How to identify and protect your intellectual property

Karl W. Hauber, attorney, Fay Sharpe LLP

Karl W. Hauber, attorney, Fay Sharpe LLP

Business and product names, logos; unique product designs, shapes, utilities, functions; and other proprietary manufacturing methods can comprise a significant portion of a company’s potential revenue and intellectual property (IP).

Protecting IP is a critical component of a sustainable business strategy. However, many companies don’t take the steps necessary to fully guard the ownership of these properties, leaving them vulnerable to encroaching competitors and/or missing out on sources of revenue generation.

Smart Business spoke with Karl W. Hauber, an attorney at Fay Sharpe LLP, about identifying and protecting IP to avoid costly legal lapses.

What do trademarks cover?

Trademarks are used to protect business and product names (i.e. words and phrases), logos, and in some cases shapes and colors that are used to identify a company and its named products or services.

There are common-law protections for using a name or symbol, but a mark not registered with the U.S. Trademark Office can cause issues. For example, a second entity can register the same name or mark. The non-registering first entity may be restricted with respect to future use and prevented from further expansion.

By registering, an entity can become the exclusive user of a trademark in association with particular goods or services, so as to develop source association in that mark. The customer goodwill and market association can become valuable IP, the rights of which may be licensed or sold outright.

How does a copyright work?

Copyrights cover software, website content, schematics, music, photos, literary and artistic works, among other things. Once ‘original works of ownership’ are secured in a fixed medium or recorded in some way, there’s an inherent copyright associated with that material and the manner in which it is expressed. Copyright ownership provides the rights to reproduce the work and to prepare derivative works based upon it.

Copyright registration with the U.S. Copyright Office provides additional benefits. Mainly it’s a public record of the copyright claim, enabling the applicant to seek legal remedies and initiate a lawsuit against someone who has copied material or is using it without authorization.

What can be patented?

The most common patent type is a utility patent, which protects unique devices and apparatuses, methods of manufacture, chemical compounds, formulas and drugs — collectively referred to as inventions. Generally, an invention is a solution to a technological problem and may be an apparatus or a method. Having patent protection provides the owner the right to exclude others from using, making, selling or importing devices protected by the patent for 20 years from the application filing date. Patent rights can be licensed, assigned and sold, which may provide monetary gains and revenue for the patent owner.

A company can be barred from patenting an invention. If the invention is on the market, or publicly known, for more than one year it’s barred from patent protection and deemed a contribution to the public.

In addition, design patents cover the shape of or pattern applied to a product — how it looks through ornamental design only. Design patents have a 14-year lifespan and different protection. The bulk of the design patent application is drawings and figures that accurately depict a product. Enforcing a design patent involves infringers trying to market a substantially similar design.

What are the pros and cons of trade secrets?

Sometimes companies have a unique manufacturing method, for example, so they protect it by keeping it secret. In contrast to patents, where a detailed description submitted to the patent office eventually becomes known to all, trade secrets must be shielded from the public. The lifespan of a trade secret is based on its secrecy and will last as long as it remains unknown to others.

Once a company has something it believes is secret, it must take active, detailed internal steps to maintain the secrecy. But if someone can reverse engineer a product, there’s nothing to stop him or her from doing so. Manufacturing methods, for example, sometimes can’t easily be reverse engineered, so are better candidates for trade secrets.

Who can help companies protect their IP?

Working with counsel knowledgeable in this area of the law can help parties get through matters concerning the best way to protect IP. It is beneficial for interested parties to be proactive with their IP counsel and openly discuss plans and future initiatives so one can avoid costly disputes with others’ intellectual property rights.

Karl W. Hauber is an attorney at Fay Sharpe LLP. Reach him at (216) 363-9212 or [email protected]

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Proposition 65: What you do not know will hurt your business

Thomas H. Clarke Jr., partner, Ropers Majeski Kohn & Bentley PC

Thomas H. Clarke Jr., partner, Ropers Majeski Kohn & Bentley PC

California Proposition 65 — the Safe Drinking Water and Toxic Enforcement Act of 1986 — has spawned a cottage industry that profits from putting businesses on notice that they have products containing chemicals on the list of potentially hazardous substances.

But the mere presence of a chemical in a product doesn’t mean that there has been a violation, and there are steps you can take to protect your business when you receive a notice, says Thomas H. Clarke Jr., partner at Ropers Majeski Kohn & Bentley PC.

“Everyone seems to lose sight of what Prop 65 is about because the plaintiffs want you to see a list of chemicals in your product and think you’re a bad person. But the law is not about the chemical being present, it’s about exposure,” Clarke says.

No exposure above a specified level, no violation.

Smart Business spoke with Clarke about what you should know about Prop 65.

What is the main flaw with Prop 65?

The burden is placed on the defense. A plaintiff only needs to show that the chemical is present and there’s a reasonable exposure pathway. Then the burden shifts; the defendant must prove the exposure is below the warning threshold. If plaintiffs were required to prove exposure, all of the games go away because frequently the only exposure scenarios they present have nothing to do with product usage.

For example, a client was selling a keepsake binder and one of the plaintiff’s scenarios involved the binder being on the floor, and a baby crawling over and licking it. The regulations state that an exposure is determined by normal use by an average consumer. The thesis that babies licking binders happens frequently is ludicrous.

Plaintiffs exaggerate so that you are intimidated and will not contest the case. They want a settlement that pays them substantial sums. To justify their fees, they will impose some reformulation standard, but quite often there’s no evidence the reformulation has any beneficial affect on exposures.

Why do businesses agree to settlements rather than go to trial?

Plaintiffs know what it costs to defend these lawsuits and are clever about making a settlement offer. If it’s going to cost $150,000 to defend, they’ll seek $80,000 to $90,000.

Upon receipt of a 60-day notice that a lawsuit will be filed, be proactive — model the use of the product. Such evidence is not cheap. In the case of the binder, about $8,000 was spent to prove the exposure was under the threshold. Such evidence changes the dynamics of the case.

How should a business react when it receives a warning letter?

When a business receives a 60-day warning letter, it should take immediate steps to assess the product. Probably 90 percent of these notices are tossed. No one worries about them; it’s only when a lawsuit is filed that they realize they have a potential problem.

After assessing whether there is an exposure, you know if the case is defensible. If it is, that’s the posture to take. If not, then you need to settle, and one of the things you’ll need to do is change the composition of the product. If you assess early, then this process is in your control, not the plaintiffs.

What is being done to solve the ‘greenmail’ problem?

Assembly Bill 227 addresses the kind of shakedown lawsuits that get a lot of publicity. Plaintiffs review public records for violations, like allowing smoking near an ATM machine. Then they fire off letters stating the business is in violation of Prop 65, and demand money.

AB 227 covers those activities that are frequently exploited. If it passes, someone receiving one of these shakedown notices can cure the problem immediately because usually the only requirement is a warning sign. There is a small penalty provision, but most of the money goes to the state.

However, if you really want to eliminate abuse, demand that the law be amended to put the burden of proof on the plaintiff. There’s nothing wrong with warning people, but to associate the presence of a listed chemical in a product with an actual threat of real harm lacks merit.

Thomas H. Clarke Jr. is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (415) 543-4800 or [email protected] Learn more about Clarke.

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How to avoid some common pitfalls when doing business online

Christina D. Frangiosa, attorney, Semanoff Ormsby Greenberg & Torchia, LLC

Christina D. Frangiosa, attorney, Semanoff Ormsby Greenberg & Torchia, LLC

Anything published online lasts forever, so it is important to set the right tone for your company’s online communications and to mean what you say from the outset. You might try to retract or amend these public statements, but it is relatively easy to find prior versions, thus causing embarrassing or false statements to not truly disappear, says Christina D. Frangiosa, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

“It’s safer to wait to publish materials to the Web until you have confirmed they are accurate, not misleading and not based on someone else’s intellectual property rights,” she says. “False statements about either your company’s products or about a competitor or its products could lead to lawsuits claiming false advertising, unfair competition or commercial disparagement. Misuse of the company’s or a competitor’s intellectual property can result in a loss of rights, or even, perhaps, an injunction or damages.”

Smart Business spoke with Frangiosa about avoiding legal mistakes on the Internet.

How should you handle statements about your competitors and their products?

Avoid knowingly making false statements about a competitor or the quality of its products. Publishing statements about them without appropriate due diligence could result in negative publicity for your company, corrective advertising costs or monetary damages.

How does cutting and pasting content from other websites create copyright concerns?

Many users have a common misconception: If they can find ‘free’ content on the Internet, then they must be able to use that content for any purpose. Just because content may be freely accessible does not mean that you have a right to use it. Copyright holders have exclusive rights, including the ability to choose to publish or not to publish their works; posting something on a public website constitutes publication. Copying and pasting someone else’s images, text or video into your company’s website without permission could expose the company to copyright or trademark infringement suits, among other claims.

How might misuse in social media undermine company trademarks?

Companies today use their websites and social media to communicate about their products or services. Specific employees may be assigned to prepare and/or post content. These employees should be informed about how to use the company’s trademarks to further develop the brand and maintain existing rights. If employees misuse these trademarks on the company’s sites, they may unknowingly undermine the value of the brand, and perhaps cause problems for trademark renewals or other filings.

Some employees may also use the company’s marks on personal social media. For example, an executive might use a company logo rather than a headshot on his or her Facebook page. Any statement made on these pages about company business could be seen as a formal company representation, and perhaps cause problems for the company with the Securities and Exchange Commission or other governing bodies.

What can you do to protect against these pitfalls?

  • Create your own content, rather than relying on design elements you see on other sites. This may have a higher upfront cost but could reduce your litigation exposure in the long run.
  • Seek a license to use any content in which you are interested, and pay the appropriate royalty fee for its use. There are organizations that accept those royalty payments on behalf of content owners.
  • Obtain images, videos or other content from a valid image collection service, authorized by the copyright owner.
  • Ensure employees understand the source of the content they plan to use before they upload it to the company’s site. They should be trained to avoid the impulse to right-click, ‘save as’ and then upload.
  • Avoid using a competitor’s trademarks to advertise your own goods or services.
  • Ensure employees understand the appropriate use of trademarks.
  • Establish a social media policy that includes explanations of limits on use of the company’s trademarks.

 

Christina D. Frangiosa is an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or [email protected]

Find about more about privacy and intellectual property law on Christina’s blog.

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How contractors can comply with California law

Kevin P. Cody, partner, Ropers Majeski Kohn & Bentley PC

Kevin P. Cody, partner, Ropers Majeski Kohn & Bentley PC

California Business and Professions code section 7159 comprises eight pages of small type covering home improvement contracts, which makes it difficult for contractors to always follow the letter of the law.

“There are so many very technical requirements in 7159, including type size and placement of various provisions within the contract document, that even a conscientious contractor might miss them,” says Kevin P. Cody, a partner at Ropers Majeski Kohn & Bentley PC.

Smart Business spoke with Cody about construction contracts and how companies can avoid problems that void agreements.

When do contract problems arise?

Obviously, if construction goes well, the contract typically isn’t brought up. But when there is a problem, the homeowner or his or her attorney will search the contract for defenses. For example, the entire contract can be voidable or unenforceable if the contractor hasn’t complied with all of the requirements of section 7159, which are numerous and pretty detailed.

California law gives particular protection for home renovation projects because it’s frequently a one-on-one relationship between an inexperienced homeowner and a contractor. Prior to enactment of 7159, a homeowner might find himself or herself in a position where substantial upfront payments had been made, the contractor would only be partway through with work, and all of a sudden the homeowner couldn’t find the contractor. In a commercial setting, where you’re dealing with people who are quite sophisticated and savvy, they do not require the same degree of protection.

However, strict compliance with 7159 will not always work as a defense for the homeowner. A landscape designer/contractor client didn’t strictly comply with all code provisions, and a homeowner, because he was dissatisfied with a few things, hired an attorney and decided not to pay. The homeowner filed a lawsuit, claiming the contractor’s failure to strictly comply with 7159 justified nonpayment. In spite of the landscape designer/contractor’s failure to strictly comply, the court sided with the designer/contractor and awarded it all of the money the homeowner had withheld.

How detailed are the code provisions?

A window company wanted contracts prepared for installations it was going to be doing. On the first page of the contract, you have to mention the date the buyer signed, there has to be a notice of cancellation and a heading that says ‘home improvement’ in at least 10-point, bold face type — that comes straight from the statute. There are a lot of other very detailed requirements.

What should you do to draft contracts that are compliant?

Most contractors already have contracts that comply in certain areas, but in many instances they haven’t updated them. An attorney can go through and make recommendations. In addition to compliance with the technical requirements of 7159, there are other statutes with provisions that the contractor may not appreciate fully, e.g., those dealing with attorney’s fees, or with provisions that have changed in the last few years, e.g., indemnity.

For example, Civil Code section 1717 states that if a contract provision allows one party to recover attorney’s fees, it will be reciprocal to the other party. Without knowing about 1717, the contractor may want an attorney’s fees clause in the contract that only allows the contractor to recover fees if it has to sue to collect payment. But what happens if there is litigation and the other party can recover attorney fees, even if it isn’t mentioned? It becomes an issue of whether the contractor really wants the clause because it might engender litigation.

Similarly, while the law with respect to what general contractors can be indemnified for recently changed to limit indemnity rights, there still are ways to improve the situation. Though a general contractor cannot be indemnified for its active negligence, it typically has leverage over subcontractors to request that the general contractor is named as an additional insured on the subcontractor’s insurance.

It’s a good idea to update your contracts every two or three years with an attorney who specializes in construction contracts. The cost will be relatively modest in the long run, especially considering the benefits of that review.

Kevin P. Cody is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (408) 918-4557 or [email protected] To learn more about Kevin Cody.

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How employers should comply with the Family and Medical Leave Act

Michael B. Dubin, member, Semanoff Ormsby Greenberg & Torchia, LLC


Michael B. Dubin, member, Semanoff Ormsby Greenberg & Torchia, LLC

The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. However, should an employer fail to comply with the FMLA requirements, the employer could be subjecting itself to litigation and possibly fines from the Department of Labor.

“There are a lot of obligations on the employer. To the extent that you’re not aware of these, you should contact an attorney to make sure you’re following the strict requirements of the FMLA,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Dubin about employer compliance with the FMLA.

What does the FMLA allow employees to do?

Eligible employees are entitled to 12 workweeks of unpaid leave in a 12-month period for:

  • The birth of a child and to care for the newborn child.
  • The placement with the employee of a child for adoption or foster care and to care for the newly placed child.
  • To care for the employee’s spouse, child or parent who has a serious health condition.
  • A serious health condition that makes the employee unable to perform the essential functions of his or her job.
  • Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter or parent is a covered military member on ‘covered active duty;’ or 26 workweeks of leave during a single 12-month period to care for a servicemember with a serious injury or illness if the eligible employee is the servicemember’s spouse, child, parent or next of kin (military caregiver leave).

What employers are covered by FMLA?

The FMLA only applies to employers that meet certain criteria. A covered employer includes a private-sector employer with 50 or more employees in 20 or more workweeks in the current or preceding calendar year; and public agencies and public or private elementary or secondary schools, regardless of the number of employees.

What employees are eligible for FMLA leave?

Employees are eligible if they: have been employed by a covered employer for at least 12 months, which need not be consecutive; had at least 1,250 hours of service during the 12-month period immediately preceding the leave; and are employed at a worksite where the employer employs at least 50 employees within 75 miles.

Can an employee take intermittent leave?

Under certain circumstances, an employee may take FMLA leave on an intermittent or reduced schedule basis. That means an employee may take leave in separate blocks of time or by reducing the time worked each day or week for a single qualifying reason. When leave is needed for planned medical treatment, the employee must make a reasonable effort to schedule treatment so as to not unduly disrupt the employer’s operations. Employers must be careful to accurately track intermittent leave.

Can an employee be terminated at the conclusion of the 12-week leave?

Upon return from FMLA leave, an employee must be restored to his or her original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. However, there is a limited exception for ‘key employees’ where reinstatement will cause ‘substantial and grievous economic injury.’

Many employer FMLA policies provide that if an employee fails to return to work at the conclusion of the 12-week leave, the employee will be deemed to have abandoned his or her job and/or will be automatically terminated. Employers are discouraged from maintaining this type of policy as it may be deemed a violation of an employee’s rights under the Americans with Disabilities Act (ADA). At the conclusion of an employee’s FMLA leave, employers should consider whether the employee will be able to perform the essential functions of the job with or without a reasonable accommodation (pursuant to the ADA), which may include additional time off following FMLA leave.

If confronted with an issue under FMLA, employers are cautioned to contact an attorney to ensure they are acting in conformity with the FMLA and avoiding the numerous pitfalls inherent in complying with the FMLA.

Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC
. Reach him at (215) 887-2658 or [email protected]

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Patent trolls are lurking. How will you protect your business?

Christian Drago, patent attorney, Fay Sharpe LLP

Christian Drago, patent attorney, Fay Sharpe LLP

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 protected]

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How to protect your product from unfair competition, counterfeiting

Timothy L. Skelton, partner, Ropers Majeski Kohn & Bentley PC

Timothy L. Skelton, partner, Ropers Majeski Kohn & Bentley PC

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 protected] Learn more about Timothy L. Skelton.

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How to avoid the Google privilege ruling by using caution when writing emails

Jude A. Fry, partner, Fay Sharpe LLP

Jude A. Fry, partner, Fay Sharpe LLP

Many companies train employees to enter phrases such as ‘confidential’ or ‘attorney work product’ and copy counsel when sending sensitive emails so that the information is protected under attorney-client privilege. In the event the company becomes embroiled in litigation, counsel would see such phrases and flag the messages as privileged, preventing them from inadvertently being produced to the other side during discovery.

However, while it’s a good idea to include such phrases in messages, it’s not always enough in the court’s eyes to designate it as privileged. Also, a computer’s auto-save feature may have saved versions of an email that didn’t include such phrases, leaving them unprotected. Both of these issues arose during Oracle America, Inc. v. Google, Inc.

“For each email being composed, Google’s system was saving multiple drafts of it. That’s probably something that you wouldn’t want to do,” says Jude A. Fry, a partner with Fay Sharpe LLP. “Then when the company got sued, there were, for this single email, multiple versions, and the only version put on the privileged log was the final one.”

Smart Business spoke with Fry about how companies can ensure privileged information sent through email is protected.

What happened in the Google case?

Oracle claimed Google’s Android smartphone platform infringed its patents, and the two entered into litigation. An email that included language that could be harmful to Google in the patent case was placed on a privileged log, a document describing items that can be withheld from a case under attorney-client privilege.

That internal email was sent to the vice president in charge of the Android smartphone platform at Google, copying Google’s counsel in the ‘to’ field. The email was captioned ‘attorney work product’ and ‘Google confidential.’

While the final version of the email was placed on a privileged log, auto-saves of the email were inadvertently produced to Oracle’s counsel during discovery. Since the auto-saved drafts did not include the phrases ‘attorney work product’ or ‘Google confidential,’ they were not caught by electronic scanning mechanisms.

Google demanded that Oracle return the emails under the clawback provision of the protective order, claiming the emails were privileged. Oracle returned the emails but filed a motion to compel their production. The district court ordered that the emails be reproduced.

How were the auto-saved drafts of the email not coded as privileged?

When doing the search, counsel was likely using key words to see what was coded as privileged. There were probably thousands of emails produced. Counsel was able to locate the final email because, by that point, the author had put the phrase ‘attorney work product’ in the email’s body and added the attorney as one of the recipients. However, in other auto-save versions those phrases weren’t included, so they didn’t get flagged.

What’s disturbing is that the system saved nine versions during the time it took to type it up. Why is it necessary to save all of those versions?

Consider only saving emails that are sent, and configure your email system to delete all other versions. Also, understand how your email system works — whether auto-drafts are saved, what happens to these drafts, where they’re stored. Figure this out now and not when a case is pending.

How should a corporate employee set up an email to make sure it is privileged?

Train your employees to direct the email to legal counsel in the ‘to’ field and salutation. State in the email that information is being given to or sought from the lawyer so that he or she can give legal advice. Also, include in the message that it is being prepared in anticipation of litigation, at the direction of an attorney, to further the provision of legal advice. Include headings such as ‘attorney work product,’ ‘privileged’ and ‘confidential.’ However, these headings alone will not make an email privileged, so limit the substance of the email to the legal issues.

People write a lot of emails but often don’t think about someone other than the intended recipient reading it. When doing business though email, consider who could possibly read the message and approach it accordingly. It’s a good practice to think carefully before you put something in writing.

Jude A. Fry is a partner at Fay Sharpe LLP. Reach her at (216) 363-9113 or [email protected]

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How to decide whether or not to own your factory or warehouse

Howard N. Greenberg, managing member, Semanoff Ormsby Greenberg & Torchia, LLC

Howard N. Greenberg, managing member, Semanoff Ormsby Greenberg & Torchia, LLC

You’ve been in business for several years and it is profitable. You have a decision to make: Do you want to invest in the business and buy a facility, or will you continue to lease?

With the help of your accountant, you should carefully examine the anticipated capital requirements of your business.  Evaluate your ability to obtain capital or loans. Don’t box yourself into being cash poor and unable to meet business obligations or take advantage of opportunities.

“The prevailing reason that businesses fail is insufficient capital. Draining capital to pay for a real estate project could be a cause,” says Howard N. Greenberg, managing member at Semanoff Ormsby Greenberg & Torchia, LLC.

“My colleague, Jeffrey Rosenfarb, a principal in Hart Corporation, a national industrial real estate firm, advises that small manufacturing firms overwhelmingly desire to own versus rent, whereas larger corporations generally prefer leasing.”

Smart Business spoke with Greenberg about some pros and cons of leasing or purchasing industrial real estate.

What issues should be examined when considering purchasing a facility?

First, what’s the nature of your business?   Manufacturing that utilizes heavy, difficult-to-move equipment is where purchasing may be desirable, to avoid being at a landlord’s mercy when your lease expires. Or is it light manufacturing or distribution, that moves easily?

Second, can you obtain a facility that will remain adequate for your needs? Plan for potential future expansion. Have your counsel review the local zoning code to determine what can be built, either now or in the future.

Do you contemplate children in the business? Real estate can provide a source of income and inheritance. Counsel will need to prepare an agreement that deals with numerous issues including governance, death, disability, termination of employment and sale of the business.

Where do you want to invest your limited capital? Be sure that you will not need capital to expand your business versus acquiring a building. Lending rates are at historic lows, encouraging acquisition. Consult counsel concerning special types of financing such as tax free industrial development or state-provided financing, as well as tax abatements.

What issues should you consider if you determine to lease?

Check locally to ensure there are adequate reserves of industrial rentals available. With any lease, secure options to: extend the term; terminate early; purchase the building; for a right of first refusal; and for the ability to assign the lease or sublet in connection with your business sale.

If I decide to purchase, what entity should purchase the property, and how should the lease be structured?

Keep the building owner entity distinct from the entity that occupies it. The building owner entity should be a limited partnership, limited liability company or S corporation to enable you to utilize tax advantages like depreciation and amortization, and to permit gifting. Also, you may want to divvy up interests differently in the operating company versus ownership in the real estate company. You could decide to bring a partner into your business, but not into the building ownership.
You will need a lease between the two entities, especially if you’re going to sell the business and not the real estate. As a landlord, limit the tenant’s options and set a reasonable term.

Does new construction make sense versus purchasing and rehabbing an existing building?

With new construction or significant rehab, you must have a reliable contractor and architect. Assume that it’s going to cost at least 15 percent more and take 15 or 20 percent longer than initially estimated. Weigh the aggravation of new construction versus having your building the way you want. However, over the past 15 to 20 years, sale or leasing of existing facilities has far exceeded new construction, per Rosenfarb.

Buying and holding an industrial property usually works out well for the owner. For heavy manufacturing, building ownership, or a long-term lease with renewal options, is the way to go.

Howard N. Greenberg is a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 and [email protected]

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

How to protect your company’s product when entering new markets

Michael J. Ioannou, partner, Ropers Majeski Kohn & Bentley

Michael J. Ioannou, partner, Ropers Majeski Kohn & Bentley

Trademark, copyright and intellectual property (IP) laws can vary greatly in foreign markets, so it’s vital to seek local legal expertise before doing business internationally, says Michael J. Ioannou, a partner at Ropers Majeski Kohn & Bentley.

“Local law firms know the system, including the politicians and judges,” Ioannou says. “It’s no different than doing business here. If a Florida company has a problem in San Jose, they could send someone, but they would most likely hire an attorney here. It makes sense to have someone like me who has practiced law here for 32 years and worked in the local courts.”

Smart Business spoke with Ioannou about how companies can avoid legal problems when expanding into foreign markets.

What are some important issues to consider before entering a foreign market?

From a general standpoint, you need to understand the business environment. You can accomplish that in India, for example, through the National U.S. India Chamber of Commerce, Confederation of Indian Industry or the National Association of Software and Services Companies, which caters to high-tech companies.

You also should be checking local laws with the help of a local lawyer in the country or near where you want to do business. So, if you’re going to mainland China, there are good attorneys in Hong Kong that can advise you or connect you to counsel in mainland China that they know well.

What mistakes do companies make when doing business overseas?

They might rush into a market without checking other companies’ rights and get sued for infringing IP rights in the foreign country. Apple thought it had acquired rights to the iPad trademark in China from a Taiwanese company, but courts said a subsidiary of that company still owned the rights in China. Apple paid $60 million in a court-mediated settlement. So one route is to buy the trademark, but you still have to ensure that what you’re buying is legitimate.

It’s the same situation with foreign companies coming into the U.S. A client with a chain of Indian restaurants wanted to expand here and found a restaurant on the East Coast that used the name in interstate commerce first — that’s the test for trademarks, first use — but the restaurant didn’t have the trademark registered. Instead of spending money to argue in federal court that the restaurant didn’t have first-time use, the client bought the restaurant and trademark. It was cheaper than paying legal fees in a later dispute over the name.

How can businesses protect themselves from legal problems?

When entering a country, you want to secure trademark rights for your product there. If you can, obtain patent protection, register and apply for a patent in China or India, for example. A patent in the U.S. is not enforceable in India or China. You can stop someone from shipping goods into the U.S. that infringe on a patent here, but you can’t stop a sale occurring in India or China based on a U.S. patent.

Pharmaceutical companies are having problems getting inventions patented in India because there’s a huge market there for generic drugs. India doesn’t even recognize software patents. One client in India was threatened by a U.S. company for IT support services offered here. It was a U.S. patent, so as long as the function that was within the patent claim was being done in India only, the U.S. company couldn’t claim infringement.

What can companies do to fight patent infringement?

In India, for example, you could file a lawsuit in civil court, but that could take 15 years to reach a resolution. However, the entity that’s infringing laws in India may be doing business in the U.S., which would provide another angle to file a lawsuit here for unfair competition. You also may be able to intercept their goods from coming into this country, depending on the nature of the IP rights being infringed.

But if you have a counterfeiter in Shanghai that’s only selling goods there, you have to use the local courts. Things are getting better in terms of that kind of infringement — that’s why you’re seeing a lot more activity to enforce rights in China, for example. Just be cognizant that you can’t expect a perfect day in court as a foreign company coming into these jurisdictions.

Michael J. Ioannou is a partner at Ropers Majeski Kohn & Bentley. Reach him at (408) 287-6262 or [email protected]

Learn more about Michael J. Ioannou.

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC