How to avoid common intellectual property missteps

The American legal system provides certain rights and protections for owners of intellectual property (IP). It is crucial that businesses avoid infringement of intellectual property rights.

“Businesses often inadvertently infringe the intellectual property rights of others because of inattention to internal operations, a lapse that comes with a significant price tag,” says Alexis Dillett Isztwan, member, Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Isztwan about the risks and consequences of infringing on intellectual property as well as how to avoid missteps.

What businesses are at risk?

In any business, a multitude of infringement risks exist in daily operations. Since infringement does not require that the infringer knew its activities were infringing, businesses must bear the burden of policing their own operations.

Where are the risks?

The most common risk is the unauthorized use of images, content or music. Businesses often look to the internet or social media as a flexible marketing platform for advertising and promotional campaigns that can be launched quickly and inexpensively. The downside is that employees often equate easy access on the internet to images and music with an unfettered right to use third-party works in advertisements or on company websites.

In reality, use of third-party images, music or content requires a license from the owner and typically a fee, regardless of the significance of the use. While employees may believe the IP owner will never discover the use, many technologies exist that enable IP owners to cast a broad search over the internet to identify unauthorized uses of their works.

Another risk arises with the use of software in excess of permitted use under the business’s license. Unless a license allows for enterprise-wide use, the business must limit its use to the numbers specifically permitted, whether those limitations are per user, per laptop or desktop, per server, or per location.

Employees often believe that a software license is carte blanche for use in the business and will copy a program to additional devices, laptops or desktops without the knowledge of the business owners. This misunderstanding of software rights puts a business at significant risk of infringement claims based on the unauthorized uses. While discovery may seem unlikely, all it takes is one disgruntled former employee to disclose the infringing uses to the software owner.

What are the consequences?

The stakes are high. Typically, once unauthorized use is detected, the IP owner will send a letter demanding payment of damages and immediate removal of the unauthorized use — the clear implication being that failure to comply will invite a lawsuit. Six-figure settlement demands are the norm with IP owners often arguing the infringer must pay three to five times the actual damages so that the settlement amount acts as a deterrent.

Even short of litigation, damages can quickly grow. When coupled with legal fees related to negotiating a settlement, damages may have a substantial financial impact on a business even before considering the resulting operational cost of purchasing the appropriate number of software licenses or replacing the promotional piece.

How can a business avoid missteps?

First, never respond to a demand letter without consulting counsel. If the IP owner took the time to send a letter, the matter will not be resolved with a brief call. More often than not, attempts by business owners to resolve an IP matter without counsel result in increased settlement amounts or a severely compromised negotiating position.

Second, businesses should implement internal processes that minimize the risk of unauthorized use of IP. The policies should state clearly what activities are permitted and by whom, and identify the point person to be contacted for inquiries and approvals.

Third, educate and train employees on avoiding potential infringements and knowing when to ask questions and seek approvals.

Finally, appoint an internal coordinator to oversee use of third-party IP and software in the business’s daily activities.

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

The basics of Hart-Scott-Rodino and how to avoid potential pitfalls

Hart-Scott-Rodino Antitrust Improvements Act (HSR) compliance is typically associated with transactions involving mergers, stock or asset acquisitions, joint ventures and acquisitions of a controlling interest in a non-corporate entity. Pitfalls can arise, however, for individuals and companies who are unfamiliar with the coverage of the HSR Act.

HSR also applies to the acquisition of voting securities by individuals, including officers and directors, if the acquisition exceeds the HSR’s threshold amounts, regardless of whether the voting securities were acquired through a stock market purchase, as equity compensation or through the exercise of options or warrants.

“Individuals may not be cognizant of these rules and could unknowingly violate the HSR filing obligations,” says Jill Bellak, a member of Semanoff Ormsby Greenberg & Torchia, LLC. “Under the aggregation rules, each new acquisition of voting securities is aggregated with existing holdings. Once the value of the existing holdings plus the newly acquired voting securities exceeds the HSR thresholds, a filing is required prior to acquisition of the new securities. If the voting securities merely appreciate in value, but no new acquisition is made, a filing is not triggered.”

Smart Business spoke with Bellak about the thresholds under HSR, the applicable filing fees, the filing parties and the penalties for failure to comply with the filing requirements.

What are the current thresholds under HSR?

A filing may be triggered through the act’s size of transaction test if acquisitions of voting securities or assets have a value in excess of $78.2 million. If this threshold is reached, the size of person test must be analyzed.

The size of person test is satisfied if one party to the transaction, including the party’s parent and subsidiaries, has annual net sales or total assets of at least $156.3 million and the other party to the transaction has $15.6 million or more in annual net sales or total assets.

A filing under HSR is required if both the size of transaction and size of person tests are met and no exemptions are available. If the acquisition of voting securities or assets has a value in excess of $312.6 million, HSR applies and a filing is required, regardless of the size of person test.

These thresholds are adjusted annually. The relevant date for determining value is the closing date of the transaction, not the date the acquisition agreement is signed.

What are the filing requirements and review period?

Under HSR, a notification and report form, together with the acquisition agreement and other relevant documents, is required to be filed with the Federal Trade Commission and the Department of Justice.

Once a filing is made, the regulators have a 30 calendar day period in which to review the transaction and request additional information or documentation. Early termination of this 30-day waiting period is usually requested by the filing party and often granted by the regulators.

What are the filing fees under HSR?

The filing fees payable under HSR are quite steep, ranging from $45,000 for acquisitions with a value exceeding $78.2 million to $280,000 for acquisitions with a value of $781.5 million or more. Typically, the buyer pays the fee, but it may be the subject of negotiation between the buyer and seller.

Who are the filing parties?

Both the buyer and the seller must file. Typically, the filings are made contemporaneously by their respective counsel. The filing person, referred to as the Ultimate Parent Entity (UPE), may be an individual or an entity, depending upon a detailed analysis of who controls the buyer and seller parties, respectively. For this purpose, the holdings of a spouse and minor children are aggregated with the holdings of an individual UPE.

What are the penalties for failure to file?

The penalty imposed for failure to comply with the filing obligations is $16,000 per day for each day that the filing is delinquent. If a violation has occurred, it is important to notify experienced counsel immediately and take steps promptly to rectify the failure to file.

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

The rules are about to change the way family businesses are valued

The IRS has released proposed regulations that will significantly change the way family businesses are valued by discontinuing valuation discounts. At this time, however, there is still the opportunity to use valuation discounts to reduce the tax burden when transitioning family-owned entities, at least for a couple more months.

“If you have any interest in gifting or business transition planning, now is the time to do it,” says Peter J. Smith, a member at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Smith about the changing rules, the importance of moving forward quickly and how an attorney can aid in the process.

How do you anticipate the gifting rules will change?

Historically, when the owner of a closely held business wants to transfer an interest to the next generation through gifting, bequest, or through a generation-skipping transfer, the asset has to be valued for purposes of gift or estate taxes.

Normally, the interest can be discounted up to approximately 35 or 40 percent for various reasons including lack of marketability or if a minority interest is being transferred.

On Aug. 4, 2016, the IRS published proposed regulations that will have the effect of doing away with the discounts.  There is a 90-day public comment period followed by a public hearing scheduled on Dec. 1, 2016.

At this time, it is expected that the regulations will become final. When the discounts are removed, it will become much more costly to gift and transfer interests in closely held businesses or real estate companies.

How does business succession planning work?

Business succession planning comes in many shapes and sizes. Nevertheless, the general principals are the same – to take advantage of the annual gift tax exclusions and lifetime exemptions to transfer assets tax-free.

The annual exclusion is $14,000 per person, per year. If you are married, your spouse can also gift up to $14,000, even if the asset is not titled in his or her name. Such gifts incur no tax and have no filing requirement. You can also use your lifetime exemption. The lifetime exemption is $5.45 million per person and $10.9 million with a spouse using what is called “portability.” While this may sound like a lot, there is no guarantee this will remain either.

In President Obama’s 2017 budget, he is seeking to reduce the exemption amounts for estate and generation-skipping transfer taxes to $3.5 million, reduce the lifetime gift tax exclusion to $1 million and increase the top federal tax rate from 40 percent to 45 percent. With an uncertain political future ahead, we can never be certain what the lifetime exemption amounts will be.

How can an attorney help with the process?

An attorney can help coordinate estate planning with business succession planning and a gifting plan to maximize use of the exemptions and minimize taxes.

For example, they can help secure the documentation necessary to take advantage of the valuation discounts. Normally, an attorney with their client will retain a valuation expert to perform a formal valuation of the company or the real estate asset.

Based on the valuation and applying the types of discounts described above, assets can be transitioned without incurring any taxes and with minimal use of your lifetime exemption.

If you wait until after the IRS regulations become final, you will lose the benefit of the discounts.

Why is it important to move forward quickly with gifting or business succession plans?

A portion of the proposed regulations become effective 30 days after they become final. Now is the time to take advantage of the valuation discounts. It might not be a transition of an entire interest; perhaps only a small or partial interest. But if you wait, it could cost you a lot more.

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

Not used to use tax? How to make sure you’re paying your fair share

Everyone is familiar with sales tax, but few know of use tax, which is typically imposed on the purchase and use of items and services that are subject to sales tax but for which no sales tax was collected.

Use tax issues often arise in connection with out-of-state purchases. A resident of a state with use tax may purchase taxable goods in another state that doesn’t impose sales tax or may buy such goods from an online retailer that doesn’t collect sales tax. In either instance, the customer has a duty to pay use tax.

“Use tax is a complement to sales tax,” says Andrew P. Sonin, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. “It’s like a safety net, albeit with some sizeable holes.”

Smart Business spoke with Sonin about use tax, who has to pay it and how it’s collected.

Where is use tax in effect?

Nearly every state, including Pennsylvania, New Jersey and Maryland, has a sales tax and a compensating use tax. Delaware does not have a general sales or use tax — a fact which Delaware businesses advertise to residents of neighboring states. The other states currently without a statewide sales or use tax are Alaska, Montana, New Hampshire and Oregon.

What is the rate?

The use tax rate usually matches the sales tax rate. Pennsylvania has a statewide sales tax rate of six percent, so the use tax rate is also six percent. However, there is an additional one percent local sales tax in Allegheny County and an additional two percent tax in Philadelphia. So if you acquire property subject to use tax, you will owe seven percent in Pittsburgh or eight percent in Philadelphia.

Who has to pay it?

Use tax falls on whoever uses the product or service, with the responsibility for reporting and payment resting squarely on the purchaser. It affects both individuals and businesses.

Online sales have brought use tax to the forefront. After years of resistance, several online retailers, such as Amazon, have recently reached deals with various states to collect sales tax on online purchases. If an online retailer does not collect sales tax, most buyers will owe use tax on the purchase and use of any taxable goods from that retailer.

How is it collected?

It’s a difficult tax for revenue authorities to collect because there is no surefire way to know when and what people are buying. States generally rely on self-reporting and provide forms for that purpose. That is problematic, however, because most people aren’t aware of use tax and even if they are, they have little motivation to analyze their receipts, calculate the tax and pay it.

States have dealt with this in different ways. Pennsylvania has a line on its individual income tax return for reporting use tax. Businesses may be audited for use tax compliance if they are already collecting and remitting sales tax.

How is it enforced?

Businesses sometimes face liability when they least expect it. There was a case in New York a few years ago involving a major delivery company that had a practice of giving shipping supplies to its current and potential customers for free. The items bore the company’s logo and clearly were provided for marketing purposes. The New York authorities did not see it that way, though, and imposed use tax on the company’s purchase and distribution of the supplies. After years of expensive administrative wrangling, the company ultimately required intervention by New York’s appellate courts to confirm it had no use tax liability under an exception for promotional materials.

Since enforcing individual compliance is an even greater challenge, revenue authorities tend to concentrate on big-ticket purchases to get more bang for their buck. In one instance, a man bought a boat ‘tax free’ in Delaware and decided to dock it occasionally in New Jersey. The New Jersey Division of Taxation eventually learned of the situation and, assuming the man to be a New Jersey resident, sent him a use tax assessment with interest and penalties 20 years after the purchase — an example of the state’s perseverance in pursuit of a dollar.

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

Self-settled trusts: How to make sure your trust works for you

A self-settled trust is a type of trust in which the trust creator or “settlor” is also the person who is to receive economic benefits from the trust during his or her lifetime. The simplest type is the standard Revocable Living Trust (RLT). There, the same person is the trust’s settlor, trustee and a beneficiary.

RLTs are typically created as part of an estate plan to manage assets during the settlor’s lifetime, avoid the necessity of a guardian if the settlor becomes incapacitated and ultimately avoid probate upon the settlor’s death. Some settlors want to enhance these benefits by structuring the trust to exempt its assets from the claims of their creditors.

Smart Business spoke with Brian R. Price, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC., about self-settled trusts, their advantages and disadvantages, and the importance of working with an experienced attorney when establishing such a trust.

What should be included in a self-settled trust?

It’s important to include the terms upon which various individuals can receive funds. That should include the trust creator as well as the terms for the ultimate disposition of the trust funds at some point in time, whether before or after the creator’s death. Designating successor trustees is also a crucial component of any trust.

How should a spendthrift provision be utilized?

A spendthrift provision typically prohibits a trust beneficiary from selling, assigning or otherwise disposing of his or her interest in the trust and at the same time prohibits the trustee from honoring claims by third parties to satisfy the settlor’s/beneficiary’s legal obligations from the trust assets.

Can a self-settled trust’s assets be exempt from claims of the settlor’s creditors?

At least 15 states have enacted legislation to permit settlors to create a trust from which they may receive discretionary distributions while exempting the trust assets from the claims of some, but not all, creditors.

To qualify for creditor protection under these states’ laws, the trust generally must be irrevocable, administered by a trustee in the state adopting the protective legislation and created at a time when there are no pending or threatened legal actions against the settlor/beneficiary.

Even in these jurisdictions, the trust assets are not protected from claims for spousal or child support and alimony, or from certain tort or governmental claims. And even if properly formed and administered under a state’s asset protection trust laws, such a trust may not be exempt from claims in a bankruptcy proceeding against the trust’s settlor/beneficiary.

What are some disadvantages?

The possibility that a federal bankruptcy court may ignore the state laws makes the use of such trusts a risky proposition.

It is an open secret that states with favorable self-settled trust laws hope to attract trust business, and their compensation comes from the creators and the trust’s funds. A cottage industry of specialists promotes the concept and they need to be paid as well.

Do some of these trusts actually provide benefits to the settlor/beneficiaries?

The promoted benefits are attractive to many people who believe that because they have amassed a certain degree of wealth, they are the targets of predators. In this regard, trusts of this sort may provide psychological benefits to the trust settlors.

Additionally, the mere existence of such a trust may intimidate creditors who don’t want to pay the costs of trying to extract money from the trust. This is particularly true if the trust is created in a far away place where obtaining jurisdiction over the trust makes matters even more difficult.

How should someone go about creating a self-settled trust?

Anyone interested in creating such a trust should ask what type of benefits he or she can reasonably expect from the trust. Many self-settled trusts are created either by non-legally trained individuals or trustees who aren’t well-versed in the area. It’s important to seek an attorney who is experienced with the technicalities of self-settled trusts.

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

How to be prepared for the accelerated union process

In December 2014, the National Labor Relations Board (NLRB) announced final rule governing union representation and election procedures. The rule, which took effect April 14, 2015, allows unions to move much faster in their organization campaigns while shortening employer timelines for providing employees information about unions and the election process.

“Because the time period between the filing of the representation petition and the election has been compressed, employers are severely handicapped in organizing opposition to a union’s organizational campaign,” says Frank P. Spada Jr., an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Spada about the expedited election process and how employers can be prepared.

How does the petition filing process work?

If there are least 30 percent of people in a particular bargaining unit — a group of employees who share a community of interest in a variety of factors  — who sign authorization cards, the union can go to the NLRB and request a petition for an election. It’s a secret ballot election and if the union gets 50 percent plus one of the people who voted in that select bargaining unit, the union will be authorized as the collective bargaining representative for those employees and will negotiate with the employer to set the terms and conditions of employment.

Let’s say that there are 100 employees in a bargaining unit and only 60 vote in the election. If the union has 31 people vote for the union then it would be recognized as the collective bargaining representative. The 40 employees who didn’t vote would still be part of the union and pay dues.

What type of information lists are now required?

In the past, only names and classifications of employees were required. The new rule requires employers to disclose full name, address, home and cell phone numbers, personal email addresses and job classification. This allows unions to contact employees directly so they can have a much more focused campaign. This information should be gathered and updated consistently prior to a union organizing effort so there is little delay in developing a strategy to combat unionization and, if necessary, to allow counsel to prepare a statement of position and proceed to a pre-election hearing on the appropriateness of the unit identified by the union.

How can businesses improve relations with their employees?

The management team should be trained on how positive employee relations can help avoid labor issues. If management listens to issues and problems before they fester, it stands to reason that the employees won’t need to go to an outside source to resolve their differences. One of the major reasons that employees seek representation is that supervisors fail to communicate effectively, or discipline employees unfairly or inconsistently.

How should potential bargaining units be identified?

Employers should take steps in advance to strengthen arguments in favor of preferred units should an organizing threat emerge. For example, a union may try to include employees on the manufacturing floor as well as the shipping department within a single bargaining unit. The employer might want to restructure operations or take other steps to enable it to argue to the NLRB that it would be improper for a union to try and organize both the shipping and manufacturing employees in one unit, or that certain parts of the manufacturing operations should be excluded from a petitioned for unit.

What type of plan should businesses have for dealing with organizing threats?

Preparation should begin, prior to any union organizing efforts, to identify individuals in management, human resources or in-house legal, if applicable, that are knowledgeable or can be trained regarding what an employer is legally permitted to do in opposing a union organizing campaign. What is communicated, as well as who communicates it, is very important. A trusted management team member or supervisor who is well liked by the employees should communicate information provided by a legal expert. With the accelerated organizing process, advance preparation by an employer is critical.

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

How to take advantage of the accelerating M&A market

As the M&A market for small businesses continues to recover after the recession, now is the time for potential sellers to begin planning. After all, business owners who sell their business without a well-defined exit plan typically sell for too little.

“To maximize value, minimize cost and make for an efficient sale, the business owner must seriously review legal, financial and business operations before going to market,” says Peter J. Smith, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “Your lawyer, accountant and/or a good business consultant can help with this evaluation.”

Smart Business spoke with Smith about the M&A market and how to create an effective exit plan strategy.

What are some indicators that the M&A market is heating up?

BizBuySell.com reports that sales of small businesses have for the first time reached pre-recession levels. We’ve seen this in our own practice as well with increased deal flow and increased multiples.

What is driving the increase?

A variety of factors: improving small business performance, increased capital availability, more add-on acquisitions for venture capital portfolio companies, more sellers who waited out the post-recession recovery in order to regain lost value, and more buyers willing to take on debt and risk to grow.

Currently, there are many potential sellers in the market with viable businesses. Many restructured during the recession, so expenses were reduced and their EBITDA and profits have now increased. At the same time, banks have relaxed underwriting criteria and are more willing to finance buyers who are interested in making strategic acquisitions. Finally, there is a lot of pent-up demand, both among small businesses that see acquisition as a way to grow, and venture capital firms that are looking to expand their holdings through add-on acquisitions that provide synergy with their existing portfolio.

According to a BizBuySell.com survey of brokers, the strong M&A market is expected to continue throughout 2014 and we see nothing on the horizon that should cause a decline in deal activity.

What should potential sellers be thinking about in this market?

They should be thinking about exit planning — How can I position my business for maximum value and a clean, quick sale? They should be reviewing their entire company from the perspective of a buyer. This is not how most business people usually view their companies.

What are some examples of things to consider when exit planning?

Among other things, the business owner should ask:

  • Are financial systems and controls in place and adequate? Are financial statements presentable and in accordance with standard accounting principles? The business owner should consider having the financial statements reviewed or audited, if they are not already.
  • Can the business owner identify the best ways to increase EBIDTA? This is the biggest driver of value in your business.
  • Are employment agreements in place for key employees? Do all sales employees have non-competes?
  • Do key customers and vendors have contracts? Is there any guarantee of recurring revenue?
  • Does the business have title to all of its assets? Can it prove this in writing?
  • Does the company have title to all of its intellectual property? Without contracts, this is unclear.
  • Are all key contracts assignable? The business owner should know who can hold up their deal.
  • Is the business qualified in all states in which it does business? Has it filed tax returns in all of the appropriate states?

How far in advance of an anticipated sale should exit planning occur?

The longer the lead time the better. Planning should occur at least a year in advance of going to market. Ideally, it would be two to three years before a sale as it’s important to have the financial statements and tax returns in place as part of due diligence.

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

How to prepare for laws that give criminal offenders another chance

Ban the Box, a movement designed to provide additional opportunities to job candidates who have an arrest or conviction, is gaining steam. According to the National Employment Law Project, one in four Americans have either an arrest or conviction on their record, in most cases for nonviolent offenses. Ban the Box offers the vast majority of these individuals a second chance at an opportunity for employment.

The law does not require an employer to hire any candidate with a criminal background nor does it forbid employers from conducting background checks. Ban the Box simply requires employers to wait until later in the hiring process to ask the applicant about his or her criminal record.

“After the first interview, a potential employer may inquire about any criminal convictions the applicant may have,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “The interview does not need to be a formal in person interview; it can be a telephone interview.”

Smart Business spoke with Dubin about Ban the Box legislation, how it affects employers and what penalties could arise from not following the law.

What is Ban the Box?

Ban the Box is a law that has been adopted in various states and municipalities that prohibits employers from inquiring about criminal convictions or arrests during the application process and the first interview. The law also prohibits employers from making personnel decisions based on arrests or criminal accusations that do not result in a conviction. Ban the Box was enacted by the City of Philadelphia in 2011, and with certain limited exceptions, applies to all city and private employers with 10 or more employees in the city. It was also recently signed into law in New Jersey and will take effect throughout the State of New Jersey on March 1, 2015 for all employers that have 15 or more employees and do business, employ persons, or take applications for employment in New Jersey.

How does Ban the Box affect employers?

Prior to the conclusion of the first interview, including on the employment application, employers are prohibited from inquiring about: (1) any arrest or criminal charge that did not result in a conviction and is not still open in court; and (2) criminal convictions.

After the first interview, employers are prohibited from inquiring about and/or making any adverse employment decisions based on any arrest or criminal charge that did not result in a conviction and is not still open in court. If an employer does not conduct interviews, then it is not permitted to conduct any criminal background inquiry.

There are several exceptions, for example, when an employer is mandated by state or federal law to consider criminal histories of applicants, such as when hiring law enforcement.

What are the penalties for violating Ban the Box laws?

Penalties differ by location. In Philadelphia, violators are subject to a fine of up to $2,000 per violation. In New Jersey, violators will be subject to a civil penalty not to exceed $1,000 for the first violation and $10,000 for each subsequent violation.

What must employers do to ensure they comply with Ban the Box laws?

Employers should review their form job applications and job posting advertisements to ensure they do not ask about criminal arrests or convictions. Any such inquiry should be removed.

Employers should also review the law in each state and municipality in which they either do business or have employees to ensure compliance. Human Resource personnel and hiring managers should be properly trained regarding Ban the Box laws and instructed as to what can and cannot be asked of job candidates and when criminal background inquiries may be made.

As the trend is moving toward more states and municipalities enacting Ban the Box legislation, multi-state and nationwide employers should be extra vigilant in ensuring compliance. The consequences of failing to do so could be extremely expensive for employers.

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

How to manage the benefits and risks of social media in the workplace

As the number of people and businesses using social media continues to proliferate, workplace social media policies are getting more attention.

“It’s important to craft a written social media policy that protects a business without infringing on employee’s rights,” says Stephen Goldblum, a member at Semanoff Ormsby Greenberg & Torchia, LLC. He advises having a legal expert help establish a clearly defined social media policy.

“An employment lawyer who drafts personnel polices can help create a social media policy suitable to your business’s needs,” he says.

Smart Business spoke with Goldblum about the benefits and risks of social media, as well as the importance of a written social media policy.

What are some of the most popular uses and types of social media in the workplace?

There has been an explosion in the growth of social media and it has changed the way people communicate, both at home and in the workplace. Some of the most popular examples of social media include Facebook, LinkedIn, Twitter, YouTube and Pinterest.

Companies can benefit greatly from the use of social media, but there are also significant risks, which is why it’s so important to have a well-articulated social media policy. Even if a business doesn’t have a social media presence it can still be affected by what people, including its own employees, post about the business.

What benefit does social media offer?

All businesses can capitalize on the use of social media. One example is the recruitment of employees. Over the past several years, outlets such as LinkedIn and Facebook have become an important part of the recruiting process for many companies. Also, social media allows a business to communicate with current employees as well as the public to drive existing or prospective customers to its website or physical location.

What are the risks associated with social media?

One of the biggest risks is that people misuse social media while at work. For example, employees may inadvertently or intentionally disclose confidential or proprietary information about their employer through social media, or publish negative or false information. Employees may also waste time on Facebook or YouTube rather than concentrating on their assigned responsibilities.

The social media phenomenon can be a liability for businesses. For example, social media can be a source of discovery in employment discrimination cases. In fact, the Equal Employment Opportunity Commission recently ruled that a claim of racial harassment made through a co-worker’s Facebook postings could go forward.

It’s also important to note that personal information that companies glean from social media cannot be used to make employment decisions. Although most businesses know that questions about a person’s background are generally not permissible in a job interview, significant information about a person’s race, gender, religion, national origin and age can be gleaned from a person’s use of social media, which creates a risk for discrimination lawsuits if this information is used in the hiring process.

Why are written social media policies important?

It is incumbent upon businesses that they have a well-drafted social media policy that is distributed to employees so they know in advance what is expected of them. The policy must clearly state whether social media usage is allowed at work, and if so, under what circumstances. The organization should articulate its social media goals, including what it uses social media for and what it expects to get out of its use of social media.

Employees must understand that they are responsible for the things that they post on social media and must clearly understand the legal impact that their actions can have on the company. Employees must understand the need to exercise good judgment and to protect the company from the disclosure of its confidential and proprietary information.

Finally, it’s important to outline the consequences for failing to abide by the policy, which might range from a warning for a minor infraction to termination for a more significant violation of the policy.

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

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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