navajo Nation fought Urban Outfitters in 2016 after the fashion brand used the tribe’s name for a clothing collection. The tribe owned near one hundred trademarks to protect their cultural heritage, and they ended up making an agreement with the clothing line to make authentic Navajo clothing together. Urban Outfitters did not just violate the tribe’s trademarks in this case, they also violated the Indian Arts and Crafts Act, that makes it illegal to sell art or crafts while fraudulently claiming they were made by Native Americans.

Carolina Herrera, a fashion brand based in New York, had a complaint lodged against it for cultural appropriation by the Mexican government, for using its indigenous patterns in its Resort 2020 fashion line. One of the issues, in this case, is that copyright law in Mexico states that “the use of those works shall be free, provided they are not deformed, intended to discredit the works, or prejudice the reputation or image of the community,” as Managing IP pointed out. This case is still ongoing.

The Carolina Herrera Mexico-inspired line.

Overall, while there does seem to be some basis for legal standing within the intellectual property laws to protect these traditional designs in fashion, there is not currently enough protection available to cover everything a culture may wish to protect.

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