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In his fictional short story, “Answer,” from “Angels and Spaceships” (Dutton, 1954) Fredric Brown describes a televised event in which a switch is thrown connecting all the computing machines of all 96 billion populated planets in the universe, creating one massive interconnected supercalculator — a cybernetics machine that combines all the knowledge of all the galaxies. As the contact is made there is a surge of power and the hum of digital energy, and to commemorate the event this all-knowing cybernetic machine is asked to answer a question that has never been answered. As the universe watches, cameras facing the machine’s display panel, the universal question for which there has never been an answer is posed to this all-knowing device: “Is there a God?” Without hesitation a mighty voice responds “Yes, now there is a God.” Fear grips the participants, and they leap to grab the switch and disengage the contact, when suddenly a bolt of lightning fuses the switch shut. Forever. To expect the unexpected is one of the great unlearned lessons of history. And so it is in today’s digital age of information. For investors it may seem like aeons, but a mere 18 months ago, the NASDAQ was continuing its unprecedented ascent above the 5,000 mark, and many Silicon Alley-based Internet start-ups, now castigated for bad business plans, promoting growth over value and lack of vision, were dazzling the nation and contributing to “dot-com hysteria” with their over-the-top stock market valuations. The combination of a strong market economy, globalization of capital markets and dynamically evolving, almost never-ending, innovative technology and information-based services had created a deity that reigned supreme for a decade. The strong national economy and the seeming ease with which one could become an IPO (Initial Public Offering) millionaire with a dollar and a dream, generated a steady stream of work for lawyers and law firms. The commercialization of the Internet, the dynamic growth of information and information technology-based businesses, coupled with the availability of a seemingly endless flow of venture capital created a huge demand for legal work and legal services. Intellectual property practices, gearing up to meet the new demands of the service-based information age, as they had for the industrial revolution, hailed the growing acceptance of business method patents. Tremendous “overnight” gains in wealth, combined with an increasingly complex tax code and a generation of baby boomers, now “dot-commers,” drove demand for sophisticated tax and estate planning services, not to mention the plethora of investments from real estate to art. Law firms were not immune, often trading equity in lieu of fees in the euphoric flight to ever higher stock prices and a seemingly endless parade of IPOs. Banking, investment and securities lawyers rose to the challenge. Although electronic funds transfers and automated teller machines had been around for years, bricks and mortar gave way to on-line banking and electronic securities trading. Technology had given anyone the ability to invest, buy and sell securities and manage a portfolio, with personal computers, cell phones and wireless hand-held portable devices. Information, content, was king. Need a map? Technology will provide it. Hungry? Mobile wireless devices feed us information about the nearest and dearest restaurants. Rent a car? It comes equipped with a computerized navigational system, and you can even tell your new car what interior temperature you would like. With change comes opportunity. But change also breeds uncertainty. Our legal systems have been based in paper. Our intellectual property laws assumed that a copyright refers to a “hard” copy. Our laws of contracting presume that a signature means that someone has signed a document. Our judicial system and rules of evidence could not have contemplated years ago that a copy could be indistinguishable from the original or that communications’ systems, once limited to wired pathways, were now disembodied and packet-switched through networks that span the globe, making time, distance and borders almost irrelevant. Change and uncertainty provide great economic prosperity for lawyers who are adept at advising clients and assisting them in avoiding risk, in crafting protections for their intellectual property and for structuring investments, employment and stock option agreements that created wealth beyond the imagination of mere mortals. Lawyers who, for generations, had bowed to the unassailable mantra that making partner in a law firm was the hallmark of a successful practice, now flocked to small start-ups, forsaking hefty salaries and the lure of plush office space for the stock options and allure of the IPO. But then, the bubble burst — or did it? HISTORICAL CONTEXT History is filled with the unexpected. About 170 years ago, Samuel Morse, an oil painter and a man considered to be the godparent of modern telecommunications, became frustrated by slow mail service and began to construct the telegraph. He wound miles of wire around the walls of his laboratory and demonstrated that electrical pulses could activate an electromagnet far away. He then devoted an entire decade of his life to concocting an elaborate instrument which would receive signals that would cause the printing of individual letters and numbers on a moving piece of paper — an “electronic” printer. But then something unexpected took place. Telegraph operators, with brains consisting of a hundred billion processing elements, linked by a hundred trillion connectors, smaller and lighter than most computers, with enormous memory, self-generated electricity (less than that needed by a 20 watt bulb) quickly learned to bypass Morse’s cumbersome printer and immediately knew how to “read” the sounds as dots and dashes from the sound of the machinery. After a decade of labor, all that was needed was a simple on/off key — perhaps the first digital binary code! Similarly, Buck Rogers cartoons of the 1930s correctly described the clothing and equipment necessary for space exploration which began in the 1960s. But as Isaac Asimov noted, nobody predicted the most remarkable aspect of the lunar landing, that the whole world would be watching on live television. And who could have predicted that a war, Desert Storm, would be witnessed live, in infinite detail, by masses of civilians the world over, thanks to the work of one reporter accompanied by a cameraman and a portable telecommunications disc. Well, we lawyers have our hands full. The dot-com boom is over, and my, how times have changed. The NASDAQ has fallen over 60 percent since April 2000, mass layoffs have ensued, and the number of American workers drawing unemployment benefits on a continuing basis has reached a nine-year high ( USA Today, Aug. 23, 2001). Darlings of the dot-com world such as Kozmo.com, Theglobe.com, Boo.com, Pets.com and Etoys have turned out the lights for good, and economic growth and venture capital investment have slowed to a near halt. Those “emerging technology” businesses that have survived are working feverishly to contain costs, struggling to develop profit-based business models, and consolidating or being gobbled up by bottom-fishing opportunists. The legal community is also working feverishly to become more cost-effective, avoiding equity investments so popular only a few years ago and returning to profit-based legal fee structures. The legal community is also consolidating to accommodate the needs of surviving and traditional global e-businesses that are emerging from the dust of the now-defunct dot-com euphoria. Bankruptcies, corporate reorganizations, restructuring, loan workouts and windups are on the rise, and so is the demand for bankruptcy and liquidation specialists. Buckling economic conditions have led lenders to tighten credit conditions, pushing unprofitable firms to insolvency. Each day seems to include news of another prominent bankruptcy filing. According to The Daily Deal (“Bankruptcy Boom Boosts Demand for Lawyers,” Aug. 2, 2001), since the beginning of the year, through July 12, 131 public companies with assets of almost $120 billion have filed for bankruptcy, a whopping 52 percent increase over the number of bankruptcies filed in the same period last year. Bankruptcy lawyers are not only enlisted to represent filers, but also creditors and investors, all of which will continue to support a steady stream of work for law firms. In addition to the marked increase in bankruptcy work, the surge in failing technology companies has meant opportunity for savvy investors and attorneys alike. While many start-ups have met their demise without assets to mark their brief existence, some real values can be found in the core intellectual property assets many have left behind (e.g., unissued patents, lines of source code, domain names and customer lists), as well as an inventory of hard assets (e.g., routers, computer processors, servers, telecommunications switching systems). These are ripe for the picking and can often be acquired at bargain basement prices. Even traditional brick and mortar enterprises have entered into the foraging frenzy. Saks Fifth Avenue recently purchased UrbanFetch.com’s customer list for an undisclosed sum after the New York-based impulse shopping and rapid delivery service shut down last October. Burpee Holding Co., a seed company, purchased the domain names and customer lists of now-defunct Garden.com, while Wal-Mart Stores, Inc. bought Garden.com’s editorial content and distributed it through its store’s nursery departments (“Meet the Patent Prospectors,” IP Worldwide, May 31, 2001). OPPORTUNITY KNOCKS For those companies and investors that have weathered the storm or opted for slow and steady growth, rather than jump in to the now-withering “tech frenzy,” the opportunities abound, and lawyers representing the Fortune 500 are reaping the benefits by assisting clients in sifting out the golden nuggets from the silt. The stagnant national economy has, if anything, stimulated the corporate appetite for mergers and acquisitions. Increasingly hard-pressed to maintain profit growth in the face of waning demand, corporations are beginning to consolidate in order to reap the benefits of economies of scale, gaining efficiency, cutting costs and extending their market reach. The national trend toward industry consolidation is maintaining strong demand for attorneys with antitrust, corporate restructuring, acquisition and merger financing expertise. Even the recent wave of layoffs has generated and will continue to create more work for tax, employment and labor relations attorneys. Employees, highly sought after and prized as the tech sector blossomed, are now often callously and unceremoniously let go without extended benefits and severance. They are finding the job market tighter than usual and increasingly turning to employment law specialists for recourse. Contractors and consultants, vying for ’1099′ relationships with major companies, are now suing for employee benefits in an economy gone sour. Microsoft stated earlier in the year that it would pay $96.9 million to settle lawsuits filed by temporary workers who claimed the software giant bilked them out of their benefits (“Startups Get a Lesson in Termination Law,” Forbes.com, Jan. 16, 2001). Recently, the Connecticut Attorney General’s office, on behalf of the State Department of Labor, filed suit against Walker Digital Corporation, alleging that the company violated the Federal Worker Adjustment and Retraining Notification Act (29 USC �2102(a)(2)) (WARN) in November 2000, when it laid off about 100 employees, representing 80 percent of its staff. Subject to limited exceptions, WARN requires that companies that employ 100 or more full-time employees and that plan to terminate 50 or more employees within a 30-day period, provide affected workers, as well as local government and the responsible state agency, with at least 60 days notice of the impending layoffs. Lean times also call for extensive cost-cutting measures beyond the human resources in order to survive. Companies are increasingly focusing attention on and devoting scarce resources solely to their specific core competencies. Just a few weeks ago, Priceline.com announced it had turned a profit for the first time ever, and companies such as Travelocity.com, Ticketmaster’s on-line ticketing business and Ameritrade are all showing signs of positive earnings. In each case, it appears that these businesses are cutting back from their over-expansion and aggressive product and service extensions and are now re-focusing on making their core business profitable. These same companies are also closely scrutinizing their own investments in information technology and related products and services. As budgets shrink and as labor costs rise and focus on core business and profitability increases, the wisdom of maintaining proprietary information technology resources is consistently being re-evaluated and reviewed. In turn, this has renewed interest in outsourcing information processing and technology-driven transactions. Because outsourcing typically involves movement of assets, personnel, strategic development and operations-related functions, such transactions are quite complex, and lawyers knowledgeable in outsourcing (many of whom are dusting off their precedents of 10 years ago) are experiencing a significant increase in both opportunity and workload. INTELLECTUAL PROPERTY As noted above, intellectual property issues have also gained significant attention. The increasing importance of business method patents, domain name and trademark/service mark issues, and copyright questions have increased the workload of intellectual property lawyers substantially. While there is clearly no slowdown in many long-standing fields of intellectual property (e.g., pharmaceuticals, biogenetics, chip design), traditional IP lawyers can’t move fast enough to counsel clients and protect them and their rights in a world quickly migrating from traditional hard goods, invention-driven or hard copy, paper-based products, into software, databases, e-books, MP3 files and information-based services. In a speech given during his CEO summit this past May, Bill Gates pointed out that software costs a significant amount of money to develop, but its duplication and distribution costs in an electronic age are virtually nil. A printed book or CD recording has development, production and distribution costs that are fundamentally different from the same intangible, intellectual property content in electronic, digital form. Gates noted that in an electronic world, once development costs are recouped, “every single additional unit is pure profit.” The economics are fundamentally different with manufactured or published hard goods, and those lawyers who are adaptable and conversant with the technology and intellectual property laws, whether counseling clients, prosecuting intellectual property applications and registrations or litigating, have much work to do. As The Wall Street Journal notes in a front page article (“Intellectual Property: Old Rules Don’t Apply,” Aug. 23, 2001), “products whose primary value lies in intellectual property — products such as software, pharmaceuticals, movies, records and many of the other things that drive today’s economy — are fundamentally different from staples of the industrial economy,” and these differences are not trivial and in fact are “wreaking havoc with traditional notions of economics that underlie antitrust laws, patent laws, copyright laws. … “ Even criminal lawyers and prosecutors are finding opportunities in this gloomy economic environment. Buying used equipment from a dying or defunct business often yields an unexpected gold mine of undeleted files and information from its previous owner and may include everything from patents not pursued, to personal information about employees, customer lists and even business and strategic plans. Dead companies do not necessarily equal dead legal rights for those individuals or entities that have survived. Individuals, scrambling to obtain an edge in a difficult job market are tempted to use information, trade secrets, lists and databases of their now defunct employer in an attempt to win new employment or impress their new employer or perhaps to start a new business. Some of these activities are quite legal, but many may not be, and the increase in computer crime, economic espionage, trading in information, lists and databases is grist for the legal mill. Disgruntled employees turn in their ex-employers to the Software Publishers Association or the Business Software Alliance, alleging piracy and illicit duplication and use of licensed software. Technologically savvy former employees, knowledgeable in encryption, password protections and information security, often become hackers and would-be intruders in company systems, sometimes mischievously seeking a vicarious thrill and other times bent on damaging the company that laid them off. Lawyers, working hand in hand with security experts, law enforcement and auditors are part of the solution. Opportunity is still knocking. FORECAST FOR THE FUTURE Make no mistake, despite the economic gloom that pervades the current economy, technology and information-driven e-commerce are here to stay. According to Forrester Research, the number of U.S. households shopping on-line will nearly triple from 17 million in 1999 to 49 million in 2004, and average on-line spending per household is expected to increase from $1,167 in 1999 to $3,738 in 2004. In 1998 e-commerce totaled $105 billion and is projected to reach $3 trillion (about 12 percent of all world trade) by 2004, at which point more than 50 percent of all business interaction will be taking place over some form of IP network. At that rate, by 2010, the number of users connected to the Internet will approximate more than 1.5 billion, with e-commerce, accounting for more than $7 trillion (or in simple English, one in 6 people worldwide will be on-line, accounting for about 20 percent of global trade). In this vast and interconnected world, the question of privacy and the protection of databases containing personal information is not merely an important legal issue, it is the subject of proposed and pending legislation, litigation and adjudication, nationally and internationally. On-line advertising and marketing drive Federal Trade Commission (FTC) regulations and guidelines (Dot Com Disclosures); health care, on-line advertising accessible to children and on-line banking spawn new legislation in the form of the Health Insurance Portability and Accountability Act Of 1996 (HIPAA), the Child On-line Protection Act (COPA), the Children’s On-line Privacy Protection Act of 1998 (COPPA) and the Gramm-Leach-Bliley Act (GLB). Jurisdictional and compliance issues related to sweepstakes and on-line contests, gambling over the Internet, the electronic accessibility of pornography. … How does one apply a community standard to determine obscenity over the Internet, and how, in an interconnected and networked digital world does one determine what the “community” is? The complexities of new and emerging legislation, the legal work involved in counseling clients and the sheer cost of compliance — even assuming there is no litigation or regulatory action involved — is anticipated to involve financial investment and expenses that will make the worldwide expenditure on Y2K compliance in the decade leading up to the new millennium look like a drop in the bucket. The jurisdictional disputes and the adaptation and interpretation of laws relating to electronic surveillance, e-mail, voice mail, EZ passes and biometric devices, the rules of evidence — in fact even procedures for filing documents in court and the taking of depositions testimony — are being turned upside down. Maryland and Michigan have already created a separate court or a separate judicial program to handle litigation for technology-related matters. With specially trained judges and “wired” courtrooms, litigation that would normally terrify judges and call into question whether justice can ever be done, will now be handled by increasingly trained and knowledgeable judges in courtrooms and with procedures that will attempt to deal with “Internet time” in the legal field. Indeed, who could have imagined, even a few years ago, that the U.S. House of Representatives would even contemplate taking recorded grand jury testimony, originally given by a sitting President of the United States over secure, remote communications lines, and releasing it in electronic form over the Internet? Yogi Berra once cautioned that we must be able to look ahead “to avoid making the wrong mistakes.” If you think there isn’t enough work to keep lawyers busy, think again. We simply need to know where to look. Joseph I. Rosenbaum, a partner and head of the New York-based e-commerce group at Reed Smith, chairs the Information Technology & Global Networks Committee of the American Bar Association’s Section of Science and Technology and is an adjunct professor of law at New York Law School, where he teaches the law of electronic commerce and information technology. Daniel E. Schnapp, counsel at the firm, assisted in the preparation of this article.

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