You've just finished co-writing your screenplay.  You've also just finished a production budget, and you've calculated that you need $50,000 to make the film.  You've been able to put away $500 waiting tables, and your co-writer can contribute the same amount.  You need another $49,000.00 to make your film.  Your Uncle Charlie once had artistic aspirations himself, but gave them up to start up some social networking web company that he just sold for $5 million.  Your cousin mentions he's looking for investment ideas.  You call Uncle Charlie and ask him if he would like to invest in your film project.  You are ecstatic when he says he's interested.
 
Your co-writer thinks you should talk to a lawyer to assist you in writing a contract to send over to Uncle Charlie.  You call your lawyer.  You explain to your lawyer that you're looking for a "simple" investment contract to send to your Uncle Charlie.  You hang up on your lawyer in frustration when he tells you it's not going to be that simple.  Why do lawyers have to make everything so complicated?  You cynically think to yourself that the lawyer told you this just so he could earn more money from you.
 
This situation is very common in artistic entrepreneurial ventures.  The lawyer was right.  It is not that simple.  Here's why. By asking your Uncle Charlie to invest in your film project you are offering to sell him a "security." Most people understand that purchasing stock in a publicly traded company is a "security." However, federal and state law define a "security" much more broadly than that.  A key test in determining whether an investment constitutes a "security" is whether the person invests money and is led to expect profits solely from the efforts of another.  In other words, if Uncle Charlie will not be actively involved in the business of making your film, what you are selling him will be considered a security.  In contrast, if and when you form a company with your co-writer, the stock or shares you issue to each other when you form your company will not be considered "securities" if you co-writer will be actively managing the affairs of your company's film project.
 
So what if it is a security?  Well, under federal and state law, the sale of a "security" must either be registered with the Securities Exchange Commission (SEC) and the proper state regulatory agency, or otherwise meet one of several exemptions from registration.  It is likely that Uncle Charlie's investment will qualify for one of these registration exemptions, but there are also several investor protection requirements with which you will have to comply in order to finalize your deal with Uncle Charlie.  Federal and state laws are designed to protect investors from fraud and scams . . . and overly optimistic nieces and nephews. You will need help from a qualified attorney to close the deal.

 
Recently, a Maryland-based company doing business in Minnesota, called TEKsystems sued a former employee under the terms of a non-compete and non-solicitation agreement based in part on the former employee's communications through the Linked-In social networking website.  The case is still in litigation, but it will no doubt raise questions about the limits of reasonableness with respect to non-compete and non-solicitation agreements.
 
Minnesota courts, like most others, look disfavorably upon non-compete and non-solicitation agreements because they are restraints on trade.  However, courts will enforce such agreements if they are reasonable and if the party whose future conduct is restricted receives sufficient compensation or other benefit in exchange for agreeing to the restrictions.  In determining whether a non-compete or non-solicitation agreement is reasonable, courts will determine whether or not the restraint is necessary for the protection of the employer's business or good will of the employer, and if so, whether the restriction imposed on the employee is a greater restraint than what is reasonably necessary to protect the employer's business.  In determining reasonableness, courts will also evaluate the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends.
 
The Linked-in case will likely come down to specific factual determinations made by the court regarding the nature and extent of the former employees' communications on Linked-in.  One issue the court may be faced with is whether the seemingly simple act of a former employee "friending" a person who is on the non-solicitation list constitutes a violation of the agreement, and whether enforcement of the agreement in such circumstances is necessary for the protection of the employer or the employer's goodwill.  If so, the court will then determine whether the act of "friending" someone on a non-solicitation list is a greater restraint than necessary to protect the former employer's business interest.
 
This case has garnered much attention because it is one of the first cases involving the question over whether an employee's social networking activity can run them afoul of non-compete and non-solicitation agreements.  Mendoza Law Office will continue to follow this case and report on the outcome.