“Encore for Success” 2010 ALA Conference September 20-22 Encore at Wynn, Las Vegas

1. “Encore for Success”2010 ALA ConferenceSeptember 20-22Encore at Wynn, Las Vegas AVOIDING LIABILITY. . . . . .Successfully traversing the legal minefield That confronts your business Daniel E. Beederman Schoenberg Finkel Newman & Rosenberg, LLC 222 South Riverside Plaza, Suite 2100 Chicago, Illinois 60606 312/648-2300 (ext. 303) Daniel.Beederman@SFNR.com

2. Legal Landmines are Everywhere in the Business World • In your office • In selling your products • In the products themselves • In communications with or about competitors • In this room!

3. Antitrust Laws: An Overview • Federal Antitrust Laws are designed to provide a framework to protect free competition for the benefit of consumers • The laws are not intended to regulate business directly but rather to supplement and protect natural market forces by prohibiting business practices which would tamper with such competitive forces

4. Antitrust Laws: The Sherman Act • Outlaws agreements or conspiracies to restrain competition and acts of monopolization • Makes illegal any contract or conspiracy which unreasonably restrains trade, such as agreements among competitors to fix prices, allocate territories or boycott third parties • Prohibits monopolization or attempts to monopolize any line of commerce • It is a felony to violate the Sherman Act, which can result in substantial fines and prison

5. Antitrust Laws: How to Avoid Violations • Problems can arise under the Antitrust Laws whenever competitors get together and/or communicate • Guidelines to Abide by: • When dealing with competitors, do not exchange or discuss directly or indirectly, any competitive information • Don’t gossip or jest about prices with competitors, because innocent communications can be misconstrued or inferred later to have been part of a scheme to fix prices. Avoid loose, careless or flippant remarks that can pose antitrust problems, especially in correspondence, that can pose an antitrust problem if examined out of context later on

6. Antitrust Laws: The Perils of E-Mail (its not just what you say, its also what you write) • The informality that is associated with e-mails can be dangerous • Avoid jokes or sarcasm, because they do not come across well in e-mails, and can easily be misunderstood, when examined out of context.Be careful when responding to e-mails, especially with "reply to all • Be careful with "forwards." Do not forward e-mails containing competitively sensitive information to friends or colleagues who are actual or potential competitors.Delete does not mean destroy. The best practice is simply not to put anything in writing that may be later taken out of context or misconstrued

7. Price Discrimination: The Robinson-Patman Act • Prohibits the sale of the same goods at different prices to two or more competing dealers or distributors who intend to resell their products or goods. • Generally prohibits discrimination between competing dealers through volume discounts, different rebates, promotional allowances and other similar tactics

8. The Robinson-Patman Act: Things to Watch Out For and Avoid • Charging or offering different rates or prices for "preferred" distributors or dealers • Volume discounts that are not available to all dealers/customers on equal terms • Special offers or rates to allow dealers or distributors to establish themselves in the market • Promotional allowances that are not available on equal terms and conditions to all distributors or dealers

9. Unfair Competition Laws: • These are state and federal laws that protect consumers and other businesses from unscrupulous and deceptive practices by competitors and others • Not only may the government sue a business or person that has engaged in deceptive practices, but usually competitors and consumers also have a right to sue to recover damages, as well as attorneys' fees and punitive damages (penalties)

10. Unfair Competition Laws: Examples of Wrongful Conduct • The Lanham Act and the Uniform Deceptive Trade Practices Act provide that a person or business has engaged in an illegal or deceptive trade practice when the business or person does any of the following things: • Passes off goods or services as those of another • Causes likelihood of confusion or misunderstanding as to the source or approval of goods or services • Uses deceptive representations or designations of the geographic source of the goods or service • Represents that goods or services are of a particular standard, quality or grade, or of a particular style or model, when they are not

11. Unfair Competition Laws: Examples of Wrongful Conduct • Disparages the goods, services or business of someone else by false or misleading representations • Makes false or misleading statements of fact concerning the reasons for the existence of a price reduction • Engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding

12. Unfair Competition Laws: Commercial Disparagement: • A claim for product disparagement involves a false or misleading representation of fact concerning a competitor's goods or services, and that such a false or misleading representation was communicated to the public. • Proctor & Gamble: Commercial Disparagement The Devil Made Me Do It

13. Tort Liability: It ain't a piece of cake! • Torts are actions that cause injury to another • Personal Liability for Compensatory Damages and possibility of Punitive Damages • Examples: • Tortious interference with actual or prospective business advantage • Defamation • Fraud

14. Tort Liability: Tortious Interference with Actual or Prospective Business Advantage • Existence of a valid business relationship or the expectancy of entering into a valid business relationship • Defendant's knowledge of plaintiff's relationship or expectancy • Purposeful interference by the defendant that prevents the legitimate expectancy from ripening into a valid business relationship or the termination of an existing relationship • Damages resulting from the interference

15. Tort Liability: Defamation • Avoid making false claims or statements made with respect to the quality of a competitor's products or business • Do not make false, disparaging statements about your competitors or their products • Be careful if you publish any statement about a competitor's product or services or a competitor's creditworthiness or other important matter of character

16. Tort Liability: Fraud • Material misrepresentation – What you say, but shouldn't • Material omission – What you don't say, but should • Negligent misrepresentation

17. Products Liability • The liability of any or all parties along the supply chain of manufacture of any product for damage caused that product (including component parts) • Goal is to protect consumers from dangerous products while holding manufacturers, distributors and retailers responsible for products they knew or should have known were defective • Under a strict liability theory, liability can be imposed if a products has a defect, regardless of care taken by manufacturer or carelessness of plaintiff

18. When Is Strict Products Liability Law Invoked • Common theories of product malfunctions: • Design defects • Manufacturing defects • Marketing defects • How to Avoid/Minimize Exposure: • Incorporate • Indemnification • Insurance

19. Landmines in the Sales Process When does salesmanship result in potential commercial liability? • When statements made during the course of a commercial transaction are affirmations rising to the level of express warranties as opposed to being merely statements of opinion

20. Puffing Versus Material Terms: Not Just Blowing Smoke • The term "puffing" is frequently used to denote exaggerations reasonably to be expected of a seller to the degree of quality of its product, the truth or falsity of which cannot be precisely determined. • General Rule: Puffing is okay! It is not illegal to make claims about your product or your competitor's product. Examples: Utilizing the words: best, perfect, prime, exceptional, a bargain, original, comparable in quality, and wonderful

21. Material Terms (Not Puffing): • Verifiable claims must be accurate and substantiated. Claims that are false or misleading can result in a lawsuit • When is a statement innocent puffing or an expression of a material term or warranty? • Can inadvertently create express warranties (even if not intended) • Express warranties are created by affirmation, promise, description and sample that becomes part of the basis of the underlying transaction

22. Landmines In Contracts and Commercial Forms • Whose Terms Control the Transaction? • Yes, the small print on the back of a form means something and can be enforceable • UCC “Battle of the Forms” • How to Avoid Such Landmines • Read the document! • Question or change terms • Don’t sign or otherwise accept

23. Landmines Arising From Another’s Bankruptcy • “Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled business creditors through reorganization or liquidation.” (from the Administrative Office of the U.S. Bankruptcy Courts)

24. Bankruptcy Preference Claims: • Trustee will seek to recover payments by Debtor on antecedent debt that are made within 90 days prior to the date of bankruptcy • Trustee will often send a demand letter • Adversary proceeding in Court • Fraudulent Transfer Goal: DON’T PANIC. Most preference claims settle

25. Defenses to Preference Claims • New Value • Ordinary Course of Business • Consistent with prior payment history and terms • Industry practices • Venue • Small Claims

26. Landmines in the Office • Harrassment and Discrimination • Wage and Hour Issues • The 24/7 office • Employee or Independent Contractor • Cell phone/texting • E-mail use (also, who owns them) • Record retention • Confidentiality/Trade Secrets • Not only yours, but those of your principals and customers

27. It’s a dangerous (business) world out there. . . Watch your step and BE CAREFUL! If questions arise, consult an attorney.