In-House Counsel Solutions Series: 2Q 2024
In-House Counsel Solutions
This is the 2Q installment of our In-House Counsel Solutions Series. The series is focused on identifying trending legal issues facing in-house counsel and providing practical solutions to these problems.
In this issue, we discuss how to safeguard your business from the adverse effects of artificial intelligence, manage negative customer reviews, understand forum selection clauses, and the importance of negotiation and tips for successful outcomes.
Mitigating Risk in the Rising Tide of AI
Generative AI is not only here to stay but is altering the landscape of virtually every aspect of Corporate America—legal, HR, IT, IP, media and entertainment, marketing and advertising, public relations, and operations.
You can mitigate the risk of generative AI technology by first understanding the technology and the risks involved. Know the terminology and how generative AI works to generate content so that you can be aware of the potentials for liability arising out of that process. Then you can begin the process of safely implementing generative AI into your company’s daily operations using these steps:
Determine the extent to which the technology is already in use, or could be used, by your company and identify the risks specific to your company — this will necessarily require an analysis of each department internal to your organization, and not just the employees within each such department, but any contractors or vendors already under contract with the company.
Meet with existing and potential vendors to ensure privacy and data security — understand for each vendor how generative AI is used (or will be used) and how data is stored, protected, transferred, removed, etc.
Outline acceptable uses across all departments and jurisdictions — establish and implement clear guidelines outlining which uses of generative AI are acceptable and authorized by the company, and which are not, and provide as much detail as possible.
Be aware of existing laws and regulations specific to AI and continue to monitor as regulations evolve — understand how existing laws can be applied to the use of generative AI and remain up to date as new local, state, federal, and worldwide regulations are put in place.
Analyze and revise insurance coverage as needed — it is likely that old form policies do not anticipate or protect against AI-related liabilities.
Implement AI technologies slowly and revise your internal policies and procedures as you go — implement generative AI technology methodically and assess and revise your policies as you go.
As with most aspects of business, the keys to mitigating risks related to generative AI technologies involve analysis of ethical purpose, accountability, transparency, fairness and non-discrimination, privacy, confidentiality, and proprietary rights, legal compliance, and ensuring the safe, reliable, and secure use of technology. Following these initial steps will get you started in the right direction and will allow your company to enjoy the benefits of generative AI while also limiting the risk of such use.
A more comprehensive discussion of the keys to mitigating risks related to generative AI can be found at Artificial Intelligence: Safeguard Your Business From Negative Effects.
Managing Negative Customer Reviews
By Brian Casper
Your company’s Google score may be the first thing customers see when they search for your goods or services. So what should you do when your business receives a negative review that’s not fair? The short answer is—except for the most egregious outliers—you should probably ignore them. Nobody likes a bully, and when businesses go after their customers or others reviewing their products, that action can create its own controversy.
First, beware of the “Streisand effect.” In 2003, Barbra Streisand sued a photographer for publishing a photograph of her mansion as part of the California Coastal Records Project. Prior to the controversy, only four people not associated with Streisand had downloaded the image. But shortly after the lawsuit was filed, nearly half a million people had downloaded the image. On top of that, her lawsuit was dismissed and she was ordered to pay the other side’s attorney’s fees. The same thing can happen with a defamation suit.
Generally, a statement is defamatory if it tends to impeach any person’s honesty, integrity, virtue, or reputation. But to qualify as defamation, a statement needs to be derogatory, degrading, somewhat shocking, and contain elements of disgrace. In contrast, statements that are merely unflattering, abusive, annoying, or embarrassing are not actionable. If the statements in controversy are legally capable of being defamatory and the plaintiff is a private individual or entity, the plaintiff must then prove that the defendant published a false statement while acting with negligence regarding the truth of the statement. If the plaintiff is a public official, or generally in the public eye, the statement also must have been made with malice.
Additionally, most states have adopted some form of anti-SLAPP law. “SLAPP” stand for Strategic Lawsuits Against Public Participation. These laws generally provide an expedited dismissal procedure and penalties against using lawsuits to silence speech. Some of these laws are very expansive and specifically apply to online reviews of products and services. Under these laws, the defendant’s initial burden is only to show that the case was brought in response to—or sometimes just related to—the party’s exercise of the right of free speech. Once the defendant satisfies this burden, the burden shifts to the plaintiff to establish the essential elements of its claims and may place a heightened burden of proof on the plaintiff. This often forces a plaintiff to make its case quickly and without the benefit of discovery. If the plaintiff cannot meet its burden of proof, the case is quickly dismissed, and these laws often award the defendant its attorneys’ fees and some even provide harsh sanctions. And it’s worth noting that some studies have found that the defendants prevail in these cases as much as 77% of the time.
If your business has been the victim of a damaging review, you should consult an attorney with experience in this area of law before you take any actions such as sending out a cease and desist letter, and keep these points in mind:
Consider the Streisand effect—don’t call attention to a negative review that might otherwise go unnoticed.
Consider whether there is an anti-SLAPP law in your state and understand the scope of any exemptions. Also, consider whether the case could be transferred to another jurisdiction and have your legal team evaluate which state’s law will apply.
If you must file suit, muster your evidence before you file—do not count on the discovery phase to get the evidence you need to prove your case.
For a comprehensive discussion of how to manage negative customer reviews, see our Ideate blog post, Managing Negative Customer Reviews: Navigating Defamation Risks and Legal Challenges.
Forum Selection Clauses: A Powerful Tool in Managing Disputes
By Mark Stachiw
Buried in the boilerplate of most contracts is a forum selection provision, which specifies where actions related to those contracts will be heard. Without it, the general rules of civil procedure will apply and parties could be subjected to the courts of a state that might not be favorable to the parties. Further, the use of, and need for, forum selection clauses are not limited to contracts. Corporations can add a forum selection provision to their bylaws or their articles of incorporation to drive shareholder derivative and other corporate governance lawsuits to a particular forum.
What in-house counsel need to know about forum selection clauses is that recent caselaw suggests they can have far reaching and perhaps unintended consequences. For example, a forum selection clause may be able to cut off a claim that a party may have — a patent licensor may insert a forum selection clause in a patent license that requires any actions to invalidate a patent be heard in a particular federal court. Such a forum selection clause might cut off a licensee’s ability to bring an inter partes review action at the US Patent & Trademark Office to invalidate the patent. See Texas Instruments Inc. v. Tessera, Inc., 231 F.3d 1325 (Fed. Cir. 2000); Gen. Protecht Grp., Inc. v. Leviton Mfg. Co., 651 F.3d 1355, 1366 (Fed. Cir. 2011). Or to bring an International Trade Commission (ITC) action.
In the corporate governance context, forum selection clauses can also cut off shareholder rights. For example, in a case last year, the 9th Circuit Court of Appeals held that a forum selection clause in The Gap’s bylaws required a shareholder derivative lawsuit related to an alleged Securities Act violation be heard in Delaware Chancellery Court even though the clause would effectively leave the shareholders without any means of asserting claims on behalf of the company for alleged proxy disclosure violations of the Securities and Exchange Act of 1934. See Lee v. Fisher, D.C. No. 3:20-cv-06163-SK (filed June 1, 2023). In another case, a California Court found that a forum selection clause in a corporation’s organizational documents that required any securities cases be brought to a federal district court in Delaware only was valid even though it would effectively cut off a shareholder’s right to trial in state court. See Wong v. Restoration Products, No. A161489, 2022 WL 1261423 (Cal. Ct. App. Apr. 28, 2022).
In the context of forum selection clauses in corporate organizational documents, one of the most important aspects, however, is that the forum selection clause should be added before any action that can give rise to litigation occurs. Adding it at the time of entry into an M&A transaction or a corporate action that might result in litigation (e.g., an IPO or a proxy), depending on the jurisdiction, may allow a plaintiff to claim that it should not apply. For corporate practitioners, adding a forum selection clause at its formation is usually the best time to add it. For existing companies contemplating a transaction — such as an IPO or an M&A transaction — the corporation should adopt the forum selection clause before undertaking the transaction — and the earlier the better. In the context of going public, adopting the clause before going public is preferred as it is usually easier to add before the company becomes public and could help corral actions that might arise out of the IPO process.
One final note: For companies organized under Texas law or conducting business in Texas, the new Texas Business Courts may be the appropriate venue and should be considered in determining the forum for a forum selection clause.
A more comprehensive discussion of forum selection clauses can be found at our Ideate blog: Forum Selection Clauses: A Powerful Tool in Managing Disputes.
Elements of a Successful Negotiation
Psychological Anchoring
A successful negotiation should begin with “psychological anchoring,” which is where each of the parties attempts to establish a perception of their view of the deal. Often, this takes the form of the initial offer, whether in a demand letter, letter of intent, or opening demand in mediation. Waiting until the opening demand in mediation is often too late. A better mediation preparation practice would be to establish the anchoring well before mediation. In addition to saving time, this allows the parties to prepare their other negotiation elements in advance thereby enhancing the chances of success or signaling that a negotiation at that time will not be effective. This often happens in litigation where insufficient discovery has been conducted such that key information is lacking that is needed to resolve the dispute.
Walk Away Number
The Walk Away Number — sometimes referred to as the “Best Alternative to a Negotiated Agreement” or “BATNA” — is the pre-determined safety valve for a negotiation. Put another way, if a resolution cannot be reached that matches or is better than the BATNA, you “walk away” from the deal. This should be not only determined but also committed to before the negotiation begins.
Establishing a BATNA before a mediation or other negotiation is hard work. A good BATNA requires an in-depth analysis of each parties’ position, risk assessment, potential outcomes, and a fair amount of “gut feel” intuition about how things could unfold if a settlement is not reached. Regardless of how the BATNA is reached, it should be a firm commitment in advance of the negotiation. If there is no BATNA set or a lawyer-client team aren’t committed to one, a mediation or negotiation starts to become a slippery affair headed towards a deal “where no one is happy”. Clients with weaker psychological willpower and even a weaker or no BATNA commitment tend to be at risk of taking a worse deal, despite the legal advice provided. They can behave like a boat in a storm being blown around as the winds change.
A word of caution on BATNAs. Even if the lawyer and client have committed to a specific BATNA pre-negotiation, there is a risk that a third-party, such as a supervisor not participating in the negotiation, may interject an alternative opinion on settlement and BATNA. This can lead to unexpected chaos in the negotiation, so I recommend that all parties with decision-making authority agree in advance on the BATNA. This approach will not eliminate the situation where there are two decision makers, who become unaligned during the negotiation process. A lawyer in this situation finds himself/herself in a dual negotiation — between the client representatives and between the “client” and the opposing party. Best to always keep in mind who the “client” is in these situations to ensure ethical considerations are met.
Concessions Basket
Put simply, the “Concessions Basket” is the pre-determined list of concessions a party can give up to achieve a deal better than the BATNA. One strategy is to reverse engineer success by setting a target resolution better than the BATNA. From there, an Opening Offer and Concessions Basket are created to achieve the desired result.
In my experience, the Concessions Basket is where most deals get made. This is because a concession offered by one party may be of much higher value to the other party. Concessions also get parties away from positions and headed toward mutually beneficial agreements. The Opening Offer and BATNA elements tend to be the more straight forward negotiation elements. The Concessions Basket is also where each party can get very creative.
During a well-run mediation, a strong mediator can uncover hidden or unknown interests of the parties. These interests can possibly be met through items in the Concessions Basket. For these reasons, we strongly recommend giving serious consideration to the other party’s interests and exploring potential concessions that align with these interests to achieve the desired outcome. This should be done in advance of the negotiation.
A more comprehensive discussion of negotiation strategies and tactics can be found at our Ideate blog: The Importance of Negotiation.
Klemchuk PLLC is a leading IP law firm based in Dallas, Texas, focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. Our experienced attorneys assist clients in safeguarding innovation and expanding market share through strategic investments in intellectual property.
This article is provided for informational purposes only and does not constitute legal advice. For guidance on specific legal matters under federal, state, or local laws, please consult with our IP Lawyers.
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