The constitutionality of the Affordable Care Act was upheld recently by the U.S. Supreme Court, defining and solidifying many legal obligations employers have when it comes to health care coverage for employees.

“The crux of the Affordable Care Act is to make ‘minimal essential coverage’ more available,” says Christopher J. Carney, chair of the Labor and Employment Practice Group at Brouse McDowell. To achieve this, the Act contains provisions referred to as the ‘employer mandate’ or ‘play or pay.’

However, he says the Act does not require employers to provide minimal essential coverage.

“It is more accurate to state that the Act requires employers that meet a certain minimum employee threshold to make available minimal essential coverage or pay a penalty for failing to do so,” says Carney.

Smart Business spoke with Carney about some of the law’s caveats and what employers need to know in order to become compliant.

How does the law impact employers of various sizes?

The employer mandate provides that ‘large’ employers, or those with 50 or more full-time employees, are required to offer full-time employees health coverage effective Jan. 1, 2014. Businesses with fewer than 100 employees will also be eligible to shop for plans in health benefit exchanges that each state is required to establish as part of the Act.

What are the consequences of noncompliance?

Starting in 2014, large employers will be assessed an annual fee of $2,000 per full-time employee — in excess of 30 employees — if any full-time employee is not offered coverage and enrolls in and receives an income-based tax credit to participate in an insurance exchange. For example, assuming at least one employee satisfies the tax credit requirement, a business with 51 full-time employees that does not offer coverage must pay a monthly penalty of 21 (51 total employees minus 30) times the per-employee penalty amount, i.e., one-twelfth of the annual $2,000 per full-time employee. For purposes of the Act, a full-time employee is one employed at least 30 hours per week on average.

Furthermore, if an employee opts out of an employer’s health plan — either because the employee’s share of the premium would exceed 9.5 percent of his or her income, or because the employer’s or insurer’s share of the total cost of benefits is less than 60 percent and the employee obtains a tax credit for coverage in a health insurance exchange — the employer is also subject to a penalty.

Under these circumstances, the employer must pay a monthly penalty of one-twelfth of $3,000 multiplied by the total number of full time employees who obtain the income-based tax credit for that month. This penalty is capped at one-twelfth of $2,000, multiplied by the total number of full-time employees.

How do the state exchanges come into play?

The Act provides for government-run health benefit exchanges from which individuals and employers with fewer than 100 employees can purchase insurance. Plans in the exchanges will be required to offer four levels of coverage that vary based upon factors such as premiums and out-of-pocket costs. Premium and cost-sharing subsidies will be available for low-income families.

Each state is required to have its own health benefit exchange. If a state chooses not to create its own health benefit exchange, then one will be set up by the federal government. Ohio Gov. John Kasich says the state will not create its own and will rely upon the federal government’s health benefit exchange.

Considering the efforts to derail the Act, what would you advise an employer to do?

Employers should continue with their efforts to comply with the Act’s requirements and some provisions need immediate attention. For example, employers and insurers must provide a Summary of Benefits and Coverage for the open enrollment period beginning on or after Sept. 23, 2012. The SBC is similar to, but does not supplant, the Employee Retirement Income Security Act’s Summary Plan Description. If an employer’s SBC fails to satisfy the requirements of the Act, then the employer is subject to a penalty of $1,000 per failure, per participant. Another example is that the aggregate cost of employer-sponsored health coverage must be reported on Form W-2 for 2012 and going forward.

I would not expect a repeal of this law any time soon. Therefore, employers should determine the extent to which the new rules apply. Because the Act does not apply uniformly, an employer should review the law to identify which requirements apply and the compliance deadlines corresponding to each requirement.

When must employers come into compliance with the law?

The Act was passed on March 30, 2010, and not all changes set forth were imposed immediately. Generally, the provisions that were not controversial went into effect first. The provision prohibiting health plans from denying coverage or limiting benefits for children under the age of 19 because the child has a pre-existing condition went into effect immediately. But the ‘play or pay’ provisions for employers go into effect after Dec. 31, 2013.

What can legal counsel offer as employers look to come into compliance with the law?

Particularly when an employer is close to the 50-employee threshold limit, legal counsel can be helpful in identifying and analyzing employer options and obligations. The ‘play or pay’ regulations have not even been promulgated yet, but expect them to be complicated. Issues that will likely require the assistance of counsel include how to account for independent contractors to whom employee functions have been outsourced and whether common ownership of business would require the aggregation of employees.

Christopher J. Carney is Chair of the Labor and Employment Practice Group at Brouse McDowell. Reach him at (216) 830-6825 or ccarney@brouse.com.

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Published in Akron/Canton
Saturday, 30 June 2012 21:05

How to leverage Ohio law in your favor

Corporate policyholders often spend significant sums on insurance coverage to protect themselves against loss or injury. These policies are important assets and policyholders should be mindful of ways to protect and maximize them, particularly when an insurer has denied a claim or reserved its rights to deny a claim, says Amanda M. Leffler, partner with Brouse McDowell.

“There are fundamental principles of Ohio law that favor policyholders,” says Leffler. “Policyholders have the ability to use these principles to negotiate favorable outcomes with their insurance companies and often have more leverage than they think they do.”

Smart Business spoke with Leffler about the leverage you have as a policyholder and how to use it to your advantage.

What are the defense rights of policyholders?

Policyholders have some fundamental rights with respect to any defense provided by their insurance company, the first of which is the ability to choose and control their counsel when the insurer has reserved its rights. Many third-party insurance policies say they will pay for defense costs for policyholders if they are the subject of a suit. The right to defense costs is significant and can operate as leverage in a dispute with an insurer.

Many insurance companies attempt to impose upon their policyholders counsel of the company’s choosing, and policyholders frequently don’t want to use that counsel because they don’t feel those attorneys have their best interests at heart. When there is a reservation of rights, the insurer cannot control the litigation and can’t mandate the counsel that will act on behalf of the policyholder.

What are policyholders’ defense rights regarding multiple claims?

In Ohio, the insurer must defend all claims pled in the suit, even if they are unrelated to coverage. If a complaint sets forth multiple claims, but only one of those triggers coverage, the insurer must pay all defense costs and cannot require the policyholder to contribute unless the policy states otherwise.

Also, insurers in Ohio are not permitted to recover defense costs paid, even if the claim is ultimately not to be covered. For example, if a policyholder were sued for both negligence and intentional conduct, the claim for negligence would likely be covered, but the claim for the intentional tort would likely not be covered. Nonetheless, the insurer must defend the entire case. If the policyholder were ultimately held liable for only the intentional tort claim, the insurer would not have to indemnify the policyholder for the damages for which it was liable. The insurer, however, could not recover its defense costs, even though the claim was not covered by the indemnity provisions of the policy.

What is important to understand about the interpretation of insurance policies?

Insurance policies are contracts, and most disputes between insurers and policyholders present claims for breach-of-contract. Actions for breach of insurance contracts differ from other breach-of-contract actions in certain respects. Significantly, courts in these actions apply rules of contract interpretation that strongly favor policyholders, which provides leverage to policyholders in disputes with their insurers.

Where provisions of an insurance contract could have more than one interpretation, courts will adopt the interpretation that favors the insured. The test applied in determining whether there is ambiguity is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance would have understood. Under such circumstances, any reasonable construction that results in coverage of the insured must be adopted by the trial court.

The burden is always on the insurer to prove the language of an exclusion bars a particular claim. Moreover, for a court to apply an exclusion to bar coverage, it must be clear and explicitly stated.

When must an insurer provide a defense for a claim?

An insurer’s duty to defend is distinct from and broader than its duty to indemnify. A liability carrier has the duty to defend its policyholder whenever the allegations against the policyholder arguably or potentially state a claim within the coverage of the policy.

Where the insurer’s duty to defend is not apparent from the pleadings in the action against the insured, but the allegations do state a claim which is potentially or arguably within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy has been pleaded, the insurer must accept the defense of the claim.

What types of damages can a policyholder recover from its insurer?

This is a significant leverage point in Ohio because damages go beyond what you would typically think of being able to recover as compensatory damages. In insurance coverage matters, if you win, you can be made completely whole.

If policyholders are required to litigate with their insurer, they can expect to obtain damages that include the amount the policyholder had to pay to settle the claim, the amount the policyholder had to pay to satisfy a judgment against it that should have been covered, and, if the insurer refused to defend the action, the reasonable and necessary cost incurred to investigate and defend the underlying claim.

Policyholders may not be aware they will also be awarded attorneys’ fees if they win a breach-of-contract case. The Ohio Supreme Court has made it clear that the state recognizes an exception to the American Rule to permit policyholders to recover attorneys’ fees when they must litigate with their insurers to enforce policy rights. The rationale is that the insured must be put in a position as good as that which it would have occupied if the insurer had performed its duty. This does not require the policyholder to demonstrate any impropriety on the insurer’s part, and these coverage case attorneys’ fees can be a significant component of a damages award.

Amanda M. Leffler is a partner with Brouse McDowell, L.P.A. Reach her at (330) 535-5711 or aleffler@brouse.com.

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Published in Akron/Canton

Your parts distributor has always been reliable, offering you prices that its competitors couldn’t beat. It was a great deal for you — until the distributor went bankrupt.

You find another supplier and move on. But months — or years — later, you are called on by a bankruptcy trustee that has been appointed to oversee the bankruptcy case. The trustee says that the commodity you were purchasing was priced much lower than market rate. And because the trustee’s job is to collect funds in this case, he’s delivering you with a lawsuit to charge you with paying the difference between your below-market prices and the market rate for those years you purchased the commodity.

“Increasingly, customers of bankrupt businesses are being caught by surprise with fraudulent transfer claims asserted by bankruptcy trustees, who claim that they received a deal that was too favorable,” says Alan Koschik, co-chair of the Commercial & Bankruptcy Practice Group at Brouse McDowell. “These claims seek to renegotiate sale transactions long after they took place and create a new layer of uncertainty for certain business transactions.”

Smart Business spoke with Koschik about how businesses can help protect themselves against fraudulent transfer claims.

What are fraudulent transfers and when do they most commonly occur?

Technically, a fraudulent transfer claim is a transfer of property that is made with the intent to hinder or delay a creditor, or put property beyond their reach. In typical cases, a debtor might transfer his home or savings accounts to another person, an insider such as family or a spouse.

Fraudulent transfer claims most often arise in these familiar situations: transfers to insiders, as described; so-called upstream guaranties of a corporate parent’s debt by a business that ultimately cannot pay its creditors; and leveraged buyout transactions that cause an insolvent debtor to take on too much debt while permitting former equity holders to cash out of the business.

What is surprising about the new class of fraudulent transfer claims?

The new class of claims is distinctly different from these typical cases. They do not involve insider transactions, or extraordinary transactions. The claims are being charged against customers that have engaged in day-to-day business transactions, such as simply buying a commodity a company sells.

The customer isn’t trying to defraud or hinder anyone; it simply wants to buy the product and the seller (debtor) is offering an attractive price. However, bankruptcy trustees are seeking to change the price term of regular sales transactions long after they were completed by arguing that the value paid was less than ‘reasonably equivalent.’ Litigation ensues and usually involves an expensive debate about the sufficiency of the price.

What typical business transactions could lead to fraudulent transfer claims?

Sales of commodities are the most typical sales that can trigger a fraudulent transfer claim because a bankruptcy trustee has access to pricing information. Commodities are traded in a variety of exchanges, so trustees can look up idealized prices and make comparisons to prices actually paid to the debtor, the business that went bankrupt. Then, the trustee can calculate the difference and come up with a figure that he contends the customer should have paid.

The trustee justifies this based on commodities prices, charging that the debtor would have collected X more dollars if it had charged the reported market price. Commodities are more likely to be subject to a pricing comparison and lead to a fraudulent transfer claim than, say, accounting or legal services that are typically considered unique and less likely to have a non-negotiable ‘market price.’

In case of a lawsuit, what defenses can a business raise?

These new fraudulent transfer claims can be challenged with the argument that non-insider customers that negotiate at arm’s length set their own market price and should not bear the burden of guarantying the debtor-seller’s debts to its creditors. The customer shouldn’t have to help pay the vendor’s debt just because it was offered a lower price on a commodity during a regular business transaction.

A non-insider customer’s negotiated price should be considered to be ‘reasonably equivalent value’ by definition and the trustee’s claim should fail. However, the problem is that litigation is a lengthy, costly process, and customers frequently end up paying more in a settlement.

How can businesses protect themselves against fraudulent transfer claims?

If your business purchases commodities, dig deeper when vendors offer a surprisingly low price. Why is the price so low? How long has the company been in business? Are you aware of the financial state of the vendor’s business? Is it in trouble? How much lower than market rate is this vendor charging?

While it’s prudent in business to seek out vendors with competitive prices, if a deal seems too good to be true, it just might be. That said, if you move forward with a vendor offering a price you can’t resist, engage in a futures contract or swap agreement. These transactions are common in the commodity trade, and there are safe harbor defenses built into the bankruptcy code regarding futures trading.

It’s a good idea to consult with your attorney if you engage in commodities purchases to discuss pricing and the potential risks associated with fraudulent transfer claims. Then protect your business by making decisions not based solely on cost.

Alan Koschik is co-chair of the Commercial & Bankruptcy Practice Group at Brouse McDowell. Reach him at akoschik@brouse.com.

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Published in Akron/Canton

Last fall, the National Labor Relations Board (“NLRB”) issued a rule mandating that employers begin to post at the workplace a new form that notifies employees in general of what rights they have under the National Labor Relations Act. It was initially scheduled to take effect on November 14 of last year; but its effective date was postponed to April 30, 2012.

“Contrary to what some employers might assume, this poster is required regardless of whether their own employees belong to a union,” says Stephen P. Bond, partner at Brouse McDowell.

Smart Business spoke to Bond to find out more about what this means for employers and how they can comply with the new rule.

What kinds of employers should be concerned with the new requirement?

As a general rule, this applies to all businesses that have annual gross revenues of $500,000 or more. There are some specially defined categories that vary from this. For example, the regulation would apply to a nursing home with annual revenues of as little as $100,000, or a daycare center with annual revenues of $250,000. Even a smaller business can come under coverage if it buys or sells more than $50,000 worth of goods or services in interstate commerce. There is an exemption for governmental entities.

What does the poster say?

In addition to telling them how to reach the NLRB with complaints, it advises employees they have the rights to, among other things:

* Organize a union

* Bargain collectively

* Discuss wages, benefits and other terms and conditions of employment with other employees

* Take action with one or more co-workers to improve their working conditions by raising work-related complaints with their employer

* Go on strike, depending on the purpose or means of the strike

It also informs them that it is illegal for an employer to, among other things:

* Prohibit them from talking about a union during non-work time

* Question them about union activities

* Discipline them for being involved in union organizing activities

* Threaten to close down if a union is chosen by workers

* Prohibit them from wearing union buttons at work in most cases

* Spy on them for engaging in union organizing activities

How is it to be posted?

The poster is to be placed in a prominent location and, at the least, at any location where personnel rules are usually posted by the employer. If 20 percent of the work force speaks another language, a foreign language version of the poster needs to be posted. If the employer usually uses an intranet or Internet sites to communicate with employees about personnel issues, the poster needs to be available there as well, either as an exact copy or as link to the NLRB’s site. Employers can download the poster from www.nlrb.gov/poster, or they can call the government at (202) 273-0064 to have it mailed to them.

 

What challenges does this rule pose for employers?

The poster is significant on three levels. First, if an employer fails to comply voluntarily, any employee can file an unfair labor practice charge with the NLRB against the employer; and, theoretically, the NLRB could ultimately order the employer to comply with a court order. That process can be costly, time-consuming and counterproductive to staff morale. Beyond that, if an employer fails to post, and an employee later files an unfair labor practice charge on some other issue, the NLRB may excuse any delay by the employee because the person hasn’t been forewarned of his or her rights through a poster. The NLRB may also interpret the refusal to post as evidence that the employer has an anti-union motive relative to the unfair labor practice charge.

Second, while the warnings in the poster are merely reciting rights that have long existed in the law, some employers are concerned that this listing, without explanation or context, will create confusion among employees and lead to disputes that would not otherwise have arisen.

Third, the poster does highlight a couple of issues, which, regardless of the new requirement, employers should be aware of. Even if an employer does not have a union in place or a collective bargaining agreement, employees generally do have certain rights under federal law, essentially, the right to act in concert to assert their rights as employees. One example that is surprising to many employers is that employees have a right to talk about their rates of pay and work benefits — and a rule that prohibits that would be deemed illegal by the NLRB. In turn, they also have the right to talk among themselves concerning work issues, and to approach management for solutions, even though no union represents them. If employees are e-mailing or using social media to share their concerns about their work experience, the NLRB may say that this too is engaging in concerted action about work and prevent employers from interfering with it.

 

What is the status of the rule?

Once this rule was announced last fall, lawsuits were immediately filed in federal courts. The National Association of Manufacturers, for one, alleged in its complaint that the rule is itself illegal because the National Labor Relations Act, which created the NLRB, did not authorize it to issue a substantive requirement of this nature. This litigation is part of the reason that the NLRB has twice postponed the final effective date for the rule. In a decision issued in March, the Federal District Court for Washington, D.C., held that it was satisfied that the scope of authority that Congress intended to give to the NLRB, back in 1935, was broad enough to include this type of a posting requirement. An appeal was immediately filed and is now pending.

Stephen P. Bond is a partner at Brouse McDowell. Reach him at (440) 934-8080 or sbond@brouse.com.

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Published in Akron/Canton

Your top sales producer left the company and took a job at the competitor down the street. He’s got your client list memorized and knows your product line and pricing by heart.

A staff engineer jumped ship and left the state for another opportunity. It’s not in the same industry, but there is a potential overlap in customers.

Because of a tough financial year, you made the difficult decision to let go of several key staff members holding positions where company information was put into their trust. Now they’re gone, but what did they take with them that could affect your future success?

Non-competition agreements are critical for any business with trade secrets, specialized information that must be protected, and any business with a sales component. “Non-competition agreements, either on their own or as part of an employment contract, can help control the use, dissemination and destruction of trade secret and other confidential information,” says Mark Craig, partner, Litigation Practice Group, Brouse McDowell in Akron, Ohio.

Smart Business spoke with Craig about how to develop and enforce a non-compete agreement.

What businesses should implement a non-compete agreement?

Even information obtained by memory can be the basis for a trade secret violation. Considering that, what information could any of your employees memorize or take with them that could harm your business if they left today? Consider customer lists, manufacturing processes, special operations/systems, trade secrets, pricing, product development and industry knowledge. If you don’t have a non-compete agreement in place, you run the risk of one of your employees using company information to a competitor’s benefit if they take a job elsewhere or start their own business.

On the other hand, you may reconsider a non-compete if such an agreement would hamper the hiring process. Will a potential star employee turn down a job at your business if they’re required to sign a non-compete? Do your competitors have non-compete agreements in place? And, is the position one that entails obtaining company information that is not common knowledge? For example, if you own a local fast food franchise and expect managers to enter in a non-compete agreement that prevents them from working at any other fast-food restaurant in town, you probably won’t attract many managers for the position. So before implementing a non-compete agreement, consider the specificity of the information, and what would happen if an employee left your business and took that information along.

What are the key steps to developing a non-compete agreement?

First, identify the company information you want to protect. Then, gather a solid understanding of your market. What is your target market today, and what are your plans for expansion? It’s important to detail the geography your non-compete agreement will cover.  Who is your competition, and, considering your short- and long-term business goals, how could this evolve? Also consider your existing employment agreement. How are employees compensated? Are workers ‘at-will’ employees? What information will they be exposed to while working at your company? As you develop the agreement, research competitors’ non-compete agreements, and consider what is reasonable concerning time-frame. In other words, is it really fair to prevent an employee from working at any competitor in the whole country forever? What’s more reasonable is a two-year non-compete with specifically defined geographic boundaries.

How can an employer effectively enforce a non-compete agreement?

When an employee resigns — or when a worker is terminated — be sure to remind the person that he or she signed a non-compete agreement and the terms will be enforced. Spell out those terms: the geography, time limit and other specifics. Remind the employee that information cannot be taken in any form:  written, electronic or from memory. That means no pulling sales contact lists from their heads, their company cell phones or using information transmitted in e-mails or other electronic forms (text messages, etc.). Emphasize that the non-compete agreement exists and they must abide by it.

If you suspect that a former employee has violated a non-compete agreement, there are several steps you can take. You can send them a demand to immediately cease and desist. Or, you can go to court and get an order to stop engaging in the suspected activity. A judge can make a decision as to whether or not there is an imminent threat and issue a temporary restraining order. A hearing will then be conducted to decide if the restraining order will continue by issuing a preliminary injunction. Ultimately, a permanent restraining order may be granted or denied once all evidence has been presented and all arguments heard.

What terms are often overlooked and should be included in a non-compete agreement?

Make sure there are clear policies regarding access to electronic information, including scope of authorization for access and use of the information during and after employment. Aside from the non-compete, be sure to include a policy for use of e-mail and transmission of documents outside of the organization and what happens to these documents upon termination of the employment relationship. You might want to include a provision that entitles your company to compensation for legal expenses and attorneys’ fees for enforcement of the non-compete agreement. It’s a good idea to agree to set a nominal bond for temporary restraining orders so enforcing a non-compete agreement does not become cost-prohibitive. Finally, remember — preparations to compete are not violations of a non-compete agreement. Consult with an attorney as you develop and enforce a non-compete agreement to ensure you’re covered legally.

Mark Craig is a partner with the Litigation Practice Group at Brouse McDowell in Akron, Ohio. Contact him at MCraig@Brouse.com or (330) 535-5711.

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Published in Akron/Canton

If your company is considering a merger or acquisition, you may want to consider striking while the iron is hot.

“The current state of the economy has resulted in what is commonly viewed as a ‘buyer’s market’ in M&A,” says Patricia A. Gajda, partner and chair of the Business and Corporate practice group at Brouse McDowell in Cleveland. “This is driving some to enter the acquisition market, before the buyer’s market ends.”

Smart Business spoke with Gajda about the current state of M&A activity and how to take advantage of the situation.

How is the current market impacting the M&A environment?

We have seen an upswing in M&A activity over the past year. This is due to several factors, including a loosening of the credit markets enabling financing, the availability of private equity funds and companies flush with cash. Strategic buyers are out looking for businesses that were hurt by the economic downturn and investment buyers are looking for good investments.

Strategic buyers are focusing on transactions that result in expansion in markets and cost saving synergies from an acquisition. Additionally, because it is a buyer’s market there are good deals and bargains to be found. Companies have cash and the ability to buy after staying out of the market for the past few years. The private equity funds are actively out in certain market segments looking for good fits for their interests and are sitting on large funds of money for investment.

There is definitely an interest in ‘green’ businesses, as well as specialty manufacturing, health care and technology. Other drivers of corporate transactions include specialty services, desirable personnel, a certain technology, know-how or process. Even if a company is not for sale, the company may still be looking to divest subsidiaries, certain assets, divisions or operations.

From a global perspective, I see an increased interest in picking up businesses with a global reach, but the uncertainty in the Euro Zone and China have caused some issues in that regard. There is an uncertainty as to how the overseas economic issues will affect the United States, and this has caused some hesitancies.

How is this affecting the way transactions are structured?

Each transaction is unique and the terms and structure need to be determined for that transaction. Both the buyer and seller must be clear on their criteria for the transaction.  What is the buyer looking to achieve from the transaction? What is the seller trying to gain from the transaction? These questions need to be answered.

At the beginning of the downturn, a number of deals went on hold and took a wait-and-see-approach. Now that there is increased activity, both parties — buyers and sellers — are interested in moving quickly on possible transactions. With the uncertainty in the business climate it is undesirable for potential deals to drag out, if they can be closed quickly.

Sellers want to close and walk away without any further risk to purchase price through any delayed payment mechanism. Buyers on the other hand are able to structure payment on favorable terms including deferred payments. Deferred compensation structures can be used to lessen any valuation gaps, and take away some of the uncertainty to close with less closing conditions. A buyer can use mechanisms such as earn-outs to keep the former owner interested in the business and the transition of the customers and employees. So, I think that one impact of the economy of the past few years is that parties on both sides of transactions have become more focused, results driven and just smarter about their strategic deal making.

What other trends or risks should business owners be aware of?

While most companies will state a preference for organic growth, the current favorable pricing and shorter timelines to reach the desired business plan make acquisitions more favorable. Alternatively, sellers are under pressure to divest non-core businesses or under-performing operations in order to improve the company’s over-all financial performance.

With the uncertainty in the economy at this time, business owners seeking to sell should focus on the strength of the potential buyer and the ability of the buyer to close the transaction. Additionally, a cash purchase price at closing is of course the least risky route to receive full value for the company. Any type of future payment such as through promissory notes, earn outs, or stock grants with the current volatility in the markets and the economy are risky.

A buyer has to fully understand the risks, and avoid the temptation of pursuing a transaction, despite discovered risks and doubts. From the standpoint of a business owner seeking to buy entities, due diligence of the target company is critical. A buyer needs to fully understand what it is buying, and wants to avoid surprises. Additionally, from a buyer’s standpoint the market being a buyer’s market allows for the purchase price to be structured as a mix of cash, equity and debt.

How should they approach things differently?

Companies that have the right resources are relying more on internal support for transactions. But companies should be cautious and make sure they are staffing the transaction with experienced and skilled personnel to achieve the desired outcome in a timely and thoughtful way. Those closest to the particular market should be used in the diligence of the business.

Buyers need to focus on valuation of the target and integration of the businesses and should devote the proper resources and engage the best available third parties to help in those processes.

Patricia A. Gajda is a partner and chair of the Business, Corporate and Securities practice group with Brouse McDowell in Cleveland. She can be reached at (216) 830-6830 or pgajda@brouse.com.

Published in Akron/Canton

Anew IT development giving companies the ability to adopt generic top level domains (gTLD) could be a real game-changer in how companies are represented and found on the Internet. On Jan. 12, companies could begin applying for their very own domain — .apple, .coke, .sony — .you-name-it.

The ability to acquire a gTLD has never been a reality until now.

“The possibilities are endless,” says Heather Barnes, a partner in the Intellectual Property Group at Brouse McDowell, Akron. “There are some restrictions, but not many, and the Internet Corporation for Assigned Names and Numbers (ICANN) believes this expansion will create a new age for the Internet with limitless opportunities for creativity and imagination.”

Consider how a gTLD could work in an open registration enterprise where a company acquires the domain “.car.” Dealerships and manufacturers of cars would want a site with this domain. Or, a company like Microsoft or Ford could acquire a gTLD for their brand (.microsoft, for example) and leverage the domain in its marketing efforts.

“Ultimately, a gTLD represents another potential asset for a company’s intellectual property portfolio, but the value attached to this opportunity will depend on a number of factors,” Barnes says, noting that the cost of applying for a gTLD and maintenance fees are a barrier for some companies. And the concept is not for every business.

For now, most businesses will take a wait-and-see approach. “Most companies need to be aware of this change and develop a strategy for protecting their intellectual property and especially their trademarks,” Barnes says.

Smart Business spoke with Barnes about what this development in domain ownership could mean for companies, and how all businesses should respond during this first application process.

What are the potential benefits of applying for a special generic top level domain?

There is some thought that a gTLD would give consumers greater comfort that they are dealing with an authentic product when they search online. For example, someone searching for Nike shoes online would know that a website with the domain .nike belongs to the brand. Another possible benefit is search engine optimization: a greater ability to be found and ranked higher on search engines such as Google or Yahoo. However, the extent of this potential benefit is unknown. For the most part, a company can look at their gTLD as one more asset in their IP portfolio that will allow them new opportunities to market their brand.

What are some barriers to applying for a generic top level domain?

First, the application fee for a gTLD is $185,000 with an annual maintenance fee of $25,000. Also, there is no general consensus among large companies that are in the financial position to adopt a gTLD. In other words, not every corporation is jumping on this opportunity. Most companies will wait and see what happens and who participates in this first application process. And until the application process closes on April 12, no company will have complete knowledge of who applied for a domain. However, at that point, there will be an extensive examination process during which all companies can gain access to the applications to see if their competitors have applied and to determine whether any applicants are compromising trademarks or misappropriating intellectual property. ICANN is allowing 1,000 applicants to file for a gTLD on a first-come, first-served basis until April 12.

What IT infrastructure must a company have in place to take advantage of this new development?

There are many layers of infrastructure that are required, and they all interact. First, and most importantly, is the financial infrastructure and associated business plan. The costly application fee and maintenance costs must be figured into a company’s budget, and the company needs to ensure this is a good investment, which will require a plan to ensure its success. Second, the marketing team must be prepared to educate consumers about its domain, and website traffic must be directed to the domain for it to be a success. Third, the technical infrastructure in terms of managing day-to-day operations must be in place. Finally, a legal team should be involved in this process to ensure that all aspects of the infrastructure are in place and to advise on interactions with other companies and the consuming public. The legal team will also assist in developing offensive and defensive strategies for protecting a company’s intellectual property.

How can all companies prepare as the first application process for a gTLD is rolled out?

For companies that want to apply for a gTLD, the time to start the process is now. The information and financing required to complete the application is substantial. For companies taking a wait-and-see stance, be on the look-out in late April when those applications will be available for review. Be prepared to file commentary or objections if any trademarks are misappropriated by third parties. Consult with a legal team in advance on a strategy to protect intellectual property.

In the meantime, all companies should evaluate their search engine placement as this new IT development will likely affect placement. In other words, if a competitor already has a higher search engine ranking, how would a gTLD potentially advance this competitor’s ranking? What can you to do protect your ‘status’ online when a potential customer searches for the products or services you sell?

Now is the time to seriously evaluate the way you go to market online and to discuss with trusted advisers and your legal team how gTLD could affect your positioning.

Heather Barnes is a partner in the Intellectual Property Group at Brouse McDowell, Akron, Ohio. Contact her at (330) 535-5711  or hbarnes@brouse.com.

Published in Akron/Canton

If employees treat social media as a sort of online water cooler where comments are posted about colleagues, managers and customers, what rights do employers have to control the conversation?

Social media networks like Facebook and Twitter open up a floodgate of human resources issues that companies must address with a formal policy and open communication with employees — before a litigious situation arises. Can a business owner fire an employee for bad-mouthing the company? Is it permissible for a worker to complain about company decisions and managers on Facebook? How “private” are these social media postings, really?

“Recent court cases shed light on the responsibility employers have to create a solid social media policy and to talk with employees about how social media is used in and out of the workplace,” says Christopher Carney, chair of the Labor and Employment Practice Group at Brouse McDowell in Cleveland.

Smart Business spoke with Carney about social media regulation and what employers can do to be proactive in this fast-changing area of business and the law.

What are some common mistakes businesses make when using social media?

It is no secret employers use social media to screen applicants. However, they can get into trouble when they use social media to screen out applicants. It is illegal to discriminate against someone in the hiring process on the basis of race, gender, religion, disability or sexual orientation. It is also illegal to use an applicant’s Facebook page or Twitter account to eliminate candidates. The bottom line is that if you possess this information and it goes into your decision-making process, that is against the law.

The best way to avoid problems in this area is to have a third party do the screening. That way, the ultimate decision-maker does not see any legally protected information discovered using social media. If you cannot use a third party, then your company’s HR department should do the screening and not provide you with any legally protected information.

Another common mistake employers make is to ‘friend’ employees with a fake profile or seek information about an employee through a third party that is ‘friends’ with the employee. Even with the Internet, there is an expectation of privacy with Facebook because the profiler invariably limits access to his or her Facebook page.

How has the government attempted to regulate the use of social media by employers?

Here is some background: Section 7 of the National Labor Relations Act (NLRA) protects employees who engage in ‘concerted activities for the purpose of collective bargaining or other mutual aid or protection.’ The NLRA’s protections are not limited to union organizing activities or employee conduct in a unionized environment. ‘Mutual aid or protection’ includes any group of unrepresented employees talking about wages, hours and working conditions.   In 2010, the National Labor Relations Board (NLRB) made national headlines by issuing a complaint accusing an employer of unlawfully discharging an employee for posting critical remarks on her Facebook page questioning her supervisor’s mental health. Since then, the NLRB has continued its focus on social media, aggressively prosecuting cases where employees are discharged or disciplined for social media use. Two recent NLRB administrative law judge decisions illustrate how the NLRB is shaping the law in this area.

In September 2011 the NLRB found that an auto dealer did not violate the NLRA when it fired a car salesman who had posted on Facebook photographs of and made sarcastic comments about an accident that occurred at one of the employer’s dealerships. The judge concluded that the posting was not protected because it was posted ‘without any discussion with any other employee . . . and had no connection to any of the employees’ terms and conditions of employment.’ In another decision that came out at the same time, a judge held that a nonprofit, social service organization did violate the act by firing five employees who posted on Facebook negative comments about their workloads and staffing issues. The judge determined that the terminated employees’ discussions were protected, concerted activity because it involved conversations among co-workers about the terms and conditions of their employment, including job performance and staffing levels.

Notably, both cases dealt with non-union employers.

What should business owners take away from these cases?

The natural inclination for a business owner is to take action against an employee for making critical statements about the business or its owners, particularly in such a public forum as the Internet. However, employers should proceed with caution. General griping is one thing, but if the criticism is tied to a term or condition of employment and is between or among co-workers, then it is likely protected. Any adverse employment action could potentially violate the law.

Should employers have a social media policy?

Yes. And any such policy should be narrowly tailored to avoid ambiguity. It should inform employees that the policy does not prohibit employees from discussing or disclosing the terms and conditions of their employment. Also, any social media policy should clearly state that employees are prohibited from disclosing confidential or proprietary information on social media. It also should prohibit employees from making disparaging comments about the company, its employees or its customers. Finally, the policy should place employees on notice that the employer may monitor employee postings in order to minimize any expectation of privacy the employees may think they have.

It’s a good idea to consult with a legal professional when crafting a social media policy to be sure that the house rules you set comply with the law and cover any worst-case scenarios that could occur.

Christopher Carney is chair of the Labor and Employment Practice Group at Brouse McDowell in Cleveland. Contact him at (216) 830-6830 or CCarney@brouse.com.

Published in Akron/Canton

Changes in patent law could provide a financial break for some companies and individuals, along with opportunities to expedite the process, additional ways to challenge patents and easier patent notification through virtual marking.

Is now the time to consider changing your company’s patent strategy? Possibly.

As the Leahy-Smith America Invents Act is implemented in coming months, the four most notable patent law changes could affect when organizations and individuals decide to file for a patent, how they challenge competitors’ patents, and the speed at which the patent process is expedited.

“The patent law changes affect anyone who has an idea and wants to patent that idea,” says John Skeriotis, Chair of the Intellectual Property Group at Brouse McDowell in Akron. “The legislation was designed to improve the quality of patents, to reduce litigation that occurs by time or by filings, to decrease patent backlog and bring inventions to the market faster, and reduce costs for qualifying applicants.”

Smart Business spoke with Skeriotis about the new patent law changes and how this legislation will affect individuals and organizations seeking patents.

What are the most notable patent law changes?

There are four key changes that could affect the patent strategy at some companies. First, the legislation changes the patent filing process from a First to Invent system to a First to File system. Second, companies now have the ability to more actively participate in their competitors’ patent applications by submitting prior public documents challenging and arguing against those patent applications. Third, there is an expedited patent process (prioritized examination) and some qualifying filers could pay lower fees. Last, there are easier patent notification methods available, such as virtual marking.

How will a First to File system change the patent process for companies?

This is the system that much of the world uses, and, given our global market, a change to this system is beneficial for U.S. companies and individuals filing for patents. In a First to File system, a patent is awarded to the first to file and not necessarily the first to invent.

For example, let’s say you and I invented the same product. You invented it first, but I was the first to file for a patent. In the previous First to Invent system, you could prove you were the first inventor and then be awarded the patent, despite the fact that I filed first. Now, regardless of who invented the product first, the inventor who files first gets the patent.

Some advice: file early and file as often as needed. Remember to file for a patent for product updates and upgrades — small improvements of any kind.

How will the patent challenging process change?

Companies now have more opportunities to participate in their competitors’ patent process in the U.S. Patent and Trademark Office rather than doing so via litigation in federal court. The idea is that managing patent challenges earlier in the patent filing process, and handling them at the office level rather than in federal court, will save time and money.

Here’s how a patent challenge scenario could play out: Your competitor is filing for a patent on a product and your company has public documents that challenge whether that competitor should receive the patent. You can argue why that idea should not be granted a patent. This could change the way companies strategize against competitors’ patents. It’s a good idea to talk to an experienced patent attorney about the benefits and potential downfalls of this patent law change.

How will an expedited patent process help businesses?

Prioritized examination allows companies to speed up the patent process, and doing so involves a rather steep fee of $4,800 for large entities and $2,400 for individuals and small businesses. However, with patent law changes, there is a fee reduction of up to 75 percent for independent inventors who meet certain criteria. There are a number of qualifications for this fee reduction, but the reduced cost and expedited patent process could be highly beneficial for some.

What patent change will make notification easier?

The new legislation takes advantage of technology available today and allows for virtual marking. This means a company can use the Internet to notify competitors and the general public that a patent was granted on a product or service. The patent marking no longer has to be physically included with a product.

In the past, some companies had difficulty determining where to place the actual patent number on the product. Using a tire as an example, should the patent number be embedded in a mold so that it is stamped in the rubber of every tire? Or, should a sticker containing the patent number be applied to every tire? Should the patent number be included in the owner’s manual? With the new law, a virtual marking provides more flexibility through utilization of technology.

How will these patent law changes affect a company’s ability to get a patent?

The changes correct concerns and issues that surfaced with the previous patent process and are supposed to reduce federal litigation. The new law is supposed to make the patent process faster and more affordable for some companies, and will align the application process (First to File) to that of other countries around the world. It’s a good idea to discuss with an attorney how these patent law changes could affect your company’s patent strategy, and to find out what opportunities may be realized in terms of challenging and expediting patents.

John Skeriotis is chair of the Intellectual Property Group at Brouse McDowell in Akron. Contact him at jms@brouse.com or (330) 535-5711.

Published in Akron/Canton

Jeff Heintz isn’t bragging when he says the legal firm where he is managing partner, Brouse McDowell LPA, made it through the recent recession without missing a beat ? it’s a matter of fact that the firm only had a few scratches.

“We did OK because we stuck to what we did best; I think our reputation served us well,” he says.

Once Heintz realized that the 92-year-old company’s brand was the best weapon in his arsenal to fight the recession, he instilled a way of thinking to bolster that premise for the 120 employees.

“We adopted the philosophy that we are going to control the kinds of things we can control,” he says.

The first premise pertains to the quality of work, an obvious aspect that can be controlled.

“If you work hard, and you have high character, and you behave in a manner that is befitting of things like ‘A Lawyer’s Creed’ and ‘A Lawyer’s Aspirational Ideals,’ good things are going to happen to you,” Heintz says.

“If you develop skills that enable you to help your client as a technician and develop the feelings that enable you to discern how best to direct your client, whether or not a particular strategy has short-term or long-term benefit, then you can become a trusted adviser,” he says.

“There’s no better feeling in the world than being a trusted adviser, somebody who works hard, develops a business and builds it into something grand, and it is the centerpiece of that person’s life and perhaps that person’s family,” he says.

Place a high premium on community involvement, and feel an obligation to give back to the extent you can by participating and furthering the efforts of nonprofits and volunteering because it is the right thing to do.

“It also gives your people an outlet other than just coming in and putting on their miner’s helmet and cracking away at work. It keeps them fresh, focused and gives them some perspective.”

Dedication to clients can also be controlled.

“We’ve had relationships with clients that go back decades,” he says. “We’ve been through tough times with clients and we’ve been there for them. This time it was tough times for everybody.”

With a relationship that has developed trust and understanding over the years, there are often mutual benefits.

“You and your clients benefit from the strength and depth of your relationships because businesses across the board were facing issues that they never faced before, having to consider choices that they never considered before, and I think it is a considerable comfort to them to know that when they would pick up the phone to call their advisers, it’s a number that they have been calling for 30 or 40 years.”

One of the tools that may serve you in being open with clients is what Heintz calls the “sneaky direct approach.”

“You just sit down with them, and you tell them the truth,” he says. “You let them know even if you can’t lay out for them chapter and verse what will happen, you lay down for them as best you can your belief about what will happen and what steps you are taking to control what can happen. I think people tend to react well to that.”

Another factor to control is the seriousness with which responsibilities are taken.

“Take that commitment of trust very, very seriously,” Heintz says. “One of your first thoughts should be how is this going to benefit your client ? not how much money can you make, not how quickly can you get this job done, not how much personal goodwill can you get from this.”

As a final matter, protect yourself as best as you can against the things you can’t control.

“Ignore a lot of the chatter for things that happen at the federal level ? the preoccupation with the recent Washington gridlock, for example ? as difficult as it is,” Heintz says.

How to reach: Brouse McDowell LPA, (330) 535-5711 or www.brouse.com

Availability is king

It’s been said that no matter recession or economic growth, your ability to succeed in business is only limited by your availability to your customers.

Jeff Heintz, managing partner of Brouse McDowell LPA, believes in that. In fact, he has his home phone number on his business card.

“If you make your clients know that you are available to them pretty much 24/7, they appreciate the commitment and are very conscientious how they use it,” he says.

Likewise, cascade that premise of availability throughout your staff, from top to bottom.

“If you are accessible, that’s a talisman of your commitment to your clients,” Heintz says.

“Don’t tell them, ‘You need to get a hold of me between 9 a.m. and 5 p.m. on Monday through Friday because I’m not going to look at my mail over the weekend, and I’m not going to answer my phone.’

“Not everything’s an emergency, and there are people out there that live their lives at general quarters ? and everything’s an emergency ?but there are emergencies out there, particularly as we increasingly get to a global economy where it may be 7 p.m. on Friday night in Akron, Ohio, but 9 a.m. elsewhere on the globe where people are at work when you are at play. But most people use their best judgment, and they have the ability to discern between what’s an emergency and what’s not.”

How to reach: Brouse McDowell LPA, (330) 535-5711 or www.brouse.com

Published in Akron/Canton
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