The JOBS Act, passed in 2012, changed rules to make it easier for small businesses to secure funding from investors.
“The Securities and Exchange Commission actually has three initiatives related to the JOBS Act. Crowdfunding has received most of the attention, but the SEC also amended Regulation D to allow small businesses to use general advertising and offers the Regulation A option, which is sort of a mini registration,” says James S. Hogg, a partner at Brouse McDowell.
Smart Business spoke with Hogg about how these JOBS Act options work and what they offer small businesses looking to raise funds.
What has changed with the amendment to Regulation D?
In the past, a private placement had to be done without general advertising, so you would either use a broker to find wealthy investors or you would find them; it was more or less word of mouth. Once you found investors, you would do a conventional private placement.
According to the SEC, $900 billion was raised that way in 2012. Of that, about $8 billion was raised in offerings of less than $5 million each. The amended regulations are intended to allow more small businesses to participate by expanding the pool of investors they can reach. But when you use general solicitation — Internet, newspapers, radio — you can only sell to accredited investors and there are more rigorous procedures to follow to ensure buyers are accredited.
To be accredited, an investor must have a net worth of $1 million or annual income of $200,000. You can still raise funds the old way under Regulation D, which allows for up to 35 non-accredited investors and an unlimited number of accredited investors. But if you use general solicitation, all investors must be accredited.
How can small businesses use crowdfunding?
Nothing is set until the SEC adopts final rules, but based on the proposal, companies are limited to raising $1 million in a 12-month period.
Crowdfunding has hit a couple of snags. One involves regulation; the proposal doesn’t allow for state regulation and some regulators would like to see more safeguards, while other people want to get money to small businesses as quickly as possible.
The SEC proposal requires use of a funding portal such as Kickstarter or Indiegogo and limits purchasers — a person with net worth of less than $100,000 can’t spend more than $2,000 or 5 percent of their net worth a year, and someone with a net worth of more than $100,000 is restricted to 10 percent of their net worth.
Crowdfunding would also require annual reports, although they would be basic — including financial statements that may have to be reviewed by a CPA firm, and if the amount raised was more than $500,000, you would also need an audit. As proposed, the rules might make crowdfunding unattractive. I’m sure that’s part of the comments the SEC is wrestling with.
What is happening with Regulation A offerings?
Historically, if you did a Regulation A offering, which is like a mini registration, it would not be given an exemption from state registration. As a result, only 0.2 percent of offerings under $5 million used Regulation A.
The SEC has made it a two-tier system by adding a new rule that allows an exemption from state securities law registration. You can still raise money the old way, but if you elect to do so under the new rule, there are reporting requirements in return for the state law exemption. The maximum amount that can be raised would also increase from $5 million to $50 million.
This is still in the proposal stage, and comments are being accepted through March 24.
How do businesses decide what route to take?
If you’re really small and raising funds entirely in Ohio, you can sell to up to 10 investors without any filings, but make sure you meet the requirements for this exemption. Most companies with larger offerings will probably continue to opt for Regulation D, but when the regulations are finalized they may consider crowdfunding or Regulation A if those are exempt from state securities registration. ●
James S. Hogg is a partner at Brouse McDowell. Reach him at (330) 434-4106 or firstname.lastname@example.org.
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The environmental due diligence process can be time-consuming, which is why buyers should get started early when entering into negotiations to purchase property.
“Depending on when environmental due diligence begins, environmental issues might not be discovered until close to the end of the deal. That could result in a transaction not closing for months after initially planned, which was the case in a matter we had this year,” says Meagan Moore, a partner at Brouse McDowell. “Be ready to begin a Phase 1 assessment when you initiate discussions regarding a purchase.”
Smart Business spoke with Moore about Phase 1 and Phase 2 environmental assessments, and the protections they provide buyers regarding potential liability related to contamination.
What is the first step in the environmental due diligence process?
Hire an environmental consultant to perform a Phase 1 study. That will give you a better understanding about the property. Because of the way certain environmental regulations are written, even a purchaser that has no culpability for what is on the property could be responsible for cleanup costs. Therefore, it’s best to know what you’re getting in advance so you can plan for it during the transaction.
Phase 1 is a report intended to identify potential environmental issues associated with the presence of hazardous substances or petroleum products on a property. It involves a review of federal, state and local records, government databases, interviews with people familiar with the property and an on-site inspection by the environmental consultant. The review provides an overview of the property’s history and whether there is any information or visible signs of a release or contamination on the property.
Some sellers may conduct a Phase 1 study in order to expedite the transaction. It is important to note that Phase 1 is only valid for 180 days and typically the environmental consultant must grant third parties authority to rely on the report.
There are some environmental issues that the Phase 1 investigation does not cover, including whether the property has wetlands or the building contains asbestos. Those can be added to the scope of a Phase 1 if a buyer envisions potential issues with a property. Any documented or visible signs of contamination noted in the Phase 1 are considered a recognized environmental condition (REC).
If the Phase 1 report includes a REC, what should a potential buyer do next?
A Phase 2 assessment should be conducted, which typically involves a subsurface investigation. Soil and groundwater samples are taken for lab analysis to determine if there is hazardous material present. It’s not going to delineate the extent of the contamination, but it will confirm or deny the presence of hazardous materials.
If the contamination is confirmed, you’ll have to determine how it should be addressed — whether remediation should be done or if the material can be left in place.
All these concerns can be factored into the negotiation process with the seller. You could include indemnity agreements with the seller and establish an environmental escrow account to pay for any issues that arise.
Do any former uses require a different approach?
A Phase 1 assessment should be done for any industrial or commercial property. But you definitely need an assessment if there was a gas station, dry cleaner, auto repair shop or industrial use of the site. Phase 1 assessment requirements are the same no matter what type of business; it doesn’t matter if it was a textile plant or gas station. But if you’re looking at a property that had historical operations that could have led to contamination, a Phase 1 assessment is necessary to determine the condition of the property so you’re aware of what you’re buying. As a buyer, you want to know everything upfront so that can be a part of the negotiations and you can limit your liability. ●
Meagan Moore is a partner in the Environmental Practice Group at Brouse McDowell. Reach her at (216) 830-6822 or email@example.com.
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Benjamin Franklin once stated, “In this world nothing can be said to be certain except death and taxes.” If he were alive today, he might include on his list of certainties an annual increase in health care costs for employers and employees.
Smart Business spoke with Jonathan L. Stark, a partner at Brouse McDowell, regarding the increased attention employers are giving to instituting wellness programs to combat spiraling health care costs and the potential issues that may arise when employers structure such programs.
Can employees be required to participate in a wellness program?
Yes, employers can institute mandatory wellness plans, but such plans cannot discriminate against plan participants or beneficiaries based upon eligibility, benefits, or premiums because of a ‘health factor,’ or violate other laws.
Health factors include a participant’s physical and mental illness, claims experience, medical history and genetic information. Discounted insurance premiums or rebates of deductibles or co-payments if the participant abides by health promotion or disease prevention programs are allowed.
What significant changes have the final wellness regulations generated?
The final rules, effective Jan. 1, 2014, implement a change in the Affordable Care Act that increases the maximum award allowed under a wellness program from 20 percent of the total cost of health care coverage (employee and employer cost) to 30 percent. The maximum reward can be 50 percent for wellness programs that prevent or reduce tobacco use. Also, the definition of a ‘participatory’ program has changed slightly. Previously, a program, such as a walking program, was participatory, but now it falls within the category of an ‘activity-only’ program which must offer the five wellness program requirements. Now, participatory programs are more passive, such as attending health education seminars or receiving reimbursement for purchasing a gym membership.
Can a wellness program dictate that employees not use tobacco?
A wellness program can condition rewards on a participant’s non-use of tobacco. However, employers should be aware that some states have laws that protect employees engaging in lawful conduct during off-duty hours, including protections for tobacco use.
If a program offers rewards to participants for achieving a health outcome, what problems could arise?
Employers should be careful in requiring participants to achieve any specific health outcome (e.g., specific cholesterol level or body mass index) to avoid issues in which health factors may lead to discrimination based on health status, genetic information, medical conditions and disabilities. If a specific target is used to measure compliance in a wellness program, or if a certain activity is required, there should be a reasonable alternative standard for a participant who may find the standard difficult to meet due to a medical condition or if the participant’s doctor advises the participant that satisfying the standard is too risky. An option to waive the standard must also be offered.
All outcome-based and activity-only wellness programs must meet the following five requirements:
- Eligible individuals must have the opportunity once a year to earn health-contingent awards.
- Available awards must not exceed 30 percent of total health plan coverage costs, however, if there are tobacco cessation rewards, those rewards may increase the reward limit to 50 percent.
- Programs must be ‘reasonably designed’ to promote health or prevent disease.
- Plan information must describe how the reward is earned and offer reasonable alternative means to obtain the reward.
- Participants must have the opportunity to earn the reward. Activity-only programs must offer a waiver of the requirement or a reasonable alternative to the initial standard if an individual’s medical condition makes it unreasonably difficult or medically inadvisable to achieve the initial standard. And outcome-based programs must offer a waiver or reasonable alternative to every participant. ●
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It used to be that buyers would send out purchase orders with standard terms and conditions, and sellers would ship the product with invoices containing their own conditions. Now that more business is conducted online, conditions are agreed to by click-wrap — clicking a box to accept the terms of the website.
That causes problems when employees wind up agreeing to terms that greatly benefit the seller or supplier to the detriment of the purchaser, says Todd C. Baumgartner, a partner at Brouse McDowell.
“For whatever reason — it might be psychological — there is a lot less negotiation with terms and conditions on websites. It’s important to know what you’re agreeing to, and negotiate if you need to protect your interests,” Baumgartner says.
Smart Business spoke with Baumgartner about how to handle click-wrap agreements and potential problems when they’re agreed to without proper review.
How are differences resolved when buyers and sellers have different terms?
The Uniform Commercial Code has standard rules to follow when that happens. But what’s occurring now is that, General Electric, for example, uses a website instead of putting terms and conditions on the back of invoices. There is no paper going back and forth. GE has the clout to pull that off — companies will just accept the terms in order to be GE’s supplier. But you can negotiate terms and conditions on websites.
A 2002 case, I.Lan Systems Inc. v. Netscout Service Level Corp., demonstrates what can happen with these click-wrap contracts. The buyer, I.Lan Systems, negotiated an extensive software license agreement with all sorts of protections. However, whenever there was an update to the software, it was downloaded from a website by the IT department. Every time that happened, they downloaded a new license agreement that voided the prior one. The new agreements were skewed in favor of the software company, stating that it was not responsible if the software crashed the computer system. When that happened, there was fairly extensive damage, but the court ruled the software company was only liable for the original purchase price.
It’s critical that companies understand every time an IT employee clicks these buttons, they’re getting a new software licensing agreement whether they realize it or not.
What’s the best way to deal with click-wrap agreements?
Don’t just click boxes. Have the head of the IT department review everything, and set up a policy in-house with appropriate procedures so these matters are presented to the right decision-makers.
If there’s something in the agreement that’s not acceptable, depending on your leverage, you can tell the software company you’re not doing click-wrap updates or negotiate an agreement covering the updates.
Click-wrap agreements are not necessarily a bad thing for the buyer or seller, but it’s important that it’s mentioned in bold at the bottom of your invoice or purchase order that the terms are on the website. The seller also needs to keep track of the terms and conditions it had. Then, if a company comes back later and claims it didn’t understand the terms, or didn’t know what was agreed to, sellers can produce what was on the website two years ago.
What sort of problems can arise years later?
Many times disputes are about specifications that the product was supposed to meet, and if it didn’t meet those specifications, what damages might be involved. As a supplier, you want to limit your consequential damages to replacing the product. A buyer will argue that it lost revenue as a result of the defective product. If the agreement doesn’t have the proper damage limitation, it’s going to be a problem for the supplier.
Are purchase agreements done differently online?
Essentially they’re set up the same way; it’s just that people are less likely to negotiate something that’s on their computer screen. Companies will still ask for changes to terms and conditions on a website, but the number of requests for changes drops substantially. Everyone’s classically conditioned to review a contract in Microsoft Word line-by-line; as businesspeople we’re still catching up with the fact that websites can be changed. ●
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As we emerge from the worst recession in memory, employers are cautiously rebuilding their workforces. Many long-term unemployed are starting to get interviews and offers, and some are seeing a new wrinkle: credit background checks.
Those checks might unearth financial problems that would cause an employer to reject a candidate. But beware of the Fair Credit Reporting Act (FCRA), the Consumer Credit Reporting Reform Act and additional state laws.
It is important to protect the company’s bank account by ensuring that access is limited to those who can be trusted. So how can you tell for sure? While there is no fail-safe guarantee, credit background checks can raise red flags early in the process.
“The wisest course for employers is to make the best hires they can, using all of the legitimate, nondiscriminatory information accessible to them within the law,” says Karen C. Lefton, a partner in the Labor & Employment group at Brouse McDowell.
Smart Business spoke with Lefton about her recommendations on conducting credit background checks.
What steps should a company take as it makes hiring decisions?
1) Get the candidate’s consent for the credit check in advance and in writing. Work with your attorney to create a clear consent form. It should state that the candidate acknowledges and agrees that the consumer-reporting agency will furnish a report to the employer, and that the employer intends to use the information for employment purposes.
2) Engage a reputable consumer-reporting agency, one well versed in the limitations of the FCRA, to conduct the review.
3) Provide the agency with reasonable criteria for its review, such as verification of the applicant’s Social Security number, balances totaling $2,000 or more that are at least 60 days past due, lack of credit, current garnishments on earnings, overdue child support or other outstanding collections of $2,000 or more.
4) Make sure the report is limited to the criteria sought. If the search turns up information that the employer should not know about — the candidate’s disabled child, for example — that information should be withheld to insulate the employer from any allegation of discrimination in the hiring process.
5) Before taking adverse action, provide the candidate with written notice that a copy of the report is available, as is a summary of his or her rights under the FCRA.
Keep in mind that errors occur. The ‘John Smith’ applying for a job may not be the same ‘John Smith’ with a horrendous credit history. Fairness requires that all candidates be given the opportunity to contest black marks. Only then can you ensure that hiring decisions are based on bona fide qualifications, or the lack there of. The hiring decision should be based largely on whether there is increased company risk, whether that risk is outweighed by the benefit of the candidate’s other credentials and the specific access his or her new position gives him or her to company funds.
Can credit checks be used as a basis to not hire or promote someone?
Yes, if you have followed the steps outlined. You are not required to hire a CFO mired in debt to collect your receivables or to pay your bills. Further, the FCRA does not distinguish between job candidates and current employees, meaning that consumer reports may be used to evaluate a person for promotion, reassignment or retention. But, again, employees must give conspicuous consent to the performance of credit checks.
What should be part of a background check, and does it vary by position?
Good credit and sound financial history are absolutely essential when an employee has access to money, whether yours or a customer’s. And don’t be lax because the sums aren’t huge. A local library employee, fired after $350,000 was discovered missing, goes on trial for aggravated theft later this month, accused of stealing nickels and dimes regularly over six years. Criminal background and driving records also might be relevant. A history of violence or criminal behavior are disqualifying for employees working in secluded areas with customers or in the customers’ homes. A bad driving record can knock out a delivery position candidate. Employers must be vigilant to avoid putting customers, co-workers or the public in peril due to bad hiring decisions. ●
Find out more about Brouse McDowell’s Labor & Employment law services.
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Businesses and individuals managing employee retirement plans need to understand their Employee Retirement Income Security Act of 1974 (ERISA) obligations and the liabilities associated with plan mismanagement.
“Plan fiduciaries must act prudently. They must do things such as diversifying investments to minimize risk, and they must always act in accordance with plan documents, as long as those plan documents comply with ERISA,” says Kerri L. Keller, a partner at Brouse McDowell.
“There are certain actions that plan fiduciaries must never do. These include using plan assets for personal gain or for business purposes,” she says.
Smart Business spoke with Keller about the role of a plan fiduciary and how to comply with ERISA requirements.
Who is a plan fiduciary?
A plan fiduciary can be any business or individual who exercises discretion, control or authority with respect to plan management. It can also be any business or individual who manages plan assets or exercises discretion or control with respect to the disposition of plan assets. An ERISA fiduciary also can be those businesses or individuals who provide investment advice to a plan, or are responsible for plan administration.
Examples of plan fiduciaries are the named fiduciary or plan administrator, such as the employer or plan sponsor. But sometimes third-party service providers, investment managers and advisers, insurance brokers, and officers of the employer or plan sponsor can be deemed plan fiduciaries.
What are the responsibilities of a fiduciary?
Every plan fiduciary has a duty of loyalty, a duty of prudence, a duty to diversify and a duty to act in accordance with the plan documents. Plan fiduciaries should know that they could incur personal liability for breaching any of their ERISA-imposed responsibilities, obligations or duties.
This personal liability can require a plan fiduciary to pay back to the plan any losses that result from a breach of fiduciary duties, and to give back any profits that the fiduciary may have made from using plan assets. Fiduciaries must act solely in the interest of the plan participants, and for the exclusive purpose of providing plan benefits and defraying reasonable plan expenses.
Are all employer actions considered fiduciary actions?
No. Certain business actions are not considered fiduciary actions, such as the employer’s decision to establish a plan, what features to include, and the decision to amend or terminate a plan. In other words, when an employer acts on behalf of its business, it is generally not acting in its capacity as a plan fiduciary.
However, actions taken to implement these decisions can transform a business or individual into a plan fiduciary. Fiduciary actions generally include exercising discretionary functions over the management of a plan and its assets.
What are the obligations and liabilities associated with plan mismanagement?
For starters, ERISA fiduciaries can be liable — even personally — for breaching any of the responsibilities, obligations or duties imposed by ERISA. If a fiduciary breaches a duty to the plan, he or she may be required to personally pay back any losses to the plan and restore any profits made by the use of plan assets. A court also can order any other relief that it deems appropriate.
What would be an example of a breach?
A breach would occur if a business owner used plan assets to finance a purchase of equipment to open a new division. The business — and the owner in his or her personal capacity — would likely be required to pay the plan back and disgorge any profits that were made by the improper use of the plan’s assets. As previously stated, a plan fiduciary must act in the best interest of the plan and its participants — not in the best interest of the employer or owner.
The IRS, the Department of Labor, and the Department of Justice all have a role in ERISA oversight. These are the agencies that will generally perform compliance investigations and enforce penalties against the plan or plan fiduciaries. ●
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Traditionally, businesses protect their intellectual property (IP) with patents and trademarks. These patents are generally utility patents, which protect the function or use of a product. Trademarks protect the name or logo under which a product or service is sold.
A more meaningful protection for businesses could include design patents and trade dress, says Barry A. Winkler, an attorney in the Intellectual Property Group at Brouse McDowell.
“These protections are issued much more quickly and with far less expense than utility patent applications. Design patents protect the decorative appearance of a product. Trade dress can protect the product packaging or product configuration,” Winkler says.
“For example, Volkswagen protected the shape of the Beetle and Apple protected the shape of the iPod by using both a design patent and trade dress. While using either a design patent or trade dress alone will provide some protection for the appearance of a product, using both provides even broader protection.”
Smart Business spoke with Winkler and Jennifer L. Hanzlicek, an attorney in the Intellectual Property Group at Brouse McDowell, about how design patents and trade dress can address areas of IP that are often overlooked.
What are the key differences between design patents and trade dress?
Although there is some overlap between design patents and trade dress, there are differences in the scope, timing and duration of the protection provided. A design patent protects a product’s appearance no matter what the product does, whereas trade dress protects the appearance only for the specific goods and services represented by the product.
As for timing, a design patent can be filed and issued before the product is used or even manufactured. Trade dress cannot be registered until the product is in use. Currently, a design patent is in force for 14 years after it is granted, but trade dress can last indefinitely as long as it continues to be used with its specific goods and services.
Design patents and trade dress can also protect virtual designs that exist in cyberspace, including the color scheme. Design patents protect Google’s teardrop-shaped marker icon on its maps, Samsung’s app icons and Nike’s animated user interface. Apple’s graphical user interface for the iPhone is protected by both a design patent and trade dress registration.
Should you seek both design patents and trade dress protection?
The benefits of using both design patents and trade dress can be demonstrated in the life cycle of a product.
When the design of a new product is complete, you can apply for a design patent to protect the ornamental design before you launch your product. The design patent protects your design for several years as you begin to manufacture and sell your product. Simultaneously, you can apply for trade dress protection for a product’s unique product configuration or product packaging. The trade dress protection then extends beyond the life of the design patent and continues until you cease selling the product.
The number of design patent applications continues to rise as businesses realize the benefit of protecting their product designs. In recent years, design patents have been more aggressively asserted by manufacturers in place of or alongside trade dress claims, including the recent Apple v. Samsung disputes.
Business owners could be foregoing meaningful protection by failing to pursue design patents and trade dress registrations. Taking these measures can offer increased IP protection, keeping competitors from copying the design and appearance of your products and product packaging. When used together, this powerful combination can provide armor for your product, from the finished design through manufacturing and launch, and continuing with sales until the product is no longer in demand.
Barry A. Winkler is an attorney at Brouse McDowell. Reach him at (330) 535-5711, ext. 358 or firstname.lastname@example.org.
Jennifer L. Hanzlicek is an attorney at Brouse McDowell. Reach her at (330) 535-5711, ext. 364 or email@example.com.
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If your business has a loan, your lender might classify it as “troubled” without your knowledge.
“You may still be dealing with a credit officer, but that person is being coached by a workout specialist while you remain unaware,” says Suzana K. Koch, a partner at Brouse McDowell.
Smart Business spoke with Koch and Alan M. Koschik, a partner at Brouse McDowell, about how the business/lender relationship has changed.
How did lenders previously handle missed payments or other problems, and what has changed?
Prior to the Great Recession, lenders would contact borrowers that experienced trouble, such as missing a payment, being out of formula on covenants or experiencing decreased sales, to schedule a meeting to discuss the default. At that time, banks typically referred troubled loans to the special assets or workout department. The bank would assign a workout officer to maximize value by liquidating collateral or other means. The borrower might not always work out troubled loans to its satisfaction, but at least it knew that its banking relationship had changed.
This clear transition to workout is no longer as common. Traditional lenders now assign workout officers to shadow credit personnel on loans classified as troubled without the borrower’s knowledge. Participants in this process, such as accountants and bankers, report that they are frequently avoiding the borrower’s attorneys.
The borrower often is unaware that the banking relationship has changed. Previously, borrowers received a default letter and a workout officer was assigned to them when they were transferred to special assets. Now, borrowers find themselves talking to their original loan officers, who may cajole them by saying, ‘You’re a little out of formula, so let’s see what we can do to revise the loan documents.’ In this common scenario, the borrower negotiates without representation, unaware that the ground rules of the relationship have changed.
Why is this occurring?
Lenders prefer that borrowers not have counsel advising them of their rights. It is much cheaper for the bank, and it receives much better workout terms if the process does not involve the borrower’s legal counsel. A sophisticated attorney representing the borrower would know about the various options that are available and when the lender is asking for more than it should.
Frequently, lenders ask borrowers to waive rights, offer additional collateral and provide personal guaranties. In exchange for these concessions, borrowers often receive meager benefits such as short-term extensions of maturity or standstill periods. With counsel, borrowers would often be able to obtain more favorable terms in these workout negotiations.
Is this practice widespread?
This pattern appears to be happening with most of the region’s banks as a result of the Great Recession. In shoring up workout departments, banks enlisted bankers from other areas to help with troubled loans. As a result, more bankers are now familiar with the workout process. With the easing of the recession, workout departments are shrinking and those bankers are returning to their traditional jobs. However, the effect of this temporary reassignment is that front-end bankers are more comfortable doing the workouts themselves.
What can you do to protect your business?
Borrowers should be cognizant of their loan terms, including their loans’ financial covenants and reporting requirements, and any possible defaults of these provisions. Despite this vigilance, a default may become inevitable, even if they are only technical defaults.
If you are concerned that you are out of compliance on your covenants, or if you miss a loan payment, contact a workout attorney immediately. Communication with your bank is also important. However, if you are negotiating with your lender, you need representation, preferably from the beginning of the process.
Suzana K. Koch is a partner at Brouse McDowell. Reach her at (330) 434-4632 or firstname.lastname@example.org.
Alan M. Koschik is a partner at Brouse McDowell. Reach him at (216) 830-6804 or email@example.com.
Follow up: For more information on lender negotiations, contact Suzana K. Koch or Alan M. Koschik.
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Federal and state laws generally require that employees are paid minimum wage, as well as overtime compensation when they work more than 40 hours in a week. Many white-collar workers are exempt from these rules, but employers need to be careful about how they classify employees.
“There is no system to ask the federal government if a certain position is exempt. So, employers need to make educated guesses about the duties of a particular job and, based on language in the regulations, decide if that position is exempt,” says Stephen P. Bond, a partner at Brouse McDowell.
Smart Business spoke with Bond about how to properly classify employees as exempt or nonexempt, and the risks involved with improper classification.
Does paying a salary mean a position is exempt?
No, although that’s a common misconception among employers. The first test is that the salary must be at least $23,660. Then, the employee’s job duties — not title —must also fall under one of the exemptions in the regulations. The title doesn’t matter because it doesn’t necessarily mean the same thing at different companies.
What job duties can be exempted?
There are three main exemptions:
? Executive — Exactly what it sounds like: primarily being the head of a business or a department, and supervising other employees.
? Administrative — White-collar, management-level worker whose job involves discretion or independent judgment. Clerical work wouldn’t qualify because it isn’t directly related to management of the business operations.
? Professional — This is the most ambiguous area. It requires that the worker have special knowledge or expertise, typically based on a college degree. However, a college degree doesn’t necessarily make a person exempt.
There also are exemptions for certain duties in the computer field and outside sales, as well as one that covers any employee making $100,000 who regularly performs at least one of the duties of an executive, administrative or professional employee.
How can an employer lose an exemption?
One way is by not being consistent about paying the employee a salary. If you dock someone for missing part of a day, that demonstrates that he or she was not really a salary employee, and cannot be exempt.
However, there is a separate provision that applies if an exempt employee is off work for Family and Medical Leave Act purposes, and allows for deductions that do not affect exempt status.
What are the penalties for incorrect classification?
If an employee’s claim is deemed correct and an exemption did not apply, he or she may be able to claim unpaid overtime for the past two years, as well as collect damages and attorney fees. A disgruntled employee could contact the Department of Labor’s (DOL) Wage and Hour Division and trigger an audit that could result in back pay awards for several employees.
Even when employees are correctly classified as nonexempt, companies can run into trouble in terms of hours worked. If employees work at their desks during lunchtime, that counts as paid time. If you give an employee a smartphone and say he or she has to respond to emails even when at home, that also is work time. Those types of claims can cost a lot of money because employees typically have a record of their hours and the employer doesn’t have anything to contradict it.
How can companies avoid misclassification?
You need to have a qualified human resources person conduct an analysis. It has to be someone who understands all of the implications, and will take the time to consider the various positions and where they fit.
Also, it’s a good idea to re-evaluate exemption status as job duties change, especially if you’re going through a reorganization.
A lot of times, management makes decisions based on what makes economic sense at the time. That’s fine as long as everyone is getting along. But then an employee is fired or disgruntled for some reason and files a claim with the DOL
Stephen P. Bond is a partner at Brouse McDowell. Reach him at (440) 934-8110 or firstname.lastname@example.org.
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When acquiring a company, it’s important that there are no surprises after an agreement has been signed. That’s why it’s critical to do your due diligence to ensure that there are no unknown problems that might arise after the closing.
“Companies that conduct a volume of transactional work — a lot of acquiring of businesses — understand the importance of getting information on the target company and assembling the proper team to review it,” says Patricia A. Gajda, partner and chair of the Corporate Group at Brouse McDowell.
Smart Business spoke with Gajda and Rachael Mauk, an associate at Brouse McDowell, about what areas to look at and the potential pitfalls in the due diligence phase of an M&A transaction.
What is involved in the due diligence process?
From a business, legal and financial perspective, you look at everything in the company that could have a risk or liability associated with it.
Usually the buyer will provide a list of documents for the seller to gather, including:
• Organizational documents.
• Financial documents, including three or four years of audited and unaudited financial statements, monthly statements, any audit reports, receivables, etc.
• Contracts with vendors, customers, etc.
• Real property information such as title documents, deeds, title insurance, zoning variances and leases.
• Permits and certifications.
• Environmental testing reports, remediation records, audit information.
• Intellectual property (IP) including patents, copyrights, trademarks, trade secrets, confidentially agreements, and licenses and software agreements.
• Employee information.
You also want to investigate the company to examine past and pending lawsuits, insurance claims, product liability questions, warranty information — how often there were product warranty claims — and delve into the history.
Due diligence can play an important role in determining the final transaction price. For example, if you find out the target company you intend to buy has a $5 million lawsuit pending against it, you will want to determine if and how that will negatively affect the company, even if you’re not going to take the liability for the lawsuit.
Are there things you find that might cause you to back out of a deal?
It will depend largely on your motivation for acquiring the target company. You may be buying a company because they have the latest product, which you want to incorporate into your product line, only to discover that the target company doesn’t own the IP or the IP associated with the product was not protected. Alternatively, you might uncover product warranty issues that bring into question whether the product works, or review the financial records and find out it’s not a profitable line of business.
It’s not just attorneys who do the due diligence. A company will put a team together to look at the various segments of the business. Accountants will look at the financial statements and tax returns. If there are environmental issues, you might have an environmental consultant do additional testing.
What pitfalls do companies experience in doing due diligence?
They do not allow for adequate time for due diligence. A strategic buyer is generally familiar with the business, so it may think it already knows everything. Things can fall through the cracks, so leave enough time for adequate review, testing and follow up. The process can take from a few weeks to 30 days or more if it’s a complicated business.
Typically, due diligence is done simultaneously with negotiating the purchase agreement. It might result in a purchase price reduction because something discovered doesn’t add up to the price that was originally discussed. You might find there’s the potential for environmental liability and seek an indemnification for that specific item — due diligence can lead to specific requests in the purchase agreement.
Once you’ve completed the due diligence, you’re close to signing the transaction agreement and the purchase can go as planned.
Patricia A. Gajda is a partner and chair of the Corporate Group at Brouse McDowell. Reach her at (216) 830-6830 or email@example.com. Rachael E. Mauk is an associate at Brouse McDowell. Reach her at (216) 830-6846 or firstname.lastname@example.org.
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You don’t have to be pirating software to get in trouble during a compliance audit.
“Where companies get ensnared is in the deployment phase. It’s not that they are trying to get away without paying, they get caught up in the terms of conditions found in the fine print of licensing agreements,” says Heather Barnes, an intellectual property attorney with Brouse McDowell.
Smart Business spoke with Barnes about what businesses can do to make the software audit process go smoothly.
What prompts an audit?
Software companies include the right to request audits as part of the terms and conditions of the software license agreement. The fine print contains the right for the software company to audit your computers and systems. Sometimes audits are performed because that organization received a tip from a discharged employee. There also are companies that conduct audits as a regular course of business, either itself or through a third party, such as The Software Alliance. Because of the economy, software revenues have decreased, so software owners are replacing lost revenue by ramping up enforcement with compliance audits.
Once you’re notified about an audit, what should you do?
If you are an organization with in-house counsel, contact them immediately. Smaller companies should retain outside counsel, because attorneys can make a big difference in the final outcome.
The first thing an attorney will do is assist with the parameters for the audit — how and when it will occur, as well as the scope. If there is a noncompliance issue, legal counsel can draft a settlement agreement; they may even negotiate the settlement to a more reasonable number. Even if there are no compliance issues, you still want a document drafted that acknowledges how the audit was conducted and what was found, as well as a release of any claims the software company could have brought.
What problems can occur if you proceed without legal counsel?
Much is dependent on the particular company, but the audited company wants to prevent the software owner from having free reign of its systems, and that is a role legal counsel can help control. For example, legal counsel can assist in defining the scope of the audit by determining which computers are included in the audit. Do you include every computer? Just computers in use? What about the computers that are older and sitting in a warehouse? A software company could attempt to include any computer you own, even those that are obsolete and unused.
Another potential issue is how the audit concludes. You might come to an agreement at the conclusion of the audit and think a settlement is in place. Without legal counsel involved, a company could find itself with no settlement agreement or other document detailing what occurred and the responsibilities of each side going forward.
What are typical noncompliance issues and how much do they cost to fix?
Terms and conditions of the software license agreement vary by company. Many companies allow you to use older versions of software when you obtain a license for their latest product, but some do not. However, many people think that it’s an industry standard that you can deploy older versions.
Another problem is maintenance of business records proving owned licenses for software. You need to have documentation and keep those records current and accessible. That can be complicated when the software was purchased from multiple third-party vendors and for software that is old. Companies should conduct internal audits to ensure they are in compliance with what their records reflect, which could help mitigate exposure when an audit occurs.
Normally, if you are out of compliance, you’ll be charged the licensing fee you should have paid. If it is $200, $300 or $500 per license, multiply that by the number of computers out of compliance and it can get expensive quickly.
Further, if you’re found to be noncompliant, develop internal procedures to ensure compliance in the future. If you are audited once and are found to have compliance issues, it is just a matter of time before the software owner is back to check again.
Heather Barnes is an intellectual property attorney at Brouse McDowell. Reach her at (330) 535-5711 or email@example.com. Learn more about Heather Barnes.
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Although it’s best used as a last resort, filing for Chapter 11 bankruptcy can offer struggling businesses a chance to restructure debt and emerge as successful entities, says Marc Merklin, managing partner at Brouse McDowell.
“Chapter 11 is a tool and not an end in and of itself,” he says. “Businesses that go into it without knowing what they want to accomplish often flounder and fail because it’s an expensive process. The longer it goes on, the greater the risks and costs. Companies that succeed have a specific goal and accomplish it as quickly as possible.”
Smart Business spoke with Merklin about alternatives to bankruptcy and how to best utilize the Chapter 11 process, should it prove necessary.
Are there options short of bankruptcy that should be considered first?
A workout is the best option because bankruptcy is expensive and risky. Try individual negotiations with the lender or creditors. Often with the lender there can be workout or forbearance agreements. They can be difficult to negotiate and disruptive to cash flow as lenders often add fees and expenses, as well as interest rate increases. Still, it’s usually desirable to attempt to work that out before seeking Chapter 11 protection. Most lenders understand that Chapter 11 will not only delay the exercise of their remedies and cost additional funds, but also carry risks such as ‘cramdown,’ which means forcing creditors to accept a plan they oppose.
Even if you have multiple creditors, you can negotiate with a group of them through an out-of-court settlement, whereby you give creditors notes for past due obligations and then amortize them. That can be difficult depending on the number of creditors.
What are the differences between Chapter 7 and Chapter 11 bankruptcy filings?
Chapter 7 is liquidation, so there is a trustee appointed and the business is almost never sold as a going concern. Even if you’re going to sell the business or liquidate it, it’s often better to do it under Chapter 11 because the company can still manage itself rather than being liquidated by someone who has no knowledge of the industry or business.
The goal under Chapter 11 is to restructure and emerge. In the past five years, more Chapter 11 filings have been sales as going concerns rather than true reorganizations. In a sale as a going concern, assets go to a buyer who will operate them as the business but under new ownership and a new structure free of claims and debts. In a restructuring, the company largely emerges the same even if there is a new investor or new ownership.
What are the benefits of filing Chapter 11 bankruptcy?
One is cramdown — the ability to force a payment plan when creditors are not willing to agree to a payment plan on their own.
The other is the ability to reject burdensome contracts that are causing huge losses. You can go into bankruptcy and reject that contract, convert it to a claim that you pay under a plan and not be bound by the contract. For example, if you’re selling to a customer at a huge loss and they’re holding you to that contract, you can reject that contract. They’re going to have a claim, but it would be an unsecured claim under bankruptcy and might be paid at 10 cents on the dollar. The company is then freed from the requirement of producing those goods at a loss and can generate positive revenue going forward.
But while Chapter 11 can be a very useful tool, it’s not the most desirable process because of the cost of accountant and attorneys’ fees, as well as the risk for existing owners and equity holders in the company. Under the absolute priority rule in bankruptcy code, equity holders or owners fall last in line. They cannot retain their equity ownership without contributing new value to essentially ‘pay’ for those equity interests after confirmation of the Chapter 11 plan.
Marc Merklin is a managing partner at Brouse McDowell. Reach him at (330) 535-5711 or firstname.lastname@example.org.
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House Bill 479, known as the Ohio Asset Management Modernization Act (AMMA), is the new law that means Ohio residents will no longer have to set up trusts in other states in order to protect their assets.
“It’s an important piece of legislation,” says Richard H. Harris, partner and chair of the Estate Planning & Probate Administration Practice Group at Brouse McDowell. “Prior to this major change, we weren’t exactly at the forefront in this area of asset protection planning.”
Smart Business spoke with Harris about the legislation, which will go into effect on March 27.
What will the AMMA change?
It contains a number of different protections, but basically it provides better creditor protection across-the-board. One of the more significant provisions is the creation of a domestic asset protection statute known as the Ohio Legacy Trust Act, which, in layman’s terms, means that for the first time an Ohio resident will have the ability to create an irrevocable trust, retain certain beneficial interests in that trust and have the trust assets protected from creditors.
Long-standing law in Ohio and most other jurisdictions provides no creditor protection to settlors of revocable trusts — those trusts which you create during your lifetime to hold your assets for your benefit and which keep the trust assets from being subject to probate at your death. Other jurisdictions such as Delaware, South Dakota and Alaska have enacted statutes that enable an individual to set up a domestic asset protection trust in that jurisdiction that will give some creditor protection to the person who created the trust. One of the key requirements in these jurisdictions was that you had to use a trustee who was a resident of the state or a trust company that is legally authorized to operate in that state, and some or all of the trust assets had to be custodied in the state as well. House Bill 479 was enacted, in part, to keep trust assets and the trust administration business in Ohio and to make Ohio competitive with a growing number of other jurisdictions in providing creditor protection to self-settled asset protection trusts.
Are there any exceptions?
Yes. You can’t set up a domestic asset protection trust in Ohio to avoid alimony or child support, or if you already have an issue with a creditor — that would be a fraudulent conveyance. This type of planning is most useful in situations where someone is in a high-risk environment, such as a physician who has a high risk medical practice or entrepreneurs or any high-net worth individual whose work involves a significant amount of risk of personal liability.
What are the other significant creditor protection provisions contained in this new legislation?
One is a significant increase in the homestead exemption. Right now, it’s $21,625 per debtor. With the new law, it increases to $125,000 per debtor and it’s stackable, which means a married couple can protect up to $250,000 of equity in their house from the reach of creditors.
The legislation also created an optional personal property recording system. Transferors will be able to record a notice of transfer of personal property with the local county recorder. Recording a conveyance of personal property will put all creditors on constructive notice of the property transfer, which will have the effect of cutting off the right of the future creditor to challenge the transfer at a later date. The new legislation also clears up an ambiguity in Ohio law regarding inherited IRA accounts. Ohio’s exemption statute that exempts certain property from being subject to attachment by creditors has been revised to specifically include inherited IRA accounts and 529 Plans.
What might this mean for Ohio residents?
The AMMA obviously provides much better asset protection planning for anybody who lives or works in Ohio. Gov. John Kasich approved it because he thought it would encourage business activity and professionals would be more likely to maintain their assets in Ohio. ?
Richard H. Harris is a partner and chair of the Estate Planning & Probate Administration Practice Group at Brouse McDowell. Reach him at (330) 535-5711 or email@example.com.
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Think your company has no confidential information that needs to be protected? Think again.
“All companies have confidential information which, if compromised, could cause immeasurable damage,” says Kate B. Wexler, an attorney in the Business, Corporate & Securities practice group at Brouse McDowell. “Confidential information can be tangible or intangible and of a technical, business or other nature.”
Wexler says there are occasions where such information needs to be shared with employees, contractors, suppliers, customers, vendors, potential partners and others, and a confidentiality agreement should be put in place to protect the company’s interests.
Smart Business spoke with Wexler about confidential information and situations when you might want a confidentiality agreement.
What needs to be kept confidential?
Any information not generally known to the public should be treated as confidential, provided that you take steps to keep your information confidential as well. When you are sharing your company’s confidential information with any third party, you’ll want to press for a definition of confidential information that is as broad as possible to avoid any argument later on that any particular piece of information was not covered by the confidentiality agreement. It can be as general as all information, whether written or oral, delivered by your company in connection with a contemplated transaction. Of course, as the recipient of such information, you’ll want to limit this definition by requiring that all information disclosed be marked ‘confidential.’
Under what circumstances would you enter into a confidentiality agreement?
Contexts in which confidentiality agreements are used include agreements with individual employees to ensure they understand their obligations to the employer; agreements with potential partners in a joint venture; supplier agreements; and agreements between companies wishing to explore a potential acquisition or merger.
Although parties often rush through the step of entering into a confidentiality agreement when their new relationship begins, and sometimes omit it entirely, it’s critical in defining the relationship’s rules.
These rules not only include defining what’s mine and what’s yours, but they also address the level of care a receiving party must take with your confidential information; prohibitions against reverse engineering; disclosure to governmental entities; compliance with laws to which your company and your information is subject — e.g., HIPAA, GLBA, U.S. export laws; injunctive relief should a party breach the confidentiality agreement; and what happens to the information when discussions end.
Other issues often addressed in confidentiality agreements are confidentiality of the fact that the parties are even in discussion, and nonsolicitation, which prevents a potential partner from attempting to poach your employees that they may meet in the course of exploring this potential relationship.
Are there restrictions?
Yes, there are many situations where the disclosure of confidential information is required by law. For example, judicial or governmental order or by deposition, interrogatory, request for documents, subpoena and civil investigative demand. These situations can be addressed in the confidentiality agreement as permitted exceptions. It is also interesting to note that there are certain non-U.S. jurisdictions that will not recognize an agreement that prohibits reverse engineering.
Are there occasions when you might want to terminate a confidentiality agreement?
One such situation would be when the parties enter into a definitive agreement whereby confidentiality obligations between the parties would be addressed. Another might be when one or both parties no longer wish to pursue the objective of the relationship. In that case, a well-drafted confidentiality agreement would anticipate that situation and while the parties may no longer share information, their obligations to maintain confidentiality with respect to the previously disclosed information continues for a certain period of time.
Kate B. Wexler is an attorney with the Business, Corporate & Securities practice group at Brouse McDowell. Reach her at (330) 535-5711, ext 399 or firstname.lastname@example.org.
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Social media has pervaded the workplace. With more than 1 billion people on Facebook and 140 million Twitter users generating 340 million tweets a day, companies see the potential of social networking and often rush to get on board without formulating a comprehensive policy.
“Take a step back and consider the implications of posting — whether officially in your business, unofficially by employees, or about your business by disgruntled customers or competitors. Develop a plan for protecting your interests on all those fronts,” says Karen C. Lefton, a partner at Brouse McDowell. “That means drafting, implementing and, where appropriate, disseminating your policy before you are the target of a nasty post.”
Smart Business spoke with Lefton about what companies should consider now with social media.
What can companies do to protect themselves against disparaging statements made by customers or competitors?
Anyone who posts defamatory statements about your business may be subject to a defamation action. There must be a false statement of fact, published to at least one other person, with the requisite degree of fault — negligence or actual malice — resulting in damages. It is important to recognize that ‘opinion’ is protected. This is especially significant in the social media context, where reviews are pervasive and even encouraged on companies’ websites. When you do this, you invite potentially negative comments, but not ones that would be actionable in defamation.
Does that mean reviews are exempt from defamation lawsuits?
Reviews are usually excluded because opinions are protected speech. A false statement of fact is essential to a successful defamation claim. However, if someone says, ‘There was a cockroach in my oatmeal,’ that is demonstrably a statement of fact. If it is false, the restaurant where the oatmeal was served would have a potential defamation claim.
Whom would you sue?
The poster. Internet Service Providers generally have immunity for the posts on their sites, but the poster does not. Historically, defamed entities were reluctant to take action against an individual poster because the cost far exceeded the payoff. However, many homeowners’ insurance policies cover individuals for actions in defamation, which may provide some recompense for defamatory posts.
What if the harmful statements are made by your own employees? Can you fire them?
Be very cautious. Section 7 of the National Labor Relations Act protects employees who engage in concerted activity, so employees who post disparaging comments about wages and working conditions — including bad things about the boss or the business — are usually protected. This applies as much to employees in nonunion settings as to those in unionized workplaces.
An employer may be found to have violated the act not only by disciplining a worker for what he posts but for merely having a policy that could be interpreted as chilling an employee’s Section 7 rights. Your policy governing employees’ use of social media must be very carefully drafted.
Are there pitfalls if employees post as part of their job, sanctioned by the company?
Absolutely. According to the Society of Human Resource Management, 68 percent of businesses require employees to use social media as part of their job. Of those, 73 percent give no training in how to use it appropriately.
Every company with a social media presence should have a policy governing its official website and social media accounts, including identifying those employees authorized to speak on behalf of the company and training them to ensure that private information — whether about employees, business plans or anything else — does not leak out. This is a growing problem because communication on social media is so quick and casual that it often does not get the same attention as a printed marketing piece. It should get more, as it will last virtually forever.
How can you avoid social media pitfalls?
Get expert help drafting your policies. Implement them. Follow them.
Karen C. Lefton is a partner at Brouse McDowell. Reach her at (330) 535-5711, ext. 341 or email@example.com.
For information on Brouse McDowell’s Labor and Employment Group, visit http://www.brouse.com/OurPracticeAreas/tabid/55/MainAreaId/5/Default.aspx.
For a complete bio of Karen C. Lefton, visit http://www.brouse.com/OurAttorneys/AttorneyProfile/tabid/90/aid/252/Default.aspx.
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Over the past year, the National Labor Relations Board (NLRB) has issued a number of directives with the potential to affect many employers across Ohio and the nation.
A common theme from the NLRB has been that employers need to clearly state that work rules do not restrict the legal rights of employees. Examples of NLRB actions include striking down a large retailer’s social media use policy and a car dealership’s rule about being courteous. In both cases, the NLRB ruled that employees could interpret the broad language of employer policies as prohibiting protected discussions about topics such as wages or working
“The board is emphasizing that an indirect violation can occur if, hypothetically, an employee who wants to exercise concerted rights with fellow employees might read a rule as preventing him or her from doing so. You’d have to be thinking of hypotheticals in order to be looking at that as a problem,” says Stephen P. Bond, partner with Brouse McDowell, LPA.
Smart Business spoke with Bond about the NLRB and what companies should do in response to recent rulings.
Are the recent NLRB actions just a concern for employers with unions in place?
No. Under federal law, the focus is on employees’ rights to engage in concerted activities for the purpose of mutual aid or protection. This may exist whether there is a union or not, and the board has the authority to enforce those rights. In fact, the board issued a directive ordering all employers involved in interstate commerce to post a notice to employees informing them of their rights under federal law. But, at this stage, enforcement of that order has been postponed while the courts decide whether the board has the authority to enforce such a requirement.
Why is this happening now?
It is easy to understand that if an employer enforces a work rule that directly prevents an employee from doing something he or she has a right to do, the government would have a problem with that. But, recently, the board has emphasized an interpretation that if an employer adopts a rule that could reasonably be construed as prohibiting legal labor activities, then that also will be prohibited by the board, even if the employer had a legitimate reason for the rule. And the board holds that the ambiguous employer rules — rules that reasonably could be read to have a coercive meaning — are construed against the employer. So, there have been cases cited by the board under this standard where seemingly innocent rules have come under attack.
Can you provide some examples?
In the case of Costco Wholesale Corp., 358 NLRB No. 106 (Sept. 7, 2012), the board had problems with a number of Costco’s employee rules. First, there were rules against unauthorized posting of any materials on company property; discussing private matters of employees, including issues about being off work for various reasons; disclosing sensitive information, including payroll, Social Security numbers and personal health information; and sharing confidential employee information such as addresses and email addresses. The board did not like these rules because they went too far and may have prevented employees from using information in connection with other employees for mutual benefit in ways that are protected.
The board further objected to a company rule prohibiting employees from electronically posting statements that damage the company or damage any person’s reputation. And the board did not like a rule that prevented employees from leaving company premises during the workday without permission. In both respects, the board envisioned possible scenarios in which the employee could interpret these rules as preventing them from proceeding with rights they have under federal law in dealing with their employers.
In Karl Knauz Motors, 358 NLRB 164 (Sept. 28, 2012), the employer had this work rule: Courtesy is the responsibility of every employee. Everyone is expected to be courteous, polite and friendly to our customers, vendors and suppliers, as well as to their fellow employees. No one should be disrespectful or use profanity or any other language that injures the image or reputation of the dealership.
But the board held that an employee could take this to mean he or she could not criticize his or her employer or object to working conditions, even if talking to co-workers, conduct which is allowed under federal law.
What should employers do about this?
First, employers need to be aware of the potential of an employee making a claim that a work rule may be violating employee rights under federal law, even if there is no union.
Second, they should look at existing policies and handbooks with this issue in mind. Particularly, look to see if there are any obvious ways they are running afoul of any of these rulings.
It’s not necessary to change all of your rules, but look at ways the rules can be interpreted and whether they can be clarified to make sure they’re not in violation. The board talks about putting in language that says the intention is not to prevent employees from engaging in their lawful rights. You can use the company’s existing language and put in a disclaimer that might save you from getting into one of these problems.
Stephen P. Bond is a partner with Brouse McDowell, LPA. Reach him at (440) 934-8080 or firstname.lastname@example.org.
It takes time and money to create a document retention plan, but it’s even more costly to wait until litigation is pending to determine how to get needed information.
“The work done on the front-end will help protect the company. It’s not something every company has, but it’s something every company should have,” says Kerri L. Keller, a partner with Brouse McDowell, LPA.
“Companies may shy away from creating a document retention plan because they don’t want to spend the money up front. It can take a lot of time and effort.”
But when one email server could have 30,000 or 40,000 emails, it can be quite expensive to pay someone to sift through everything to find relevant documents.
Smart Business spoke with Keller about the importance of a document retention plan.
What is a document retention plan and why does a business need one?
A document retention plan is a policy that provides for the systematic review, retention and destruction of documents. A business needs one for numerous reasons, but primarily to reduce the cost associated with document production during litigation, assist in complying with laws requiring the preservation of certain documents and to facilitate access to records.
How does a business draft a document retention plan?
First, identify which documents are important. These are usually employment records, accounting and corporate tax records, and legal records, but can also be business-specific documents, such as invoices and order forms. Key documents are often stored on computer hard drives, or consist of things like emails and Web pages.
The next objective is efficiency. It’s not feasible for a company to retain every electronic document and email created, so the key is to have a plan. The policy should also be developed with an eye toward minimizing costs should the company be involved in litigation.
How does the lack of a document retention plan impact a company during litigation?
Electronically stored information is a major contributor to the cost of discovery in litigation. When documents are produced in litigation, they must be reviewed by counsel prior to being presented to the other side. Companies with inefficient policies may have inflated legal costs attributed to this. For example, if there is a lack of a central corporate repository, information can be spread across servers and backup tapes. Duplication increases the time and expense of reviewing documents. If there is a lack of a corporate policy, irrelevant information can be saved, which again, leads to expense in reviewing documents. Likewise, if critical documents are mingled in with less critical documents, or personal documents mixed with business documents, costs in reviewing them can increase. A policy serves the function of mitigating risks, reducing costs and improving access to records.
How does a business implement a document retention plan?
A business must first identify and categorize the universe of documents. It must then consider what categories of documents are essential and relevant. Certain state and federal laws set forth the time that some documents are required to be retained. The policy must enable a business to locate records quickly and effectively, ensure that records can be protected when needed for examination or litigation, and allow for nonselective destruction of documents once retention needs are met. The plan should be reduced to a detailed document and followed.
When a business is sued, or considering a lawsuit, it must implement what is called a ‘litigation hold.’ A litigation hold stops the routine destruction of documents that might contain relevant information. It’s OK for documents to be destroyed in the routine course of business. It is actually preferable, as each unnecessary and obsolete record can be used by an adversary. Records are generally assets only as long as they are needed. Once litigation is threatened, or contemplated, the routine destruction of documents must be stopped. A litigation hold is the process used to advise employees of their obligation to preserve records and suspend the company’s document destruction process.
When and how should a litigation hold be issued?
The duty to preserve arises when a party knows, or reasonably should know, that a suit is about to be filed, when a suit is filed, when a discovery request has been made or when a court issues a discovery order. It can arise before a complaint is filed, such as when a demand letter is sent by an adversary.
The litigation hold notice should be disseminated by either senior management or the company’s legal department. It should be someone who commands the recipient’s attention — not an assistant. It should be sent to all individuals who will be directly involved, such as those who are likely to have relevant documents and knowledge of the facts, as well as any document custodians. The relevant persons must be directly contacted. Both the notice to the recipient as well as the recipient’s acknowledgement of receipt must be documented. The notice must be broad enough to catch all documents, but specific enough to provide guidance.
What are the consequences if the litigation hold is not followed?
The consequences can be severe. Spoliation occurs when documents are destroyed or not preserved in a pending or reasonably foreseeable action. The penalties can include the cost of recreating the information, an instruction at trial that the missing information would have been beneficial to the adverse party, the exclusion of favorable expert testimony, a judgment against the party that spoliated the evidence, monetary sanctions and even criminal sanctions. While it takes work to create a document retention plan, the work is worth the effort.
Kerri L. Keller is a partner with Brouse McDowell, LPA Reach her at (330) 535-5711 or email@example.com.
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Smaller businesses often don’t have the wherewithal to enforce their patent rights because pursuing this type of litigation is very expensive, and they lack the expertise. However, the rise of nonpracticing entities (“NPE”) — organizations that enforce patents against alleged infringers with no intent to manufacture or market the invention — have made this an area that businesses need to take seriously.
“When you are a company that has one or two patents in an area and you’re fighting against an entity with hundreds in that area, it’s difficult to win,” says Michael G. Craig, a patent attorney with Brouse McDowell.
If you don’t have a standalone IP protection program, you’re losing revenue now, have lost it in the past and will continue to do so in the future.
“In the past, people assumed patents were a trophy for smart people to hang on their walls,” he says. “Now companies are monetizing their IP. Studies have shown that some 50 to 60 percent of a company’s worth comes from trademarks alone. These are commodities that need to be monetized. If you don’t have a strategy to do that, you are losing revenue.”
Smart Business spoke with Craig about NPEs and the importance of IP protection strategies.
What is a nonpracticing entity?
There are different types of nonpracticing entities. Generally, NPEs own and enforce patents but don’t intend to manufacture the products or provide the services associated with them. They instead enforce the patent rights in other ways. Some NPEs purchase patents from companies that don’t have the wherewithal to enforce those rights, doing so through licenses or lawsuits against infringers. These are groups created solely to buy up the intellectual property of others and enforce those rights without any other business plan or means of revenue.
Some entities hold defensive patents. Companies can partner with them for protection against lawsuits, and collectively, they become a harder target because they’re part of a group. There is also the purchase of patents for offensive purposes, such as buying patents to take over a segment of the market and force others to leave or enforce their rights.
Patent trolls are another aspect of NPEs. They hold patent rights, wait for someone to monetize the idea and then pounce. EBay’s one-click purchase — which allows buyers to bypass the bidding process and buy the item instantly — was a victim of a patent troll, as was BlackBerry, which had a patent troll sue it for its technology, worth hundreds of millions of dollars.
Why are NPEs significant?
They can drive the way a company’s patent strategy is developed. NPEs don’t have anything to lose when enforcing their rights. When you are sued, you have to allocate resources to defend your rights, which takes money away from your core processes. NPEs’ resources and business models are designed to enforce patents. You need to understand what NPEs are doing because they change the landscape of IP, and you need to develop an R&D strategy to navigate it and determine where you fit in.
You can join an aggregator, which is an NPE that aggregates IP property for the benefit of having safety in numbers. Those that join them can use the IP of others, as well as the aggregator’s resources for protection, offensively or defensively. And because the cost of a lawsuit is so deleterious, most will give up their IP rather than pursue a lawsuit. Also, when you practice in an area, particularly one that utilizes an industry standard, such as wireless networking, there is likely to be an NPE from whom you, or your parts supplier, may need to license the technology.
What can companies do to protect themselves from NPEs?
There is an overarching concern in the industry that there is no protection against an NPE. The reality is, under the current legal system, NPEs are not doing anything wrong. They would say they are just protecting the rights of inventors. IP is actually property that can be bought and sold and infringements against that need to be protected.
Err on the side of overprotection. Managing IP may seem expensive at first, but as far as costs associated with patenting or licensing, in the long run, the payback is tremendous. Further, you need a strategy to deal with NPEs in areas in which you do business, such as licensing agreements and hold harmless agreements.
IP programs should have the use of legal professionals to help them determine what is worthwhile to patent and how to go about it. A lot of companies have brainstorming sessions to come up with a list of ideas of what to patent, then flesh them out and go to their legal professionals with a list of ideas to determine which are worth protecting and the costs to do so.
Also, every company needs to have a strategy on how to protect their IP when certain situations arise, such as a potential infringer or infringement.
What should companies do when they are in a potential infringement situation?
That can be an anxious time, particularly if it is a product that drives your business. Your first call should be to an attorney who specializes in that area to analyze the claim to see if it has merit. They could contact the other party and negotiate because you don’t want to reach litigation. The worst thing you can do is put your head in the sand, because after you have been notified, it becomes willful and the penalties can add up.
You don’t need to reach that point. If a company is unsure of what the next step should be, contact a professional to manage the process. All you need is a little help to point you in the right direction and periodic management from an attorney to help along the way.
Patents are assets that need to be exploited and monetized. The IP landscape is changing, and those who don’t recognize this and look at the other way are going to be left behind.
Michael G. Craig is a patent attorney with the Intellectual Property Group at Brouse McDowell. Reach him at (330) 535-5711 or firstname.lastname@example.org.
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There are many ways that small and medium-sized businesses can find themselves facing financial difficulties that lead to trouble in their commercial lending relationship. When this happens, many times business owners become paralyzed, shutting down and failing to communicate with their lender. While that is understandable, it is the wrong thing to do, says David M. Hunter, chair of the Real Estate Practice Group for Brouse McDowell.
“When a business anticipates that it is entering a period of financial challenge, one of the first things it should do is get competent legal counsel,” says Hunter.
Often, business owners only do this as a last resort. However, retaining knowledgeable counsel early on allows you to obtain practical pointers when there is often greater flexibility to negotiate an agreeable outcome, he says.
“Once a lawsuit is pending, things become much more difficult to negotiate, even with a lawyer involved,” he says.
Smart Business spoke with Hunter about how to work with your bank to preserve good relations during difficult financial times.
When a company realizes it may be headed for financial difficulties, what should it do first?
Small and medium-sized businesses typically have a large file that contains the underlying governing documentation when the business took out the credit facility. In the event that your business is slipping into financial turbulence, locate that file and review the terms and conditions of your loan.
However, most businesspeople are overwhelmed by the paperwork. This is a good reason to get counsel involved early. Your counsel will determine the secured or unsecured position of your lender. If your loan is secured, what are the assets that secure it and what are the current valuations of those assets? Is the loan in default? If not, what is the time period you project you could make the required payments and otherwise adhere to the terms of the loan agreement?
How can an attorney help?
A good attorney either has knowledge to assist a borrower facing a potential loan default or is with a firm with others who have knowledge of the federal bankruptcy law protections or other approaches that would aid a borrower facing an approaching problem.
Once you have secured counsel and discussed the issues, the next step is to contact your lender. Bankers appreciate knowing that a borrower is alert to the problem and wants to collaborate with the bank to address it or explore what remedial options are available.
Business owners often believe that banks want to seize a borrower’s property or shut down a borrower’s business. No bank really wants to do that. If it is reasonably achievable, banks want to rehabilitate nonperforming loans and transform them back into performing loans that pay as agreed. They want to lend money to borrowers that use loan proceeds effectively and to create an improved economic performance for the borrower, which will allow the borrower to repay the loan.
Are there risks in alerting a bank of a potential missed payment?
Some businesses, regardless of efforts taken to head off financial difficulties, can face a situation in which the next loan payment might be missed. No bank will think unkindly of a call from a borrower saying an upcoming payment might not be paid timely. Some borrowers might worry that if a bank finds out about a potential missed payment, an awful consequence will be triggered. But if that is the impulsive reaction you receive from the bank, you are likely dealing with the wrong bank.
However, after 90 days of delinquency, the loan will likely go into a nonaccrual status — a consequence which immediately and negatively impacts the bank’s earnings. This is a more serious situation. If you alert your bank early enough, it will likely work with you to find a solution. But it gets more difficult to take these steps the longer a borrower waits.
At what point does this become a legal issue?
There are legal issues every step of the way. But these become more acute when the evolving facts empower a lender to take steps that can disrupt a borrower’s business. Many loans contain a cognovit provision, a tool a bank can use if a loan is in default. This authorizes a bank to obtain an expedited judgment against a borrower. This expedited judgment can quickly empower the bank to attach the bank accounts or levy upon the assets of its debtor.
It’s important to communicate with your bank before such a provision is implemented in an effort to find a way to augment the terms and conditions of the loan to give the borrower a window of opportunity to make payments. This often leads to the creation of a forbearance agreement — a mutually agreeable written understanding between the bank and its borrower as to how the parties will treat this troubled loan. Forbearance agreements customarily provide that as long as the borrower adheres to the agreement, the bank will refrain from pursuing certain remedies, such as obtaining or enforcing a cognovit judgment.
Preservation of value should be paramount for both the borrower and the bank. Under potential default circumstances, borrowers and banks can do things that can negatively impact a business’s value, and banks know that. If a bank acts aggressively to prompt a forced sale of assets, often the value realized when the assets are sold will be reduced.
Before a borrower gets to that point, the borrower would be well advised to work with a lawyer and devise a strategy to deal with the situation. Often, the owner and lawyer can come up with a plan of payment and present it to the lender. If the plan is reasonable, many times the lender will be receptive.
What are some other potential resolutions?
There is often relief available in bankruptcy. But its practical effectiveness hinges on the size of the company, as the pursuit of such a remedy can often be cost prohibitive. Chapter 11 cases, for example, can come at a high cost and be labor intensive. But a Chapter 11 filing can make sense in certain circumstances.
David M. Hunter is chair of the Real Estate Practice Group for Brouse McDowell. Reach him at (330) 535-5711, ext. 262, or email@example.com.
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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 firstname.lastname@example.org.
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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 email@example.com.
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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 firstname.lastname@example.org.
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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 email@example.com.
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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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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 firstname.lastname@example.org.
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 email@example.com.
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.
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 firstname.lastname@example.org or (330) 535-5711.
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
The coming year is a quiet one for health care reform implementation, but 2012 is significant in terms of whether the Patient Protection and Affordable Care Act (H.R. 3590) we know as the Health Care Act will continue as is.
The question is whether the act is constitutional in whole or part, and with two opposing federal appellate court decisions, the case has landed on the doors of the U.S. Supreme Court, which will decide whether to accept the case this year.
What next? And if the case is heard by the court this year, how will the decision affect the future of health care reform? We won’t know until 2012.
“Although 2012 is a quiet year in terms of what new provisions and regulations are required,” says Christopher Huryn, a partner at Brouse McDowell who works out of the firm’s Akron office in its Health Care Practice Group. “It’s a watershed year in many respects. 2012 will likely set the stage for where we go and how far we go with the Health Care Act as it stands today.”
For now, it’s a wait-and-see game.
Smart Business spoke with Huryn about what businesses should know about health care reform.
What court decisions have already been made concerning the Health Care Act?
Two conflicting federal appellate court decisions were made this year. Most recently, in August 2011, the United States Court of Appeals for the Eleventh Circuit (Alabama, Florida, Georgia) ruled that the individual mandate portion of the Health Care Act, which requires that all individuals have a defined level of health care coverage (or else be penalized), is unconstitutional. However, the court ruled that only this portion of the act was unconstitutional, and did not strike down the rest of the act.
Meanwhile, in June 2011, the Court of Appeals for the Sixth Circuit (Ohio, Michigan, Kentucky, Tennessee) issued a decision upholding the individual mandate, ruling that it is constitutional to require individuals to purchase health care. In response to these decisions, several trade groups, the U.S. Department of Justice, and 26 state attorneys general, including Ohio Attorney General Mike DeWine, filed petitions with the U.S. Supreme Court, asking the court to decide whether the Health Care Act is unconstitutional, in whole or part.
How soon could the U.S. Supreme Court make a decision about the constitutionality of the act?
In the coming months, the Supreme Court will decide whether to accept the appeal and hear the case during its current term, which began October 2011. With two conflicting rulings from the appellate courts, the procedural process to get this issue to the Supreme Court has been accomplished. However, although the process is complete, and both proponents and opponents are eager to get a decision on the Health Care Act, we must wait and see whether the Supreme Court agrees to accept the case. If it does, the court will likely hear oral argument in early 2012 and issue a decision by June or July of 2012.
What are some possible outcomes if the Supreme Court accepts the appeal and hears the case during this term?
The Supreme Court could rule that the entire Health Care Act is constitutional. Then, implementation of provisions and requirements would continue on schedule. Or, the court could rule that part or parts of the act are unconstitutional, such as the individual mandate. In that instance, legislators could go back to the drawing board to rewrite the unconstitutional issue(s). Or, the entire act could be ruled unconstitutional, and then we’re back to square one, although some contractual arrangements will continue, such as health insurance policies currently in effect that include provisions already implemented under the current Health Care Act.
For now, no one knows what will happen. We could be looking at very different health care reform legislation down the road if the current act is deemed unconstitutional. Or, we might continue on the very path we are going down today, implementing provisions over several years leading up to 2014.
What can business owners do in the meantime?
First, eligible business owners should be sure to take advantage of the Small Business Health Insurance Tax Credit. This credit is worth up to 35 percent of a small business’s premium costs in 2010 (25 percent for tax-exempt employers). On January 1, 2014, the rate increases to 50 percent (35 percent for tax-exempt employers). The credit phases out gradually for employers with average wages between $25,000 and $50,000, and for employers with the equivalent of 10 to 25 full-time workers. Talk to a professional about whether your business qualifies.
Second, before making any changes to your current health care coverage, keep in mind that certain ‘edits’ to your plan will not uphold the plan’s grandfathered status. A grandfathered plan is the one you had on or before March 23, 2010, when the Health Care Act was put into effect. You are allowed to keep that plan and, depending on the coverage, it could cost less than plans required by the individual mandate that goes into effect in 2014. So be sure to seriously consider any changes that could cause your plan to lose its Grandfathered status and could dramatically affect your bottom line in the future.
For now, the bottom line for businesses is to continue to work hard, be innovative and meet your customers’ needs — and wait to see what the Supreme Court decides in 2012.
Christopher M. Huryn is a partner with Brouse McDowell at the firm’s Akron office. Contact him at (330) 535-5711 or email@example.com.