Articles Posted in Business Law

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Spam, for those lucky enough to be unfamiliar about it, are those unsolicited commercial emails that often clutter up inboxes with offers of sales and services that range from the reliable to the questionable.  Due to the issues presented to consumers, Congress, in its wisdom, enacted a law called the CAN-SPAM Act, and began enforcing it in 2004. First, what is the CAN-SPAM Act and what does it prohibit?  Second, as a federal law, does the CAN-SPAM Act override, or preempt those laws a state may already have in place?  How can you tell if that may happen?

What is the CAN-SPAM Act?

The CAN-SPAM Act places prohibitions on transmission of any email that contains false or misleading headers or “from” lines.  For example, a business that is not Facebook, and has nothing to do with Facebook, would be prohibited from sending an email with the subject “Your Facebook account has been compromised” or send an email from www.facebook.com.  In addition, this law places a requirement for three disclosures: (1) clear and conspicuous identification that the message is an advertisement or solicitation; (2) clear and conspicuous notice of the opportunity to decline to receive further commercial email messages from the sender; and (3) a valid physical postal address of the sender.  This is done, in part, due to the interest of the legislation in helping consumers under the principle that they should not be misled and should have a right to say no to unsolicited commercial emails.

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Trademarks and branding are an important part of any business organization.  They build the organization’s reputation in providing a product or service.  In late January, the Fine Brothers, had made an attempt to begin a new business venture in licensing their trademarks and intellectual property to create a larger media congregation called “React World.”  The brothers had built a business on producing videos showing the reactions of different subsets of the population, from children to the elderly.  In doing so, they would monetize the videos through sponsorship and advertisement.  To ensure their ability to monetize and license their intellectual property, they applied for trademarks for the words “React,” “Kids React,” and other derivatives.  This prompted a backlash by individuals, fearing that the actions by the Fine Brothers would be used to curtail their activities on the web.  The sheer magnitude from this backlash led to the Fine Brothers withdrawing their application from the process and cancelling their plans.

Notwithstanding the public backlash, the Fine Brothers would likely have their application approved and pushed beyond the public contest phase if they had only waited a little while longer.  The public contest phase is exactly where the Fine Brothers managed to fail.  If they had not brought attention to their trademarking efforts, it would have likely passed through the process.

In general, in the trademark application process, after the trademark examiner tentatively approves a mark, there is a 30-day period to file an opposition. This is open to all individuals that may be harmed by the mark, not just those with similar marks.  As such, the public was able to protest the granting of the “React” trademark.  When seeking a trademark application, the sort of public outcry that occurred in response to the “React” trademark should be avoided.  The 30-day period, while it would be available to the public, did not need to be publicized as with the Fine Brothers.  In filing a trademark that may garner some public opposition, there is no need to draw further attention to it.  If the brothers had not withdrawn their application, this type of opposition would have been heard by the Trademark Trial and Appeal Board, and overcome by the Fine Brothers.

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In recent years, the internet has connected the general public across continents.  Notably, it can be expected that data can easily travel across countries in a blink of an eye, without any delay and on a daily basis.  The transfer of data is an important part in business as well.  With any multinational entity, personal data crossing countries is inevitable.  However, each country may have different guidelines that a business must ensure compliance.

Recently, the European Union announced a new change to its privacy laws.  Formerly, it would allow American, and other businesses, to obtain a “pass” for its privacy laws by certifying themselves as compatible for its safe harbors scheme.  This safe harbor scheme requires a business to meet standards for privacy protection.  However, on October 6, 2015, the European Court of Justice ruled that the previous system for allowing corporations to obtain accreditation, and shifting data between the United States and Europe, was improper due to the current intelligence methods in the United States.  This oversight ended the safe harbor provision.

The new rules establish a Privacy Shield register and a free alternative dispute resolution system.  The organizations will have to self certify annually, with verification by the Department of Commerce, and comply with the Privacy Shield framework.  As part of compliance, organizations must provide a response within 45 days and create a no-cost independent recourse system where complaints and disputes will be resolved in a timely manner.  In addition, the European residents will be able to pursue legal action for claims such as, misrepresentation, and the participants must commit to binding arbitration at the European citizen’s request.

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Trademarks are a vital part of how your business is branded and how you appeal to clients and consumers.  What about those trademarks that push the boundaries on what is socially acceptable?  Generally, the government may not protect those marks that are beyond what is socially acceptable.  What is socially acceptable now?  Can the same standards apply and restrict what you can trademark?  To what extent can you push the boundaries in your branding?

How did the court rule in In Re Tam?

In recent times, the United States Patent and Trademark Office (USPTO) has ceded the restrictions on demeaning and offensive marks.  This is in response to the recent “Slants” case, where Simon Tam, a musician, filed a trademark application for his band’s name “The Slants.”  His trademark application was then denied under Section 2(a) of the Lanham Act.  This section prohibits the use of immoral, deceptive, or scandalous marks that may disparage living or dead people.  This section is infamous for the reason why the Washington Redskins trademark was cancelled.  However, Mr. Tam contested the refusal of his trademark, claiming that he wanted to take back the word “Slants” for his band, resting his argument on the First Amendment.  In doing so, through a long legal battle, the Federal Circuit eventually found for Tam, in an en banc hearing, stating that Section 2(a) violated his First Amendment right.  Furthermore, while the ruling had only applied to the disparaging part of the section, the USPTO ceded that the “scandalous and immoral” aspects of the legislation were likely to be unenforceable for similar reasons.

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Product diversion is when an unauthorized seller sells a product outside of authorized distribution channels. The product goes through various unauthorized channels in order to reach the shelves or listings on a website. This is a common practice with high end and expensive beauty products.

The way these unauthorized retailers and e-commerce sites obtain these products often involves reaching out to an authorized seller of the product. For example, many manufacturers have a contract with various salons to exclusively sell their products. These salons, in turn, sell the products per their contract. However, there are salons that work in the gray market. The ones that are in the gray market enter into deals with a third party that offers to buy the items in bulk. The third party then sells the item to an unauthorized seller. The unauthorized seller then sells the items on websites such as eBay and Amazon.

The danger of diverted products going through these unauthorized channels are high for both the consumer and business. For example, products can be tampered with during the process. Products can change bottles, be diluted, and more. It could cause health problems for those who are sensitive towards certain ingredients. It can also be dangerous to businesses because it will hurt their profits. The businesses will lose their cut of product sales from the authorized seller and can receive negative reviews from the public. For example, if a consumer, who has used Brand X body wash for years, buys the Brand X body wash from an unauthorized reseller because it was cheaper on Amazon than in store and has a severe allergic reaction to it, then he/she may be tempted to post a negative review. The problem is that the blame is not on Brand X, but on whoever tampered with the product before it was sent to the consumer. Although, the blame is on someone else, Brand X will receive the negative review that will discourage other consumers from purchasing its product.

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In recent times, counterfeit items have become a large problem for many designer luxury brands. With the rapid growth of e-commerce, counterfeiters have moved their products from the streets to the Internet. This creates a problem for designer luxury brands because it is not easy for counterfeit items to be sold before their eyes. The sale of counterfeit items can affect everything from sales, to reputation, to good will. Many designer luxury brands are players in the fashion industry. The fashion industry, however, is a fickle one. One day you are in, the next you are out. The biggest asset a designer luxury brand can have is its status. Once the brand starts to lose its status in the industry, it is difficult to recover.

Protection of intellectual properties against unfair competition has become a constant battle for designer brands. The latest battle comes between French luxury company, Kering, and Chinese e-commerce giant, Alibaba. Kering luxury brands include, Gucci, Yves Saint Laurent, and more. In May 2015, Kering filed a lawsuit against Alibaba for encouraging and profiting from sales of counterfeit items on its website. This lawsuit, however, is the second legal action between the two parties. The first lawsuit was filed in July 2014 with similar causes of action. The lawsuit was retracted when Alibaba promised to work towards stricter intellectual property protections. However, Kering became frustrated with the lack of progress and filed the second lawsuit in 2015.

In its complaint, Kering alleges that Alibaba encourages counterfeiting on its platforms by allowing keywords such as “replica” and “guchi” to lead to counterfeit items. The complaint alleges Alibaba fosters the sales and purchase of counterfeit goods by providing a platform for such transactions. Alibaba, however, argues the lawsuit is frivolous and claims that it works with luxury brands to help protect their intellectual property.

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In general, trademarks are marks that are associated with a particular brand. Examples of trademarks include the golden arches for McDonald’s and the mermaid for Starbucks. Trademarks are important to businesses because they distinguish the business from its competitors. Businesses use these marks in marketing to gain consumer attention. Once a consumer is familiar with a brand, has developed a positive opinion on it, then he or she is more likely to buy products from the brand.

However, when a particular business becomes successful, competitors will often try to emulate the business’s model and possibly engage in deceptive practices. A common practice is trademark infringement. Trademark infringement is when a business takes another business’s trademark and creates a similar mark. What the infringing business is banking on is consumer confusion. It is hoping that consumers will be under the impression that the infringing business is associated, or possibly, even be the business that actually holds the mark. The infringing business is then taking away sales from the authorized trademark holder.

Dangers of Online Trademark Infringement

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If you have ever been involved in a federal civil lawsuit, you may be familiar with the Federal Rules of Civil Procedure (FRCP).  The FRCP are a set of rules that regulate federal civil lawsuits. The rules address issues from court and party obligations to enforcement of remedies. The FRCP was first adopted by order of the Supreme Court in 1937 and placed into effect in 1938.

On December 1, 2015, these rules were amended. Many of the changes affect electronic discovery (e-discovery). Prior to the internet age, discovery and discoverable evidence were primarily based upon paper transactions.  With the rapid rise of the web, many started to turn to electronic storage of information.  As the data and information-storage landscapes began to change, the rules had to change.

The amendments brought changes to Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, and 55.  The amendments also brought on the abrogation of Rule 85 and the Appendix of Forms. The changes that affect e-discovery are as follows:

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The internet has become the home to many advances in the world. With one click of a button, a person can communicate with another person located on the other side of the world. With another click of a button, a person can buy a shirt and have it delivered right to his/her doorstep in a matter of days. Not only has the internet made things more convenient, it has become a tool in starting a business. Besides finding a tutorial to create a website, inventors can now fund their projects to bring their ideas to reality through crowdfunding. The inventor simply places his idea on a crowdfunding website, e.g., Kickstarter or Indiegogo, and sends the link to a large group. Depending on the invention’s popularity, the entrepreneur can raise a high amount of money with little effort.

Crowdfunding is starting to become a viable source of funding for startups. According to Forbes, crowdfunding is predicted to overcome venture capitalists next year.  Although, crowdfunding has made it easier to create a business, it does not come without legal problems. One of the biggest issues is intellectual property. From patent trolls, to patent infringement, crowdfunding websites have found themselves under attack by businesses.

In late 2012, 3D Systems brought a patent infringement lawsuit against Formlabs.  3D Systems alleged both direct and indirect patent infringement for its three-dimensional printing technology. This lawsuit came after Formlabs collected over $2 million from its crowdfunding campaign to put its three-dimensional printer into production. Formlabs was planning on selling the printer for less than 3D Systems’ printer, leading to the filing of the complaint. No answer was ever filed in the original suit, but a series of time extensions indicated that the companies were looking for a settlement. In late 2013, a notice of voluntary dismissal was filed and a settlement looked imminent.

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ZeniMax Media, Inc. (“ZeniMax”) is a company that develops and publishes video games. These games include Fallout and Elder Scrolls. ZeniMax publishes the video games through its subsidiaries and has found widespread success in the gaming market. With that widespread success, ZeniMax was able to allocate funds for the development of virtual reality gaming.

In April 2012, a ZeniMax employee started communicating with Palmer Luckey. At the time, Luckey was a college student working on a virtual reality headset prototype named Rift. The ZeniMax employee took interest in Luckey’s creation and offered some help in its development. Luckey then sent the ZeniMax employee a copy of his prototype where the employee and other ZeniMax personnel added their own improvements. After their improvements, ZeniMax entered into a Non-Disclosure Agreement with Luckey to share the enhancements made on the prototype, including its use in a game ZeniMax developed.

After the prototype became a working model, ZeniMax performed demonstrations at the Electronic Entertainment Exposition. The demonstrations were only done by appointment. After adding his own modifications and merely days after the exposition, Luckey started to commercialize the headset under a newly-formed company called Oculus VR.

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