On June 28, 2010, the U.S. Supreme Court finally ruled in Bilski v. Kappos, 08-964, on the long contentious issues of whether business methods are patentable subject matter under the patent laws, and whether the Federal Circuit’s machine-or-transformation test was the exclusive test in making this determination.       

To provide some context, the patent laws provide that there are four independent categories of inventions or discoveries that are patentable: (1) processes, (2) machines, (3) manufactures, and (4) compositions of matter.  The Supreme Court has held that there are three specific exceptions to these categories that do not constitute patentable matter: (i) laws of nature, (ii) physical phenomena, and (iii) abstract ideas.   

In Bilski, the Supreme Court held that “process” does not categorically exclude business methods.  Rather, a business method is simply one kind of “method” that is, at least in some circumstances, patent-eligible. 

The Court also held that the Federal Circuit’s machine-or-transformation test, while useful, is not the sole or exclusive test for deciding whether an invention is patent-eligible.  Under the machine-or-transformation test, an invention is a “process” only if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.     

In deciding Bilski, the Court declined to determine whether petitioners’ underlying patent application for hedging against the risk of price fluctuations in the commodities and energy market constituted patentable “processes,” or to define further what constitutes a patentable “process” beyond the definitions provided in Section 100(b) of the Patent Act or the Court’s guideposts in Gottschalk v. Benson, 409 U. S. 63 (1972), Parker v. Flook, 437 U. S. 584 (1978) and Diamond v. Diehr, 450 U. S. 175 (1981).  Instead, the Court held that the petitioners’ patent application was not patentable simply because it claimed an abstract idea. 

Allen M. Lee.  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (408) 249-2735, Fax: (408) 260-8263, Email: info@allenmlee.com, Internet: www.allenmlee.com.

 

A key question many people ask when deciding to incorporate their business is which state should they incorporate in.  As a general rule, a corporation is generally subject to the laws of the state it was incorporated in.  Accordingly, it is not uncommon for people to shop around for a state with the most favorable laws.  However, for companies based in California, California’s pseudo-foreign corporation law, Cal. Corporation Code § 2115, may vitiate the benefits of filing elsewhere.

Under Section 2115, foreign corporations doing business in California that are characterized as “pseudo foreign corporations” may be treated as if they had incorporated in California, with California law superseding the law of the jurisdiction in which the corporation was incorporated in many important respects.  These include:

•    Annual election of directors (Corp Code §301);
•    Removal of and filling of director vacancies (Corp Code §§303-305);
•    Directors' standard of care (Corp Code §309);
•    Liability of directors for unlawful distributions (Corp Code §316);
•    Indemnification of directors, officers, and others (Corp Code §317);
•    Limitations on corporate distributions in cash or property (Corp Code §§500-505);
•    Liability of shareholders for unlawful distributions (Corp Code §506);
•    Shareholder meetings (Corp Code §600);
•    Shareholders' right to cumulate votes at any election of directors (Corp Code §708(a)-(c));
•    Supermajority vote requirement (Corp Code §710);
•    Limitations on sales of assets, mergers, conversions, and reorganizations (Corp Code §§1101, 1151-1152, 1200-1203);
•    Dissenters' rights (Corp Code §§1300-1312);
•    Records and reports (Corp Code §§1500-1501);
•    Action by the attorney general (Corp Code §1508); and
•    Rights of inspection (Corp Code §§1600-1604).

To determine whether a foreign corporation will be treated as a “psudo foreign corporation,” two tests must be met:

1)    the average of the property factor, the payroll factor, and the sales factor (as defined in Sections 25129, 25132, and 25134 of the Revenue and Taxation Code) in California compared to the company’s total property, payroll, and sales is more than 50 percent during its latest full income year; and

2)    more than one-half of its outstanding voting securities are held of record by persons having addresses in California on the record date for the latest meeting of shareholders held during its latest full income year or, if no meeting was held during that year, on the last day of the latest full income year.  Cal. Corp. Code § 2115(a)(1),(2).

Corporations which are listed on the New York Stock Exchange or the American Stock Exchange or quoted on the NASDAQ National Market System are exempt from Section 2115.

While California courts have upheld Corp. Code Section 2115, see, e.g., Wilson v Louisiana-Pacific Resources, Inc. (1982) 138 CA3d 216, courts in other states may decide to apply the law of their own state.  For example, courts in Delaware have refused to apply Section 2115 to Delaware corporations doing business in California.  See VantagePoint Venture Partners 1996 v. Examen, Inc.,  871 A.2d 1108 (Del. 2005).  For businesses located in California but incorporated elsewhere, this may mean that they may still be subject to the California Corporations Code in the event they are sued in California.

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (408) 249-2735, Fax: (408) 260-8263, Email: info@allenmlee.com, Internet: www.allenmlee.com. 

I will be speaking at the Bay Area APALSA Conference on Sunday, January 31, 2010 at 2pm at Santa Clara University.  The topic will be the current state of the law concerning the purchase of a competitor's trademark as a keyword to trigger search engine advertising.  Details at http://sites.google.com/site/bayareaapalsa/schedule. 

 

Courts around the U.S. have arrived at very different conclusions on whether the purchase of a competitor's trademark as a keyword to trigger search engine advertising constitutes trademark infringement.  The vast majority of the cases thus far are by trademark proprietors versus the keyword advertisers.  In the minority are cases by trademark proprietors against the search engines like Google.  

As background, in order to prevail on a trademark infringement claim under the Lanham Act, 15 U.S.C. § 1114(1)2, a plaintiff must generally establish that:

(1) it has a valid mark that is entitled to protection under the Lanham Act;
(2) the plaintiff owns the mark;
(3) the defendant used its mark in commerce;
(4) “in connection with the sale . . . or advertising of goods or services,” 15 U.S.C. § 1114(1)(a);
(5) without the plaintiff's consent; and
(6) defendant's use of its mark “is likely to cause confusion . . . as to the affiliation, connection, or association of [the defendant] with [the plaintiff], or as to the origin, sponsorship, or approval of [the defendant's] goods, services, or commercial activities by [the plaintiff].” 15 U.S.C. § 1125(a)(1)(A).

Sometimes, the traditional likelihood of confusion analysis does not apply to keyword cases since consumers might only be confused into visiting a site without actually making a sale, or that the confusion is resolved at the moment of sale.  In these types of cases, some courts have applied the initial interest confusion theory.  Initial interest confusion refers to a potential customer’s temporary confusion about the actual source of goods or services under consideration, even though the confusion is later dispelled before the sale occurs.  The classic example is where a consumer sets out in search of one trademarked good, but then is diverted to a competing good, even if he or she is not confused about the source of the product he or she ultimately purchases.  Courts have found that initial interest confusion violates the Lanham Act because it impermissibly capitalizes on the goodwill associated with a mark.  In proving initial interest confusion, courts also apply the standard likelihood of confusion analysis. 

In keyword cases, there are two main issues: (1) whether there was a “use in commerce”; and (2) whether there is a likelihood of confusion.

A.     Use in Commerce

Until last year, plaintiffs in the Second Circuit were generally able to get cases dismissed on the theory that the purchase of a keyword does not constitute “use in commerce,”  a required element for a trademark action.  Based on the Second Circuit’s opinion in 1-800 Contacts v. WhenU.com, 414 F.3d 400 (2d Cir. 2005), district courts in the Second Circuit relied on a very narrow definition of “use in commerce” found in § 45 of the Lanham Act, 15 U.S.C. § 1127, which states that a mark shall be deemed to be "used in commerce only when it is used or displayed in the sale or advertising of services and the services are rendered in commerce,” and thus excluded any use that did not involve the display of the actual mark.  However, the Second Circuit recently held in 2009 that the purchase of a keyword does indeed constitute “use in commerce.” Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. 2009).  With the Rescuecomm decision, it appears that “use in commerce” defense will likely no longer be a viable defense.

Outside the Second Circuit, the consensus has been is that the purchase of trademarks to trigger advertisements does constitute “use” under the Lanham Act.  See, e.g., Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10^th Cir. 2006); Playboy Enter. Inc. v. Netscape Communications Corp., 354 F. 3d 1020 (9th Cir. 2004) (holding, without addressing the "use in commerce" question, that the purchase of trademarks to trigger the display of banner advertising does creates initial interest confusion); J.G. Wentworth, S.S.C. Ltd. P'ship v. Settlement Funding LLC, 2007 WL 30115 (E.D. Pa. 2007) (finding trademark use in sponsored linking but allowing defendant's motion to dismiss on other grounds); Boston Duck Tours, LP v. Super Duck Tours, LLC, 527 F. Supp. 2d 205, 207 (D. Mass. 2007) (finding keyword-purchasing a "use" for trademark purposes); Buying for the Home, LLC v. Humble Abode, LLC, 459 F. Supp. 2d 310 (D.N.J. 2006); Gov't Employees Ins. Co. v. Google, Inc., 330 F. Supp. 2d 700 (E.D. Va. 2004); Hysitron Inc. v. MTS Sys. Corp., 2008 U.S. Dist. LEXIS 58378 (D. Minn. 2008); Google Inc. v. American Blind & Wallpaper, 2007 WL 1159950, * 6 (N.D. Cal. 2007); Edina Realty v. TheMLSOnline.com, 2006 WL 737064, *3 (D. Minn. 2006).

B.     Likelihood of Confusion

Even if there is “use in commerce,” for trademark infringement to exist such use must be likely to cause confusion.  The cases tend to fall into two main categories: (1) cases where the sponsored ad displays the exact trademarked phrase, and (2) cases where the sponsored ad does not display the mark.

Where the sponsored ad displays the exact trademarked phrase, courts have been more inclined to find infringement.  For example, in Google Inc. v. American Blinds & Wallpaper Factory Inc., 5:03-cv-05340-JF (N.D. Cal. settled August 31, 2007), the District Court found that there was no infringement where the claimant’s mark did not appear in the heading or text of the sponsored ads, but there was infringement where the mark did appear in the sponsored ads.  Google later settled this case.  In another case, Storus Corp. v. Aroa Marketing Inc., 2008 WL 449835 (N.D. Cal. Feb. 15, 2008), the court also found trademark infringement where the sponsored ad displayed the protected mark.  Indeed, in the recent case Hearts on Fire Company LLC v. Blue Nile, 2009 WL 794482 (D. Mass. March 27, 2009), defendant Blue Nile did not even challenge the allegation that its use of plaintiff’s trademark “HEARTS ON FIRE” alongside Defendant’s sponsored link, if true, constituted trademark infringement. 

It should be noted, however, that this category of cases does not address situations where the mark is used in a nominative manner to refer to the trademark or its owner, such as where the mark is used to reference the sale of products relating to the mark, or the advertiser is providing information about the products sold under the mark.  Google’s current policy is to allow such uses of marks in AdWords advertising.

In situations where the purchased keyword triggers advertising that does not contain the trademarked phrase, there is far less certainty.    At one extreme, at least one District Court has held that as a matter of law, the purchase of keywords does not constitute actionable likelihood of confusion.  J.G. Wentworth SSC Ltd v. Settlement Funding LLC, No. 06-0597 (E.D. Pa. Jan. 4, 2007). 

In a fair number of cases, courts were not able to determine whether a likelihood of confusion existed due to insufficient evidence.   See, e.g., Fair Isaac Corp. v. Experian Information Solutions Inc., 2009 WL 4263699 (D. Minn. Nov. 25, 2009) (finding that the evidence presented was insufficient to prove whether the use of the Adwords in question was likely to confuse consumers); Fair Isaac Corp. v. Experian Information Solutions Inc., 2009 WL 4263699 (D. Minn. Nov. 25, 2009) (finding insufficient proof of consumer confusion).

A few other courts have found a likelihood of confusion based on a very weak showing.  Essentially, arguably any purchase of a mark by a competitor in a related industry would be sufficient.  See, e.g., Soilworks LLC v. Nowcom Corp., 564 F.Supp.2d 1160, 1177 (C.d. Cal 2008) (finding a likelihood of confusion on applying the “internet trinity”: similarity in the marks, relatedness of goods, marketing channels used).

Then there are the courts that engage in a far more rigorous analysis. One such case is Hearts on Fire Co. v Blue Nile, Inc., 2009 WL 794482 (D. Mass. March 27, 2009).  In deciding a motion to dismiss, the court found that Blue Nile’s purchase of the HEARTS ON FIRE trademark as a keyword did support a claim for trademark infringement where the ads did not display the mark.  The court found that a key factor here was the context in which diamonds are sold:  a consumer who entered a search for Hearts on Fire diamonds might easily believe that the sponsored link that was returned was for an authorized dealer of Hearts on Fire diamonds.  Interestingly, the court held that likelihood of confusion would ultimately turn on the context in which consumers saw the ads, and outlined a number of case specific factors: (1) the overall mechanics of web-browsing and internet navigation, in which a consumer can easily reverse course; (2) the mechanics of the specific consumer search at issue; (3) the content of the search results webpage that was displayed, including the content of the sponsored link itself; (4) downstream content on the Defendant's linked website likely to compound any confusion; (5) the web-savvy and sophistication of the Plaintiff's potential customers; (6) the specific context of a consumer who has deliberately searched for trademarked diamonds only to find a sponsored link to a diamond retailer; and, in light of the foregoing factors, (7) the duration of any resulting confusion.

The Blue Nile case is a good indication of the way in which the courts may be heading, at least on the issue of ads that do not contain the protected mark, taking into account the content and context of each ad in question.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

 

 

 

 

Illegal insider trading is generally defined as purchasing or selling securities while in the possession of material, non-public information in violation of a duty not to trade.  The following is an overview of the (i) “traditional” or "classical" theory of insider trading, and the (ii) “misappropriation” theory.

A.  The “traditional” or "classical" theory of insider trading.

The statutory authority for the traditional or classical theory of insider trading liability is grounded in Section 10(b) of the Exchange Act  and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

Section 10(b) of the Exchange Act provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . . [t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.15 U.S.C. § 78j(b).

Rule 10b-5 provides that:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device,  scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

“Traditional” or "classical" insider trading occurs when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information."  SEC v. Talbot, 530 F.3d 1085, 2008 U.S. App. LEXIS 13726 at *11  (9th Cir. 2008).  The courts have found that such trading qualifies as a "deceptive device" under § 10(b) because a relationship of trust and confidence exists between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation. The relationship of trust and confidence between the trader and the shareholders of the corporation in which he trades gives rise to a duty to disclose or to abstain from trading because of the necessity of preventing “a corporate insider from . . . taking unfair advantage of . . . uninformed . . . stockholders.”  Id. at 11-12. 

Under this theory of insider trading, it is illegal for corporate insider, e.g. officers, directors, employees and any beneficial owners of more than ten percent of a class of the company's equity securities, to buy or sell stock in their own companies while in possession of material, nonpublic information about that security, unless otherwise permitted, e.g. under a Rule 10b5-1 trading plan.

B.  The Misappropriation Theory of insider trading.

However, liability under the classical theory does not address trading by a corporate outsider who owes no fiduciary duty to the corporation in whose shares he seeks to trade.  As an example, the employee of a printer who traded in the securities of the targets of the printer’s clients’ takeover attempts would not qualify as an insider and thus would owe no fiduciary duty to the target entities in whose stock he traded, a requirement for liability under the classical theory of insider trading.  See Chiarella v. United States, 445 U.S. 222, 228 (1980). 

In response to this, the Supreme Court in United States v. O'Hagan, 521 U.S. 642 (1997) recognized the misappropriation theory, which reaches trading by corporate outsiders as opposed to corporate insiders.  Under this theory, a person violates § 10(b) and Rule 10b-5 when he knowingly misappropriates confidential, material, and nonpublic information for securities trading purposes, in breach of a duty arising from a relationship of trust and confidence owed to the source of the information.  SEC v. Talbot, 2008 U.S. App. LEXIS 13726 at *15.  Under this theory, a fiduciary’s undisclosed, self-serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information.  United States v. O'Hagan, 521 U.S. at 652.  "In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company's stock, the misappropriation theory premises liability on a fiduciary-turned-trader's deception of those who entrusted him with access to confidential information." Id.

Under this theory of insider trading, it is illegal for anyone to buy or sell a security where he or she is in possession of material, nonpublic information about the security, where that information was received from a source to which there is some relationship of trust and confidence. 

C.  Tippee Liability.

So when is it okay to trade on nonpublic information?  The Supreme Court has held that as a general rule, there is no general duty between all participants in market transactions to forgo actions based on material, nonpublic information.   Mere possession of nonpublic information does not give rise to a duty to disclose or abstain; only a specific relationship does that.  Dirks v. Securities and Exchange Commission, 463 U.S. 646, 1983 U.S. LEXIS 102, at * 22 (1983).  The Supreme Court has explicitly stated that there can be no duty to disclose where the person who has traded on inside information "was not [the corporation's] agent, . . . was not a fiduciary, [or] was not a person in whom the sellers [of the securities] had placed their trust and confidence."  Dirks v. SEC, at *19.

However, the Supreme Court has also recognized that there must be a ban on tippee trading, lest insiders be able to give undisclosed corporate information to an outsider for the same improper purpose of exploiting the information for their own personal gain.  In Dirks, the Court reasoned that the transactions of those who knowingly participate with the fiduciary in such a breach must be "as forbidden" as transactions "on behalf of the trustee himself,” citing 15 U. S. C. § 78t(b) (making it unlawful to do indirectly "by means of any other person" any act made unlawful by the federal securities laws).  Accordingly, the Court held that in determining whether a tippee is under an obligation to disclose or abstain, a tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when (i) the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach, and (ii) that the insider personally benefits, directly or indirectly, from his disclosure.  Id, at *29, 33. 

Under this theory of insider trading, it is illegal for anyone to buy or sell a security where he or she is in possession of material, nonpublic information about the security, where that information was received from an insider in breach of his fiduciary duty to shareholders, and the tippee knows or should know that there has been a breach, and where the insider personally benefits, directly or indirectly (need not be financial), from the disclosure.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

 

 

A recent study by the Department of Commerce’s Bureau of Industry and Security (“BIS”) found that a significant percentage of computer and networking products contained some form of encryption.  According to James Hughes of Sun Microsystems, encryption is pervasive in nearly all new electronics products.  See http://tac.bis.doc.gov/2008/110508istacmin.htm.  For example, more and more consumer devices now contain built-in hardware encryption accelerators.  Encryption is even found in such basic computer commodities as storage products.  

For software, computer and electronics companies producing such products, this can be a major concern since U.S. export laws apply to any product containing encryption capabilities.  Under the export laws and regulations, “export” is defined fairly broadly, encompassing not just shipments of products out of the country, but also any release of technology to a foreign national within the United States (termed “deemed exports”).  As such, an “export” may occur through such innocuous activities as giving tours of laboratories or granting access to controlled items to employees who are foreign nationals.  For a brief discussion of the export laws, see http://www.allenmlee.com/Export%20controls.html.    

Companies dealing with encryption should be wary of inadvertently violating the export laws with regard to products containing encryption.

 

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

The Federal Trade Commission has adopted revised guidelines on endorsements and testimonials by bloggers in its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (“the Guides”).  For the first time, the Guides explicitly address bloggers who promote an advertiser’s products on their personal blogs, requiring such bloggers to clearly disclose any freebies or payments they get from companies for reviewing their products. 

Although the blogger will have the primary responsibility for disclosing the connection between the blogger and the advertiser, the advertiser/manufacturer will have an obligation to advise the blogger at the time it provides the freebies or payments that the he or she should make the disclosure in any positive reviews of the product.  The advertiser/manufacturer should also have procedures in place to attempt to monitor the blogger’s statements about the product to ensure that the proper disclosures are being made and take appropriate steps if they are not (e.g., cease providing free product to that individual).

The revised guidelines will clarify that both the advertiser and the blogger will be subject to liability for misleading or unsubstantiated representations made in the course of the blogger’s endorsement.  Penalties include up to $11,000 in fines per violation.  This revised guidelines will be effective December 2009.

Technical details:

The Guides represent administrative interpretations concerning the application of Section 5 of the FTC Act (15 U.S.C. 45) to the use of endorsements and testimonials in advertising. They are advisory in nature, and intended to give guidance to the public in conducting its affairs in conformity with Section 5.  Under the Guides, statements qualifying as an “endorsement” (i.e. a sponsored message) require that certain disclosures be made.  An “endorsement” is defined as follows:

[A]n endorsement means any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

Testimonials are treated identically as endorsements.  As applied to bloggers, the threshold issue to be determined is whether the speaker’s statement qualifies as an “endorsement.”  If not, no disclosure need be made. However, if the statement does qualify as an “endorsement,” disclosure of the connection between the speaker and the advertiser will likely be warranted, regardless of the monetary value of the free product provided by the advertiser. 

Example. 

A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer. She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money. This posting would not be deemed an endorsement under the Guides.

Assume that rather than purchase the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand. Again, her posting would not be deemed an endorsement under the Guides.

Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so. If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Guides.  Because her review is disseminated via a form of consumer-generated media in which her relationship to the advertiser is not inherently obvious, readers are unlikely to know that she received the bag of food free of charge in exchange for her review of the product.  This fact would likely materially affect the credibility they attach to her endorsement. Accordingly, the blogger must clearly and conspicuously disclose that she received the dog food sample free of charge.

The advertiser/manufacturer should also advise her at the time it provides the product sample that this connection should be disclosed, and it should have procedures in place to try to monitor her postings for compliance.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com. 

Driving around Mountain View, Sunnyvale and Santa Clara, the one thing I have noticed more and more is the constant, if not oppressive, presence of police officers.  Lurking behind bushes, following cars for long distances, and of course, writing tickets.  Anecdotally, it seems everyone that I know has gotten at least one ticket this past year.  

Bad as things are in the SF bay area, the police harassment in the city of Jericho, AR is far worse.  The city has only 174 residents but has seven police officers.  The city has no businesses.  So how does the city maintain that many officers on its payrolls? Writing tickets, and lots of them.

Drivers may try to slow to a crawl along the gravel roads and the two-lane highway that run through Jericho, but that is not always enough to avoid getting a ticket.  According to 75-year-old retiree Albert Beebe, "When I first moved out here, they wrote me a ticket for going 58 mph in my driveway."  According to Thomas Martin, chief investigator for the Crittenden County Sheriff's Department, “You can't even get them to answer a call because normally they're writing tickets . . . They're not providing a service to the citizens."

Says former resident Larry Harris, "You can't even buy a loaf of bread, but we've got seven police officers."  Mr. Harris eventually left town because he said the police harassment became unbearable.

Amazingly, the city’s judge had to void a large number of tickets in part because the city's police had issued the citations outside of the city’s jurisdiction. 

Maybe CA isn't so bad after all.

Read more at http://news.yahoo.com/s/ap/20090903/ap_on_re_us/us_shot_in_court.   

Q.  I’m a CA small business owner.  What sort of documentation do I need to keep at my place of business?

A.  The statutory record keeping requirements can vary depending on your entity type. 

For corporations:

Adequate and correct books and records of account.

Minutes of the proceedings of shareholders, board and committees of the board.

Record of shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. 

For LLCs:

Record of Members and holders of an economic interest in the LLC , in alphabetical order, giving (1) names and addresses, and (2) contributions and share in profits and losses.

 

Names and business or residence addresses of each manager (If applicable).

 

A copy of the articles of organization and all amendments thereto, together with any powers of attorney pursuant to which the articles of organization or any amendments thereto were executed.

 

Copies of the limited liability company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years.

 

A copy of the limited liability company's operating agreement, if in writing, and any amendments thereto, together with any powers of attorney pursuant to which any written operating agreement or any amendments thereto were executed.

 

Copies of the financial statements of the limited liability company, if any, for the six most recent fiscal years.

 

The books and records of the limited liability company as they relate to the internal affairs of the limited liability company for at least the current and past four fiscal years.

Of course, it is a good idea to maintain good records beyond the minimum statutory requirements.  What can you throw away? Check out this great article, "Can You Trash All of Your Old Papers?"  http://news.yahoo.com/s/fool/20090819/bs_fool_fool/rx23806.

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

 

 

On the final day of its term, the U.S. Supreme Court declined to review an important copyright case involving the legality of “remote storage digital video recorder” (“RS-DVR”) systems.  At issue in the case was whether Cablevision’s RS-DVR system directly infringed on the copyrights owned by plaintiff content providers, which included Hollywood studios and television networks such as Twentieth Century Fox, University City Studios, Paramount Pictures and Disney. 

RS-DVR systems allow television viewers to record television programs and play them back later at their convenience.  However, unlike stand-alone digital video recorder (“DVR”) systems like those offered by TiVo, the cable programming is stored on central hard drives housed and maintained by the cable operator, not stand-alone DVR devices owned by the consumer.

In declining to review the case, the high court left standing a decision by the Second Circuit Court of Appeals, Cartoon Network v. CSC Holdings, 536 F.3d 121 (2nd Cir. 2008), which had held that Cablevision’s RS-DVR service did not infringe on plaintiffs’ copyrights.  In this case, plaintiffs advanced three reasons why the RS-DVR system directly infringed on their copyrights.  First, plaintiffs claimed that their exclusive rights of reproduction under the Copyright Act were violated when the cable content stream was stored in Cablevision’s RS-DVR buffering system. Second, plaintiffs claimed that their exclusive rights of reproduction were violated when the buffered content was then copied onto Cablevision’s central hard disk system.  Lastly, plaintiffs claimed that their exclusive rights of public performance were violated when the content was then transmitted from Cablevision’s central hard disk to the customer in response to a playback request. 

The Court of Appeals rejected all three claims.  The court framed plaintiffs’ first claim as whether, by buffering the data that make up a given work, Cablevision “reproduce[s]”  that work “in copies”  [under 17 U.S.C. § 106(1)], and thereby infringes the copyright holder’s reproduction right.  As defined in the Copyright Act, “copies” are “material objects . . . in which a work is fixed by any method . . . and from which the work can be . . . reproduced.”   17 U.S.C. § 101.  The Act also provides that a work is “fixed” in a tangible medium of expression when its embodiment . . . is sufficiently permanent or stable to permit it to be . . . reproduced . . . for a period of more than transitory duration.” Id.  Applying these definitions, the Court held that for a work to be “fixed” and thus copied, (1) the work must be “embodied” in that medium, i.e., placed in a medium such that it can be perceived, reproduced, etc.  from that medium; and (2) it must be embodied in that medium “for a period of more than transitory duration.”  Applying this test, the court then found that since the data remained in Cablevision’s buffer for a mere 1.2 seconds, the duration requirement was not met and thus the RS-DVR did not create “copies” as defined by the Copyright Act.

Regarding plaintiffs’ second claim, the court found that an important distinction between direct copyright infringement, the claim raised by plaintiffs, and contributory copyright infringement, a theory of liability which was expressly disavowed by plaintiffs, was some element of volition or causation.  The court found that because it was the customer who directed that the copy be made, and not Cablevision, there should be no finding of direct infringement.  Using an analogy, the court found that Cablevision’s case more closely resembled the situation of a copy shop proprietor who simply allows his customers to use the photocopier machines on his premises, as opposed to a copy shop proprietor who actually volitionally operates a photocopy machine to make copies for the customer. 

Regarding plaintiffs’ last claim, the court addressed the question whether Cablevision “transmit[s] . . . a performance . . . of the work . . . to the public”, as these terms are defined in 17 U.S.C. § 106(4).  In answering this question, the court found that the proper inquiry was the scope of the potential audience that was capable of receiving the particular transmission of a performance.  In doing so, the court rejected plaintiffs’ claims that the proper audience to be considered should include the potential audience of the underlying work, in this case plaintiffs’ content.  Applying this definition, the court found that the “performance” at issue was the transmission from the RS-DVR service and not plaintiffs’ original content.  Because the audience for this content was limited to the subscriber who made the work, there was no transmission “to the public.” 

Among other things, Cartoon Network v. CSC Holdings provides greater guidance into what constitutes direct copyright infringement in cyberspace as new methods of media delivery are developed, and how the law of copyright is adapting to meet these new technologies.  

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.