Corporate Inversion…


AbbVie’s $55BN  bid for UK drug maker Shire was approved, providing yet another footnote in the history of corporate inversion by the US companies largely motivated by an opportunity to avoid US corporate taxes.  The combined firm will move to UK, saving upwards of $8BN in US corporate taxes by some estimates.  While such a move certainly rubs policy makers the wrong way, in reality isn’t this a perfect case study in the free market economy?  People / companies have moved across state-lines for better opportunities so why not across country-borders in today’s global economy?  Some compare this to individuals denouncing US citizenship to save on personal taxes – I think that’s a bad comparable.  The latter is unthinkable, outrageous (I am an ex-military after all).  Cry of jingoism will not solve the problem – only permanent solution is to change the US corporate tax laws so that we can be competitive, on the level playing field with the likes of Ireland, etc.  It’s been a couple of years since Chicago lost Aon to UK (well-respected board members resigned in protest).  We were bracing for the same after Walgreens / Boots (UK) merger.  Fortunately, Walgreens announced that they are here to stay.  Every accretion / dilution model has a black-box, designed to justify “positive synergy” that may or may not come to fruition.  I am just trying to imagine how to build one for inversion tax savings…

“You’re Such a Tool!”…and Other Compliments Your Lawyer Might Appreciate.

Legal Services in the (Same Old) New Economy

Each year a proliferation of new spins on legal services emerges, ranging from high-tech to simple.  Many are focused on making the practice of law more efficient and accessible (typically on the provider side), while others take a different approach, offering to “democratize” law through new tools for legal consumers (mainly on the purchaser side).  Regardless of their approach, few of these developments are truly new.  Law firms and practitioners struggle every day with that alien concept of applying modern “business model” principles to the time weathered honored practice of law.  But if you thought that deconstructing the billable hour model would be easy in the New Economy, you’d be mistaken.  It’s not like it hasn’t been tried.  It’s just harder than it should be.  Change is difficult, especially in the legal business.

Legal Efficiency

Do you see a cost-effective use of technology here, or a $3,000/hour nightmare?

That’s not to say that innovations in the practice of law and the delivery of legal services aren’t effective.  The greater legal marketplace is simply too large, too old-fashioned established and too fragmented to adopt (much less adapt to) novel practices and technologies en masse.  That means that there are few opportunities for any “Killer Apps” or “disruptive” developments to dramatically transform the market and turn the legal industry on its ass head. Howevever, there are always opportunities for users and providers of legal services to tap new practices and technologies and “outpace the market”, yielding better outcomes for both providers and clients in the process, where even incremental innovations can have dramatic results.

Whether rooted in improved technology, practice or administration, successful application of new innovations to legal services fundamentally comes down to providing better service with efficiency and effectiveness.  As tired and trite as the old “win-win” phrase is, it absolutely applies to situations where lawyers and clients can find common ground through practice innovations that cut wasted effort and time for the practitioners and improve costs, administration and outcomes for the clients.  Though you probably won’t believe it, your lawyer or law firm would really like to prove themselves to be a trusted advisor, a vital team member, a value-add resource, or even, a tool.

We’ll take a critical look at these developments to separate the trends from the innovations, and assess whether the promised benefits are real or illusory.  In upcoming posts we will explore new service models applied across the entire vacuum universe of the legal marketplace (including flat-/fixed-fee billing, legal extranets, document automation and outsourcing), and look forward to your thoughts and feedback.  Let us know your experiences with any new-fangled legal innovations.  They don’t have to be recent.  Chances are they are older than you realize.

MONEY!!! The Taxman Giveth….

Money!As the resident lawyer, I have to get used to people not always rarely taking my advice.  But sometimes I get a little uppity and feel the need to prove a point.

Today’s lesson is for my disbelieving finance colleague here at SMB Matters, and is something that is actually going to be worth MONEY to him, even though he didn’t trust what I told him about the not-so-mythical “SUV Tax Deduction”. 

Ever wonder why people still buy large SUVs, or why so many are sold at the end of the year?  Read on…

The SUV Deduction is an example of one tax goodie that the big, wealthy people lobbied to get into the tax code, which happens to benefit for “ordinary” people as well.  The SUV Tax Deduction is a form of accelerated depreciation, which allows qualifying taxpayers to deduct a significant portion of a vehicle’s value from their annual federal income tax return in the early years of ownership, versus the usual 5 year depreciation window applicable to most vehicles used primarily for business.

I won’t bore you with all of the nuances and caveats (e.g., the vehicle’s use must still be primarily for business purposes; personal use will lower the deduction on a prorata basis; qualifying vehicles generally need to have truck/crossover chasses; etc…).  However, the quick takeaway is that certain “heavy” SUVs or crossovers with a gross weight rated at or above 6000lbs  (GVWR) are eligible for accelerated depreciation in the first year “placed in service” up to $25,000, as well as “bonus depreciation”, which also increases the early year deduction value.  Where applicable, these two elements can sometimes be the equivalent of enabling a taxpayer to deduct a huge portion of the vehicle’s value in year one.  Economists might call it an economic distortion.  SUV owners call it “MONEY!”

Richard, this is my gift to you… Check this link to reveal the GVWR of your new Audi Q7! (Hint: it’s nested in the Vehicle Capacity section. )

Remember me at Christmastime…  😉

Legal Issues Entering the Cloud…

Cloud computing” has been around for decades, but has mushroomed in recent years due to the improvements in our communications infrastructure and the growing utility of managed service offerings to businesses of all sizes.  But how does the average SMB achieve a good working relationship with their cloud provider, given the huge differences across this booming industry?  Cloud providers can differentiate their services only to a limited degree, so businesses should be open to finding a good balance between the service offerings and the service terms.



Big Players Lead the Market, but Don’t Define It Completely

The major cloud providers include IBM  Microsoft, Amazon, Google and Their Terms of Service (ToS) are generally standardized for single and small users — however, major customers can and do negotiate their arrangements.

Most users won’t have the leverage or opportunity to negotiate terms and conditions, particularly with the largest national providers, who tend to use boilerplate “click-wrap” terms and conditions that cannot be modified. They have to agree to terms that are likely confusing without a lawyer’s help. For example, the standard terms and conditions for Microsoft or Amazon will contain multiple bundled documents that are present for you to accept or deny, with no chance to negotiate or modify the ToS.  Some typical terms and conditions may include:

  • Acceptable Use Policy
  • Customer Agreement
  • Service Terms
  • Trademark Guidelines
  • Privacy Policy
  • Terms of Use

However, when the opportunity presents itself with small- and medium-sized cloud vendors, take every chance to negotiate on the terms vital to your situation.  Don’t bicker or haggle just for sake of argument.  Understand your own needs and communicate them to your business partners, which is generally the most effective way of realizing that each party has some legitimate objectives in the contracting process.

Consider the Important Legal Issues

If your company is using the cloud to store or access business data, and if you have the clout to negotiate, there are a few key issues you should address:

How can I ensure seamless and efficient return of data when I cease using the cloud?

Inevitably, each cloud customer will stop using its cloud provider at some point for some reason. When that happens, options are limited to: 1) moving the processing back in-house and off the cloud; or 2) moving to another cloud provider. Diligent customers need to negotiate with their cloud providers to clearly define closure and termination issues, including the data format and the cost for migration of the data to another location. Failure to address this could result in an expensive and painful migration, or a business decision to be stuck without the practical ability to change, similar to the days when changing cell carriers meant losing your cellphone number, making customers reluctant to switch.

How do you confirm and ensure your sensitive data has been appropriately deleted upon termination of your cloud services?

It is vital that the old cloud provider not retain the customer’s business data, such as financial documents, accounting records, customer data, or other business records. Deletion is particularly important because of laws and regulations related to privacy (including credit card information and/or HIPAA personal health information). The cloud provider agreement must obligate the cloud provider to delete data from its system (including backups) after the customer has migrated away. Additionally, the cloud provider should be bound to protect all confidential data at all times.
Understand data backup obligations.

Speaking of backups, companies routinely create data backups, and cloud providers are no different. Therefore, cloud provider agreements must clearly delineate how customer data and systems are protected from disaster, including sharing where customer data is stored and how the customer can access that data if and when it is needed.

Ensure protection of trade secrets.

If the cloud customer has trade secrets, such as proprietary customer data or software, that customer must properly protect its data or software and have tangible evidence to prove in a lawsuit that it made appropriate efforts to protect those trade secrets. One of the best ways to prove that a trade secret has been properly protected is to show that only the trade secret owner can access the protected information. One solid way to do that is to have the ability to audit.

Establish the right to audit cloud IT operations.

The Sarbanes-Oxley Act (SOX) requires publicly traded companies to comply with laws of the Securities and Exchange Commission (SEC) including the ability to audit and verify accounting data. In order to conduct a SOX audit of IT/Internet services, customers need audit rights in the agreement. For companies not covered by SOX, but for which a formal CPA opinion is required by stockholders, the right to audit the cloud provider is essential. Even if your provider is not so large to be covered by these scenarios, a responsible small or medium sized firm should still have some reasonable means and methods for customers to conduct audit and assurance functions, so don’t expect less from the little guys.


Each business has its unique requirements for using cloud services. Signing the standard cloud provider agreements may be convenient, but risky. Any company using the cloud needs to properly protect its IT and data with a well defined cloud services agreement that is clear and specific to the customer’s own requirements.

Video Link to FAQ – Legal Issues Using Cloud Services

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