Patent trolls can be huge, single-minded licensing companies. These nonpracticing entities purchase patents from small inventors who don’t have the desire or funding to create what they’ve patented and threaten potential infringers to get money through licensing fees or lawsuits. Business owners of small and midsize companies can be caught off guard when they receive the letter claiming their product infringes an existing patent, and often don’t know what to do.
“Fighting the alleged infringement usually costs more than the licensing fee the troll is seeking,” says Christian Drago, a patent attorney at Fay Sharpe LLP.
This can make a business owner feel trapped. However, he says patent trolls often cast a wide net, sending letters to companies that may not be infringing. That’s why it’s important to know how to respond.
Smart Business spoke with Drago about how to deal with patent trolls.
Who is most at risk of being the victim of a patent troll?
Generally, infringement claims are a lot more successful when made against small to midsize businesses because they don’t have the capital to fight an infringement suit, so they often opt to pay the license fee.
A patent troll is not going to pick a company out of the clear, blue sky. It will buy a company’s products and reverse engineer them, or scrutinize its marketing collateral for product descriptions. It’s important for companies with patents to be careful what they post on their website. Market your company, but don’t give too much away because you could be giving ammunition to a troll.
If you receive a letter from a nonpracticing entity, what do you do?
First, don’t panic. The entity is soliciting a licensing fee and its track record in litigation is not great. Contact a patent attorney and have him or her review the claim and your product to find out if you’re actually infringing. Don’t use your in-house or general practice attorney; courts want outside independent review.
If it’s discovered that you’re not infringing, get a non-infringement opinion by outside counsel. That can be used to offset damages and show you acted in good faith by procuring the assistance of an attorney.
The attorney will compose a letter that says your company had outside counsel review the claim and determined you are not infringing. Now the troll has to do its cost/benefit analysis and decide whether it wants to pursue this any further. The troll may just move on.
However, if willful infringement is discovered, meaning you continue to infringe after you’re made aware of the infringement, the penalty can be upped by a judge. That’s why it’s important to show you acted on the well-reasoned opinion of counsel as soon as possible.
How can you protect yourself?
If you’re going to file for a patent, you want to file as soon as is practical. Bring an attorney onboard while the product is in development, not when you join the market. Have a patent attorney conduct a patentability search and get a freedom to operate opinion. This gives you the best idea of what patents are out there.
If the attorney finds similar, existing patents, he or she can show them to your engineers, and the engineers can innovate around current designs. This could give you a competitive edge and allow you to go after competitors when they infringe on you. The process also focuses the company on what it’s doing in the market.
If you have to backpedal because you failed to do your due diligence, your R&D costs could double because of scrapping a project and going back to the drawing board.
However, keep in mind patent searches aren’t exhaustive because, at the time of the search, there may be applications that are being reviewed but have not published. Patents issue from three to five years after they’re filed and they’re published 18 months after filing. That leaves a gap.
That’s why, it’s important to take these letters seriously and get counsel involved right away. You need to quickly determine the best course of action based on the facts, not the claims.
Christian Drago is a patent attorney at Fay Sharpe LLP. Reach him at (216) 363-9000 or email@example.com.
Insights Legal Affairs is brought to you by Fay Sharpe LLP
Lawsuits can pose a considerable threat to businesses, and actions related to employment practices should be a particular area of concern to business owners. According to researchers, about 60 percent of employers can expect to be sued by a prospective, current or former employee.
“It’s the increasingly litigious nature of our society,” says Derek M. Hoch, president of Leverity Insurance Group. “These lawsuits really started to trend upward when the market plummeted to its lowest point in combination with the state of the economy over the past four to five years. Desperate times can sometimes lead to desperate actions. When people couldn’t find employment, they filed suits against employers who let them go during that period of recession.”
Smart Business spoke with Hoch about how employment practices liability (EPL) insurance can help businesses manage risks associated with such lawsuits.
What are the most widely recognized types of employment-related lawsuits?
- Wrongful termination — Discharging an employee for invalid reasons.
- Discrimination — Denial of equal treatment to employees of a protected class.
- Sexual harassment — Workers subject to unwelcome sexual advances, or obscene or offensive remarks.
Lawsuits can also be based on things such as wrongful failure to employ or promote, wrongful discipline and religious discrimination.
How can EPL insurance protect employers?
More than half of all claims for employment-related liabilities are against businesses with fewer than 50 employees. Claims can be costly, especially if a case has the ability to go on for an extended period of time. The average cost of an employment lawsuit exceeds $270,000. Even if the lawsuit is frivolous, it still takes time away from operating your business.
An EPL policy will help to pick up these defense costs and any judgments or claims assessed against your business. In some instances, these cases are settled before they even go to court; EPL will pay for settlement costs as well.
EPL also covers claims filed with the U.S. Equal Employment Opportunity Commission (EEOC). In 2012, the EEOC reported 99,947 charges for harassment, and costs of resolving these claims were $364.6 million.
Why is purchasing third-party EPL insurance so important?
Third-party EPL addresses the coverage gap that leaves employers vulnerable to discrimination and harassment lawsuits from customers, clients, vendors and suppliers. Standard EPL policies only cover actions related to employees or prospective employees, and most general liability policies specifically exclude harassment and discrimination.
More insurance carriers are including third-party coverage as part of EPL policies because every company is at risk. It’s vital for any business that deals with customers on a daily basis.
Other than insurance, what approaches can companies take to protect themselves?
Have a legal professional review your employee handbook to ensure it contains all the necessary information, including policies covering sexual harassment, discrimination, equal opportunity, grievances, discipline, termination, performance evaluations, Internet usage, pregnancy leave, hiring and employment at-will. Then make sure employees sign off that they’ve read it.
If you don’t have a handbook, you may not be able to secure EPL insurance because insurance carriers take this very seriously. They want to see that you’ve taken proper steps in terms of risk management and providing a safe workplace.
You can protect yourself even more by making sure you’re following proper procedures regarding hiring, firing, performance reviews and even interviewing prior to hiring someone.
Taking these steps also reduces risk, which will generally translate into lower insurance premiums. EPL insurance works hand-in-hand with your internal employment practices to provide necessary resources to defend your company against a lawsuit or claim.
Derek M. Hoch is the president at Leverity Insurance Group. Reach him at (216) 861-2727 or firstname.lastname@example.org.
Request a quote on employment practices liability insurance or any other corporate coverage.
Insights Business Insurance is brought to you by Leverity Insurance Group
Computing personal property taxes can be a chore for businesses, particularly if the company’s locations cross various state and local jurisdiction boundary lines. Each state has its own statutes, due dates, assessment ratios and instructions that must be adhered to for a company to be considered “compliant.” These property tax requirements vary greatly and most often have late penalties for missing deadlines. However, digging into these very statutes and instructions can also provide an opportunity to minimize your company’s tax burden.
“Many will run the fixed asset ledger right out of the system and that’s what they’ll report,” says Jenna R. Kerwood, CMI, a principal in Tax Services at Brown Smith Wallace.
However, that usually results in paying more taxes than what is owed because not all assets are taxable. Often, fixed assets are capitalized at a project level, which results in inaccurate reporting for property tax purposes. There may be costs that are not taxable or components of the cost that should be removed. The taxability of these assets can be determined by examining the state and county websites, statutes, assessor manuals and return instructions.
Smart Business spoke to Kerwood about what constitutes personal property and why it’s worth the effort to keep an accurate track of assets.
What is the difference between real estate and personal property?
Real estate refers to land and buildings. Personal property is defined as tangible property that’s movable. It can be difficult to distinguish between the two, especially with manufacturing facilities, and each state has different rules and instructions.
Most states have a three-prong test:
- Can the item be moved without destroying the real estate?
- What is the primary purpose the item serves? The more special its use, the more likely that it will be considered personal property.
- What was the owner’s intent?
The key is whether it would destroy or cause permanent damage to the building if you were to remove the item.
What is the basis of property tax assessments?
The basis of value for real estate and personal property is fair market value — the amount a willing buyer would pay in a market when there’s no duress, such as a bankruptcy or foreclosure. Fair market value is subjective, which gives you an opportunity to analyze all of the capitalized cost to determine how best to reflect the ‘fair market value’ of the asset.
When reporting assets for property tax purposes, you need to understand their physical life, use, maintenance schedules, etc., in order to depreciate correctly. Items with a short life have faster depreciation. Manufacturing equipment might have computerized components that can be placed on a shorter life with a more reasonable depreciation schedule.
How can businesses lower their tax burden?
Start with fixed asset accounting records. When filing personal property tax returns, you report the original cost of the asset by year of acquisition. Companies might have a retirement policy by which they dispose of, melt down or cannibalize an asset, but that’s not reflected on the books.
It’s best to address problems on the front end. Review the asset ledger for listings that don’t look right — focus on the high dollar items or assets with ‘miscellaneous’ as the description. Scrutinize asset invoices and review them with the people who know them; it might be the plant manager for the manufacturing facility, facilities person for the furniture and IT people for the computer asset listing. Another area to consider is depreciation. The county will tell you the rate, but that may not be accurate and is negotiable.
How much can be saved?
Conservatively, businesses can lower personal property taxes by 20 percent. Most state rates are at 2 percent. When you tell a company that cleaning up asset lists can save $30,000 or more, it gets their attention.
Jenna R. Kerwood, CMI, is a principal, Tax Services, at Brown Smith Wallace. Reach her at (314) 983-1360 or email@example.com.
For more on this and other tax topics, visit Brown Smith Wallace's Tax Insights.
Insights Accounting is brought to you by Brown Smith Wallace
A space plan is a made-to-order layout of your office space. If well designed, it will be flexible enough to accommodate future changes in your organization, such as staffing additions or managerial promotions, without the need for major interior renovation.
“An efficient space plan will increase productivity, efficiency and employee morale by maximizing the capabilities of your space,” says Sam McWilliams, managing partner at SMC Consulting, LLC.
As companies grow and reorganize, space can become fragmented, which challenges departmental and personnel adjacencies.
“These are common challenges that come with organizational change and growth, but can be addressed with proper planning,” says McWilliams.
Smart Business spoke with McWilliams about how a space plan can help you get the most out of your office space.
How is a space plan developed?
Determine what your current and future needs are, then reach out to a professional space planner or designer. He or she can evaluate your existing space plan and determine whether it can be reconfigured to accommodate those needs, or requires additional space.
Architects are not always required for interior planning. By hiring a designer/space planner, you will be able to keep your professional fees to a minimum.
What should be expected from a designer?
The interior design professional should be knowledgeable about building codes and Americans with Disabilities Act requirements to ensure that your space is properly designed.
Expect the designer to conduct site surveys and perform employee interviews to identify company goals. It is important to understand what challenges employees and companies are facing with their current space to understand why a company is looking to make a change. This process is called programming and is a critical step in developing a space plan that will make the best use of the space available.
What are the next steps?
The designer will generate a space plan that reflects the compilation of details gathered from programming. Generating these drawings should be a collaborative effort between you and your designer.
Departmental adjacencies and alignments will be identified, that can create ‘neighborhoods’ of groups that need to collaborate and interact with one another on a daily basis. Workspaces will be designed to accommodate work processes that allow daily activities to be performed more efficiently. By developing a standard footprint for an open plan environment, your new space plan can promote collaboration, increase productivity and reduce real estate costs.
How much flexibility does a space plan offer?
A flexible space plan allows companies to preserve space for future use by utilizing temporary space via ‘hotelling,’ a method that allocates unassigned space for visitors, field personnel or huddle rooms for small meetings. These temporary areas can be easily converted to more permanent workspaces without interruption or loss of existing space allocations.
Incorporating an open environment in your space plan can increase space allocation. Designing workstations in modular size will allow for easy reconfiguration in the future. Workstation ‘typicals’ can be easily reconfigured using the same panels to create smaller or larger workstations depending on your needs.
How will implementing this space plan render measurable results?
By utilizing the appropriate square footage, you can reduce overhead costs and increase workplace efficiency and productivity by:
- Implementing company standards.
- Workstation and office design.
- Defining and improving adjacencies.
- Reducing or eliminating architectural fees.
- Proper allocation of square footage.
- Eliminating wasted space.
- Alternative work solutions.
- Improving IT infrastructure.
Change can be a challenging but rewarding process. Developing your space plan may take time, but the effort is worthwhile when you see the impact it has on your company.
Sam McWilliams is a managing partner at SMC Consulting, LLC. Reach her at (724) 728-8625 or firstname.lastname@example.org.
Insights Furnishings is brought to you by SMC Consulting, LLC
Historically, defined benefit plans have held a dominant position in the health care market since they were first introduced in the middle of the 20th century. Because the contributions were tax-deductible for employers and pre-tax for the employees, it was a popular way to increase employee benefits without raising wages.
But over the years, the rising cost of health care has caused employers to re-examine how much they pay for insuring their employees and caused them to think more about defined contribution plans.
“With a defined contribution plan, an employer can decide exactly how much they want to contribute to an employee’s health insurance and have a certainty about the cost,” says John Mills, senior director, Consumer Products, Product & Consumer Innovation at UPMC Health Plan. “And a defined contribution plan can be offered by a company of any size.”
Smart Business spoke with Mills about defined contribution plans and their increasing popularity with employers.
What is a defined contribution plan?
Technically speaking, a defined contribution plan is not any specific kind of health plan. Instead, it is a concept that can be applied to different approaches that employers can use to manage health care for employees.
With a defined contribution plan, a company gives each employee a fixed dollar amount that the employees can use to purchase health insurance and dental and vision benefits.Some employers will allow employees to put any money not spent on these benefits into a flexible spending account or to take as a cash benefit.
Why are these plans becoming so popular?
Certainly, the rising cost of health insurance is a major factor in the increased popularity of defined contribution plans. Any plan that can place some kind of limit on health care expenses, or provide some certainty about how much money will be paid, will get close scrutiny by those companies concerned about the bottom line.
But defined contribution plans also touch on areas that are becoming more important to both employers and employees than was possible under managed care. These include:
- The consumer’s desire to have more choice and involvement in health care.
- Concern about quality.
- Increased information.
- More freedom for providers.
What are some common characteristics of defined contribution plans?
The most common characteristic is choice. Defined contribution plans are intended to give members greater flexibility in benefit decisions. The choices include: plan choices, care choices and the ability to opt out.
Other common characteristics include increased cost sharing between the employer and the member, as well as greater knowledge and engagement in management of health care by members.
What do employers like about defined contribution plans?
One popular feature is that there is no limit on the amount of money an employer can contribute to an employee’s defined contribution health plan. Also, there is no minimum contribution requirement. That allows the employer to set the amount that makes the most sense for the company.
Employers also can give employees different contribution amounts based on classes of employees. The combination of cost management and decreased employer involvement makes defined contribution plans very attractive.
What other factors are driving the growing popularity of defined contribution plans?
Rising costs of premiums are a factor, as is the desire of providers to regain control over decisions concerning patient care. At minimum, they want a greater ability to advise patients who will make the final decision.
Concerns about quality are another factor. There is evidence that defined contribution plans will enhance the quality of care and also increase the amount of information available on the quality of health care, which makes them popular when there is such a focus on quality. And, small businesses find that with defined contribution plans they can have a feasible way to provide some kind of health insurance for their employees.
John Mills is a senior director, Consumer Products, Product & Consumer Innovation, at UPMC Health Plan. Reach him at (412) 454-8821 or email@example.com.
For more information about defined contribution plans available through UPMC Health Plan.
Insights Health Care is brought to you by UPMC Health Plan
If a manufacturer, distributor or merchant incurs a loss from your product, you need product liability insurance to protect your business. Product liability is generally considered a “strict liability offense” — if your product has a defect, you’re liable.
“Like most things, the devil is in the details. From an insurance perspective, it’s important to look at all of the terms and conditions of your general liability policy,” says Shane Moran, vice president at ECBM.
Smart Business spoke with Moran about the facts of product liability insurance.
What are some product liability claims?
Product claims typically fall into three categories, claims arising from:
- The manufacturing or production process — opening a can of soup and finding a piece of metal in it.
- A design failure or hazard — a chair designed with one of its legs significantly shorter than the others.
- A product that is not adequately labeled as to the potential hazard of the product — the label on a cigarette pack or a warning label on prescription medicine.
Who should have product liability coverage?
Manufacturers are not the only companies with product liability exposure — every company from the manufacturer of the components down to the retailer can be brought into a suit, and potentially has an exposure. A retailer may have an exposure if it assembled or installed the product and didn’t follow the manufacturer’s instructions properly. The retailer also would have a duty to the buyer to test the product for safety.
What possible damages could be awarded?
Your company can be legally obligated for damages to a third party that your product causes. These damages range from bodily injury to property and economic damage, with punitive damages potentially awarded.
You also can sustain loses in terms of recall cost, further product testing, advertising cost to prevent damage to your reputation, and business income and extra expense loss.
Why do some policies cover economic damages, but not punitive or statutory damages?
When policies cover economic damages, they mean compensation for a verifiable monetary loss, which can include loss of future earnings, loss of business opportunities, loss of use of the property, cost of repair or replacement, loss of employment and even medical expenses.
Punitive damages are awarded for the purpose of punishment, or to deter a reckless decision or action. Typically, they are used when compensatory damages are deemed inadequate. Punitive damage is a tricky area for insurance, as most jurisdictions have ruled that it is uninsurable. You need to examine your commercial general liability policy’s terms and conditions to see whether you have coverage. In most cases, you will find a punitive damages exclusion included.
Why is it a bad idea to underreport sales volume to lower your premium costs?
Most general liability policies are auditable. While an owner may want to use a lower exposure base to keep upfront premiums low, at the end of the day that same owner runs the risk of a large additional premium payment with the audited exposure.
Right after the policy expires, the audit occurs, which coincides with when the deposit premiums are paid. Deposit premiums are usually 25 percent of the total premium, so without using the proper exposure base at the beginning, a company could be looking at a very large outlay of cash in a short time period. This cash flow crunch could cause the cancellation of a company’s insurance for nonpayment.
Most carriers also lower their rates as the exposure base increases. So, by understating your exposure, you could be causing your company to have a higher rate and premium.
What other mistakes do companies make in this arena?
Many business owners think their insurance covers everything. But, for example, you may or may not have a product recall exclusion. The cost associated with recalling a product can be enormous, and you don’t want to find out that you have no coverage when faced with a claim.
If you’re unsure of your coverage, contact your insurance broker and/or risk manager to review the language.
Shane Moran is a vice president at ECBM. Reach him at (610) 668-7100, ext. 1237, or firstname.lastname@example.org.
For more information about risk management, see ECBM's blog.
Insights Risk Management is brought to you by ECBM
“Relationship” might be the most overused word in banking these days, but it sums up the difference between providing a commodity and truly serving a customer’s needs.
“It really is about having a relationship with someone who comes to know and trust you,” says Jeffrey M. Whalen, senior vice president in the Specialty Markets division at Bridge Bank. “What we do in this industry is serve the needs of clients.”
Smart Business spoke with Whalen about how banks stay involved with clients and build mutually beneficial relationships.
Where should price fit into the decision when choosing a bank?
Most business owners say that, when it comes to choosing a bank, developing a long-term relationship in which owners feel empowered to achieve their goals is their highest priority.
Sole proprietors, closely held corporations and family owned businesses in particular want to get to know their banker, and they want their banker to know them and the ups and downs of their industry. They still want a competitive price, but more often than not, they are seeking a partner who can add real, tangible value to their business in the form of sector expertise, advisory services, etc.
Certainly there are business owners who do prioritize pricing above other aspects of a banking relationship, but in those instances, the owners shouldn’t be surprised if the relationship with their banker doesn’t yield much in terms of value-added services.
By nature, some businesses are very transactional and may not require value-added services. In those cases, business owners may look to other criteria to evaluate a potential banking relationship, such as how active the bank is in supporting their industry or business ecosystem, or how the bank’s core values align with theirs.
Some also want to deal with independent banks, as opposed to larger national banks, because they often have direct access to decision-makers. At a large bank, your account might be managed from a region far from your own, and local representatives can’t help you if there is a problem. For example, if you want to increase a line of credit or need help optimizing cash flows, a regional or independent bank may be able to respond faster because of its locale and relationship with you.
How can banking relationships provide additional benefits to the customer?
Relationship benefits depend in large part on what kind of bank you have chosen to partner with. Banks with a broad range of capabilities can, for example, accommodate an equally broad range of needs a business owner might have as his or her company moves throughout the business cycle. And banks with broad sector knowledge can bring a unique and valuable perspective to the table when helping a business owner evaluate options for growth and expansion, for example. Also, a bank should be able to bring forward a network of professional service providers who can help the owner with other issues that inevitably arise, such as how to establish an employee stock option plan, tax audit and preparation, etc.
So, the right relationship can yield a multitude of additional benefits, and it is important that these conversations are held prior to committing to a bank.
How frequently should bank personnel and clients meet?
It should be every month for larger, more complex client relationships and at least every quarter for smaller ones. Those guidelines, however, are general. Every business should be viewed as unique — because it is.
Therefore, the frequency of interactions with a banker should be driven by the needs of the client, and the dynamics of its business. It’s important for clients to know that a bank should have their best interests at heart and is there to solve problems. Sometimes a client might have problems it isn’t even aware of, but if its banker has the right experience and perspective, and if the communication in the relationship is frequent, the banker should be able to catch these problems before they impact the client’s business.
Communication in the relationship, combined with expertise on the side of the banker, is the key to getting the most in terms of value for the business owner. It really becomes a strong partnership if that can be achieved.
Jeffrey M. Whalen is a senior vice president, Specialty Markets, at Bridge Bank. Reach him at (408) 556-8614 or email@example.com.
Insights Banking & Finance is brought to you by Bridge Bank
With a Google search, there are two sets of results — paid and organic.
Yi He, Ph.D., assistant professor in the Department of Marketing & Entrepreneurship, College of Business and Economics, at California State University, East Bay, says her advertising management students were surprised to see how many people click on the paid ads.
Her students participate in the Google Online Marketing Challenge, where they are given $250 to run a three-week online advertising campaign for a business or non-profit, which is developed using Google AdWords and Google+.
This type of search engine marketing (SEM) truly benefits small companies.
“For smaller companies, in the past, there was no way to compete in the conventional media with big companies. Now, they can differentiate themselves using SEM, just by spending their advertising dollars in a relatively cautious manner,” she says.
Smart Business spoke with He about why small companies are turning to SEM.
Why is SEM so important today?
Most Internet users don’t want to remember a website URL. Eighty-five to 90 percent of people are guided to websites by search engines, such as Google. Also, people usually just look at the first five or 10 search results, and many of those are advertisements. So, once you start running ads, you generate more ways to reach Internet users.
How are SEM and conventional advertising different?
With conventional advertising, print and broadcast, it’s hard to measure whether your ad campaign was effective. However, everything is measurable with SEM — you can calculate how much ROI is generated from every advertising dollar spent.
Conventional advertising also requires a specific set of skills. But a business owner can run a SEM campaign by opening a Google AdWords account and be up within minutes. It may not be a great campaign, but it’s not like creating a TV commercial.
How does SEM differ from Facebook ads?
With SEM, the only way to target ads is geographically. So, a San Jose restaurant owner can specify that he or she only wants the ad to show up for a ‘Thai food’ search in a 15-mile radius from the downtown San Jose area. Google doesn’t charge for the number of times the ad shows up, or the impression, but by cost-per-click. With Facebook display ads, ads can be targeted by age, gender, marital status, interests, education level, etc., and are charged by both the click and impression.
On average, of the 10,000 times a Facebook ad shows up, only five people click on it, because in a social environment you don’t want to be interrupted to buy something. With a search engine, people are looking for a solution to a problem. A search result, whether organic or paid, is like you’re in a retail store and someone offers a helpful recommendation. With Google’s marketing challenge, my students can get a click through rate (CTR) that is 100 times higher than the Facebook average.
Why is SEM more useful for small business?
Smaller businesses typically aren’t as visible on the organic results or with the extremely popular keywords. But they can run a SEM campaign to generate Internet traffic and increase visibility. There’s no entry barrier, too, so they can get started right away.
SEM also can help figure out demand. For example, one student ran two ad campaigns for a local Chinese restaurant and discovered that ‘Chinese dining’ was not popular in either impressions or CTR. However, ‘Chinese takeout’ led to more people clicking the restaurant’s website and calling, which increased takeout orders dramatically.
What ethical concerns come up with SEM?
We don’t know exactly what data companies have on consumers, and what they do with it. All impressions, clicks through and transactions can be tracked. For example, you might go to a website to look at a few items but not purchase anything, and over the next few days you see similar items on your Internet pages. In addition, some argue that precisely targeted results deprive people of the total available information.
Public policymakers have been pushing to protect consumer information with something like the ‘do not call’ list. A ‘do not track’ list would enable people to sign up to keep their Internet Protocol addresses from being recorded.
Yi He, Ph.D., assistant professor, Department of Marketing & Entrepreneurship, College of Business and Economics, at the California State University, East Bay. Reach her at (510) 885-3534 or firstname.lastname@example.org.
Insights Executive Education is brought to you by California State University, East Bay
If your company makes a product, it’s increasingly likely that someone will copy it or produce counterfeit versions.
“I can’t think of any industry that isn’t being affected,” says Timothy L. Skelton, a partner with Ropers Majeski Kohn & Bentley PC. “I bought a $40 bicycle chain that was a counterfeit. It came in a similar-looking package to the chain I normally buy, but when you looked at it closely it was slightly different.”
One client had a medical device copied by another business.
“It was absolutely identical in every way to my client’s product except one letter in the trademark was changed. So it wasn’t actually a counterfeit because it didn’t use my client’s trademark, but it did infringe on the trade dress and product design,” Skelton says.
Smart Business spoke with Skelton about trade dress and how companies can protect themselves from unfair competition.
What is trade dress and how does it differ from trademarks?
Trade dress is the design and appearance of a product together with the elements that comprise its overall image in identifying the product to consumers. Broadly speaking, it’s the product’s look and feel and can include size, shape, color, or combination of colors, texture and graphics. Trade dress can either be the product itself or its packaging.
A trademark is any word, symbol or device indicating the source of a product. For example, the word ‘Coca-Cola’ and the Coca-Cola swoosh are trademarks, but the bottle is trade dress. The shape of the glass bottle is unique and readily identifiable by consumers as being the source of the product.
Do companies have to take specific action to protect trade dress?
No. Trademark and trade dress are protected when used, not when registered. However, both can be registered, which confers certain benefits. If the trade dress is registered, the burden of proof is in the owner’s favor, and the company may be entitled to remedies that wouldn’t otherwise be available.
Where do businesses run into trouble with product infringement?
There is very thin trade dress protection for websites. Web pages look similar — there are only so many ways to arrange them.
But the biggest problem in the last 10 years is not really a legal change; it’s the business landscape changing because of offshore manufacturing. Counterfeiting touches almost every business. One of the most common occurrences is that a company manufacturing your products will just make more without your name. Those items are sold out the back door of the factory.
It used to be that only expensive items like Rolex watches were counterfeited. Nowadays, it’s almost anything. A current client has a case involving curling irons — a sub-$100 product. Most products are now made overseas and, although laws are changing, historically many foreign countries have not respected intellectual property rights. As a result, many overseas companies don’t even realize when they’ve done something wrong.
How can companies fight counterfeiting and trade dress infringement?
Add clauses in supply agreements that prohibit manufacturers from making your product for anyone else. That may or may not provide protection, but it puts the manufacturer on notice that you’re watching.
If copies of your product are entering the U.S., use whatever business intelligence possible to determine their origin. It’s virtually impossible to shut down manufacturing operations overseas, so try to cut it off at the import stage. Write a cease-and-desist letter to the first link you can find. Make sure that the letter invites a dialogue — it’s always preferable to resolve matters without litigation.
Trade shows are a good place to find the source of problems. An attorney friend goes to a show for automotive aftermarket manufacturers every year and is paid to walk around and look for infringing products.
Counterfeits can slip into the supply chain anywhere. Even the most respectable vendors are having problems. Be reasonable — don’t assume people are acting in bad faith — and in a surprising number of cases you can get the problem resolved.
Timothy L. Skelton is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (213) 312-2055 or email@example.com. Learn more about Timothy L. Skelton.
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC
A lot of people gave money to help Silverado Senior Living Inc. become a national leader in providing care to people with memory impairments. Fourteen years later, Loren B. Shook felt like it was time to give them a return on their investment.
“We made stock options to many staff members through those years,” says Shook, the company’s co-founder, chairman, president and CEO. “No one got paid anything. All of the money we made went back into expanding the company. At some point, we needed to monetize peoples’ investment.”
In addition to Shook, his co-founders, James P. Smith and Steve Winner, and those staff members, investments were also made by the private equity firm Riordan, Lewis & Haden. This funding was instrumental in building a company that has 2,800 employees and provides invaluable care to senior citizens who need it across eight states.
“A lot of people think it’s just about the money, getting the equity and the debt partners,” Shook says. “But money is just part of it. The bigger part is what kind of partner are they going forward with you?
“All of them understood the vision of the company, which was to give life to our residents in our assisted living communities, our clients in home care and our patients in hospice. The vision is to give life to their families and give life to each other as associates and colleagues in the company.”
Shook knows all too well that without money, none of it would be possible and that Silverado Senior Living would have never gotten off the ground. But the financials have never been his focus and he strongly believes that is a key reason why the company is so successful today.
And so it was through that prism that Shook and his team set out to find a way to provide a return on past financial investment while simultaneously strengthening Silverado for many more years of meaningful patient care.
Find your soul mate
One of the best options that the Silverado team initially came up with was to take the company public. But as they began to look at what that involved, they quickly soured on the idea.
“Every year, you’re spending $1.5 million to $2 million for accounting and legal fees just being a public company,” Shook says. “You’re taking up a lot of time for the CFO and CEO that could otherwise be providing service more directly to our customer base.”
Soon, their thoughts turned to Health Care REIT, a real estate investment trust that had been working side by side with Silverado since its inception.
“REDIEA is an acronym that stands for Real Estate Development Investment Empowerment Act,” Shook says. “It was very new. Health Care REIT had done one REDIEA with an LLC corporate structure. We’re a C-corp. It was a very detailed process. It took a lot of action to overcome a lot of hurdles that had never been addressed before.”
One of the biggest hurdles in any business deal is the relationship between your company and the financier you want to partner with. Shook flashes back to 1996, when he and Smith were looking for financial support to start Silverado.
“Whenever I started a meeting with a potential financial partner where there was equity or debt, I always started the meeting by telling them what the vision of the company was,” Shook says. “If they didn’t have an interest in the vision and the purpose, the meeting was over because we were not in alignment.
“A lot of experts in raising money would say, ‘Don’t do that. Go down the path of return on investment, the capital you need and the numbers.’ I never believed that was the right way to start a meeting because it’s more than just about the numbers. No one I met with was upset that I started the meeting that way.”
The fact that Silverado had built an established relationship with Health Care REIT over the years made it a lot easier to move the process along with the REDIEA. But that relationship only developed because Shook and his team took the time in the beginning to find partners who shared their vision.
One of the most important things you can do to help you find that kind of partner is to talk to people who have done business with the investor in the past and ask what happened when trouble arose.
“Tell me the hard times you went through and what it was like,” Shook says. “I want to know that I have a partner that has the experience and has been through the ups and downs and is going to be by my side when we’re going through difficult times.”
As Shook looked to finalize the REDIEA deal, he wanted to make sure there was alignment and a shared vision, just as there had been 14 years earlier.
Lean on your culture
As the REDIEA deal was being consummated, Shook was also very aware of his staff and the responsibility he felt to keep them appraised of what was happening. But he also felt confident he had established a track record of trustworthy leadership.
“The culture has to be there before big decisions come about,” Shook says. “You don’t create the culture at the time you have a big decision where you need people to be confidential and you need people to come to you and say, ‘I heard what you said in the conference call. But here’s what I’m worried about, Loren.’ You have to have that kind of open trust in the company. That has to be there before those issues come up.”
Shook shared what was happening with his senior leadership team and asked them to keep it from going public since the deal was still being finalized. He shared the good parts of the deal being discussed with Health Care REIT and the cons.
“There’s always a negative side to everything we do,” Shook says. “Here are the pros, here are the cons and here are other alternatives of what we could do to capitalize.”
Shook reiterated that there was no pressure being made to enter into this kind of deal from anyone.
“Riordan, Lewis & Haden wasn’t saying that you have to recapitalize the company,” Shook says. “They were very patient. It was just the right time and the right thing to do.”
Shook says finding employees who can thrive in your culture and have trust in the way you do things requires a similar approach as when you’re doing your due diligence on possible lenders.
“Our vision is to change peoples’ lives,” Shook says. “So people who work within a company like our’s, in order for the culture to exist, would have to have an alignment or purpose in life with that. Their individual purpose in life doesn’t have to be the same purpose, but it needs to be something that is compatible with the major purpose of the company.”
In order to stay healthy, a culture needs to be such that it can allow people to leave without creating a big problem. Even the strongest culture has people who sometimes lose their connection to the organization.
“Lives will change,” Shook says. “Where it was the right place to be before, maybe it’s not anymore. We want people who get more than they give out of working at Silverado. We want the company to get more than it gives out of having that person work with us. If both are positives, it’s a tremendous source of energy coming together. If one is negative, there is a drain on that energy and a drain on that company.”
Believe in what you do
With a strong relationship with Health Care REIT and a strong culture that trusted in its leadership, Silverado was ready to make a deal. The $298 million partnership closed in January 2011.
“Technically, we did sell the company,” Shook says. “But all of us investors, including Riordan, Lewis & Haden reinvested a great deal of money back into the company. I personally reinvested 50 percent of my proceeds back into the company.”
Silverado is poised to continue growing with seven new communities under construction, joining the 23 communities, eight hospice offices and five home care offices already up and running. Another hospice office and home care office are also in the process of opening.
“Before we started in this industry, people said the model we pursued would not work,” Shook says. “They said we would be bankrupt right away because they couldn’t connect the things we do. They would say it’s either a medical model or a social model and they couldn’t understand how both could happen.”
Shook is confident the results have proven those critics wrong.
“People who invest in business want to make a difference too,” Shook says. “If you get a good return on your investment and make a difference in peoples’ lives as well, then you will win attracting that capital to your company compared to somebody else who is just giving them a return.”
How to reach: Silverado Senior Living Inc., (888) 328-5400 or www.silveradosenior.com
The Shook File
Co-founder, chairman, president and CEO
Silverado Senior Living Inc.
What’s the best business lesson you ever learned?
One of them is to understand my own strengths and bring in people who have strengths that I do not have. In other words, I don’t want to spend my energy trying to do things that are not my strengths. I’m good at seeing things that can happen that are disparate or ideations, or seeing things that people don’t see and then connecting them.
I can put together the big picture deals like a REDIEA, but I’m not good at the details. Tom Croal, my CFO, he’s good with the big picture. But he’s also terrific with the details. There are enormous numbers of them and he’s very good at that. So I have a CFO who is excellent at that and I’m not.
Shook on value: People will pay for what they value, and I should not impose my financial limitations on them. I don’t know their means and I don’t know what they value. I couldn’t afford to have a person living at home 24/7 taking care of a loved one. So one would think, ‘Who can afford that and why provide that as a service?’
Well, nonsense. We have a number of people we take care of at home 24/7 and there are plenty of people who can afford that. It’s expensive, but it’s not a problem for them. If they can afford it, they should be able to have access to that service.
We’ve taken someone’s mother with Alzheimer’s on a cruise to Mexico. We staff it 24/7 and make that cruise possible and she has a great time. Don’t put your limitations on what other people want.
Vet your financing partners.
Stick to your culture.
Don’t give in to doubt.