URS vs. UDRP: What is the Difference?

As an alternative to the Uniform Domain Name Dispute Resolution Policy (“UDRP”), the Internet Corporation for Assigned Names and Numbers (“ICANN”) introduced the Uniform Rapid Suspension System (“URS”) in 2013, which serves as more streamlined and less expensive approach to recover a cybersquatted domain name.  After several years following the implementation of the URS, the UDRP remains the preferred option based on the number of filings for each.  However, what process is right in your case will depend on the specific variables particular to your case.  Let’s review some of the differences between the URS and UDRP processes.

The URS is limited to “new” generic top-level domains (“gTLDs”) following ICANN’s 2012 application process, which does not include many common gTLDs such as .com or .net. The exceptions to this are the domains .travel, .cat, and .pro, which have adopted the URS in renewals of their registry agreements. Only two country codes, .pw (Palau) and .us (United States) have adopted some variation of the URS. While both the URS and UDRP are options for these “new” gTLDs, the UDRP is the only option for the older “legacy” gTLDs.

The burden of proof under the URS procedure is tailored in such a way that only the clearest, open and shut cases of cybersquatting are guaranteed. The “clear and convincing evidence” and “no issue of material fact” standard requires trademark owners to prove that the registered domain name is identical or confusingly similar to a word mark:

(1) for which the complainant holds a valid national or regional registration and that is in current use; or
(2) that has been validated through court proceedings; or
(3) that is specifically protected by a statute or treaty in effect at the time the URS complaint is filed.

Additionally, trademark owners must prove the registrant has no legitimate right or interest in the domain, and that the domain was registered in bad faith.

Under the URDP procedure, the standard is more relaxed and only requires trademark owners to show that is more likely than not the domain was registered in bad faith and with no legitimate right or interest from the non-trademark holder.  On top of the high burden of proof, trademark owners in a URS proceeding are limited to a small 500 word-count explanatory statement, making it difficult to meet the burden of proof with limited space to craft factual and legal arguments. In contrast, URDP proceedings allow for a complaint of up to 5,000 words, with options to correct inadequacies, and allow supplemental findings, while no such provisions exist under the URS. Additionally, the URS requires that unregistered trademarks are not protectable unless they’ve been validated in court proceedings or protected by a statute, whereas URDP proceedings are accessible to common law trademark holders.

When selecting whether to proceed under the URS or UDRP, the effectiveness of the remedy is a top consideration for registered trademark holders. Even if a trademark owner meets the high standard required to satisfy the URS, the remedy may not be considered adequate. The URS only allows for suspension of the domain name for the remainder of the registration period, with an option to extend the period by a year. Once the registration expires, the domain is again up for grabs, potentially allowing another cybersquatter to claim the same domain, which starts the process over again. Decisions are also subject to appeal to a URS panel for up to 6 months, with an option for an additional 6 months available, which can potentially lengthen the “speedy” option. Under the UDRP, a successful trademark owner can have the domain registration either transferred to their control, or canceled, with appeal to a federal court under the Anti-Cybersquatting Protection Act (ACPA) being the only way to continue the dispute.

Despite the price difference (URS proceedings start at almost $1,000 less than UDRP proceedings) and time different (URS decisions typically take seventeen days versus two months under the UDRP), many domain registrants still find the UDRP to be the best option for attempting to resolve domain dispute cases.

If you have questions about whether the URS or UDRP is right for your cybersquatting issue, contact a Traverse Legal attorney today to discuss your options.

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Revenge Porn Laws By State

Revenge Porn is commonly defined as the sexually explicit pictures or video shared on the internet without consent, through any medium, including uploading them onto websites, social media, or sending them via text message or email. Often times, an ex will post or share intimate photos or videos shared with the purpose of harassing or embarrassing the other person. With this growing phenomenon, states are beginning to enact laws to combat revenge porn. Thirty-Seven (37) states and Washington, D.C. now have revenge porn criminal statutes, which are summarized below.

Alaska
Classifies revenge porn as harassment, which is a misdemeanor, punishable by a fine of up to $2,000, and/or up to 90 days in Jail.

Arizona
Establishes that revenge porn is a felony, and punishable by up to three years and nine-month state prison term. Threatening to distribute revenge porn is a misdemeanor and punishable by up to six months in jail, three years of probation, and/or a fine of up to $2,500.

Arkansas
Establishes that revenge porn is a misdemeanor and punishable by up to one year in Jail, and a fine of up to $2,500.

California
Classifies revenge porn as disorderly conduct, which is a misdemeanor punishable by up to 6 months in jail, and a fine of up to $1,000.

Colorado
Establishes revenge porn as a misdemeanor, and punishable by six to eighteen months in jail, and/or a fine of $500-$5,000. In addition, the court may fine the defendant up to $10,000, which goes directly to the Colorado crime victim compensation fund.

Connecticut
Defines revenge porn as voyeurism, which is a felony punishable by a state prison term of one to five years and a fine of up to $5,000 for the first offense and for subsequent offenses or those involving a victim under the age of sixteen, it is a felony punishable by a state prison term of one to ten years, and a fine of up to $10,000.

Delaware
Classifies revenge porn as a violation of privacy, which is a misdemeanor punishable by up to one year in jail and/or $1,000 in fines. With some aggravating circumstances, this can become a felony punishable by a two-year state prison sentence and/or a fine of $500-$2,000.

Florida
Establishes revenge porn as sexual cyber-harassment, a first-degree misdemeanor, punishable by up to one year in jail, and/or $1,000 fine. Subsequent offenses result in a third-degree felony punishable by a state prison term of up to five years, five years of probation, and/or a $5,000 fine. Florida also outlines that victims can file a civil suit allowing relief in the form of injunctive relief, or the removal of the material, $5,000 in monetary relief, or the actual monetary damages suffered, whichever is greater, as well as reasonable attorney fees.

Georgia
Classifies revenge porn as an invasion of privacy, which is a misdemeanor of a high and aggravated nature, punishable by one-year in jail and a $5,000 dollar fine, with subsequent offenses resulting in a felony charge punishable by a one to five-year state prison sentence, and/or a fine of up to $100,000.

Hawaii
Defines revenge porn as a violation of privacy in the first degree, which is a class C felony punishable by a state prison term of up to five years, and/or a fine of up to $10,000. Additionally, the court may impose destruction of all material violating the statute.

Idaho
Defines revenge porn as video voyeurism, classified as a felony. Idaho’s punishments are decided on a case by case basis, but seem to range from state prison terms of three to five years, and/or a fine of up to $5,000 based on the cases that have emerged.

Illinois
Defines revenge porn as non-consensual dissemination of private sexual images, a class 4 felony punishable by a state prison term of one to three years, and/or a fine of up to $25,000.

Iowa
Classifies revenge porn as harassment in the first degree, an aggravated misdemeanor, which is punishable by up to two years in jail, and/or a fine of $625 to $6,250.

Kansas
Classifies revenge porn as a breach of privacy and/or blackmail, which is punishable with up to 18 months of probation, with subsequent offenses within five years elevating the offense to a felony punishable by four to five years in state prison.

 Louisiana
Defines revenge porn as nonconsensual disclosure of a private image, punishable by a state prison term of up to two years with or without hard labor, and/or a fine of up to $10,000.

Maine
Defines revenge porn as Unauthorized dissemination of certain private images, punishable by one year in jail, and/or a fine of up to $2,000.

Maryland
Establishes revenge porn as a subsection of harassment, and is a misdemeanor punishable by up to two years in jail and a fine of up to $5,000.

Michigan
Establishes revenge porn as a misdemeanor punishable by up to 93 days in jail, and/or a fine of up to $500, and one year in jail, and/or a fine of $1,000for subsequent offenses.

Minnesota
Defines revenge porn as nonconsensual dissemination of private sexual images, establishes grounds for a civil cause of action, awarding victims monetary relief of all financial damages caused, amounts equal to profit made from dissemination of material, a civil penalty up to $10,000, along with all court and attorney fees. Injunctive relief and confidentiality in filings is also outlined in the statute. In criminal proceedings, nonconsensual dissemination of private sexual images is a misdemeanor if the dissemination was not posted on a website, for profit, or meant to harass the victim, and punishable by up to 1 year in jail and/or a fine of up to $3,00. If any of those mitigating factors apply, or in subsequent offenses, the punishment is a state prison term of up to three years, and/or a fine of up to $5,000.

Nevada
Defines revenge porn as unlawful dissemination of an intimate image, a felony punishable by a state prison term of one to four years, and/or up to $5,000 in fines.

New Hampshire
Defines revenge porn as nonconsensual dissemination of private sexual images, a felony punishable by a state prison term of three and a half to seven years, a fine of up to $4,000, and often up to five years of probation

New Jersey
Classifies revenge porn as a third-degree invasion of privacy, punishable by a state prison term of up to five years, and/or a fine of up to $30,000.

New Mexico
Defines revenge porn as unauthorized distribution of sensitive images, A misdemeanor punishable by up to one year in jail and/or a fine of up to $1,000. Subsequent offenses result in felonies punishable by a state prison term of up to eighteen months, and/or up to a $5,000 fine.

North Carolina
Defines revenge porn as disclosure of private images, a felony for those over the age of 18, and subsequent offenses of those under the age of 18, which is punishable by four months to two years in jail, while first time offenders under the age of 18 face a class 1 misdemeanor punishable by 120 days in jail and a discretionary fine.

North Dakota
Defines revenge porn as distribution of intimate images without or against consent, a misdemeanor, punishable by up to one year in jail, and/or a fine of up to $2,000.

Oklahoma
Defines revenge porn as nonconsensual dissemination of sexual images, a misdemeanor punishable by up to one year in jail, and/or a fine of up to $1,000, as well as provide injunctive relief for the victim.

Oregon
Defines revenge porn as unlawful dissemination of an intimate image, a class a misdemeanor, punishable by up to one year in jail, and/or up to $6,250 in fines. Subsequent offenses result in class C felony charges punishable by a state prison term of up to five years, and/or a fine of up to $125,00.

Pennsylvania
Defines revenge porn as unlawful dissemination of intimate image, a misdemeanor if the victim is over the age of 18, punishable by a state prison term of up to two years, and/or a fine of up to $5,000. It is also a misdemeanor in if the victim is under the age of 18, but instead punishable by a state prison term of up to five years, and/or a fine of up to $10,000. The statute also establishes a civil cause of action, through which victims can collect up to three times the actual damages (loss of money, reputation, or property), or $500, whichever is greater, reasonable attorney and court fees, as well as additional relief which the court sees fit.

South Dakota
Classifies revenge porn as an invasion of privacy, which is a misdemeanor if the victim is at least 18 years of age, punishable by up to one year in jail, and/or a fine of up to $2,000. If the victim is under the age of 18 and the perpetrator is at least 21 years of age, it is a felony, punishable by a state prison term of up to two years, and/or a fine of up to $4,000.

Tennessee
Defines revenge porn as unlawful exposure, which is a misdemeanor, punishable by up to eleven months and 29 days in jail, and/or a fine of up to $2,500.

Texas
Defines revenge porn as unlawful disclosure or promotion of intimate visual material, which is a misdemeanor punishable by up to one year in jail, and/or a fine of up to $4,000. The statute also establishes civil liability to the victim, awarding actual damages, including damages from mental anguish, court costs and reasonable attorney fees, exemplary damages requested by victims, as well as injunctive relief.

Utah
Defines revenge porn as the distribution of intimate images, a misdemeanor punishable by up to one year in jail, and/or a fine of up to $2,500. Subsequent offenses result in felonies, punishable by a state prison term of up to five years, and/or a fine of up to $5,000.

Vermont
Defines revenge porn as unlawful disclosure of sexually explicit images without consent, which is a misdemeanor punishable by a state prison term of up to two years, and/or a fine of up to $10,000, violators who disclose material for financial gain are subject to a state prison term of up to five years, and/or a fine of up to $10,000. The statute also gives victims a civil cause of action against defendants allowing victims to recover actual damages, court costs and reasonable attorney fees, as well as obtain injunctive relief. Pseudonyms are offered for confidentiality.

Virginia
Defines revenge porn as unlawful dissemination or sale of images of another, a misdemeanor punishable by one year in jail, and/or a fine of up to $2,500

Washington
Defines revenge porn as wrongful distribution of intimate images, which is a misdemeanor punishable by one year in jail, and/or a fine of up to $5,000.

Washington D.C.
Establishes that revenge porn, as it applies to the disclosure to another individual, or publication for general public when publisher is a third-party whom obtained the material from an unauthorized disclosure, is a misdemeanor punishable by up to 180 days in jail and/or a fine of up to $1000. As it applies to the publishing for access for the general public from the original accessor of the material, it is a felony punishable by up to 3 years in prison and/or a fine of up to $12,500.

West Virginia
Defines revenge porn as nonconsensual disclosure of private intimate images, which is a misdemeanor punishable by up to one year in jail, and/or a fine of not $1,000-$5,000. Subsequent offenses face felony charges punishable by a state prison term of up to three years, and/or a fine of up to $10,000.

Wisconsin
Classifies revenge porn as illegal representations depicting nudity, which is a class A misdemeanor, punishable by nine months in jail, and/or up to a fine of $10,000.

Revenge porn cases are becoming more and more prevalent, and with criminal statutes in place, plaintiffs are finding that they can collect damages in civil cases. Have you been the victim of revenge porn? Do not hesitate to contact Traverse Legal Attorney today to explore your legal options.

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Founders’ Friday: Should You Bootstrap or Finance Your Startup?

Before digging deeper, let’s start with a question: what do a self-made millionaire and a venture-backed millionaire have in common?  Yes, that’s right, so with that in mind, now we can discuss the fact that you have a great new business idea and are ready to make your idea a reality. You will undoubtedly be asking yourself where the funds to make that idea a reality are going to come from? Granted, resources (time, money, etc.) are needed, with cold, hard cash being king. Thus, whether to bootstrap or finance is one of the most important and earliest questions a founder needs to ask when pursuing a new business venture. Initially there are two paths, bootstrap (self-finance) or finance (raising capital through outside sources). The path you take depends on a multitude of factors, including the capital you have on hand, your access to outside capital (friends/family, angels, VCs) and the runway needed prior to MRR (monthly recurring revenue).

Almost every new business venture starts in the bootstrapping stage. Bootstrapping a business means you’re self-funded. You’re likely using savings, income from your current job, and/or personal credit cards in order to support your business. The longer you can build your business while bootstrapping, you will undoubtedly benefit from the financial and creative control of your business, without any investors demanding you move in a certain direction. You’ll improve your negotiation position with potential on investors, which typically means you’ll end up giving up less of your equity. Of course, there is also a downside to bootstrapping. Your business budget is limited to your personal finances and there is often not enough money to draw any form of salary for the founders and just enough to cover overhead expenses.

Eventually, it is unlikely that you’ll be able to bootstrap until profitability. That said, it has been done! If bootstrapping is no longer viable, it’s time to look for external funding sources. For a startup with limited operating history, this will usually be accomplished through a private offering to accredited investors (as such term is defined under the Securities Act of 1933) as opposed to traditional bank financing. In order to move forward with a private offering, you’ll need to identify the funding sources and funding methods. Funding sources typically include friends and family, crowdfunding, angel investors, and venture capital firms. Funding methods include convertible debt, convertible equity, common equity and preferred equity.

The funding source and method will vary depending on the funding stage of the startup. A startup’s funding rounds can be broken up into the following stages: (1) Seed Round; (2) Angel Round; and (3) Venture Round. When a startup is in the Seed Round, it is typically looking to raise less than $250,000, likely issuing some form of convertible debt or convertible equity (i.e. SAFE) or in some situations common equity. Often the investors in this raise are friends and family. In the Angel Round, the company is typically looking to raise less than $1M from angel investors, who are accredited investors looking for early stage companies with high upside. These angels sometimes invest through various angel networks that often have pitch nights where startups can come in a pitch an entire room full of angels. In this round, startups will over both convertible debt and equity, preferred equity, common equity and sometimes even warrants.

Both in the Seed and Angel Rounds, the structure of the startup is less of a concern to investors. As long as the terms of their investment make sense and you are either an LLC or C-Corp, then the choice of entity decision doesn’t really exist. However, once a startup reaches the Venture Round, there is often a strong preference from VC Firms that their portfolio companies are structured as C-Corps and that the VCs are issued preferred stock for their investment. The first VC Round is called a Series A Round and the size of the raise can range from $1M to $10M. In many situations startups will have multiple VC Rounds, with each subsequent round identified as a different series (i.e. Series A-2, B, C, D and so on).

Ultimately, whether to bootstrap or finance depends on all of the factors identified in this article, if not more. An analysis of those factors with your corporate counsel will help set your startup for success now and in the future.

Founders’ Friday is a series published by attorney Brian A. Hall of Traverse Legal, PLC d/b/a Hall Law dedicated to legal considerations facing founders and start-ups. This week’s post contributed by corporate and securities attorney Stephen M. Aarons.

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Is A Registered Copyright Necessary for a DMCA Takedown?

Imagine this: you just attended a concert at your local concert venue. Assuming it was a lot of fun, you want to share the experience with friends and family, so you post the photos you took on Facebook before going to bed. When you wake up the next morning, you sip your coffee and read the online edition of your local newspaper. Suddenly, you see in an article about the concert you attended—containing your photo—taken right from your private Facebook profile! You never registered your copyright to these images, so can you still file for a DMCA Takedown request? The answer is, yes.  Will it be successful? The answer is, maybe.

Although you did not register the copyright to your photo, you still have exclusive rights to your photo. Most photos, videos, or written content people generate and post do not end up being registered with the copyright office, but this does not mean they aren’t subject to copyright law. Providing proof of your copyright can be as simple as providing the ISP host with the image and date posted or direct URL and an affirmation you are the copyright holder. This applies to any content you have produced, not just social media material as provided by the example above.

If, however, you encounter a host who sends back a counter-notification letter, notifying that copyright was not infringed, you would have 10-14 days to file a lawsuit. In order to do so, you would need to register your copyright. Often times, registering a copyright with the standard $35 application fee can take 6 weeks to 6 months, which long exceeds the 10 to 14 day statute of limitation. Even with the expensive expedition option offered, which costs $760 in addition to the standard copyright application fee, it is not guaranteed to provide you registration within the 10 to 14 day statute of limitation.

In conclusion, while you can send a DMCA takedown request with regards to unregistered copyrights in attempt to achieve protection of your material, a registration is required for a lawsuit. It is highly encouraged that if you have material you really want to protect, register your copyright before its publication.

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Supreme Court Strikes Down Lanham Act’s Disparagement Clause

On June 19, 2017, the Supreme Court issued an opinion in Matal v. Tam, 137 S. Ct. 1744 (2017), striking down the disparagement clause in the Lanham act that had been in place since 1946. The clause reads that no mark will be registered that is a “matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” 15 USC § 1052. The ruling has massive implications for Trademark Law moving forward, but before we jump into that, let’s examine the court’s rationale in striking down the disparagement clause.

In Matal v. Tam, an Asian-American band wanted to register the mark “The Slants,” which was deemed to have been offensive to other Asian-Americans, and therefore was denied registration. On appeal to the United States Patent & Trademark Office (“USPTO”), Tam, the registrant, was again denied. Tam then appealed to federal court, where the Federal Circuit found the Disparagement Clause to be facially unconstitutional under First Amendment free speech. On the government’s appeal to the Supreme Court affirmed the Federal Circuit holding. Two of the main arguments proffered by the government for preserving the disparagement clause include:

#1.  The government argued that trademarks are government speech, and therefore not subject to First Amendment protection. The Court found this claim to be farfetched, in that simply giving a private mark a seal of approval and calling it government speech is a slippery slope to silencing or muffling the expression of a disfavored viewpoint, exactly the activity the First Amendment is supposed to protect against.

#2.  The Government made an argument that government programs were able to provide subsidies for private speech which expressed a particular viewpoint, without having to subsidize the alternative or conflicting viewpoint, such as funds to family planning services. The Court distinguished that a trademark registration was nothing like a subsidy, as no mark owner is monetarily compensated for registering their mark. The opposite is true as registrants must pay a $225-$600 filing fee and $300-$500 every 10 years to keep their mark active, which ultimately funds the USPTO services. Therefore, trademark registration is not considered a subsidy, but more similar to the fees for motor vehicle registration and a license to operate a motor vehicle, which are not expressive of promoting a viewpoint.

Ultimately, all of the governments arguments failed to satisfy the Court, and it was ruled that trademarks are not exempt from the first amendment free speech clause on the grounds that it was government speech. So, what does this mean moving forward?

The most famous and obvious dispute this case implicates is the Washington Redskins professional football team, who will likely be allowed to continue using its trademarks. Further, we could see the Scandalous and Immoral Clause tested and struck down the same way the Disparagement Clause was. In a case pending before the Fourth Circuit, the USPTO submitted a letter brief stating that the same reasoning applies to the Scandalous and Immoral Clause as well. This opens up many doors for trademark registration, including pornographic marks, and marks bearing racial slurs, as well as offensive religious material, we may also see many registrations of groups attempting to reclaim offensive words, much like the mission of The Slants. Be on the lookout for more cases dealing with these issues, as they are sure to come up as time goes on.

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Patent Exhaustion Update

The U.S. Patent Act (35 U.S.C. § 271(a)) grants a patent owner the right to prevent others from making, using, selling, offering for sale or importing a patent invention within the U.S.  The doctrine of patent exhaustion limits the patent owner’s ability to control the use of patented items after those items have been sold.  In other words, the first authorized sale of a patented item terminates/exhausts all patents rights to that item.  As a result, the purchaser of the patented item has the right to use or resell the patented item without it being considered infringing of the patent owner’s rights. Recently, this act’s provisions were called into question in the case of Impression Products, INC. v. Lexmark International, 137 S. Ct. 1523 (2017). In the case’s rise to the Supreme Court, the Sixth Circuit Court of Appeals gave remanufacturers quite a scare when it found that patent rights to a product could be retained after the sale of the product when the patentee imposes restrictions upon the sale of the product. The Supreme Court, however, reversed the Sixth Circuit, holding that the sale exhausted patent rights in the product being sold regardless of any restrictions the patentee attempts to impose on the location of the sale.

In the Impression Products, Inc. v. Lexmark International case, Lexmark was the patent holder of a type of laser printer toner cartridges. Once the toner ran out, they could be refilled and resold, and many companies took advantage of this by purchasing the empty cartridges, refilling them, and reselling them at a lower price than listed by Lexmark. To combat this problem, Lexmark created a return program, where they would sell its toner cartridges at a discounted price, where upon sale, purchasers entered into a contractual agreement to use the cartridge only once, and refrain from transferring the cartridge to anyone but Lexmark. They also placed special chips on the return program to make it more difficult to refill the cartridges, which also identified them as part of the return program. Remanufacturers, including Defendant Impression Products, continued to purchase and refill Lexmark cartridges in the return program, as well as purchase and import Lexmark cartridges sold internationally to refill and resell.

The first Issue the Supreme Court chose to analyze is whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. In deciding this issue, the sixth circuit court of appeals reasoned that the sale of the cartridges did not give authority to resale, as that right was retained by Lexmark, and because Impression products new of these restrictions, Lexmark could sue Impression for infringement. When this issue was placed before the Supreme Court, however, disagreed. They reasoned that while clear and enforceable restrictions through use of contracts with purchasers were eligible for a suit under contract law, the exhaustion doctrine applied upon sale of the item, and all patent rights are exhausted regardless of any contractual presale restrictions that may be in place, therefore Impression was not liable for patent infringement.

The second issue pertained to international sales of a patented item, and its purchase and import back into the United States. The Sixth Circuit reasoned that the foreign sale of a patented product is different. They stated that because the item is sold abroad, where U.S. patent law does not apply, they do not exhaust their patent rights unless they expressly or implicitly transfer or license its rights. The determined that because the market abroad is not subject to U.S. patent law, A deluded market will make it more difficult to sell the product for the same price abroad as it is sold in the United States, so importing and refurbishing the product would be unfair to the patent holder. The Supreme Court, again, disagreed with the reasoning laid out by the sixth circuit. They compare the first sale doctrine of copyright law, which has no geographical restrictions as to a copyrights exhaustion after first sale. They also reason that a patent holder has the option to sell the product abroad or not. Patent law makes no guarantee of compensation received, and it is up to the patent holder to determine whether or not to sell their patented item at that price. Ultimately, the court held that upon sale, whether that sale be domestic or international, patent rights are exhausted.

The Supreme Court’s opinion in Impression Products, Inc. v. Lexmark International did distinguish the sale of a product and the licensing of a product. As a result, we can likely expect to see more attempts to structure transactions as licenses rather than sales.  Further, this decision may result in companies increasing foreign prices to match those in the U.S., such as consumer products and electrical components.

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Accidental Copyright Infringement Is Still Infringement

“Strict Liability” is a term used to describe legal liability in which a Plaintiff does not have to prove a Defendant’s fault, but simply show that their rights were infringed. Copyright infringement is strict liability, which means you remain liable for copyright infringement even though you did not intend or realize you were infringing a copyright.

One of the most common “honest mistakes” involves cutting and pasting someone’s photos on the internet onto your own website or otherwise use the photos for your own promotional purposes. It’s easy to do and there is a lot of misinformation on the internet about permissible use of someone’s photograph without permission. Even in situations where a business owner contracts a third-party web designer to build their website, both the business and the web designer can be held liable for copyrights violated if they are used on your website. If use of a copyrighted photo is related to commercial purposes, it is almost certain you have infringed. There are uses of copyrighted material called “fair use”, such as use for an educational purpose, which would not subject you to copyright infringement. However, even if you have a good faith, honest belief you are not infringing, if you are found to have infringed you will be liable to pay damages to the owner of the copyright regardless of your intent or belief.

Copyright infringement can be expensive. Under federal copyright law, statutory damages can be up to $150,000 per infringement, plus attorney’s fees and court costs. It is wise to err on the side of caution to ensure you are not violating a copyright in order to avoid infringement because ignorance is not an excuse for copyright infringement. If you have any questions regarding copyright infringement, do not hesitate to contact one of Traverse Legal’s experienced copyright attorneys.

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Founders’ Friday: Legal Agreements Preserve and Protect Your Growing Business

Any Founder, especially a repeat-Founder, will tell you that the proverb of “an ounce of prevention is worth a pound of cure” applies to legal agreements.  As a start-up business owner you will need several critical written agreements to assist in securing and growing your business. Unless you go it alone without any legal assistance, there are several key agreements recommended to keep your business secure after the business has been formed and as it begins to ramp up.

Employment Agreements

Employment agreements and independent contractor agreements can be utilized to help avoid disputes with those individuals, either employees or independent contractors, who you will employ to grow your company.   These agreements will define these work relationships with critical items such as compensation and duration of employment, paid time off and benefits, status of employment (usually at-will employment terminable at the will of the employer), and contain other key provisions such as methods for resolving disputes via mediation or arbitration or court proceeding, location for resolving disputes as well as applicable state law to be used in the event of a dispute. Independent contractor agreements, in particular, will need what IP attorneys refer to as magic language, namely “work for hire” provisions.

Non-Compete and Non-Disclosure Agreements

Non-compete and non-disclosure agreements will assist in the protection of your trade secrets, customer accounts, and other confidential information that your employees who leave have access to or third-parties who will be exposed to during the course of their contact with your business.

A non-compete agreement generally restricts employers and contractors for a period of time and within a determined location from your business from working for a competing business, which may put your customers or business secrets at risk, and are generally enforceable to varying degrees in most states. Employment or non-compete agreements may also contain confidentiality or non-disclosure provisions that help prevent disclosure of your important business information to competitors or others.

A stand-alone non-disclosure agreement can be utilized when negotiating deals with customers or whenever sharing sensitive financial or other confidential information about your company to third-parties in the course of growing your business. A non-disclosure agreement (sometimes referred to as an NDA) prevents the disclosure of sensitive information or your unique ideas or inventions, reserves ownership rights of the information or ideas in you or your business, and dictates the return of such information at the end of your discussions or negotiations.

Manufacturer or Supplier Agreement

Manufacturer or supplier agreements are utilized in the event you require the services of a manufacturer or supplier for your business. As with employment agreements, these agreements detail the terms of your engagement and can contain confidentiality provisions together with dispute resolution provisions such as mediation, arbitration and other means to enforce legal remedies as well as choice of forum and choice of law provisions for any disputes arising under those agreements. There are few things that are more expensive or inconvenient to your business than being dragged into another county or another state to defend a dispute in court with your manufacturer or supplier. Well-drafted manufacturer or supplier agreement can typically save you those headaches.

Trademark License Agreements

Trademark license agreements are essential to provide to any affiliates promoting your goods or services through the use of your brand identity or trademarks, even if you are at the point where you have not registered a trademark. A failure to properly license others in the use of your trademark can result in the loss of your trademark rights and jeopardize the otherwise exclusive right to your brand or business name. Remember, trademarks are not the only kind of IP that you could license, and you should also consider other intellectual property license agreements.

Budgeting for your legal business needs to protect your growing business through the use of key business agreements is essential for your long term growth and success. Such agreements will be imperative to have in place in the event you intend to exit or sell your business to a third-party who will want to see that you have minimized risks associated with the business through the use of these essential business agreements.

 

Founders’ Friday is a series published by attorney Brian A. Hall of Traverse Legal, PLC d/b/a Hall Law on Fridays dedicated to legal considerations facing founders and start-ups. This week’s post contributed by Partner Mark Clark.

 

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Texas Uniform Trade Secrets Act Amendment

The Texas Legislature recently passed a bill amending the Texas Uniform Trade Secrets Act (“TUTSA”), scheduled to take effect September 1^st of this year. Along with a few minor modifications, there are five notable changes that any business who carries a trade secret may want to familiarize themselves with, before they decide to file a claim in court.

(1) The first change to TUTSA was to expand the definition of Trade Secrets within the Act. Before, Trade Secrets were defined as “Information, Including a Formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers. “This definition was expanded to include “business, scientific, technical, economic, or engineering information,” taken verbatim from the federal Defend Trade Secrets Act (“DTSA”). Also added to the definition were “design, prototype, plan, program device, code, and procedure,” as well as a clause which reads “whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” This applies so long as the owner has taken reasonable measures to protect his trade secret. While TUTSA moves to align its definition more closely to the DTSA, it is in large part more inclined to include more elements under the umbrella of trade secret, such as the inclusion of lists of actual or potential suppliers, or customers. TUTSA encompasses all types of information, whereas DTSA requires the information be reasonably related to financial, business, scientific, technical, economic, or engineering information.

(2) The modifications made to TUTSA will also clarify the requirements for a court ordered injunction. Previously, TUTSA allowed for relief after actual or threatened misappropriation of a trade secret. This remains true, although the amended version now includes language which suggests that general knowledge, skill, and experience that a person acquired during employment does not qualify for injunctive relief. This is simply a clarification which the legislature thought necessary to include.

(3) Willful and malicious misappropriation are added to the definitions section of TUTSA, defined as “intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret.” Clear and Convincing was also added to the definitions section as “the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.” This simply establishes the degree of proof plaintiffs are held to.

(4) The amended act also defines the owner as “with respect to a trade secret, the person or entity in whom or in which rightful, legal, or equitable title to, or the right to enforce rights in, the trade secret is reposed.” No changes, however, were made to the claimant section of TUTSA, which remains to be a key distinction between TUTSA and DTSA.

(5) Finally, the amended act spells out a seven-factor balancing test to determine whether or not to exclude or limit a party from the courtroom to protect the trade secret(s) of the other party. The factors read as follows:

– (1) the value of an owner ’s alleged trade secret;
– (2) the degree of competitive harm an owner would suffer from the dissemination of the owner’s alleged trade secret to the other party;
– (3) whether the owner is alleging that the other party is already in possession of the alleged trade secret;
– (4) whether a party ’s representative acts as a competitive decision maker;
– (5) the degree to which a party ’s defense would be impaired by limiting that party ’s access to the alleged trade secret;
– (6) whether a party or a party ’s representative possesses specialized expertise that would not be available to a party ’s outside expert; and
– (7) the stage of the action.

Compared to DTSA, a few key differences remain in TUTSA. The definitions of “trade secret” and “misappropriation” in TUTSA, while tailored to mirror some of the language in DTSA in the amended version, are broader and more inclusive than the definitions in DTSA. TUTSA provides means to grant protective orders for trade secrets with the balancing test presented in the amended statute. Some provisions in DTSA that remain different include the whistleblower immunity clause, which grants individuals who disclose a trade secret in confidence to their attorney or the government immunity if their purpose is to report or investigate a suspected violation of the law. DTSA also contains an ex parte seizure provision allowing the court to seize property in order to prevent the spread of a trade secret in extraordinary circumstances. The amended TUTSA became more aligned with DTSA with its inclusion of the injunctive guidelines and limitations, however, differences still remain. TUTSA did not go so far as to disallow conditions on a persons employment, or conflict with state law that prohibits restraint on the practice of a lawful profession, trade, or business, where DTSA has these restraints.

Choosing whether to make your trade secret claim in State or Federal Courts will largely affect the way a trial will play out, and could ultimately change the outcome. There are many factors that go into this decision, and you do not want to go in the wrong direction. If you have any questions regarding trade secret law and your options, contact an experienced Traverse Legal trade secret attorney to help work out your best course of action.

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Variations of Cybersquatting

While you may know what cybersquatting is generally and what potential legal action you can take for remedies under the Anticybersquatting Protection Act (“ACPA”), not knowing specific techniques used by cybersquatters may leave you unaware that you are currently being or have been a victim of cybersquatting. Cybersquatters use a variety of techniques to benefit from your trademark, so it is important for you to understand the variations of a cybersquatting in order to identify if your trademark has been illegally infringed upon by a cybersquatter.

One common form of cybersquatting is typosquatting. Typosquatting as a practice can be defined through a few different methods, which include misspelling or phrasing, as well as using a separate top-level domain (TLD). Misspelling or phrasing occurs when cybersquatters change the spelling of words or phrases slightly to benefit from internet users common typing mistakes to attract attention to a fake domain based on a misspelled legitimate domain, such as traverslegal.com instead of traverselegal.com. Notice the missing “e” in the first spelling? If not, you aren’t alone.

Another variation of typosquatting is top-level domain swapping by simply changing a .com domain to a separate TLD domain such as .org, or .net. A notable example was whitehouse.com, which adversely affected whitehouse.gov by displaying pornographic material. Mistakes in knowing which TLD is associated with a site like this are common, and cybersquatters take advantage of these mistakes by setting up a fake website cosmetically designed to imitate the original, and adversely affect your trademark by stealing your web traffic, compel you to buy the cybersquatted domain, or simply by spreading malware using your brand name.

Another form of Cybersquatting is a type of Identity theft associated with the registration of domain names. There are software products that a cybersquatter can use to monitor domain registration expiration, and if the domain is not renewed in time, they can purchase that domain, and either imitate your website to make your site’s visitors believe that the cybersquatter is you, or perhaps worse a website with your competitor’s products or services and redirect them to that site or advertisements that contain your competitor’s products or services.

A final type of cybersquatting is known as reverse cybersquatting or otherwise know as reverse domain hijacking. This is the practice of brand owners attempting to secure a domain name legally owned by another person and who is not otherwise a cybersquatter. A brand owner may claim that they own the rights to your domain, and threaten legal action unless you transfer that domain over to them. This practice by the brand owner is often perpetrated by large companies or famous individuals and is an abuse of their trademark rights making wrongful claims against your rightfully held domain name.

If you believe any of these bad-faith cybersquatting techniques have been utilized to adversely affect your domain, do not hesitate to contact a Traverse Legal attorney with expertise in dealing with Cybersquatting issues like these.

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Founders’ Friday: Owning IP Increases Business Value

Don’t just think about IP ownership in a vacuum.  Think about IP from a business perspective, or, perhaps, as Puff Daddy said best: “It’s all about the Benjamins baby!”

Once Founders have made the decision to protect their business’ Intellectual Property (“IP”), whether it be in the form of a trademark, patent, copyright, trade secret, or domain name registration, it typically becomes apparent that having ownership of such IP increases the value of their business. Of course this extends to the traditional sense of intangible property on a Balance Sheet, but it also stems from the monetization opportunities created by the proper ownership of IP. So, as discussed in last week’s What’s Your Big Idea post, start by identifying, securing via registration and owning your IP.  Once you own your IP, you can focus on ways to maximize that IP’s impact on your company’s value. From monitoring infringement to licensing to marketing, Founders who take time to protect their business’ IP will appreciate the various ways that IP can create substantial value, both initially and into the future.

Infringement Monitoring and Policing

As a Founder’s business becomes more successful and recognizable, the potential for infringement increases. With the business’ growth, Founders should consider developing an infringement monitoring plan to ensure that no infringement goes unnoticed. In the event that infringement is discovered, cease and desist letters are typically an effective means of policing and eradicating infringing uses of IP. Having registered IP gives these letters strong legal leverage and, most importantly, amplifies the monetary settlement (e.g. royalty payment) a business could demand as a result of infringement.

Marketing Benefits

Any time a business can place the ® next to their registered trademark or indicate the existence of a patent (pending or issued) on their advertising, packaging, or website, the perceived value of the business goes up. In particular, products that have patents often give businesses a more cutting-edge, high-tech image, which can provide a serious leg up on competition.

Licensing

Perhaps Founders see their business working with other businesses to help expand their national or global presence. Licensing is an effective way to ensure that more consumers see a business’ IP while also strengthening contacts. A license allows another business to use—but not own—the IP, while making payments in the form of royalties to the Founder’s business. Having this additional source of income will in turn generate more value for the business.

Stock Benefits

Intellectual Property stocks are hot! Investors often consider a business’ IP Portfolio prior to investing, viewing the companies that own IP as being more innovative. Oftentimes, the greater the investments in a business, partially based on IP ownership, the greater the value of that business.

Business Mergers & Acquisitions

Even though Founders are often more focused on getting their business off the ground, it never hurts to think ahead to a time when the business might be merged with or acquired by another entity. In that event, having a robust IP Portfolio increases the amount for which a business may get acquired.

These are just some of the ways in which IP can increase a business’ value. Founders should take these into consideration when determining how to capitalize on their business’ registered IP as much as possible. In the long run, owning registered IP will serve a Founder’s business well and increase value substantially.

 

Founders’ Friday is a series published by attorney Brian A. Hall of Traverse Legal, PLC d/b/a Hall Law on Fridays dedicated to legal considerations facing founders and start-ups. This week’s post contributed by attorney Mallory Donick.

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