Drafting a Group Blog Operating Agreement
posted by Dave Hoffman
Concurring Opinions organized as an LLC some months ago, for all the obvious reasons. But filing papers with the Secretary of State doesn’t begin to answer the legal issues that arise when people come together to blog. Indeed, it creates a host of new ones. Over the last few months, to solve the problems that becoming a legal entity creates, we have been working to finalize our operating agreement, tailored to the unique needs of blogging. Now that we’re done, I thought I’d share a few thoughts about the major issues we considered, and the solutions that we settled on. I’m going to be a little bit general here, and, as always, nothing about this post constitutes legal advice, on the off chance you were in the market for it. To preempt the objection that considering the pittance of money that we get from advertising, most of this is overkill, I would just respond: they probably used to think that at Google too. (Or, more humbly and accurately, if it is worth doing, it is worth doing right).
1. Governance: We decided to go with a member-operated entity (rather than the formal route of having officers). This seemed like an overdetermined choice. But it leaves some big questions on the table: what kind of majorities do you need for which kinds of decisions; how many members constitute a quorum; do all members get equal votes? We decided on super-majority rules for every decision, and permitted voting by email with a “quorum” defined as participation in the email “meeting” within a set period of time. We also decided on equal voting shares for existing members.
2. Exit: So there you are, blogging away as a member of an LLC, and one of your members decides to sell his or her stake to an outsider, who chooses to blog on (the horror!) international law instead of privacy, or simply write multiple posts about Jennifer Aniston or other trivial sundries. Can you stop this nightmare before it starts? With difficulty. Transfer restrictions must be reasonable, which means (generally) that you need to draft an LLC buy-out as an alternative to an outside sale that provides a fair estimate of the worth of a stake in the entity. That isn’t an easy to problem to solve. We started with a six month revenue figure and backed into a valuation: I’m sure that there are better options available. Similarly, we made provisions for non-voluntary exit (i.e., removing a member) with an appropriate valuation and notice provisions. This is a sensitive drafting problem, but a necessary one in a world where people sometimes simply get tired of blogging.
3. Intellectual Property: Does the blog own the posts, or do the authors? If the former, then you’ve got multiple problems: what about guests? Who will control licensing? If the latter, you’ve got to worry about protecting the Blog’s marks (such as they are), and also make sure that you set up a licensing system within the operating agreement. We settled on a scheme were the authors retained IP rights, except that the Blog will own its own marks, such as they are.
4. Distribution of Profits: The options here are legion, and fraught with potential hard feelings. Starting with the presumption that most blog LLCs will want to be taxed like partnerships, the legal problem is to find a way to distribute revenue in rough proportion to contributions to the operation of the company. I’ve heard other blogs have very complicated formula to distribute cash, like, say, dividing the total numbers of words posted by some denominator and then creating an index productivity score. This seems to me to create bad incentives to overwrite, in a medium where omitting needless words is valued. So, we went with a three-track system: a threshold number of posts to receive any distributions, coupled with an incentive bonus for the percentage of total posts over that threshold, and finally something extra for administrative service. The devil is in the details.
5. Negotiation: In a blog of our size (seven permanent members) it wasn’t terribly difficult to reach an agreement, although seven lawyers means lots of line editing and persnickety (but useful) language nits. We did have the help of a lawyer’s basic draft agreement to get us along the way, and if you are trying to do this without a law degree, I think you should hire a lawyer. Generally, if you go lawyer-free, I’d recommend appointing a smaller committee of the whole to flesh out the issues, appointing a drafter, and then have that person be responsible for incorporating changes into the master document.
I know that most law professors who blog with others think of this as sort of a hobby/professional sidelight. To the extent they’ve thought about governance issues, they’ve probably done so in the context of a revenue discussion, where the “owner” has told the other editors, perhaps with some input, about how the money will flow. This is a fine model if you think of yourself as an employee (and it shifts most real risk to the “owner” and his or her homeowner’s policy). But I doubt that many folks on group blogs have thought much about whether they should have a right to compensation if they are removed as a contributor, or whether they should get a veto on adding new members. Or what were to happen if a co-blogger tried to prevent them from syndicating “their” posts with another outlet. Or whether blog-related business opportunities must be shared with co-bloggers?
Airing these issues is one of the big benefits to sitting down and drafting an operating agreement. That is, formalizing the legal status of a blog, whether in an LLC or not, has benefits apart from merely shielding members’ assets. Talking together about governance helps to get everyone’s expectations out in the open, and generates good will and emotional investment into the enterprise. If blogs are going to mature to be permanent institutional parts of the media/academic/legal marketplace, as so many predict, people should get serious about how they are run. A good agreement is the place to start.
(Image Credit: These folks, who will make it all look pretty.)
October 10, 2007 at 11:25 am
Posted in: Blogging, Contract Law & Beyond, Corporate Law
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Responses (10)
nedu - October 10, 2007 at 11:34 am
Out of curiousity, did your agreement address joint authorship?
Gary Rosin - October 10, 2007 at 2:53 pm
In the absence of an Operating Agremment among the members, most of these questions will be answered according to the default rules of the state in which you formed the LLC. What state did you use?
Gary
Gary Rosin - October 10, 2007 at 2:53 pm
In the absence of an Operating Agremment among the members, most of these questions will be answered according to the default rules of the state in which you formed the LLC. What state did you use?
Gary
Gary Rosin - October 10, 2007 at 2:54 pm
In the absence of an Operating Agremment among the members, most of these questions will be answered according to the default rules of the state in which you formed the LLC. What state did you use?
Gary
Orin Kerr - October 10, 2007 at 9:02 pm
At the VC the answer would be no, no, nothing, and it’s up to Eugene. Seems to work for us so far, but then we mostly know each other pretty well.
greglas - October 11, 2007 at 5:06 pm
Yeah, I’ve got to “me too” to Orin’s comment. The organization of our collablog is mostly anarchy sustained by bonhomie (and a refusal to commercialize). The stuff you guys are doing here is really fascinating. May you be Google someday, if that’s what you want.
Dave Hoffman - October 11, 2007 at 11:18 pm
To greglas and OK: I think the concern I’ve got – probably due to my contract teaching background – is that bonhomie and knowing each other well are perfect substitutes for contracting in the absence of lawsuits or the threats of lawsuits. The likelihood of litigation against a law blog is very low, so I can see why rational bloggers would proceed without formalizing relationships. But over the next five years, even if the medium is static, I’d bet that of the 100+ blogs on CO’s latest census, at least one will get sued.
Gary: PA.
Nedu: Not explicitly.
Scott Dodson - October 12, 2007 at 10:06 am
Interesting compensation structure. Why the bonus for posts over the threshold if you are concerned about superfluous posts? If your goal is to generate discussion and disseminate ideas that appear to readers, an alternative measurement might be the number of comments to the post.
dave hoffman - October 17, 2007 at 3:04 pm
Scott: Really interesting idea. The only problem is that comments are a very imperfect proxy for what we want, which is (at least for me) thoughtful, interesting, content. Some of my least substantive posts have gotten the most comments – mostly the ones that are seen to be politically hot. This creates some potentially bad incentives to start shouting “Republicans” or “Democrats” from the rooftops. But it is still a neat idea.
Al - October 17, 2007 at 6:48 pm
“one of your members decides to sell his or her stake to an outsider, who chooses to blog on (the horror!) international law instead of privacy, or simply write multiple posts about Jennifer Aniston or other trivial sundries”
I don’t follow this one. In the operating agreements I draft, a transferee must be admitted to the LLC to become a member – otherwise the transferee is simply treated as an assignee. I can understand why you’d allow all members to post to the blog (although perhaps this need not be the case either), but it seems to me that assignees should not have a similar right. Accordingly, I would think that a reasonable transfer provision would be that members can transfer their interests, but that the transferee would not have automatic posting privileges unless admitted to the LLC by the requisite vote of the other members. If someone wants to purchase an interest on those terms, more power to ‘em, but it would seem pretty unlikely.
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