Archive for the ‘Business’ Category

Business Resources for Entrepreneurs

Thursday, March 29th, 2012

sbdc logoDo you have an idea for a great new patentable product and trademark?  Of course you do – you’re reading this newsletter, after all.  But do you know how to commercialize your product and trademark; that is, how to turn your ideas into money?

Before you can make money with your ideas, you must learn how.  A great place to start is one of the eighteen Small Business Development Centers (‘SBDC’) located in Pennsylvania. These are publicly-supported resources for entrepreneurs where you can receive free one-on-one counseling on starting and running your business.  The SBDCs also offer a variety of classes covering topics such as preparing a business plan, doing business overseas, doing business with the federal government, marketing on the Internet, managing your time and providing other practical information for persons starting and running a business.

If you are located in Southeastern Pennsylvania, our local SBDC’s are the Widener University Small Business Development Center, the  Fox School of Business at Temple University, and the Wharton Small Business Development Center located at the University of Pennsylvania.  Costs, services and general atmosphere differ among the SBDCs, but with three SBDCs to choose from, you can find local resources with whom you are comfortable and that are a good fit with you and your business.

Other local resources also are available.   Delaware County SCORE, funded by the Small Business Administration and private donations, provides free online or in-person counseling with volunteer retired business persons.  Other chapters of SCORE as scattered across the country.  The Delaware County Commerce Center, an arm of Delaware County government, can help with property acquisition and business location issues in Delaware County, Pennsylvania.   The Benjamin Franklin Technology Partners is a sources of venture capital seed funding for new companies and new products.   Of course, we at Lipton, Weinberger & Husick are here for all your intellectual property and business law needs.

– Robert Yarbrough, Esq.

Privacy We Give Up for Cell Phone Convenience

Wednesday, November 30th, 2011

privacyMost of us use our cell phones for business and personal use. For instance, in the car returning from a family Thanksgiving celebration, my wife read her business e-mail, checked the weather, referred to a map for our location, and browsed for Black Friday sales. We all assume such phone activities are relatively private, but are they?

Recently, the ACLU obtained from the Justice Department a document guide for law enforcement that describes how major cell phone companies handle data and location information for phones using their service. It turns out that most carriers store usage information, albeit the kinds of data and the length of time the data is stored differs among carriers.

While carriers don’t record calls, they keep a record of calls made and received. Verizon also stores for a year the identity of cell tower connections a phone makes; AT&T has accumulated the same data since 2008. These data may be used to accurately determine where a phone is physically located at any moment during the day or night.

Web browsing information is not maintained by T-Mobile, but Verizon stores some web site identity information for up to a year. Sprint Nextel stores text messages for three months while Verizon only for three to five days. Other carriers do not keep text content, but instead store records of who texted who for a year or more.  AT&T preserves such data for seven years.

The ACLU takes the position that we all have a right to know how long records are kept. Do you agree?

– Laurence Weinberger, Esq.

Ask Dr. Copyright….

Thursday, July 28th, 2011

copyright questionDear Doc:

We have a small business, and recently, one of our key employees quit unexpectedly.  Of course, we quickly secured things, but a customer just called to say that she has been contacted by the fellow, and that his company’s brochure is quite similar to ours, offering the same services and products.  We did not have a non-compete agreement, but we’d still like to know if there is something that we can do to prevent his new employer from trying to take all of our customers.

Sincerely,

Anxious Owner

Dear Angst (may I call you that?):

It sounds like your former employee may have done some very common, but nevertheless, actionable things when he left your company.  Without a non-compete agreement that is reasonable in scope and duration, the law usually will not prevent competition between you and your former employee, but your competitors are not allowed to profit from your intellectual property in competing with you.  For that reason, you may want to carefully examine this “new” brochure, because it may infringe your copyrights (you did follow the Doc’s previous advice, and register your copyrights when you created the brochure, right?  If not, let’s talk – soon!)  If your dearly departed worker is contacting a lot of your customers, he may have copied your customer list, which may be protected both as a copyright and as a trade secret. It’s also common for employees to copy massive amounts of data from your computers before leaving – forms, specifications, bid documents, supplier lists, marketing materials – and these copies may not be authorized or legal.

Enforcing your rights is something best done very quickly.  Often, filing an action for an injunction that seeks to prevent the former employee and his new employer from copying or using the materials that he took from your business may be done in Federal court, and the decision may come in a matter of hours or days.  The court may also order discovery so that the former employee’s computer and files may be searched to find out what was taken.

We know that litigation is usually viewed as a last resort, but in cases where you’ve invested a lot in developing marketing materials and a good customer list, it may be quick action in court that preserves that investment for your company, rather than handing it to a competitor for free.

As always, ask the attorneys at LW&H – they do this stuff regularly.

– Lawrence A. Husick, Esq.

Who Owns Your Invention?

Thursday, May 26th, 2011

TechGaurdJames Joyce (no, not the author) learned the hard way that selecting your form of business and assigning ownership are crucial steps in promoting an invention.  Mr. Joyce invented a new computer firewall and granted an exclusive license in the patent to TechGuard Security LLC, which was owned by Mr. Joyce and his wife.  Mr. Joyce agreed that TechGuard Security would pay him no royalty for the license.  The wife was given a controlling interest in the corporation so that the corporation could qualify for preference in government contracting.

Mr. Joyce and his wife subsequently divorced.  The wife is now CEO of TechGuard, which still holds the exclusive license to the patent rights and still does not pay Mr. Joyce a royalty.  Mr. Joyce is unhappy with his lawyers, who represented both Mr. Joyce and TechGuard at the same time.   The bottom line:  (a) remember that relationships can change over time; and, (b) make sure that both you and your lawyer understand who your lawyer represents.  See Joyce v Armstrong Teasdale, No. 10-1362 (8th Cir. March 29, 2011).

– Robert Yarbrough, Esq.

To Hold or Not to Hold

Thursday, January 27th, 2011

hand

A popular method for protecting and managing intellectual property (“IP”) assets — high valued assets, in particular — is to transfer them to a special company created for the purpose of creating, protecting, licensing, and monitoring, IP. Typically, a corporation may create a subsidiary to hold its IP, which it may license back to the parent and, perhaps, to third-party licensees.

Assuming that the holding company’s relationship with its parent is arms’ length and that it obeys all the appropriate corporate formalities, isolating the intellectual property protects the holding company from lawsuits against the parent, claims of the parent’s creditors, and the parent’s insolvency. It might also protect the IP from hostile takeovers of the parent company. Placing IP in a separate holding company may also provide an objective measure of its value, uncluttered by the operations of the parent. This may be of particular importance for obtaining financing and eventually selling the IP to a third party. From the income tax perspective, the Parent may deduct the royalties it pays to license the IP. Relieving itself of IP ownership may also reduce tax consequences based upon the parent’s net worth such as franchise taxes. Of equal importance is that the holding company subsidiary may not be liable for state income tax solely because it is a holding company. At the same time, the holding company is available to offer services to the parent as well as make loans and pay dividends.

Sound too good to be true? You may be right. States generally have an aversion to IP holding companies because they perform services but do not generate taxable income. Some states aggressively audit IP holding companies, hoping to “pierce the corporate veil” by proving that the holding company is the alter ego of its parent. Should the state require combined reporting for parent and sub as a result of an audit, it would eliminate the tax benefits of the arrangement altogether. North Carolina and some other states have enacted anti-passive investment company laws designed to eliminate the tax benefits of the intangible holding company. In recent years, IP holding companies have been challenged in Connecticut, Maryland, Massachusetts and New York. State legislative bodies in Connecticut, New York, Alabama, Mississippi, New Jersey, North Carolina, and Ohio have enacted so-called “Add Back” statutes. The Model Add Back statute provides that

For purposes of computing its net income under this chapter, a taxpayer shall add back otherwise deductible intangible expense directly or indirectly paid, accrued or incurred in connection with one or more direct or indirect transactions with one or more related members.

The bottom line is that if you believe that creating an IP holding company may be of benefit to your organization, you should be wary of the tax consequences, and plan to operate the holding company in accordance with state statutes to gain the expected benefits. Be sure to contact your tax professional as well as your lawyer to determine if having an IP holding company is right for your situation. Let us know if Lipton, Weinberger & Husick can help.

– Adam G. Garson, Esq.

The Secret of the Nooks and Crannies

Friday, August 27th, 2010

muffinTraditional methods of intellectual property protection have their limitations, particularly for protecting ideas. Patents only protect new, useful and nonobvious ideas, the details are public, and protection last only for a fixed term of 17 or 20 years years, depending upon the filing date; and trademark and copyright law do not protect ideas at all. It’s no wonder that some companies resort to the time-tested method of secrecy for protecting valuable ideas.  But secrecy may not be the best option for protecting ideas whose value derives from communicating them to the public. On the other hand, commercial recipes, formulae, and algorithms not only derive their value from confidentiality but their value may actually be enhanced by a cloak of secrecy. The “Coca-Cola” recipe is one of the best known and oldest trade secrets whose value is probably worth billions.

In a recent article in the Daily Finance website, Bruce Watson listed the 10 most valuable trade secrets today. It’s a familiar list:

1. Thomas English Muffins;

2. Coca-Cola’s secret recipe;

3. Google’s search algorithm;

4. KFC’s Fried Chicken recipe;

5. The WD-40 formulation;

6. The mechanics of how the New York Times Best Seller List is created;

7. Auto-Tune algorithms;

8. The recipe for Chartreuse;

9. The recipe for Mrs. Fields’ Chocolate Chip Cookies; and

10. Starwood Hotels’ formula for luxury service.

It’s interesting that Thomas’ English Muffins holds the number one position. A recent New York Times article described litigation between Chris Botticella — former vice president in charge of bakery at Bimbo Bakeries — and Bimbo Bakeries, the owner of the Thomas’ English muffins brand.  Apparently, Bimbo accused Botticella of stealing company secrets when he left the company in January 2010 to accept a job with rival baker, Hostess Brands. Legal documents showcased the company’s methods of maintaining the secrecy of the Thomas English muffins recipe.  Recipe manuals were referred to as “code books” and valuable information was shared on a need-to-know basis to protect it from disclosure. To quote the New York Times,

The secret of the nooks and crannies was split into several pieces to make it more secure, and to protect the approximately $500 million in yearly muffin sales. They included the basic recipe, the moisture level of the muffin mixture, the equipment used and the way the product was baked. While many Bimbo employees may have known one or more pieces of the puzzle, only seven knew every step.

Disclosing a secret to employees as component parts of a larger secret may seem like overkill  — like multiple launch keys to a nuclear warhead –  but to make a product, lots of people must understand the process, or at least the part for which they are responsible.  Thus, it makes sense and certainly achieved the desired trade secret protection.  Ask Mr. Botticella; he was ultimately barred from starting his new job by the U.S. Court of Appeals for the Third Circuit.

– Adam G. Garson, Esq.

The United States Supreme Court Sends a Message

Monday, June 28th, 2010

textingAn employer’s right to monitor employees’ electronic communications in the workplace is fairly well settled, particularly when the employer provides its employees with the equipment and has express policies on computer and Internet usage. In City of Ontario v. Quon, the United States Supreme Court has finally added to the growing body of law on this subject.

In Quon, the employer was a governmental body, the City of Ontario, California, police department (OPD) and the employee, was a police officer.  In 2002, the OPD distributed alphanumeric pagers to 20 of its personnel.  All employees signed a “Computer Usage, Internet and E-Mail Policy,” which expressly stated that the OPD had a right to monitor and audit employee’s Internet use with or without notice.  Each pager was allotted a monthly quota of incoming and outgoing characters.  Police officers were told that text messages should be treated like e-mail and that they could be audited.  One of the police officers, Jeff Quon, exceeded his monthly quota several times.

In an effort to evaluate the message quotas, Quon’s superiors audited his messages to determine the relative amounts of personal and work-related messages.  They discovered that very few were work related, most were personal, and some were sexually explicit.  As a result, Quon was reprimanded and he sued the OPD for violation of his Fourth Amendment rights.  The District Court and the Circuit Court of Appeals held that the audit amounted to an unreasonable search and seizure so the City of Ontario appealed to the Supreme Court, which reversed.

In short, the Supreme Court held that although the Fourth Amendment applied to employees as it does to other citizens, there are exceptions for “noninvestigatory, work-related purpose” or for the “investigation of work-related conduct.” O’Connor v. Ortega, 480 U.S. 479.  The Court wrote that the OPD’s audit and scope were reasonable with a “legitimate work related purpose.”  The Court was persuaded by the fact that Quon was told his messages might be audited and that as a law officer he should have known his actions might be scrutinized.

Although narrowly tailored to the governmental workplace, the Quon decision once again reminds employees that their privacy expectations in the workplace may not be what they believe and that employers’ actions may be deemed reasonable so long as the rules are known to the employees.  If you are an employer, remember to include Internet and computer usage policies in your employee handbooks.  If you would like guidance, Lipton, Weinberger & Husick can help.

– Adam G. Garson, Esq.

Internships: It’s Not Just Another Free Employee

Monday, June 28th, 2010

internshipsWith the economy slow to recover, many firms, both for-profit and not-for-profit are offering summer internships, rather than paid positions.  Sounds good, right?  The employer gets free labor, and the intern gets experience and resume enhancement.  What could be better?  Well, it turns out that paying a fair wage could be better because both federal and state laws prevent unfair labor practices that include much of what many interns face.

So, what are the general laws outlined by the U.S. Department of Labor’s Wage and Hour Division regulating unpaid internships? The following six criteria must all be met in order for companies to lawfully offer unpaid internships:

1.  The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school or similar institution;

2.  The training is for the benefit of the trainee;

3.  The trainees do not displace regular employees, but work under close observation, instruction and supervision;

4.  The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;

5.  The trainees are not necessarily entitled to a job at the completion of the training period; and

6.  The employer and the trainee understand the trainees are not entitled to wages for the time spent in training.

The federal and state labor departments may inspect a company’s operations for compliance.  Interns who feel wronged may also file for back pay and penalties, even if they agreed in writing to work for nothing.  In the end, it may be better and cheaper simply to pay interns, rather than lawyers!  To find out more about  the Fair Labor Standards Act (FLSA) and other laws that apply to interns and work-based training, you may visit the U.S. Department of Labor’s Wage and Hour Division web site or call WHD’s toll-free helpline at (866) 4US-WAGE, (866-487-9243).

– Lawrence A. Husick, Esq.

Registered Agents are Important

Tuesday, July 21st, 2009

Agent ManIf you create a corporate entity in a state where your company may not have a physical presence, most states will require you to maintain a corporate agent, that is, an individual or entity who is responsible for receiving legal documents — notices and court papers — on behalf of your company.

Pennsylvania differs in that it does not require an agent but, rather, a so-called “registered office” or “registered address.”  Section 1507 of the Pennsylvania corporations law states that “every business corporation shall have and continuously maintain in this Commonwealth a registered office which may, but need not, be the same as its place of business.” Pennsylvania law, however, acknowledges that many entities’ registered addresses are actually those of an agent or a corporate services company and, therefore, provides rules for notifying the state of changes in an agent’s address or status.  See, for example, 15 P.S. §§ 108 (Change in location or status of registered office provided by agent) and 109 (Name of commercial registered office provided in lieu of registered address).

Delaware law expressly requires that all corporations maintain an agent.  Section 132 of the Delaware Corporations law states that “every corporation shall have and maintain in this State a registered agent,” which can be the corporation itself, an individual or another business entity.

Failing to maintain current information about your registered agent can have adverse consequences.  In both Pennsylvania and Delaware, for example, failure to designate a registered address or agent could lead to cancelation of an entity’s certificate of formation.  In a litigation context, a plaintiff’s inability to serve process (i.e., a civil complaint) because of the defendant’s failure to notify the state of a change in a registered address or agent, could deny the defendant a defective service defense, which could result in a default judgment.

The cost of maintaining an agent is relatively minor and may range from $50.00 to $500 per year depending upon the services being offered.  Make sure your house is in order.

–Adam G. Garson, Esq.