Over the summer, Massachusetts enacted a new economic development and trade secret law that contains significant changes to the use of non-compete agreements in the Commonwealth. The law applies to all employers with Massachusetts based employees and fundamentally alters both how these agreements need to be structured and how they will be enforced. In short, the changes make these provisions much more difficult to enforce and place new burdens on employers that make non-competes impractical and expensive in many cases.

The law goes into effect October 1, 2018 and applies to all agreements that are entered into after that date. It does not apply retroactively. Companies should consider taking the following actions prior to that date: first, review and revise all existing non-compete agreements so that they will comply with the law going forward (almost all current forms will require changes) and, second, take a strategic look at when non-competes are really necessary.

Scope and Requirements

• The law applies to all Massachusetts employees and independent contractors. Employers, even when located outside of the Commonwealth, cannot avoid the law with choice of law provisions. The legislation has no impact on other restrictive covenants like non-solicitation clauses, non-disclosure agreements, and assignment of rights provisions.
• Non-competes are not enforceable against “non-exempt” employees (part-time and employees eligible for overtime), students, employees who are laid off or terminated “without cause”, or employees age 18 or younger.

One of the most significant changes in the new law centers around terminations without cause. Put simply, this means that the provisions are not enforceable in a termination where the employer is simply exercising the “at-will” right to end the relationship. The Act does not define “cause” so employers will need to define this in their agreements going forward. It is unclear whether these definitions will be upheld when they are tested in court so this change carries a great deal of uncertainty.

New Signing Requirements

For new employees – Agreements:
• Must be signed by both employee and employer.
• Must state that the employee has a right to consult with legal counsel prior to signing.
• Must be provided to the employee by the earlier of (a) formal offer of employment or (b) 10 business days prior to hire date.

For existing employees – Agreements:
• Must be signed by both employee and employer.
• Must state that the employee has a right to consult with legal counsel prior to signing.
• Must be provided to the employee with 10-business days prior notice.
• Additional “fair and reasonable” consideration is required.

Best Practice: to avoid any issues with the 10-day notice period you should provide both new and existing employees with a full package of documents they will need to sign to document the employment relationship. Employers should avoid delivering non-competes separately from the offer and all offer letters need to be reviewed to make sure they contain language that makes the written offer superseding to any previous offers (oral or written).

Substantive Requirements

• Duration cannot exceed 12 months – unless the employee unlawfully takes property from the employer in which case it can extend to 24 months.
• The provision must be reasonable in scope – no broader than necessary to protect the employer’s trade secrets, confidential information, and/or goodwill.
• Considered presumptively reasonable if limited to specific types of services provided by the employee during the last 2 years of employment.
• Considered presumptively reasonable if the geography is limited to the area where the employee was present or provided services.

There appears to be some latitude for “worldwide” applications if, for example, the employee plays a key role in the development of a product or technology that are available on a worldwide basis. A conservative approach, however, would limit the geography.

Garden Leave

Another major change in the Act is the requirement for a “garden leave” provision.
This requires the employer to pay the employee 50% of the employee’s highest annualized base salary within the proceeding two years or other mutually agreed upon consideration for the duration of the restricted period.

The Act does not define “other mutually agreed to consideration” so employers’ best practice is to incorporate the 50% of base salary into their agreements. This dramatically increases the cost of a non-compete in MA and employers should look carefully at whom they ask to sign one.
Employers cannot unilaterally decide to stop paying garden leave.

Separation Agreements

The new law specifically excludes from coverage “an agreement made in connection with the cessation of or separation from employment” provided that the employee is given 7 days to rescind acceptance.

This allows for an opportunity to enter into a non-compete with employees who are terminated without “cause” and can play a role in a broader strategy in which employer’s ask fewer employees to sign non-competes at the outset of employment.

A best practice in many cases would be to not include the provisions at the outset or with a promotion and to attach them to a separation package. It is not clear whether this also requires additional consideration, but we would strongly recommend including additional consideration that mirrors the garden leave requirements set forth above.

Final Thoughts

The Act presents real challenges to companies who use non-competes. The legislature did not go as far as an outright ban, but the hurdles presented in this piece will make the use of these provisions impractical in many cases.

Please feel free to contact us at 888/348-1788 or tim@moynihanpartners.com if you would like additional information.

• Fake news fueled by leaks, outright lies, corruption, and alleged Russian hacks.
• An internet where at least 50% of the traffic and information is generated by bots, malware, and spam.
• An environment in which the long-time editor of the New England Journal of Medicine resigns because half of the clinical data published in medical journals is simply false.
• A banking system characterized by fraud that is so systemic the government fears shutting it down.

The examples are endless. We no longer know what to believe, who to trust, and cannot make clear decisions based on facts.

And then Satoshi invented Bitcoin.

Bitcoin brings many fundamentals to the world. Sound money, decentralized governance, cryptographic security — each one a break through on its own. When taken together, however, when you examine entire bitcoin system as a whole, you realize that something quite astonishing happens when you combine money, information, and mathematics:

You arrive at a distributed system capable of verifying objective reality.

Objective reality. Facts. Immutable pieces of information. Think about what it means for a moment in our otherwise “post fact” world to have access to a technology — globally every human on the planet with a phone — to an open source platform that generates mathematical proofs of the veracity of information.

Let’s go further — think about this statement for a moment:

Bitcoin is the first technology that shift seamlessly between mind and matter.

Bitcoin uses math to prove facts. Math is the language of the universe. A bitcoin is a bitcoin whether it is written down on a piece of paper, memorized in your mind, or held in a bitcoin wallet. A bitcoin is a bitcoin on Mars, Alpha Centuri, or London. Math is the language of the universe, bitcoins are a part of this language, they are expressed in it, they owe their existence to it.

They are hardware and software that is literally calculated into existence.
There will only be 21mm of them created and they are born from math and electricity

Right now, the system verifies one thing – bitcoin the currency. I believe, however, that this is one of the most multi-dimensional things ever created by humans (we think). The bitcoin system encompasses science, math, economics, law, security, game theory, AI, and human psychology and it will inevitably begin to bring its objective reality powers to all of these fields.

Let’s dig into it even more. Consider what happens when you buy a bitcoin. You exit the system. You leave government-sponsored fiat money, you leave government itself, you exit the old economy and enter a new one. Think about it this way — of the roughly $400b in digital assets that have exited the old economy how many will ever come back? There is no way to know exactly, but I suspect less and less.

This is a fundamentally new kind of network effect. When you join Facebook, you don’t leave the country. When you buy a bitcoin you enter a new global system — a new kind of digitally enforced sovereignty — that radically different from where you came. Right now, the old systems are trying to control this — to stay in the game essentially. It is going to be difficult for them to keep up.

Ok, back down to earth. Let’s return to objective reality. What other doctrines strive for and produce objective realities? The one that comes to my mind immediately is the legal system. Legal systems, however, flawed have at their core the desire to determine facts on which to base judgments. In the US we use evidence and the rules of evidence to run this system.

To date, the buzz around blockchain legal tech had been mostly focused on smart contracts — automated, self-executing, contracts that meet certain pre-determined outcomes. Smart contracts hold a ton of promise and I will probably write about them in the future, but right now I feel like they are confusing the discussion. Lawyers and engineers are bogged down by them and engaged in endless debates about whether these things are actually contracts (they can be), what happens when self-execution leads to undesired outcomes, etc. These are important topics and, as I said, I think smart contracts will be very useful in the future. The endless discussion about them, however, clouds the truly radical change that is taking place, the emergence of what I call: smart evidence.

In order to understand smart evidence, we need to understand a little bit about evidence in its current form. Evidence is defined as:

Probative material legally received; any species of proof legally presented through the medium of records, documents, for the purpose of influencing belief in the mind of the court.

That definition comes from Black’s Law Dictionary and it barely scratches the surface of what evidence means, how to properly gather it and present it, and why it matters to the legal system. It does, however, provide a solid framework to begin an analysis of how blockchains could change this important doctrine. When you look at our practices today you see a system that works extraordinarily well, but it is not fool proof. It depends on judges and juries making decisions on perceived truth, judges and juries whose beliefs have been influenced. Evidence emerges from a complex system of discovery and admission before the court that tries to piece together facts after they have occurred. It is at its essence a reconstruction of truth not a statement of truth.

Currently, we spend billions of dollars and countless hours reconciling the past. Young lawyers spend their nights laboring through reams of documents while senior attorneys trudge through depositions, arguments, and hearings all in an effort to build an accurate portrayal of events that transpired months or years ago. This, as stated above, carries a tremendous economic burden, but also forces us to recognize a deeper, more disturbing, reality: all of law, all justice, depends on “belief in the mind of the court.” We use evidence and the rules of evidence to shape these beliefs and to keep them bound (as much as possible) within the rule of law, but in the end they are just that – beliefs or opinions about what may or may not have happened.

What if this no longer needs to be the case? What if we could take a new approach and build a record – a database – of what actually occurred? Blockchains hold this promise and, if used correctly, offer a chance to reshape how evidence comes into being and how it eventually gets used in the legal system. I call this new category smart evidence:

Smart Evidence: structured data that generates admissible proofs and probative materials for the purpose of maintaining an immutable record, ex ante.

So what exactly is a blockchain and why is it so important to smart evidence? In a sense it is a new kind of database with some important innovations. For me the original definition from Satoshi Nakamoto (for those not familiar with the origins of bitcoin SN is a pseudonym for the author of the original paper that describes the protocol and this person’s real identity remains a mystery) is the easiest to understand. Satoshi describes a blockchain as a “timestamp server” that works by “taking a hash of a block of items to be time stamped and widely publishing the hash.” What does that mean? That short sentence contains several nuances that reveal the blockchains true value. First, the notion of a hash of a block of items – this allows users of the technology to aggregate a group of transactions and then, second, you can time stamp those items so their date of origin is clear. Finally, the hashed information is widely published – and this is key – only the hash (which means the encrypted aggregation of the data set) gets published. Put this all together and you have a system where each peer on the network can see and verify the timing of transactions – without ever seeing the content or owners of such transactions. This allows for trustless trust – you trust the system and its mathematical assertions, not the other individuals.

Blockchains allow you to structure data around legal standards so that you produce an immutable record of what actually happened — objective reality. It is not a reconstruction that depends on influenced beliefs; it is proof of what actually happened. This allows you to design systems that develop data according to particular legal standards in real time, prior to a dispute. In the context of intellectual property for example, instead of spending billions of dollars and decades of hours in the court system trying to establish a record of creation and ownership you have a ledger that updates constantly and proactively publicizes who owns each of the assets in the chain. It democratizes access to intellectual property rights in a way we have never witnessed. People now have equal and near zero cost access to a system that traditionally controlled by governments and large corporations.

In future posts, I will provide some examples of how this new approach to evidence changes how we can approach legal issues like intellectual property, rights to content and data, and labor laws. We stand on the brink of a global revolution that will fundamentally change legal rights, governance, and sovereignty.

Copyright (c) 2018 ALBERA & ASSOCIATES LAW FIRM. All rights reserved.

• This report should not be read narrowly as only applying to the DAO and to other DAO like constructs. This is a stake in the ground – a broad statement of jurisdiction over the entire ecosystem. If you are going to issue, trade, sell, own, and otherwise exchange a digital asset in the US you need to now do so in accordance with SEC regulations.

• Many initial reactions to the report state that the ruling applies to “some” tokens not “all” tokens. In my opinion, this is a fundamental misreading of the action that can lead token issuers down a dangerous path. This take implies that the agency created an exemption to registration for some tokens. They, in fact, did the opposite and imposed a burden on issuers to determine, prior to the issuance, whether their token meets an existing exemption to registration.

• Once this burden is imposed, issuers need to realize two often misunderstood facts about the SEC (and American administrative law in general): first, once you receive an action from the agency you are guilty until proven innocent and, second, the agency operates with 20/20 hindsight.

• When the SEC decides it wants to examine the “facts and circumstances” around a particular offering or entity it does not engage in polite academic debate. It charges you, sometimes criminally, and begins to dig into your life with the full investigatory power of the US Government at its back. You need to, while under subpoena and subject to perjury, convince the agency that your “full stack, blockchain, token, file store, p2p, etc.” somehow exempts you from registration.

• And then…they can simply disagree. They can do so retroactively despite any best effort to design an exempt token. If you design and issue a token under the hope that the facts and circumstances around the issuance will be embraced by the SEC and exempted you are taking a massive risk.

• Another overlooked aspect of the ruling deals with exchanges and the buying and selling of tokens that do not meet SEC rules. The report concludes that exchanges must register and individuals who sell unregistered tokens can face liability. As I stated earlier, these findings are deliberately sweeping and meant to apply to the entire crypto-currency space.

• Finally, this also opens the door for private class action lawsuits that have nothing to do with an SEC enforcement action. Plaintiffs’ lawyers can now walk into court with the full knowledge that the SEC has established tokens as securities and will begin to sue the teams who issued them for securities fraud. This will accelerate as tokens get delisted from exchanges and become worthless.

The irony of this is twofold. First, the killer KYC/AML application may now be directed at keeping US citizens out of token offerings and, second, to avoid all this, all you have to do is work with a lawyer to structure an exempt offering or file a registration statement. Sophisticated token issuers will raise adequate funds to do so and will, as a result, capture market share.

• Chips will be free and ubiquitous. Massive deflation now characterizes the semi-conductor industry (and the economy in general) and in the near future chips will be free, capable of processing at AI levels, and, as a result, embedded in everything from cars to buildings. This will make the physical world programmable.

• GPU not CPU. Increasingly, AI developers embrace Nvidia, shift from Intel, and build on the GPU from the outset. Andreessen and Horowitz both see this as a natural extension of a multi-decade trend that began in physics labs with simulations of black holes and complex fluid dynamics. As AI driven virtual reality expands, we now need to stimulate entire worlds and their physics on people’s smartphones. The GPU enables this.

• Voice trumps touch. While the whole tech world assumes that Apple and Google will dominate the next generation of technology because they control IOS and Android it turns out that legacy phone platforms are a disadvantage. Horowitz argues that the phone as a UI is not natural, that natural language interfaces will prove to be more functional, and that the legacy phone platforms are a strategic disadvantage. Amazon fails at phones, but then leapfrogs with Echo. Voice trumps touch.

• Negative interest rates are good. Andreessen offers a highly contrarian view of negative interest rates. He views them as source of untapped capital — $10 trillion worth of untapped capital — that now bides its time in the bizzaro world of negative yield and awaits new chances to be spent on future projects. This contrasts greatly with the dower pundits on Twitter who view them as a sign of the pending apocalypse. The world is awash in capital.

• Startups price their products to low. This runs counter to the whole freemium, race to the bottom, meme that dominates the technology world today and I assume does not apply to the chip manufacturers highlighted above. Premium prices generate a reciprocal amount of interest and care at clients. Put simply, the more people pay for something the more they pay attention to it. Andreessen sees this as an unexplored dynamic that many companies overlook in their race to deflate.

This just scratches the surface and I highly recommend that you listen to the full podcast.

Then, as we wander these meshed grids of electromagnetic recording devices, something strange occurs.  We inevitably succumb to nature, get tired, and find ourselves in need of a place to stay the night.  We whip out the trusty iPhone, log in to Airbnb, find a comfortable room, and lodge that night in the home of a complete stranger, whose trustworthiness (not to mention our own) was vetted by a third party internet service provider and a network of other strangers.  We enter into a deeply personal transaction with our host, one that depends on a tremendous amount of trust, and one this is both very human and private.

And thus, the paradox is born.  We now expect the monitoring, but demand, though our activities and actions, the ability to use our digital tools to create new private relationships and spaces in an environment that utterly lacks privacy.  We, in effect, build an unexpected layer of security around our privacy by using technology to enhance our humanity rather than to dilute it.  The intimate relationships that the web now fosters place us squarely in a collaborative economy where trust, vetted by the network, opens the door to new real world encounters. 

Each of these relationships, whether it is a babysitter hired through Care.com, a job secured through Linkedin, or a vacation rental through Airbnb, require what I call a “trust broker” — a third party internet service provider who transacts in the trust of both the providers and the consumers who connect via the service.  The trust brokers must respect and support our right to engage with one another privately and securely, they must value our trust or fail.  In a sense, they need to be the opposite of facebook, a company that vocally dishonored privacy rights almost from its inception and, as a result, finds itself unable to broker trust. Companies that do not value our need for privacy will not be able to transact in trust.

Trust Brokers

In the age of trust, honor, good will, and social capital now stand as economic commodities that you can trade with and use to gain access to a remarkable array goods and services that would have been inconceivable a decade ago.  As our circle of trust expands we begin to allow what was once unthinkable: we allow strangers into our homes for the night because they came to us from CouchSurfing, we crowd source eldercare providers, and we decide it makes more sense to share a car with our friends rather than to purchase one of our own.

The companies that transact in trust and reputation must learn and continuously relearn that it matters how you treat, service, share, and store these very delicate things.  It means everything to your business as a trust broker and the policies and procedures you put in place to manage trust will grow into important strategic assets.

We now enter a new phase of digital communication where basic human values come back into the fore and thrive.  Successful trust brokers will create digital environments where the delicate elements of trust can thrive and real relationships can emerge. Companies who do not embrace this trend will suffer.

What it all Means

“Don’t pretend that you know me, because I don’t even know myself.”

— The Who

The trust brokers already disrupt many aspects of the culture and economy and I believe that their influence will continue to grow, often in unexpected ways.  Here are some of the trends I see playing out:

Lowly, often neglected, Terms of Service and Privacy Policies become central to business strategy.  Five years ago most startups viewed these documents as an afterthought.  The facebook “privacy is dead” meme dominated thinking online and people simply viewed these policies as boilerplate language that no one but their lawyers cared to read.  Now, privacy and security emerge as business models and startups need to build privacy, security and data protection into their early infrastructures and cultures if they want to become valid trust brokers.

Verticals continue to grow more powerful in their niches; blocking out the generalists.  This remains true for a couple of reasons.  First, the vertical sites arrive naturally optimized for the world of apps and mobile devices whereas companies that are web based look like a maze in comparison.  Think about this example: you find yourself in need of a car for a quick errand and are out and about in a new city.  Is it easier to simply click Uber app on your phone or navigate Yahoo! with a browser to eventually find a link to the service?  Second, the trust brokers will offer subject matter expertise that generalist cannot match — sites with focus like Best Doctors offer more credibility as their knowledge of their field deepens.

“The key lesson: humanity and connection are trumping the desire for corporate scale.”

— Seth Godin

Economic activity will move outside of the mainstream making it more difficult to measure and exploit and this will spur backlashes from large corporations and governments.  Both Uber and AirBnB now face this type of bureaucratic resistance.   

New types of transactions will emerge like: “You can use my condo at the beach one weekend a month if I can use your car three days a week.”  A real exchange of value takes place here but it is not an exchange that can be measured in GDP, taxed by local municipalities, and captured by large corporate entities like car makers and hotel chains.

This move to collaboration and peer to peer economics will catch many by total surprise.  Governments and automakers, to provide one example, remain totally unprepared for the radical changes that could emerge from a generation of car sharers.  Regardless, the trend grows stronger by the day and, as it does, the opportunity to reconnect with some of our humanity expands.

Many companies:

Raise too much, too soon.  Nothing demotivates and destabilizes a start-up more than a large, unused, pile of cash.  We live in an unprecedented era in which powerful tools and resources of all kinds can be accessed and utilized by businesses easily and inexpensively.  It simply does not take hundreds of thousands of dollars to get most businesses launched and on the road to product development.  Exploit these resources to their fullest potential and build your business on your own before taking other people’s funds and giving up a piece of control.

Fail to focus on revenue opportunities.  Don’t believe the hype about eyeballs, traffic, potential markets, and future cash flows.  You are starting a business and businesses make money.  Your product and go to market strategies should move in lock step with your technology development.  Even if they both change, you will build a culture of revenue generation that will ultimately benefit the business.

Exit stealth mode too early.  Take the time you need to grow your idea outside of the public glare.  You will make mistakes and simply change your mind about strategies, designs, and technologies as you move toward the market.  These transformations may lead to your ultimate success, but they most certainly will cause you pain and uncertainty if you try to execute them in public.  Stealth offers you the freedom to innovate effectively.

Over bootstrap.  This mistake acts as the inverse of mistake #1.  Too often young companies convince themselves that they can learn and do everything about business on their own and fail to rely on outside experts when it makes sense.  This mindset always creates tremendous distractions within the organization and issues that could be easily dealt with by an experienced advisor turn into severe problems.  Technology expertise does not equal business expertise and the best entrepreneurs understand this dynamic. 

Obsess about advisors.  I often see young companies spending more time thinking about their advisory boards than their business plans and technologies.  Early stage ventures crave credibility and founders often seek it from outside biographies.  Great products and ideas will naturally attract talent at all levels of the business.  A key advisor can play a big role in your success but recognize that your business matters more than the composition of your advisory board.

Fail to raise enough when ready to raise.  Once the business builds the product and exploits the vast trove of resources referenced above, the need for outside capital will often present itself.  Don’t fool yourself into thinking that you will be able to make the leap to profitability and self-sustained growth without first encountering some set backs and delays.  You need capital to weather these squalls and, if you built a business focused on revenue generation, you should be able to secure funds on favorable terms.

Don’t be a follower.  There will never be another Google, Facebook, or Apple.  Too many entrepreneurs arrive in my office with a business plan that promises to be the “next…Google, Groupon, Twitter, etc.” or to exploit some minor niche market that the giants have yet to cover (“We are the local social network.”).  Tag along strategies fail.  Be bold and innovate.

Over-hire/under-hire.  People issues plague new businesses in so many ways.  You need a great team to build your business, but building one always presents difficulties.  Companies can over-hire and under-hire in two ways.  The first is obvious, you either bring on too many people too early and eventually face the pain of letting them go, or you miss a key opportunity because you do not have the proper human capital in place to exploit it.  The second focuses on quality rather than quantity.  All business owners need to learn talent evaluation skills and many businesses that struggle do so because the people factor is overlooked.   

The hired gun.  Many new businesses (often at the behest of outside investors) turn to hired gun CEOs, CFOs, or COOs to fill some perceived gap in expertise.  These high profile and costly hires can quickly turn into huge distractions.  Conversely, remember not to over bootstrap and bring in talent when you really need help.

Ineffective communications with your board.  One of the most difficult dynamics for many founders emerges when they find themselves answering to a board of directors.  Founders, by nature, possess independent and often rebellious streaks that lead them to set out and change the world.  The idea that outsiders who bring money also expect a role in governance chides many entrepreneurs and leads to useless struggles in the board room.  Lean on your experts here: experienced business people, attorneys, and accountants can help you to craft effective board communications so that you can concentrate on the business.

Trouble starts when the founder retains both a board seat and a large block of common stock and, therefore, a great deal of control even if the investors buy a preferred security that specifically includes things like protective covenants, board seats, and other preferences.

The founder welcomes the additional money but bristles at the oversight and control that accompany the funds and either makes a unilateral decision that catches the board off guard or withholds key information that the board views as critical to their investment thesis.

The best policy for the company requires that all parties keep their egos in check so that an open and honest exchange can occur between management and the board. Running a startup is demanding and unpredictable. Successful businesses find ways to avoid emotional pitfalls so that everyone’s energy can focus on growth.

The following list captures some of the more glaring items I have seen foisted on a new board. In each case, the damage to the company proved fatal.

• “Good news! Now that you have invested I have a new car and apartment.” A Series A investment should not be considered a liquidity event, even if it somehow improves your income (it rarely does). Your investors want their money to go towards the company and will react very negatively if they suspect that you see their decision to fund as an opportunity to advance your personal lifestyle.

• “Sorry, the technology needs a bit more work than I may have indicated.” Never oversell either the potential of your invention or its proximity to the market, even if you think you can successfully obtain a higher valuation. You will pay dearly in subsequent rounds if you over promise and under deliver on the technology.

• “By the way…in the early stages I lent the company several thousand dollars and I would like to be paid back.” Nothing irks VCs more than “founder loans” except undisclosed founder loans that always seem to appear right after the closing of a funding round. The investors want their funds to be spent on initiatives that will provide for future growth. Any payments that flow to past liabilities deviate from this mission and will be heavily scrutinized. Be prepared to accept equity in lieu of cash if you are a founder who funded the early days of your company with direct loans.

• “But he/she is a friend of the company, we could not launch without him/her and I promised 2% of the equity if we ever get funded.” Fully diluted means fully diluted. New investors want to know about every potential source of dilution before they put any money in the company. There is nothing to be gained from withholding any information about the company’s cap table and, if you do and you close on a financing round, you will very likely be in immediate breach of the representations and warranties in the newly executed invest documents. Nothing kills the spirit of a new venture faster than a looming breach of contract claim.

• “The Code? Well, I didn’t write it, my sister did, and she just moved out of the country.” Another surprise that carries serious risk of liability for both you as a founder and your company. If you represent (or even give the impression) that you either created or have full control over the company’s key intellectual property, the investment documents will likely reflect this and, once again, you will be in breach if your assertions prove false.

Finally, entrepreneurs need to remember that when you accept an outside investment you become a steward for both the actual dollars and your investor’s reputations. Your VCs do not work in isolation and need to defend the case to invest in your idea to their partners, the limited partners in their funds, and the tight knit community of early stage investors. They will defend their reputations doggedly and will come down hard on founders who they view as abusive. Your best practice as a founder: foster open and honest communications with your board from day one and avoid the distractions that arise from internal squabbles.

First, in a significant blow to patent trolls, the Court ruled in Alice Corporation v. CLS Bank International that an idea on its own cannot be patented, even if it is implemented on a computer. The Court left room for more specific applications to achieve patent protection, but narrowed the scope of patentable ideas significantly.

Second, the upstart broadcasting company Aereo was dealt a potentially mortal wound today when the Court ruled that its service constitutes a public transmission of works that are protected by copyright. This makes their service completely illegal and may result in a loss of $97mm in investment capital.

Third, in Riley v. California the Court, in an unanimous decision, held that the information on your cell phone may not be searched after an arrest unless the police obtain a warrant. Score one for the Fourth Amendment and privacy advocates in general.

Overall, these three cases provide some positive clarity on important issues that many technology companies now face. Even the Aereo decision, which many will argue favors large incumbent broadcasters over a start-up, shows that the Court will protect the owners of content (which is important to software businesses) and they also went out of their way to state that the ruling should be read narrowly, to Aereo’s services specifically, not all like technologies.

• Desktop PCs took the information that resided on standalone mainframes and spread it throughout organizations.
• The Netscape browser allowed ordinary, nontechnical, users to interact with the internet via a simple point and click GUI.
• Google democratized the access to information on a global basis with its simple search interface that masked powerful algorithms that thrive on open access to information.

Every decade we see closed market after closed market falling victim to these disruptive tools and, in every case, the closed system loses when it confronts an open, decentralized, technology. Industries that thrived on controlling access to specialized knowledge and elite decision makers crumble when a digital competitor enters its space. Consider:

• Publishers and booksellers versus Amazon.
• The recording industry versus iTunes, Pandora, et al.
• The telecom industry versus WhatsApp.

All of these cases possess similar attributes: consumers understand on an almost unconscious level that the monopolies stand in the way of clear access to the information they need or desire; technologies arise that eliminate that barrier; the consumer flocks to it as the incumbent fights to preserve the moat; and, finally, the information frees itself and the disruptors capture the market share.

With this context, take a step back, and think about the legal system and the market for legal services. Combined, they form the mother of all closed systems and have stood proudly, in some form, since the Magna Carta established a basis for democracy and the rule of modern law. They occupy a unique position in our civilization and exist, despite their flaws, to protect fundamental rights and foster the distribution of justice. These are not things easily disrupted, no matter how powerful the technology.

Throughout their history, our legal system and the market for legal services thrived for two intertwined reasons: first average citizens always felt they could access the system (for the most part) and, second, lawyers existed to assist clients as both advocates for their position, and, often more importantly, as interpreters of specialized information. As the system grew more and more complex the importance of the attorney increased as we evolved into gatekeepers that guide the uninitiated. Clients pay for this service because no other choices exist.

The reality we confront today as professionals forces us to admit both of these pillars face daunting challenges from disruptive technologies and consumers, our clients, sense that it may behoove them to go direct, cut out the middlemen, and transact business on their own terms. People sense that they have no real access to the justice system. Their ability to protect their rights using the traditional systems of contracts, legal professionals, and the courts exists as a theoretical abstraction rather than a concrete reality because of the high cost of litigation, clogged dockets, and byzantine complexities of the regulations themselves.

People sense that new technologies offer a better solution that stands outside of the current system and allows people to craft their own terms without the need for expensive advice. Some examples include:

• Bitcoin and Etheruem: two protocols in which developers and entrepreneurs are actively developing things like self-enforcing contracts, distributed corporations, and self-executing wills and trusts.
• Crowd funding platforms like Kickstarter where businesses, artists, and other creatives abandon traditional, highly regulated, means to secure financing.

The important thing to note here lies in the fact that clients seek alternatives that have nothing to do with the current monopoly. These networks and protocols allow for direct, peer to peer, connections, empower people to transact on their own and, therefore, as history shows large volumes of business will migrate in that direction. This is not using technology to drive down the cost of legal services or to optimize access to professionals, this is the development of code that works better when it frees itself from traditional law and lawyers. It marks a global phenomenon where the technology allows people to connect outside of the confines of local jurisdiction and sovereignty. It is easy to see attorneys who miss this shift simply vanishing from the conversation.

Surprisingly, the market for legal services, managed to escape many of these disruptive forces and rode out the initial waves of technology change largely unscathed. Lawyers, for the most part, still bill on an hourly basis, increase their rates, and maintain a sturdy fortress around specialized legal knowledge that allows us to charge a premium to the uninitiated. The industry, however, sits on the cusp of revolution and I believe that during the next decade we will witness changes to our profession as profound as those Netflix ushered in when they destroyed the DVD industry with video streams.

You can already see it beginning:

• Y-combinator recently announced that they will require all their portfolio companies to use a new means of financing called a SAFE (simple agreement for equity) that eliminates the need for expensive legal review.
• Founders Workbench provides online tools that allow businesses to draft their initial incorporation documents on-line and at no cost.
• Rocket Lawyer provides low cost or free documents to their users who can interact with lawyers electronically at a very low rate per hour.
• The bitcoin protocol allows for the construction of zero trust contracts that could, in theory, make lawyers irrelevant.

Each of these examples empower the clients not the lawyers, drive deflation into a business model characterized by the steady inflation of its fees throughout its history, and challenge the notion that specialized legal knowledge builds value for businesses.

I plan to explore many of these topics in detail over the course of the next few months, but the main premise is simple: software is about to automate huge portions of the law and the majority of lawyers have no idea how to respond to their pending redundancy.

As is always the case, the destruction of old business models will produce great opportunities, many of which already play a big role in the market for legal services. For example:

• Smaller firms that embrace technology can provide high quality services to their clients without the costly overhead that saddles larger firms. The end result is a lower fee for the client.
• Clients and lawyers now build platforms that utilize software to interact more productively. The end result is better legal analysis than would result from the attorneys working in isolation.
• Lawyers cede control to the bots. Many innovative firms now realize that some legal tasks benefit from automation and the end result is a better overall product.

As lawyers, we need to accept the fact that these changes are occurring and use them to build better results for clients.