To combat this growing threat, largely sponsored by China, the FBI is starting an economic espionage  awareness campaign in key hot spots to educate

Federal Bureau of Investigation Seal (Photo credit: DonkeyHotey)

American workers about corporate espionage and  suspicious behavior.  Initial campaigns will start in areas with high concentrations of government contractors, including Chicago, San Francisco, Los Angeles and North Carolina.

According to the latest economic espionage report to Congress from the Office of the National Counterintelligence Executive,  foreign collectors are  most interested in the following areas:

• Information and communications technology, which form the backbone of nearly every other technology;
• Business information that pertains to supplies of scarce natural resources or that provides global actors an edge in negotiations with U.S. businesses or the U.S. government;
• Military technologies, particularly marine systems, unmanned aerial vehicles, and other aerospace/aeronautic technologies; and
• Civilian and dual-use technologies in fast-growing sectors like clean energy, health care/pharmaceuticals, and agricultural technology.

Much of this information is easily available and can be taken on flash drives, cell phones or other small devices by greedy, disgruntled, unhappy or financially needy employees, as well as people who are vulnerable to blackmail or have allegiances to other countries.

Certain corporate policies and procedures governing access to sensitive documents can help, but the FBI is highlighting suspicious activities and providing a hotline for reporting:

You can help as well. In our experience, those who purloin trade secrets and other sensitive information from their own companies and sell them overseas exhibit certain behaviors that co-workers could have picked up on ahead of time, possibly preventing the information breaches in the first place. Many co-workers came forward only after the criminal was arrested. Had they reported those suspicions earlier, the company’s secrets may have been kept safe.

Here are some warning signs that MAY indicate that employees are spying and/or stealing secrets from their company:

• They work odd hours without authorization.
• Without need or authorization, they take proprietary or other information home in hard copy form and/or on thumb drives, computer disks, or e-mail.
• They unnecessarily copy material, especially if it’s proprietary or classified.
• They disregard company policies about installing personal software or hardware, accessing restricted websites, conducting unauthorized searches, or downloading confidential material.
• They take short trips to foreign countries for unexplained reasons.
• They engage in suspicious personal contacts with competitors, business partners, or other unauthorized individuals.
• They buy things they can’t afford.
• They are overwhelmed by life crises or career disappointments.
• They are concerned about being investigated, leaving traps to detect searches of their home or office or looking for listening devices or cameras.

If you suspect someone in your office may be committing economic espionage, report it to your corporate security officer and to your local FBI office (704.672.6100) or submit a tip online at https://tips.fbi.gov/.

If you want help setting up corporate policies to help protect trade secrets, contact one of our business attorneys.

Related articles

• Probe links corporate spying to Chinese government (bottomline.msnbc.msn.com)
• FBI to Blitz Public With Economic Espionage Ads (comsecllc.blogspot.com)
• Man pleads guilty to stealing company’s formulas (sfgate.com)

The virtual scrapbook is a GREAT display window for consumer companies selling food, fashion or funky fixtures. If you’re a B2B company, however, it’s probably best to keep walking.

Admittedly, Pinterest brings some incredible stats to the table:

• Meteoric growth
• Incredible online referral traffic
• SEO benefits

And, it’s really hard to argue with Google.

Search “B2B and Pinterest” and pages of posts pop up, most with compelling, reasonable ways to add Pinterest to your social media mix. Like this one.

But, in addition to requiring highly creative and visual content not easily assigned to most B2B plays, Pinterest puts two significant hurdles in the B2B path: potentially sticky legal issues and opportunity cost.

What Do You Mean I Can’t Pin That?

The “copyright” is actually a bundle of rights that gives the author the exclusive rights to:

• Reproduce the copyrighted work (make copies).
• Prepare derivative works (i.e., adapt the work).
• Distribute copies to the public.
• Perform certain kinds of works publicly (e.g., plays, dance routines, movies).
• Display the copyrighted work publicly (e.g., sculptures, paintings).
• Perform the copyrighted work publicly by means of a digital audio transmission (for sound recordings).

So, when you “pin” a photo or a product or artwork that you like, or use someone else’s graphic to decorate your site, you are actually copying someone else’s work, and potentially violating their copyright.

Just because you aren’t making money from your Pinterest site or the copied artwork does not mean you aren’t violating someone’s copyright, and doesn’t mean you couldn’t be liable for thousands of dollars in penalties (if a work is registered with the US Copyright Office, the owner can get statutory damages as provided in the US Copyright Act, currently ranging from $750 per instance of infringement to $30,000, without having to prove anything beyond impermissible copying).

When you “pin” something that is someone else’s work product, they may be very flattered and happy for the publicity — but you run the risk that they actively control the marketing and use of their work. You may receive a cease and desist letter under trademark or copyright law, or a take-down notice under the Digital Millennium Copyright Act. Bars who don’t get music licenses often have this problem. So do web site owners who think any image on the web is free for the taking.

Until recently, the Pinterest terms and conditions stated that by uploading or “pinning” something to Pinterest, you gave Pinterest the rights to distribute, sublicense, and sell that content. Copyright owners raised such hue and cry that the site terms now provide for a mechanism for stopping copyright infringement. If your site receives too many complaints of copyright infringement, you could lose your rights to use Pinterest.

See What I’m Talking About?

The other hurdle, of course, is time.

Using any social media channel for effective promotion and brand engagement takes valuable time and attention.

Do you have time to learn and master yet another social media channel? Could you spend the time required for Pinterest to improve the way you use your existing channels, such as Twitter, LinkedIn or your blog?

Here’s a revolutionary thought: pass on Pinterest but revisit the definition of social.

Invite your top prospects out to dinner.

They’ll see value in your business a lot more clearly over a nice meal than they ever could over at Pinterest.

A hat tip: This post was co-authored by Christian Munson, Associate Vice President of CRT/tanaka, our social media agency in Richmond, Virginia. Ever since we entered the social media space, Christian has been our closest ally in developing and guiding our efforts.Follow him at @munson_711.

Related articles

• How to Make Sure Your Pinterest Pins Are Legal (sproutsocial.com)
• You Might Be Breaking the Law, and Tumblr Might Pay the Price (pandodaily.com)
• What To Do If Photos of Your Art on Pinterest Are Misused (artistmarketingresources.com)

Expanding the Family Business Into the Third Generation

Third Wednesdays, noon- 1:30 p.m.

(Lunch to be provided)

May 16, 2012              Expanding the Family Business Into the Third Generation.  Ensuring successful transition of a family business takes special attention to managing interpersonal relationships, succession planning, estate planning and funding.

Speakers:

• Dave Vogelpohl (Excellerate Solutions, Inc.) Developing and maintaining family business relationships.
• Tim Hinton (Principal Financial Group) Exit Planning for Business Owners.
• Robin Pipkin (Tax Attorney, Sands Anderson PC) Identifying the business leaders and planning for the financial future of remaining family members.

The Business Success Series is for entrepreneurs and business owners who want to stay current on growth strategies and important business trends.  It meets monthly at Sands Anderson’s Raleigh office, 4101 Lake Boone Trail, Suite 100, Raleigh, NC 27607.

To register, email Heather (HJankovictz@sandsanderson.com) or call 919-706-4200. Space is limited.

Next Topic Green Plus: Sustainable Equals Successful (June 20, 2012)

Related articles

• How to Avoid the Pitfalls of a Family Business (openforum.com)
• I’ve Paid My Taxes, Now What? (nclawlife.com)

Tax and Financial Records: What’s important

Federal tax returns can be audited for up to three years after filing (six if there is under-reported or unreported income).  Most accountants and tax attorneys recommend keeping backup documentation for the following categories to support your personal or business tax return for at least 7 years (longer where indicated in parentheses):

financial statements, charts only for 5 years (Photo credit: Mitmensch0812)

• Cancelled checks
• Credit card receipts
• Paid invoices
• Bank deposit slips
• Bank statements
• Tax returns (uncomplicated)
• Employment tax returns
• Expense records
• Entertainment records
• Inventory records
• Complicated tax returns (permanent)
• Employment tax returns (permanent)
• Home improvement records (ownership plus 7 years)
• Investment records (ownership plus 7 years)
• Financial statements (permanent)
• General ledger (life of business plus 7 years)
• Depreciation schedules (life of assets plus 7 years)

Employment Records: What’s Important?

A web of federal and state employment laws have different document retention periods.  But these records are discoverable by a disgruntled or aggrieved employee who sues the business. It is therefore important to know how long certain documents need to be retained, to implement a data destruction policy and to follow the policy routinely. That way, you keep what you need to keep, but no longer than necessary. Of course, your particular requirements and industry specification may be different, and this would be a good time to consult with an employment attorney.

• Personnel records (7 years)
• Medical and benefit records (6 years)
• I-9 forms (4 years after termination of employment)
• Pre-employment records (application background checks, etc.) (2 years)

Corporate Records that should be permanently maintained:

• Corporate minute book and meeting minutes
• Stock Ledger
• Contracts
• Real Estate Records

Don’t forget that computers, copiers and scanners may hold copies of your documents on their hard drives. Remember to clean these out before returning leased products or recycling.

Related articles

• Keep or Toss: Tax Time (suddenlyfrugal.com)
• Choices Offered for Document Shredding (graceabonillo.net)
• Why Effective Records Management Matters in a Democracy (recordskeepers.wordpress.com)

As documented in the Raleigh News & Observer today, the NC Industrial Commission (which implements the workers comp system) is bringing non-compliant business owners to court to pay for employee on-the-job injuries and setting up procedures to jail those who still do not or cannot pay.

We have always encouraged our business clients to carry workers comp insurance as soon as they have the first non-owner employee.  Even if the company is not required to carry workers comp by statute, if an employee gets hurt on the job, the employer is responsible for those costs.

The cost of workers comp policies varies greatly by industry based on how dangerous the job is.  It may not be as expensive as you think.

Related articles

• N.C. agency will force employers to pay injured workers (newsobserver.com)

The primary reason for a company to do this is because it wants the operational and organizational flexibility of the LLC, but it also wants to reduce self-employment taxes. We find this to be an extremely cumbersome method of doing business and accounting.

Tax (Photo credit: 401K)

We are firm believers in the KISS principle (Keep It Simple, Stupid). If you want your business to be taxed as an S corporation, why not just use a corporation rather than a limited liability company? Or start as an LLC and when you are making so much money it makes sense to be taxed as an S-corp, why not convert the entity? This is a good problem to have.

The LLC entity eliminates  many of the formalities that a corporation must observe to preserve its corporate status. The LLC does not require bylaws, a board of directors, meetings or minutes , for example.

But electing to be taxed as an S-corporation takes away much of this benefit.

To be taxed as a small business corporation, all the members of the LLC  must meet the requirements of S-corporation shareholders. There cannot be more than one class of membership interests, more than 100 members, and the members cannot be corporations, partnerships, LLCs or non-resident aliens.  In addition, the S-corp must comply with all the withholding and reporting requirements of an employer, which is not necessary if an LLC has no employees other than its members. It will also have to make quarterly estimated tax payments. The entity will have to file a tax return itself, where the LLC does not necessarily file a return at the entity level.

Any new company that wishes to be taxed as an S-corporation has  two months and fifteen days after the  LLC is formed to file the S-corp election with the IRS.

Related articles

• Tax Day On the Way: The 4 Ways You Can Tax Your LLC (mashable.com)
• Choosing the LLC structure (nclawlife.com)
• Choosing the S-Corporation (nclawlife.com)

I Paid My Taxes, Now What?

Third Wednesdays, noon- 1:30 p.m.

April 18, 2012             I Paid My Taxes, Now What? Five Triangle business advisors address best practices in planning for business growth in 2012.  The panel will discuss what’s notable in financing, accounting, employee management, legal and growth planning.

Speakers:

• Bryant Sikorski (Merrill Lynch Financial Advisor): What recent legislation means for tax planning and wealth accumulation.
• Joel Levy (the Entrepreneur’s CPA): How you can become less frustrated and overwhelmed by the accounting and tax-reporting requirements of your business.
• Don Emmett (Entrust Associates): What your company can do NOW to poise for sale or acquisition.
• Ann Close (HR Game Planner) Are your offensive, defensive and special teams strategies in place to win in 2012?
• Donna Ray Berkelhammer (Growing Business Attorney):  Top legal mistakes growing businesses make.

The Business Success Series is for entrepreneurs and business owners who want to stay current on growth strategies and important business trends.  It meets monthly at Sands Anderson’s Raleigh office, 4101 Lake Boone Trail, Suite 100, Raleigh, NC 27607.

To Register, email Heather (HJankovictz@sandsanderson.com) or call 919-706-4200.  Seating is limited.

Expanding the Family Business Into the Third Generation. (May16, 2012)

Several recent situations are raising this issue:

• The Maryland Department of Corrections used to ask applicants for password information.  After a complaint by the Maryland Chapter of the American Civil Liberties Union, it now asks applicants to log in themselves during the interview so the interviewer can look over their shoulders to monitor social media use.
• UNC employs an outside  social media monitoring service called Varsity Monitor to watch what its athletes are saying online.  This partly stems from the recent NCAA sanctions for violations in the football program. The NCAA alleged that adequate and consistent monitoring of Tarheel athletes’ social media use would have revealed potential amateurism violations.
• This North Carolina police department job application explicitly asks for usernames and passwords for social media accounts. Bozeman, Montana has been doing this for a while.
• In Spotsylvania Virginia,  law enforcement employees are forced to log onto social media accounts and scroll through while interviewers watch.

Can they? Currently, this is not forbidden in North Carolina , although the EEOC among other regulators are considering legislation to forbid it.  The EEOC has been monitoring the “the snowballing problem” of potentially discriminatory hiring practices based on Internet searches and social media use by candidates.  The EEOC is expected to issue regulations as part of the implementation of GINA (the federal Genetic Information and Nondiscrimination Act).

Should they? Absolutely not.

Why not? Let us count the ways:

1. This probably violates the candidate’s use agreement with the social media site (Facebook is strongly behind this position). It irritates applicants. Even if it’s legal, many will resent it, and they may not turn out to be loyal or enduring employees.
2. You will probably find out information that is protected and that you are forbidden by law from considering in making the hiring decision, like the person’s age; health conditions; race; national origin; sexual orientation; or  marriage, family or pregnancy status, race, etc. In North Carolina, for example, you cannot refuse to hire someone because they smoke.
3. One you have seen this information it is impossible to (check your favorite idiom): ___ unring the bell, ___close the door after the horse left or ___ put the genie back in the bottle.
4. You could be in the expensive and distracting position of explaining to the EEOC or a plaintiff’s attorney that you really didn’t use improper facts in not hiring that particular candidate. The EEOC is cracking down on workplace racial discrimination through a program known as E-RACE, which gives heightened scrutiny to actions that have a disproportionate effect within minority populations.
5. A candidate or employee might claim she was coerced into revealing her password, in possible violation of the federal  Stored Communications Act or state equivalents.
6. It could violate state privacy laws protecting intrusion into seclusion. North Carolina recognizes this tort, although to our knowledge, there are no court cases interpreting whether requiring social media login information violates privacy in this way.
7. This practice is seen as so viscerally repugnant that two democratic Senators, Chuck Schumer of New York and Richard Blumenthal of Connecticut are asking Attorney General Eric Holder, the Department of Justice and the EEOC to investigate whether this violated federal law.

What can you do instead:

1. Have a social media policy that governs the company’s use of social media and the employee’s use.  This needs to be carefully crafted to avoid forbidding “concerted activity,” which is protected by the National Labor Relations Act (NLRA),  even if your company is not unionized.
2. Outsource background checks.  There are many rules surrounding acquisition and use of credit histories and criminal background checks. If your company doesn’t comply with the multitude of rules, especially if you do not hire the candidate based on the background checks, you could face federal liability for not following the rules
3. Have clear company policies and procedures outlining the hiring process. Do not deviate from it.
4. If you simply must electronically research a candidate, try to do it post-offer. Have very specific criteria that a third party, not the decision-maker, will look at, so there is as much proof as possible that no bias was transmitted up the decision-making person.

Related articles

• US senators: Investigate employers asking for Facebook passwords (zdnet.com)
• Background Checks Disproportionately Impact Minorities (sandsanderson.com)
• Twitter Job Search —  Does it Discriminate? (virginiaworkplacelaw.com)

It is virtually impossible to prove the terms of a verbal contract, which invites trouble when things go sour with vendors, employees, contractors or business partners.  Written contracts help clarify what the terms of the agreement are, make sure both sides are in agreement, and give legal protection in case one party doesn’t live up to its obligations. Contracts relating to real property, commercial loan agreements, contracts for the sale of goods more than $500 are specific transactions that must be in writing in North Carolina to be enforceable.

A binding written contract can be formed by exchange of emails, even where the parties don’t both print and physically sign a document.

Contracts do not need to contain much “magic language” to be valid, but they do need to name the parties,  be signed by both parties, and the price needs to be stated or determinable.  If certain terms are missing, often the Uniform Commercial Code can fill the gaps, such as delivery or shipping terms, risk of loss, warranty.  In addition, both sides need to give “consideration,” which is the exchange of something of value. Usually one party promises to provide a good or service, and the other side promises to pay for it.  Sometimes one party offers not to do something (called forbearance), and the other party promises to pay, such as where one party agrees to settle a claim.

Contracts, however, are one of the most important devices to help a business minimize its risks.  The indemnity, limitation of liability and warranty provisions address what happens when things go wrong, and who will pay for them.  Take a look at what my colleague, Tom Bowden, thinks about do-it-yourself contracts.

Related articles

• How to simplify and improve any contract (vabizlawyers.com)
• Offer, Acceptance (illegitcode.wordpress.com)
• Drafting Non-Competes Is Risky Business (virginiaworkplacelaw.com)

A knee-jerk cease and desist letter, however,  can subject the brand owner to scorn, ridicule or can make a  previously little-known criticism site go viral. The most recent case of this in the media is Chick-Fil-A‘s claim that “Eat More Kale” infringes its “Eat mor chikin” slogan. Even the NFL is not immune from claims that it overzealous in protecting its intellectual property rights.

A better and more balanced approach was used by Vibram USA, in trying to stamp out counterfeit “Five Fingers” running shoes, as documented recently in Inc. Magazine. To me, this approach uses common sense, a firm understanding of market niche, and engages its customers.  A customized, thoughtful approach is better than a one-size-fits-all hammer approach.

Cease and desist letters are now posted online and the senders tagged as trademark bullies.  It is more important than ever to coordinate response to potential infringement with your marketing and legal teams.  Here’s a starting checklist of topics to consider before firing off that cease and desist letter:

• How strong is my mark?
• Am I clear that my use of the mark has priority?
• What is the context (parody, competitor, social commentary)?
• Who is the infringer (artist using my product, fan, customer, child, unrelated organization,  noncompetitive site using a wordplay on my name)?
• Who has the most to lose and the biggest war chest?
• Is there another way to protect my mark?

Related articles

• Social media changes fights over trademarks (usatoday.com)
• In annual tradition, advertisers cowed by NFL trademark bullying (arstechnica.com)
• Fashion Law Group at Penn Law receives Cease-and-Desist letter from LOUIS VUITTON! (haute-law.com)
• Responding to a Cease and Desist Letter: The Gentle Way (tacticalip.com)

Many people understand “copyright” to prohibit the copying of original works of art. Perhaps they know not to “lift” website copy or articles, or not to copy whole chapters of books. Some even realize that photographs and other artwork appearing on websites are not always free for the taking.

But many don’t realize that “copyright” is actually a bundle of rights that gives the owner (artist) the exclusive rights to:

1. Copy the work;
2. Distribute the work;
3. Display the work;
4. Modify or create derivative works of the work;
5. Perform the work; and
6. In the case of sound recordings, to perform the work publicly by means of a digital audio transmission.

Many bars, restaurants and other retail shops are approached by ASCAP and BMI – which are the licensing clearinghouses for almost every songwriter, composer or musical publisher — to pay for a blanket license to play music  in the establishment.  Commercial cable and satellite TV accounts are more expensive than residential accounts because they include the cost of performance licenses.  Just owning a copy of a song, movie, game, etc. does not give you the right to play or perform the work publicly.  There are similar restrictions on commercial uses of radio and TV broadcasts, although there are exemptions for qualifying small businesses based on the type of business, size of the establishment and AV equipment used.

A public performance occurs when music or other copyrighted material is broadcast in any place where people gather, or where copyrighted material is transmitted to the public: radio or television broadcasts, music-on-hold, cable television, satellite television, and by the internet. Live music performances must also be licensed (unless the band doesn’t “cover” anyone else’s song, plays only original works, and has not affiliated itself with ASCAP or BMI). Music licenses start at several hundred dollars a year and go up from there, depending on the size of the establishment and the type of use.

A recent case shows the harm of not being properly licensed. The owners of a California restaurant that allowed a jazz combo to play covers of copyrighted John Coltrane songs, and also played the CD of another jazz group, were liable for $36,000 in statutory damages and almost $170,000 in attorney’s fees. The court found the restaurant corporation and its sole officer liable, even though a band it hired actually violated copyright law by performing  without a license. The restaurant owner repeatedly refused to buy a license from ASCAP, and ASCAP sent a private investigator on site to determine whether violations occurred.

Now more than ever, it is important to set up your business right from the start.

Related articles

• 50 Ways to Have an Attractive, but Non-Infringing Web Site
• But, Honestly, Copyright Protection is as American as Apple Pie, Even on the Internet (nclawlife.com)
• Fair Use FAQs (nclawlife.com)
• Copyright Registration FAQs: I’m Gonna Sit Right Down and Mail Myself a Letter (nclawlife.com)
• Archives Employee Admits To Copyright Infringement (baltimore.cbslocal.com)

There are a growing number of businesses that mine data from governmental filings, and then try to sell questionable and expensive services.  Many of these company names sound like legitimate governmental offices, and people think they have to pay these fees.  Often the services are either unnecessary, not applicable to the particular trademark, or something the business owner or her attorney can do much more efficiently.

In fact, the Trademark Office has posted its own warning.

Here are some recent solicitations our clients have received.   If you look closely at the fine print, all of them say that “this is an offer, not an invoice.”

1. (CBP Registration Offer) This is a service that will register your registered trademark with the US Customs and Border Protection, a federal agency responsible for protecting intellecutal property rights at the border. Trouble is, this client has a service that cannot be illegally imported, and does not yet have a trademark registration to register. For more information on how CBP can protect your products from infringement and counterfeit imports, click here. The filing fee is $190 per copyrighted document or $190 per class for each registered trademark.
2. (GBO Trademark and Servicemark Registration) This is a service that compiles a list of registered trademark, with the implication being that the trademark owner gets some kind of more powerful notice provisions by registering in this publication.  This company also will help you monetize your unused or outdated  trademark by transferring ownership to a third party.  One of the most important reasons to obtain a federal trademark registration, is that your company is given the exclusive right to use that trademark exclusively for the goods or services listed in the registration.  Potential competitors should know to look in one central database to determine what trademarks have been previously registered. The Trademark Office is supposed to deny registration to confusingly similar marks, but the trademark owner also has rights to oppose applications or sue third parties for infringement.
3. (International Catalog) This is an offer for listing your registered trademark in an international catalog of trademarks.  At $1650 (USD) it may well be cheaper to register in other countries or extend protections under international treaties.

If you are working with trademark counsel, always run these by your attorney.  If not, read the small print to make sure you understand what’s required and what’s an advertisement.

Related articles

• Why Should You Hire a Trademark Attorney? – Law (rawbusinesslaw.com)
• Protecting Your Business Assets: Trademarks (legaljunck.wordpress.com)
• The Fine Line Between Trademark Policing and Bullying (nclawlife.com)

Image via Wikipedia

The Jones case occurred  in the criminal law context, and does not apply directly to the private employer/employee context.  Lawyers will, however, be reading the tea leaves for clues regarding how the Supreme Court might decide a private employer/employee tracking issue.  Public employers, such as schools and local government agencies, are bound by the 4^th Amendment constitutional parameters against unlawful searches and seizures in the employment setting.

Private employers already must heed federal and state laws directed to specific monitoring activities.  Federal law governs monitoring of certain aspects of email activity (such as through the Electronic Communications Privacy Act and  Stored Communications Act ).  States are increasingly passing laws restricting employer monitoring of  employee location, visual surveillance, computer/internet monitoring, telephone monitoring and even microchip implantation.

For all of these monitoring situations a common thread is making sure the employer tells the employee up front they are subject to monitoring.

With GPS devices, as with all employee monitoring, (absent a state specific law), the best practice is to have a policy, clearly communicate it to employees, have the employee sign that they are aware of the policy, and administer it evenly.

If you have further questions, contact an employment law attorney.

Related articles

• Sonia Sotomayor’s Heartening Defense of Privacy (reason.com)
• GPS tracking up in private sector (mercurynews.com)
• How Much Privacy Do You Expect? The Death of Privacy In America (jonathanturley.org)
• If You Want Privacy at Work, Don’t Use Employer’s Technology (nclawlife.com)
• Judge: Privacy on Social Networking Sites is “Wishful Thinking” (nclawlife.com)

Karen Elliott contributed to this article.

Girls Gone Wild is a video series where young women (usually at Spring Break or Mardi Gras parties) agree to be filmed stripping or flashing.  Madonna, halftime entertainment at last night’s Super Bowl XLVI, has a song on her latest (unreleased) album entitled “Girls Gone Wild.” The owner of the Girls Gone Wild trademark for adult videos and related products sent a cease and desist letter this week warning Madonna not to sing this song at the Super Bowl.

Is this trademark infringement?

First , song titles are not trademarks and cannot be registered as such.  To act as a trademark, a term must be used to identify the source of goods or services (i.e., FORD for trucks or CHILI’S for restaurant services).  A song title doesn’t typically do this.  Sometimes, the song title can be the subject of copyright protection, but generally a title is considered too short and unoriginal to be an “original work of art” that is subject to copyright protection.

Second, even if the title did function as a trademark, identical trademarks can co-exist in different classes of goods.  A classic example is DOMINO’S pizza and DOMINO’S sugar.  Even though these are both foods, they are different enough in target markets, retail outlets, use by the end-user, method of purchase, etc., that these identical trademarks are allowed to co-exist.  A song title (that probably has a corresponding music video) and a video may be so closely connected that these would not be allowed to co-exist, because they might create a likelihood of confusion in the relevant customer  (This is where the “it depends” comes into play).

Likelihood of confusion with a pre-existing mark is the standard for trademark infringement.  Courts will consider a variety of factors in determining whether the reasonable customer would become confused.  The factors come from a 1961 New York case, Polaroid Corp. v. Polaroid Elects.Corp., 287 F.2d 492 (2nd  Cir.), cert. denied, 368 U.S. 820 (1961).

1. The strength of the plaintiff’s [complaining party, usually the owner of the pre-existing mark] mark;
2. The degree of similarity between the plaintiff’s and the defendant’s marks;
3. The proximity of the products or services covered by marks;
4. The likelihood that the plaintiff will bridge the gap;
5. Evidence of actual confusion of consumers;
6. The defendant’s good faith in adopting the mark;
7. The quality of the defendant’s product or service; and
8. Consumer sophistication.

In this specific case, Madonna also has a first amendment right to use the phrase “Girls Gone Wild” in a song.  Mattel once sued MCA Records for trademark infringement of its famous “Barbie” mark in the song “Barbie Girl” recorded by Aqua.  The Court dismissed the case on summary judgement, ruling, (1) MCA’s use of Mattel’s Barbie trademark in a song title did not constitute trademark infringement; and (2) MCA’s use of “Barbie” was “non-commercial,” constitutionally protected speech and, therefore, exempt from the Federal Trademark Dilution Act (FTDA).

And finally, since Girls Gone Wild did not object to the 2007 Ludacris single, Girls Gone Wild, my strong suspicion is that the purpose behind the cease and desist letter is more GGW owner Joe Francis “goes wild” for free publicity than a legitimate trademark dispute.

Related articles

• Madonna Threatened by ‘Girls Gone Wild’ Creator — Don’t You Dare Sing That!!! (tmz.com)
• Protect Your Trademarks as Quickly as Disney Secured Seal Team 6 (nclawlife.com)

Fair use is news again because Mitt Romney’s latest campaign ad features a news clip of Tom Brokaw reporting in 1977  that the House found Newt Gingrich guilty of ethics violations.  The campaign contends this is fair use, Brokaw is concerned that he appears to be endorsing Romney and NBC Nightly News claims this is copyright infringement.

What is fair use and how do you take advantage of it?

Generally speaking, you can use or copy a portion of someone else’s copyrighted work for purposes of criticism, comment, news reporting, teaching, scholarship, and research. In reality, however, it is often difficult to distinguish  fair use from infringement. Fair use is often used in connection with parody, criticism or commentary.

Section 107 of the Copyright Act sets out four factors to be considered in determining whether or not a particular use is fair:

1. The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole;
4. The effect of the use upon the potential market for, or value of, the copyrighted work.

There is no specific number of words, lines, or notes that may safely be taken without permission. Acknowledging the source of the copyrighted material does not substitute for obtaining permission.

As a business, before you use another’s work, ask the author’s permission or seek intellectual property counsel to determine if your potential use is fair or infringing.

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The W-9 form can be downloaded here: http://www.irs.gov/pub/irs-pdf/fw9.pdf

Who gets a 1099 Form?

• Non-Employee Compensation or Independent Contractor. Businesses are required to file Form 1099-Misc for amounts of $600 or more paid for repairs, maintenance or other services performed by non-employees.  If you’ve hired carpenters, handymen, plumbers, electricians, accountants, landscapers or paid for other services from non-employees, have the contractor provide a W-9 and issue a 1099-Misc.
• Rents.  Rents collected in more than $600 in 2011 require a 1099-Misc, unless such rents are collected by a real estate agent.
• Royalties.  Royalties collected of $10 or more  in 2011 require a 1099-Misc.
• Gross Proceeds Paid to an Attorney.  If your business paid $600 or more in legal fees (even if it was for another entity), you need to file a 1099.  The exemption from reporting payments made to corporations do not apply to payments for legal services.

For more information, contact your tax attorney, your CPA or the following IRS Publication: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

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I am inspired by entrepreneurs who base their business model on improving the wider community/environment.

Image via Wikipedia

In August 2010, our legislature became one of the first to enact the low-profit limited liability company (L3C), which is a hybrid business form combining profit-making with socially responsible missions.  It can be the perfect venture for educational, scientific, literary or religious businesses that don’t want the hassle of complying with non-profit reporting requirements, or that have some activities that are not permitted by the federal tax code.

The L3C can be structured to take advantage of both non-profit and for-profit sources of capital.  It may offer marketing advantages by attracting socially aware investors and partners.  It may also attract private foundation program-related investments.

The biggest disadvantage, however, (and this is not a small disadvantage) is that the federal tax authorities have not ruled whether investments in L3Cs qualify as program-related investments.

We have a wide range of supports here for social entrepreneurship, including  informal meet-ups. formal academic programs at Duke and UNC,  community-based efforts to increase and support social entrepreneurism, and paid consultants.

How is your business giving back on a day-to-day basis?

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Image by jferzoco via Flickr

In the past, lenders correlated borrowing ability with a company’s assets. If you had enough collateral, you could borrow what you needed.   Now, the emphasis is on the ability of the borrower, its owners and its guarantors to make the payments.  To determine this, lenders analyze “global cash flow.”

As a borrower, you will need to show all cash coming into the borrowing company from all sources, and then do the same for all the principals of the business, particularly if they are going to personally guaranty the loan.

While I think the initial emphasis on repayment instead of assets is sound, current federal banking regulations apply equally to all transactions, no matter the size.  For a small transaction, especially for a new-ish company, the paperwork can be overwhelming to both the borrower and the lender. Even community banks and credit unions, who are  often more flexible and approachable than national banks, are hamstrung by these underwriting regulations.

To be loan-ready post-2008, a corporate borrower should gather these materials:

• Amount of the loan;
• Purpose of the loan;
• Detailed description of any collateral (real estate, equipment, accounts receivable, etc.);
• Business plan/projections for the Borrower;
• Current financial statements and at least two years of historical financial statements for the Borrower and every corporate or LLC principal or guarantor, parent and subsidiary companies of any of these;
• Federal corporate tax returns for at least two years for the Borrower and every corporate or LLC principal, guarantor, parents and subsidiaries;
• Organizational documents (articles of incorporation or organization, bylaws or operating agreement, etc.) for the Borrower and every corporate or LLC principal, guarantor, parents and subsidiaries;
• If a principal guarantor derives income from ownership of other closely held entities, the lender will want financial statements and tax returns from those entities as well.

We are seeing clients gather these documents in advance and have a “book” available to potential lenders.  If you need help making sure your company’s organizational and maintenance documents are “credit-worthy,” contact your business lawyer. To make sure your books are accurate and clean, contact your CPA.

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“The costs and resources invested by ON A WING AND A PRAYER PRODUCT GROUP into growing its followers, fans and general brand awareness through social media are substantial and are considered property of  the Company.  We intend to aggressively protect our customer lists and confidential information, intellectual property, trademark and brands. That’s why we are suing you for misappropriation of our customer list and other trade secrets (aka your Twitter followers). Please pay us $2.50 per follower per month of your unauthorized use.”

The first case to address whether a Twitter account is a corporate asset and how to value the account has been filed in federal court. Initial hearings are later this month.

It’s an important case because as more and more employees post material on Facebook, LinkedIn and Twitter—often on behalf of their companies — the social media account becomes increasingly more valuable to both employer and employee.  The company gets an online voice and brand, and the employee makes often significant personal connections that can impact his career.

In Phonedog v. Kravitz, an employee voluntarily quit a technology review company.  At separation, he was permitted to keep his Twitter account with 17,000 followers, but was asked to occasionally tweet about the company and continue to provide content for blogs and reviews.  At some point he changed his Twitter name to delete the name of the company. The relationship later soured, with the employee filing suit for unpaid benefits and compensation, and the company  contending that the former employee misappropriated the company’s Twitter account and followers, and cost the company thousands of dollars in lost advertising and sales.

Without delving into the details of this particular case, here are some reasons a Twitter account could legitimately belong to an employer:

• The account uses the company’s brand name.
• The account was created specifically to communicate with the company’s customers.
• The account was created to attract new customers.
• There is an applicable non-competition or confidentiality agreement.
• What does the corporate social media policy say?

Reasons the account could legitimately belong to the employee:

• The account name does not include the employer’s brand name.
• Tweets were not exclusively about the company (some about the Tweeter’s life and thoughts, some about the company and its products).
• Followers connect because of the personal relationship with the Tweeter, not because of the brand name of his company.
• Twitter followers (and LinkedIn connections) are not secret, so this is not theft of a trade secret.
• The employee is actually an independent contractor.
• What does the social media policy say?

If you are not hearing my subtext, a social media policy is more crucial than ever.  But there are significant hidden issues in the areas of labor and employment law, intellectual property protection and public relations/disaster recovery.  This is a good time to spend money on an attorney.

Stay tuned for more insight into social media policy.

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Do not open these emails or click on any links.  This email technique is known as “phishing” and is designed to steal your personal information.  Sometimes when you click on a phishing link, it will surreptitiously install malware on your computer that copies your keystrokes as you enter passwords. Sometimes, you will be directed to a site that seems to be the official site of the Better Business Bureau, your bank or even the Internal Revenue Service.  Then it will ask you for all kinds of personal information and steal your identity.

Click here for some tips from the Federal Trade Commission to help you avoid phishing and identity theft.

Other popular phishing emails have titles such as: Rejected ACH Transfer; Federal Tax Transfer Rejected; and Direct Deposit #123456 Declining.

It is essential  to have good anti-spam and anti-virus software, and if you don’t have an Information Technology department, you should investigate an IT consultant that will help you protect yourself and use best practices.

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