Norton Law Corporation Trademark Assets

Buying Trademark Assets: Does the Seller Really Own Them?

When you buy a business these days, you’re going to want to make sure you’re also purchasing the trademark assets from that business. Any good trademark or business attorney will make sure the intellectual property, including trademarks, copyrights, and patents, are included in any purchase agreement. But beyond that, how can you really be sure that the rights you’re buying are actually owned by the company you’re buying them from? That’s the question we’ll try to answer in this post, with a focus on trademark rights and a few helpful tips for making sure the trademark assets are actually owned by who you think they are.

Of course, my standard disclaimer applies. This post is just for general informational purposes only, and while I’m a lawyer, I’m not your lawyer (unless you’re actually a paying client who has signed a retainer agreement with me and you’re reading this). Any time you enter into any kind of deal to purchase intellectual property from another person or company or a deal to purchase a company itself, always consult an attorney (and an accountant at the very least) before you enter into the transaction.

With that out of the way, you’re probably wondering what’s the deal with trademark assets not actually being owned by the company you think you’re buying them from. There’s a couple of common occurrences I’ve seen that leads to ownership issues.

The first is that the trademarks are actually owned by a subsidiary of the company that’s being purchased instead of the company itself—and for whatever reason, the subsidiary is not part of the deal.

The second is that the company acquired the trademark from someone previously and, due to chain of title issues, the prior owner didn’t actually own the rights to use the trademark. There are others, of course, but those are two of the more common reasons why a company may not own the trademark asset you think you’re purchasing.

So what is a purchaser to do to protect themselves? It starts with a list. You (or your attorney) need to create a list of the intellectual property you think you’re going to be purchasing. This should include the following:

  • Trademarks
  • Service Marks
  • Copyrights
  • Patents
  • Trade Dress
  • Trade Secrets
  • Trade Names
  • Domain Names.

And don’t just include those you think are truly owned by the company you’re buying, but include those that are owned by other companies or individuals and are licensed to the company you’re buying. Unless you’re going to completely overhaul the business, you’re going to want to keep using those licenses after you purchase the business.

Once you have your list of expected intellectual property you’re going to receive from the transaction, you’re going to want to cross reference that with the list the seller provides, since their list will be the most up-to-date. They are the current owner of the business, after all.

If both lists match, you’re sitting pretty knowing that at least both parties are contemplating the same IP being transferred during the sale. If not, you’re going to have to do some digging. It’s always best to find that some intellectual property asset will not be transferred beforehand than it is to go back and fix it later by finding the correct owner and entering into additional agreements (at additional cost, of course) to secure the assets.

Aside from the lists, you (again, your lawyer) will also want to take a look at the current states of the company’s intellectual property dockets. This is incredibly important for trademark, service mark, and patent assets, as successfully managing those types of intellectual property require a near-constant watch on upcoming deadlines.

If there are many assets contemplated as a part of the deal, chances are the seller will have a docketing system in place, and you should view the current one-year summary of the docket to see what deadlines are coming up. You don’t want to be the buyer who purchases a valuable trademark only to suddenly realize upon the deal closing that the deadline for renewal lapsed after the deal closed but before you could properly take up management the mark.

Aside from trademarks, there are other things to watch out for when it comes to other intellectual property assets, but those are issues for another post.

I hope this post was useful to you if you’re considering buying (or selling, I suppose) a business. As I often say, a trademark can be one of the most valuable assets of a company, and you want to make sure you’re getting what you’re bargaining for. If you have any questions or comments, please feel free to contact me or leave a comment below.

Benefit Corporation

The Benefits of a Benefit Corporation

Benefit corporations (commonly known as B-Corps) are a relatively new—around a few years now in California—way of organizing your business entity. Designed to balance the for-profit interests of a traditional C-Corporation with the corporate responsibility that all modern businesses should take part in promoting. It’s like a for-profit-non-profit hybrid! Keep in mind, though, you don’t get the tax exemption benefits from the IRS (and your state) like you do with a non-profit.

But why would you want to go with a benefit corporation over a traditional C-Corp, S-Corp, LLC, or even a non-profit?

Before we get into the benefits of B-Corps, let’s briefly discuss how to form one and how they work.

Forming a B-Corp is essentially the same process as forming a normal C-Corp. Articles of incorporation filed with the Secretary of State’s office and you’re good to go. Of course, you can still limit director liability as you can with a regular corporation, but you also have to specify the corporation’s public benefit purpose. Filing fees at the time of this writing are the same for C-Corps and B-Corps.

After formation is where running a B-Corp becomes significantly different from running a traditional business entity. First off, the California B-Corp statutes require transparency in your business. This means you’re mandatorily required to report certain corporate records, generally on your company’s website.

Another big change is that a super-majority (more than just over 50%, generally two-thirds vote) of shareholders is required to modify your B-Corp’s public benefit purpose, and to make other various corporate changes. And if you’re a dissenting minority shareholder, you may actually have the right in certain circumstances to have your shares purchased from you at fair market value.

Benefit corporations are required to provide a reports to shareholders with reports detailing the goings on of the company and how they’re meeting their requirements to further their public benefit.

Finally, because this is a benefit corporation we’re talking about, your company has to advance a general public benefit. This means that your B-Corp must make a positive impact on society and/or the environment. Along those lines, there is a third-party organization, called B Labs, that certifies benefit corporations, providing them with a variety of extra perks upon certification. And that’s the real reason why benefit corporations are great—the perks that come with being a Certified B-Corp and the fact that your company is being used (albeit forced) to do good for society as a whole.

Which leads us to the question of how you choose between a traditional corporate structure, a benefit corporation, or a non-profit.

The main question that I ask my corporate formation clients who have expressed interest in benefit corporations is what they want out of their business. Are they purely interested in making a profit? Are they interested in promoting a public purpose? Or is it a mix between the two—and how weighted to one side or another is it?

On a very basic level, here’s how the answers to those questions tends to group my clients.

If you’re purely interested in making a profit or if you’re starting a technology startup and you know you’re going to be seeking venture capital financing in the near future, stick with the C-Corp (or S-Corp in certain circumstances).

If you’re purely invested in helping society and promoting a public purpose, then form a non-profit.

If you’re somewhere in between, go for the benefit corporation—or the lesser known Flexible Purpose Corporation if you’re in California.

So which type of entity is right for you?

When it all comes down to it and you’re in the process of starting your new company, how do you choose which type of entity to base your company around? The best way is to sit down and have a chat with a business attorney to help you sort out which entity is the best based on what you’re interested in doing. While I’ve provided a few questions above, it really comes down to a lot of nuanced, individualized factors to determine whether a B-Corp is right or an S-Corp is right. And that’s really why talking to an attorney is paramount—you don’t want to find yourself spending the extra money down the road to change your corporate structure.

Online Sales Tax

Online Sales Tax: What Small Business Owners Need to Know

I’ve worked with my fair share of e-commerce companies and individuals selling their handmade products online. At some point, most, if not all of them, approach me with the same question. Do I have to collect sales tax? The answer, in true lawyer fashion, is always “it depends.”

Of course, this time, it depends greatly on the state where your business is located. Most states make businesses collect sales tax—but some don’t. So if your business is located in Alaska, Delaware, Hawaii, Montana, Oregon, or New Hampshire, you can stop reading right here. You’re exempt from collecting sales tax from your customers. Unless you have such growth that you’re expanding your distribution network by building warehouses in every state.

As we’ve seen with Amazon—which used to not collect sales tax from anyone outside of it’s home state of Washington—there is a war brewing over online sales tax collection. You see, as more and more businesses find it profitable to sell their goods online without a physical store, more and more cities and states lose out on their sales tax revenues. Which, while a good thing for the consumer since they’re saving a buck or two on their purchases, is a bad thing for the cities and states. Amazon apparently claimed for years that their very slight presence (a shipping facility) was not enough for the state to have control over their taxing. But a few years ago they became forced to collect taxes from citizens of states where there was a distribution center, including my home state of California.

For those of you with businesses in all other states, you’re most likely going to need to collect sales tax from your customers. But how much? Since I’m a California based small business attorney, we’re going to keep this California-specific. What if your business is operating out of Silicon Beach (Santa Monica, CA) or the greater LA area? At the time of this writing, sales tax in Santa Monica is 9.5% while the base CA sales tax is 8%. Which one do you charge?

While most companies would probably just charge the California tax, the answer is a little more difficult than that. And please keep in mind here that this is a very basic overview, but you’re supposed to charge the state tax rate plus the special district tax rate. As a result, if you’re in Santa Monica, you’re going to need to charge the higher tax rate to all sales in your district. But if you’re in Santa Monica and you sell your product to someone in San Francisco, then you only have to charge the California sales tax rate. Of course, there are also caveats for different types of items sold and county taxes, but that’s the general rule.

Oddly enough, although I’ve had this post calendared for a few months now, just today, Engadget posted a very comprehensive writeup about the battle going on over internet sales tax. Very topical indeed.

And on a side note, it’s been a few weeks since I’ve posted anything here. That’s because I’ve been working on a few different projects—all highly specific mini-sites designed to help elucidate the various aspects of trademark law. If you’re interested in reading any of them, here are the links:

  • TrademarkOfficeAction.net: A website dedicated to helping small business owners understand and respond to USPTO Office actions they’ve received as a result of their trademark applications.
  • TrademarkOppositionAttorney.net: A website dedicated to helping business owners and trademark registrants understand trademark opposition proceedings.
  • BrandProtectionAttorney.net: A website designed to explain, in broad strokes, how business owners can protect their brands through trademarks, trade dress, copyrights, patents, and trade secrets.
  • TrademarkRegistrationLawyer.net: A website dedicated to helping small business owners understand the trademark registration process and why registering a trademark is so important in today’s international economy.

So there you have it. A quick and dirty post about sales tax and a bit of information about some other side projects I’m pursuing in my spare time. I’ll be back to my weekly posts on the Norton Law Corporation Blog for Business Owners from here on out, though.

Norton Law Corporation Non-Compete Agreements for Independent Contractors

Independent Contractors and Non-Competes Never Mix

A shorter week equals a shorter post. That means it’s the perfect time to talk about an issue that comes up a fair amount. Can I get my independent contractors to sign a non-compete agreement? If you haven’t read the title, get ready for a surprise: NO. That’s right, you never want to have your independent contractors sign a non-compete agreement. I’ll explain why in a little bit, but first some backstory.

Employers love hiring contractors over employees for a ton of reasons. No benefits. No healthcare. No wage laws. No vacations. You don’t have to deal with those bureaucrats and their rules getting the the way of your business. In fact, most employers would love to hire only independent contractors. Too bad that’s just about impossible given the differences between employees and independent contractors. But that’s a story for another blog post.

Many employers, to avoid the extra costs of employees, misclassify employees as contractors. And that’s, for those of you who haven’t read my other post comparing employees and independent contractors, is a big no no. Misclassification just leads to a lot of fines and lawsuits and other nasty situations down the road, so don’t do it. And more and more governmental agencies are starting to take notice—much to the chagrin of the employers.

But here’s the thing. Somewhere along the way, employers felt their contractors were sharing trade secrets. After all, they were working for the competition, often at the same time. And truth be told, you should hope they are, since that may tip the scales to the independent contractor side over the employee side. Employers did not see this as a good thing, and so they asked their independent contractors to sign non-competes. As I stated in the intro, this is bad—very bad. Why?

Because non-compete agreements are documents only signed by employees—NEVER by independent contractors.

It all comes down to the question of who is a true independent contractor? One who checks all the contractor boxes in the employee versus independent contractor test. One who works for others while they’re working for you. And if you make that contractor sign a non-compete agreement, then guess what, they now only work for you—like an employee. But what’s so bad about that? Well, they’re supposed to be working for a variety of companies in the same industry in which they have expertise. After all, I assume that’s why you hired that independent contractor. You wanted someone with unique knowledge of the industry. And how did they get that knowledge? Probably by working for some of your competitors.

So what is a savvy business owner to do when she wants to hire an independent contractor? Well, as you’ve just learned, never have them sign a non-compete agreement. Instead, make sure they sign a confidentiality agreement (aka a non-disclosure agreement). An independent contractor agreement that lays out exactly what they’re to do and how much they’re paid for it is also great. Follow those up with an invention assignment agreement and you’re all set. After all, you don’t want their hard work (which you paid for) to wind up as their property. Those three documents are usually enough to keep employers out of trouble. As long as they stay out of their contractors way.

And for those who are hiring an independent contractor for mission critical activities? Double-check that you actually want an independent contractor and not an employee. If that’s the case, then slap that non-compete agreement in front of your contractor and tell them to sign it. Well, maybe don’t slap it in front of them, but you get the picture.

One final note. If you’re hiring someone and you want them to be classified as an independent contractor, take a look at our other blog post on the subject. 7 Tests to Determine if that Independent Contractor You’ve Hired is Actually an Employee. And if you need help drafting any of the necessary documents for your business (like employment or contractor agreements), feel free to contact me.

A few notes: Somehow this has become the most popular post on my website, which has led to a number of questions. Allow me to address some of the most common.

  1. Is the de facto rule that independent contractor agreements should never have a noncompete clause, no way no how, lest it automatically render the agreement invalid or something like that? No. There are some reasons to include one, but on the whole including a noncompete clause in an independent contractor agreement can lead to that independent contractor being classified as an employee. It is simply one of many factors to be looked at when trying to determine if an independent contractor is actually an employee in disguise. Furthermore, this post—like all of the posts on my website—is merely legal conjecture. It is not necessarily the black letter of the law nor should it be considered applicable to your unique situation. If you have a legal issue related to independent contractors and employees, contact an employment attorney.
  2. Does this post apply to me in my state/country in my unique situation? I can’t tell you that. Being a California lawyer, I can only talk about issues based on a California perspective (with the exception of my trademark and copyright law posts, which in certain circumstances are designed to cover the Federal laws dealing with trademarks and copyrights). So if you are in another state or country, you will need to look to that state or country’s own laws regarding the issue of whether a person is an independent contractor or an employee. As for whether I can answer you regarding your personal situation, that depends on the facts at hand and whether you are located in California.
  3. Does the presence of a noncompete agreement in an independent contractor agreement automatically render that agreement unenforceable or automatically mean that person is an employee rather than an independent contractor? No. Again, the presence or lack of a noncompete in an independent contractor agreement is just one of many factors to consider when tasked with trying to determine whether a person is an employee or an independent contractor.
  4. Is there ever a good time to put a noncompete agreement in an independent contractor agreement? Sure. If the independent contractor you’re hiring is doing something very similar to what kind of business you’re running before you hire her as an independent contractor and plans to continue doing the same after she’s finished her tasks with you, then you may want to have a noncompete in there. But just be aware that you may find that person should probably have been classified as an employee given their similar skill set to what you’re doing as well as the presence of the noncompete.
  5. Will you help me litigate my case on the issue of independent contractors and employees? No. Sorry. I have no interest in litigating. My practice is almost entirely business transactional (I draft contracts and other business documents as well as file and prosecute trademark and copyright applications) except for the rare trademark or copyright case that requires court action. Moreover, I am certainly not an employment attorney, and there are plenty of good attorneys out there who only handle employment law issues.
Norton Law Corporation Blog Etsy Business Trademarks and Corporate Formation

How to Protect Your Etsy Business

The idea for this post came from a couple of different sources. First of all, I’m getting married in just over a month, and my fiancee and I have been ordering quite a few things from the handmade capitol of the world over the last few months. Secondly, I recently read an article a couple weeks back about Urban Outfitters, H&M, and Forever21 allegedly ripping off the designs from a number of artists on Esty—I’d post the link, but I forgot to save it (and in true lawyer fashion, I also can’t really comment on whether those companies engaged in that kind of activity). So I figured, why not make a post on how shop owner on Etsy can best protect themselves not only from liability, but from other companies leaching off of their great ideas and unique designs.

Now, it should be noted that Etsy’s corporate counsel, Hissan Bajwa, wrote a post a year or so ago about the various types of business entities an Esty shop owner could own, but I feel like he may have left out a few things and wanted to go into a little more detail. Keep in mind that everything in this post is merely general advice, and none of it should be considered legal advice since (for most people reading) I’m not your attorney and I’m not basing any of this article on specific, individualized, facts but merely general observations.

The Best Legal Structure for an Etsy Shop Owner

What the best legal structure is for your business is going to be a question for your own personal business attorney. That’s right, you’ll need to evaluate what you’re selling, whether you’re working with anyone else, and what the taxes will be like depending on the type of structure you’re interested in (and that’s also a good question for a CPA, as most good business attorneys will tell you).

Let’s Talk Sole Proprietors

With that said, I’ve been shopping on Etsy for a long time, and I know that for most of the seller out there, who are working part time crafting their wares, a sole proprietorship is fine. You’re doing business as yourself (or under an assumed name, for which you’ll need a “Doing Business As” DBA recorded pursuant to your county’s rules), and as a result, if you run a shop on Etsy, you’re already a sole proprietor. From a tax perspective, you and your business are one in the same, and from a liability perspective, you’re also one in the same—which an lead to you being held personally liable for any lawsuits that may pop up against your business. Do keep in mind that you may be able to protect yourself with liability insurance, but be sure you really know what your policy says.

In short, a sole proprietorship structure is easy to run (all the money just goes to you), easy to maintain (you don’t need any specific filings or documentation except for a DBA), easy to form (automatic as soon as you start doing business), but you need to watch out for the liability problems or you could get seriously burned (you’re personally liable for everything done in the name of your business).

So, in an incredibly general way, I’m going to say that for most Esty sellers, a sole proprietorship is all you need—especially if you’re just starting out and don’t want to invest a bunch of money into a business you’re not sure is going to work—unless you’re selling items that could injure someone, including vintage items, food products, beauty and grooming products, certain types of furniture, or anything that could injure someone.

Partnerships Are Just…Meh

Now, the question when you decide to start working your business with another is whether to form a partnership or one of the more “sophisticated” business structures like a corporation or a limited liability company (LLC). This might just be personal preference talking, but I’m not a fan of the partnership structure unless it’s absolutely necessary (which does happen in very specific circumstances which are way, way outside the scope of this article). Essentially, you and another person enter into a business partnership, at which point I always recommend a partnership agreement—seriously, if you’re partnered with someone and you don’t have a partnership agreement, call an attorney and get one drafted now, this very instant, I’m not kidding—when you start operating the business together.

A partnership is kind of like a sole proprietorship, but for two people. Same as before, they’re easy to run (just split that money as stated in your partnership agreement, or equally if you don’t have a partnership agreement), easy to maintain (again, just file for a DBA and that’s all you’ll need provided you and your partner are still getting along), easy to form (just start doing business with someone else), and as with the sole proprietorship, easy to get totally screwed if someone sues the partnership. And why you may ask? Because in a partnership, both partners are on the hook for the entire amount of any liability the partnership incurs. So if your partnership is sued, and your partner can’t or won’t help pay, you’re going to be stuck holding the bag (though in all fairness, you can try and get the money from her later).

My feeling about partnerships for Etsy store owners is this: if you’re doing enough business that you’re in need of a business partner, skip the partnership, spend the money and form a corporation or an LLC.

Better Liability Protection Comes at the Price of a Corporation or LLC

We come to the last two types of businesses for Etsy shop owners: the corporation and the LLC. Now, there’s only one type of LLC (unless you count LLPs, which are like LLCs and partnerships mashed up and only used in limited circumstances), but there’s a whole slew of corporation types, from C-Corp to S-Corp to B-Corp. We’re going to talk about a few pros and cons of all of them, but a somewhat more detailed study, you may want to check out my other articles on corporations and LLCs.

For a lot of small business owners, the biggest issue I run into with corporations and LLCs is that entrepreneurs don’t like to pay for them. Most of the time, as long as you do yourself a favor and stay away from the non-lawyer legal service providers you see advertised on TV, you’re going to have to shell out around $500 to $1000 to get a corporation or an LLC formed after attorney fees and filing fees with the state you choose to incorporate in. For some business owners, especially Etsy sellers who are just getting started, that’s quite a chunk of change, and you’re probably wondering what you get for that.

What you get for that is a lot more liability protection in case something goes wrong and your business gets sued. This means that if the business is sued, you’re most likely going to be protected. It also means that you have to keep up with a lot more busywork to keep your business going. Extra documents will need to be drafted, meetings will need to be held, a separate set of taxes will need to be done, and so on. But all of that comes with the big perk that if your business is sued, you and your family aren’t going to have to pay for the damages out of pocket if you lose—your business is solely responsible. And because of that big benefit of a corporation or LLC, if you’re selling products that run a higher risk of hurting someone, do yourself a favor and talk to a business attorney (most of us are free to consult with) about whether you should go the corporation route.

On top of the liability protection, some of the corporation types also give you extra benefits. For smaller businesses, I say stay away from the C-Corp structure unless you’re interested in securing some kind of venture capital investment. However, an S-Corp can help you save money on taxes, and a B-Corp can help you save money on certain supplies and other necessaries to keep your business running since having a (Certified) B-Corp shows the world that your businesses takes social responsibility seriously.

Protect Your Handmade Items from the Prying Eyes of the Big Companies

While the first part of this post dealt with how to protect yourself in the face of liability, the second part of this article will deal with how to protect your products from “theft” by the competition. At the outset, it’s important to know that not everything can be protected and a full on, proper protection scheme will cost you a lot more than you’re probably making selling your products on Etsy, but I’ll give you a few hints and tips on how to protect your products without breaking the bank.

Also, every industry has a preferred type of protection, wether it’s copyright, patent, trademark, or trade secret, so I’ll be touching on all types of protection.

Don’t Copy Me…I Have a Copyright

Copyright protection is automatic for things that qualify for it. That’s right, you don’t need to file any paperwork, pay any fees, or anything like that if your items qualify for copyright protection. However, obtaining a copyright for many types of products is simply impossible, and if you want to go after someone for money damages who has copied your work, you’re going to have needed to register your copyrighted item with the Copyright Office arm of the Library of Congress.

So here’s how copyrights come to be. They need to meet two main requirements: originality and fixation in a tangible medium. First, something needs to be original to be copyrighted. It doesn’t have to be super original, just mostly original. Second, it needs to be fixed in a tangible medium. Say what? That just means it has to be more than just an idea, it has to be “touchable” for lack of a better word. There’s also a third requirement: the item can’t be functional.

With the requirements out of the way, let’s talk about a few items currently on Etsy’s front page that may be able to qualify for copyright protection. Jewelry, clothing and accessories, photographs, paintings, furniture, and eyewear. That’s a pretty wide range of products, all of which may be available for copyright protection provided any individual item from a group of items like that is able to meet the requirements for a copyright.

If You’re Trading Goods, You Need a Trademark

Trademark protection is another great way to keep the big companies at bay and protect your products. First things first, I’m a trademark attorney, so I always recommend that if you’re serious about your business, you really need to spend the few hundred dollars to trademark your company’s name. You don’t have to spend extra to trademark a logo or a slogan, but do yourself a favor and trademark the name of your company to give you that extra leverage to fend off competitors who may try to leach off your success. And even if you’re not worried about that, at least have a qualified attorney perform a trademark search to make sure you’re not infringing on the trademark of another. Seriously, I’ve seen it happen before, and a few hundred dollars now can save you tens of thousands later.

With that out of the way, trademarks are designed to protect brands and make sure consumers know where any given item is coming from. Most notably, business owners register trademarks for the name, logo and any slogans used by the business, along with the names they use to brand their products. However, beyond that, certain characteristics of the products themselves may be eligible for trademark protection under what’s known as trade dress. Trade dress extends trademark protection to the decorative, non-functional, non-essential portions of a product, which makes it an excellent way to protect certain types of products. Here’s a few examples of where trademark protection may be applicable: watches, clocks, clothing, jewelry, eyewear, and accessories.

Patents are Patently Expensive

Patents are the third category of intellectual property protection, and to be perfectly honest, they’re way beyond what you’ll likely need as an Etsy shop owner. They’re usually incredibly expensive and take a long time to obtain, and I really don’t recommend patents for most small businesses.

Keep Your Recipes a Secret, a Trade Secret

The final type of protection for your products is trade secret protection. Purveyors of food products, beauty products, and other consumables, its time to listen up. Trade secrets protect the recipes and formulas you use to create your products, but they can also be used to protect things like customer lists, supplier lists, and pretty much anything that makes you different from your competition. The catch? You need to keep your trade secrets a secret. Don’t tell anyone you don’t need to. Make those you do tell sign a non-disclosure agreement. And if you write any of your trade secrets down, keep them under lock and key and only let others see them on a need to know basis.

A Quick Conclusion to a Long Article

At over 2400 words, I think this is the longest article I’ve written on my site, but there was a lot of information to cover and I hope you’ve learned a thing or two about how to protect yourself and your Etsy business. A few things to keep in mind in parting.

Sole proprietorship is probably fine for many Etsy shop owners, but not all, so call an attorney if only for a quick (free chat) about business structures if you’re worried about liability or interested in taking advantage of the perks of a corporation or LLC.

Copyright and trademark protection may be available for your products, but don’t just assume. As far as trademark protection goes, take a look at the (growing) database of common trademark questions for some quick answers on whether your product may be trademarkable. And if you have a product or service to add, let me know and I’ll give you credit for it.

Whether you’re a sole proprietor using a DBA or a full-fledged corporation, trademark your business name, or at least spend the money on a professional trademark search to make sure you’re not infringing on the trademarks of another.

And that wraps it up. Good luck in your endeavor on Etsy and I hope your business continues to grow into a huge success. And if you’re already a shop owner on Etsy, feel free to share your shop in the comments below.

Norton Law Corporation Presents a Post About the Business Documents Your Company, LLC, or Corporation Needs

7 Documents You Need to Keep Your Business Legally Sound

I’m always a little surprised when savvy business owners come to me to make sure their business is operating legally, only to find they’re missing a number of key documents. To be perfectly honest, a lot of the documents only matter if you’re in the process of expanding your business, going to sell your business, looking to take on investors, or you’re going to register your company’s securities with the SEC. But, that being said, if you want to save yourself a lot of headaches (and a lot of money having attorneys fix things that are horribly, horribly broken) before you take those steps towards growth and expansion, and if you want to protect you and your family’s interests in the most comprehensive way possible, it’s always a good idea to make sure your business’s documents are in order sooner rather than later. Without further ado, the documents you’ll need:

  1. Articles or Incorporation / Certificate of Incorporation / Articles of Organization: These documents have many names depending on where they’re being filed and what they’re being filed for, but they all have pretty much the same purpose—to let the Secretary of State (or the equivalent Division of Corporations) know your business is registered as a corporation or a limited liability company (LLC).

    If you’re incorporating your business in California, for example, you’ll need to draft and file the articles of incorporation. There’s a form, but if you hire a half-decent business attorney, they’ll draft you articles that actually apply directly to your business rather than shoehorning you into what the state’s template provides.

    The Certificate of Incorporation is the document you’ll need if you want to incorporate your business in Delaware. It’s very similar to what you might file here in California, with a few tweaks (and a different name). If you’re not sure whether you want to incorporate in Delaware or your home state (not necessarily California), I wrote a nice article on that a few months ago: Why Your Home State May Be the Best Place to Incorporate Your New Business.

    As for the Articles of Organization, that’s the document you’ll file in California to organize your business as an LLC. Of course, there’s also a form for that—and you generally have to use it.

  2. Bylaws / Operating Agreement: As with the documents above, these two documents have different names, but essentially do exactly the same thing. They help you determine the ground rules for how your business is run. Bylaws are used by a corporation (no matter what kind: C-Corp, S-Corp, B-Corp, etc.) to specify such issues as how large the board will be, where the initial office will be located, what powers the officers and directors have, how shares may be transferred, and how shareholders and directors can vote.

    Now, if you’re the sole shareholder of your own private corporation, you’re probably thinking why in the world would I want to spend a few hundred dollars on a document like this when what I say goes. And that’s a fair question, but here’s a fair answer: in some states, you have to submit your bylaws to the Secretary of State/Division of Corporations/Whatever they’re called in your state at the time time you register your corporation. Even if that’s not the case, some banks will want to see your bylaws before you open an account, the professional licensing organization of your state may want to see them if you’re running a professional corporation, investors will definitely want to see them before they send any money your way, and the buyer will want to see the bylaws when it comes time to sell your business.

    Oh, and if you’re passing your corporation on to your kids when you die, the bylaws can help them easily make the transition from your ownership to that of your kids without too many struggles (provided it’s drafted properly). And best of all, if you’re a sole shareholder of your company and you want to protect your family from liability if your company is ever sued, a set of bylaws can go a long way in proving your company is it’s own entity and not just your alter ego.

    For the purpose of this post, an operating agreement is practically the same as the bylaws, except they’re used for LLCs.

  3. Minutes from Meetings: You’re holding regular shareholder/director/member meetings, right? Right? Well, don’t feel too bad if you’re not. There’s a ton of small businesses out there where regular meetings means once every five years. But while you may not think that the minutes from your regular shareholder meetings are that important, in truth, they really can be.

    Here’s the thing. Imagine your business is going along smoothly when all of a sudden someone sues you for some screw up of one of your employees. Maybe they hit someone with the company car while they were en route to the job site. That person has a valid case and sues your company and you. Normally, if the company has caused some kind of wrong, all of the liability rests on them, but there’s a theory in the law called piercing the corporate veil which basically means that if the plaintiff (the person who’s suing you) can show that your company is no more than just your alter ego, they can go after your assets too to satisfy their judgment debt if they win. And here you thought forming a corporation or an LLC totally insulated you from liability.

    But how can you protect yourself from such an attack? Holding regular meetings and keeping records of them. It doesn’t matter if they’re shareholder meetings, board meetings, or member meetings (if you’re operating an LLC), just make sure you have them and make sure they’re properly documented.

  4. Trademark Registration Certificate: Strictly speaking, this isn’t required, but you should really get one. Seriously, you’ll save a lot of money down the road, especially if there’s already someone else using your trademark and you don’t know about it.

    No matter what kind of business you own, your brand is your most valuable asset. I’ve said it before, and I’ll say it again until I’m blue in the face.

    I don’t care if you’re a cruise ship operator with vessels that cost tens or hundreds of millions of dollars—your brand may be just that valuable. After all, when someone is looking for a cruise ship, they’re not going to trust a company they’ve never heard of, they want the Disney cruise experience or the Carnival cruise experience—not the “some guys we’ve never heard of with a huge boat” experience. So spend the money now and trademark your business’s name (and it’s logo too if the logo is really nifty and a part of your brand’s image).

  5. Employment Documents: Planning to hire someone (or a few someones)? You’re going to need employment contracts, an employee handbook, and independent contractor agreements at least. And you’d better make sure you know the difference between an employee and an independent contractor, because if you misclassify someone as a contractor who’s actually an employee, you’re going to be in a world of hurt. And at the very least, make sure you know whether your employees are classified as exempt or non-exempt.

  6. Distributor / Vendor / Service Contracts: From E-Commerce sites to plumbers, everyone needs basic contracts to help them run their business. Whether you’re distributing someone else’s goods or selling your own goods or services, it’s always a good idea to have your agreements properly documented—and that means in writing. Oral agreements, while technically enforceable in court, are always an uphill battle, so put your contracts in writing.

  7. Non-Disclosure Agreements (NDAs): Sharing your business information with others can be a good idea, but having them steal that information for their own uses later can be disastrous. That’s where NDAs come into play, when you’re showing off some aspect of your business to a third party (including your employees and independent contractors), you want to make sure they’re not going to divulge the information they’ve gleaned to another, or worse, use that information to further their own business interests. Just make sure you don’t give one of these to a potential investor (from a legitimate investment firm or VC) or you’ll look like a real novice in the startup and small business world.

After all of that, you’re probably thinking there can’t possibly be any more documents that may come into play during the life of your business—but there are. Copyright licenses, trademark licenses, commercial leases, industrial leases, equipment leases, retail leases, franchise agreements, term sheets, share purchase agreements, merger and acquisition documents, and the list goes on. As you can see, this was by no means meant to be an exhaustive list of what kinds of documents you need for your business, but it should give you a better understanding as to why hiring a business attorney sooner rather than later can save you a lot of headaches down the road. These documents aren’t going to write themselves, and only an attorney (or a very, very, very skilled businessperson) should undertake drafting, revising, and negotiating them.

Norton Law Corporation Trademark Infringement Fair Use

Using Another’s Trademark. Infringement or Fair Use?

I’m often asked whether a person’s use of a trademark is considered trademark infringement or if it the use is acceptable as fair use. The usual answer is…wait for it…it depends. That’s right, just like most legal questions, trademark infringement is often a variety of shades of grey without any clear cut black and white answer. As a result, whether something is considered trademark infringement is very, very fact specific, as you’ll soon find out. In short, unless you’re using the mark (or something incredibly similar to it) of another company to sell exactly the same product they are, then the answer to whether something is trademark infringement will remain the lawyer’s favorite answer: it depends.

Now, because this post is going to contain a bit of law and legal discussion, I’m going to need to bolster the standard disclaimer I have on the footer of every page on this site. The information contained in this post is not an acceptable substitute for hiring your own knowledgable trademark attorney to do a full-fledged analysis of the facts unique to your situation. If you try to analyze your use yourself, you have a very high risk of getting it wrong, getting sued, and owing a lot of money to the original trademark holder. I don’t want that to happen. You don’t want that to happen. So contact a trademark attorney if you are concerned about infringement.

With that out of the way, the common definition for fair use is a very straightforward one, and it comes to us straight from the Lanham Act (that’s the trademark law). Under that definition, fair use is the use of a name, term, or device, otherwise than as a mark, of a term or device that is descriptive of and used fairly and in good faith only to describe goods or services made or sold by a party, or their geographic origin. That’s a more readable version of 15 U.S.C. § 1115(b)(5) if you’re interested in checking the statute itself. In other words, you can use another company’s trademark to describe your own goods or services, but not as a trademark. Pretty straightforward, right?

Ready for an example? Fender, the guitar maker, has a very old trademark for their guitars and other musical instruments. However, if you own an auto body shop, you can still advertise that you can fix a car’s fender. It’s not trademark infringement because you’re using “fender” to describe your own services—fender repair in this case—and you’re not using it to confuse customers into thinking you’re making and selling musical instruments.

But there’s a second type of fair use in the trademark world, known as nominative fair use. This type of fair use is very similar to the type of fair use we see with copyrights. In essence, nominative fair use means you can use another company’s trademark for things like parody, news reporting, commentary, and comparative advertising. However, here is where the grey areas of the law start to appear. Something about all of this being based on case law instead of statute that tends to cause a lot of grey areas. There’s a variety of tests for determining whether something is nominative fair use or whether it’s just plain trademark infringement. Here’s a few:

  1. Is the product or service being advertised/commented on/parodied not readily identifiable without using the trademark?
  2. How much of the trademark is being used? More than necessary?
  3. Is the use of the trademark suggesting some kind of endorsement or sponsorship by the trademark owner? Disclaimers used to show no affiliation?
  4. Is the mark being used in a misleading way?

It seems that one of the common ways a lot of businesses try to get around the trademark infringement argument is to just slap a disclaimer on the use that specifies there’s no relationship between the user and the trademark owner. However, while that may score a couple of extra points towards the nominative fair use, it’s often still not enough. Especially when we all really know that nobody reads disclaimers, terms of use, privacy policies, or any of that other boring stuff on a website.

So let’s take an example from real life. A few years ago, Tiffany, the jewelry maker, sued eBay, the online auction site, for (vicarious) trademark infringement. They claimed that because sellers on eBay were selling counterfeit Tiffany items and that eBay was advertising sellers were selling Tiffany items meant that eBay was liable for trademark infringement. The court in the case ruled eBay’s use was protected as a nominative fair use. Why? Because eBay was merely describing that there were Tiffany products available on their website, nothing suggested that eBay and Tiffany were affiliated (as if they were in an authorized distributorship arrangement), and eBay did not know in advance which items being listed were counterfeit. eBay, it should be mentioned, also seems to take a number of steps to remove any counterfeit items from its listings. As a result, eBay was found not liable for trademark infringement. Here’s the case citation if you’re interested: 600 F.3d 93 (2d Cir. 2010).

Oh, and before you decide to use another’s trademark on your website or in your advertisements, be sure to run it by your trademark attorney first. At least you can use the argument (if you get sued) that the trademark infringement wasn’t willful.

Norton Law Corporation Trademark Attorney Trademark Available

How to Find Out if a Trademark is Available

One of the most common questions I’m asked about trademarks is how to find out if a trademark is available. Unfortunately, it’s a question I’m often asked too late in the process and not before my clients begin using their marks with their brands. Usually the client is already using the mark and they’re just now going to register it. But every so often, I’ll get a call from an enlightened client (who must have been reading one of my blog posts) about trademark availability before they actually start using the mark.

So the process for determining whether a trademark is available is a fairly straightforward one. All you need is a trademark search or two. Simple enough, right?

Not so fast. Trademark searches can be tedious. If you’ve never seen the interface for the United States Patent and Trademark Office’s (USPTO) trademark search, known as TESS, you should take a look and then come back here. It’s nothing like Google and daunting is a good word to describe it. Issues with design and functionality aside, TESS is a good starting point for people looking to see if their trademarks are available for use.

Let’s do an example search for something interesting. Say you’re interested in wristwatches and you want to develop your own brand. You’re about to launch a new Kickstarter campaign to help you crowdfund your venture, which you’re going to call OhhMega, but before you do you realize you’d better see if any other watch makers are currently using the same mark as you. So you start with a Google search to determine if anyone’s already using that word. Nope, just some kid on Twitter who hasn’t posted for about four years now. Then, because you’ve read other posts on the importance of trademark searching, you head over to TESS to do a quick search for an exact match of your brand’s name. We trademark attorneys call these kinds of exact match searches “knockout searches.”

You don’t have a logo yet, so you select the option for a Basic Word Mark Search for new users since you don’t know anything about how to use operators in the search or anything like that. You just want to find out if OhhMega is currently registered. A few keystrokes later, and you see that TESS returned no results. Not surprising since OhhMega is a really weird way to spell omega. Congratulations, your very basic search is complete.

But as any good watch enthusiast knows, there is a watch brand out there called Omega. They’re very famous, have some impeccable designs, and have been around in one form or another for about a century—but I digress. In fact, they have a rather old trademark, Registration Number 0025036, dating back to 1894, along with a slew of other marks registered for their specific models and changes to the look of their logo. As you can see from our example above, your knockout search would not have been able to discover even such a well known, famous mark. And that’s why you need more than just a knockout search to determine if your trademark is available.

Now, as a trademark attorney, I’m apt to tell you to that you really need to hire a trademark professional to conduct this search for you. And even if I wasn’t a trademark attorney, I would still tell you the same thing. The truth is that trademark searches are incredibly important, and can mean the difference not just between getting your trademark registered or not, but the difference between finding yourself faced with a demand letter to rebrand your business or face a very costly trademark infringement suit. That’s why a proper trademark search to determine the availability of your mark includes not just a knockout search through TESS, but a full-on trademark search through TESS, a search through the state trademark databases, a search through the World Intellectual Property Organization’s database of international trademarks, and a search through common law trademarks (those trademarks that are used by local businesses, online or whatnot, but are not registered with any governmental organizations—and yes, they may still have rights even though they never bothered to register their marks). And for all of those searches, you’ll need to conduct it using other phonetically similar searches, which, in the case of the OhhMega watch company, would mean searching for Omega since they sound the same even though they’re spelled differently.

So as you can see from our little example, a knockout search is not enough. A quick googling (yes, I’m helping to perpetuate genericide on Google’s trademark) is not enough. A comprehensive clearance search is what you need if you’re serious about your brand and you want to make sure your trademark is available before you begin using it. Ultimately, the few hundred dollars you spend now on a trademark search conducted by a professional is well worth it when compared to the possibility of facing hundreds of thousands of dollars in liability for trademark infringement or tens of thousands to millions of dollars in rebranding.

However, one thing a trademark search cannot tell you is whether you should go ahead and register your trademark if there is a problem with the search. Maybe the search came up with a result that’s very similar to yours but is currently being used in a completely different market. For example, you’re selling telephones and the current user is making mattresses. Or maybe the search found something that looks like it’s not being used but is still a live mark with the USPTO. When these kinds of issues arise, it’s time to sit down for a nice chat with your trademark attorney for a discussion on how to proceed, as the answer to whether you’ll be able to register your trademark at that point will depend on a mix of sound legal advice and savvy business judgment.

Why You Need to Record Your Trademark With US Customs and Border Protection (CBP)

At the risk of sounding sensationalist, if you run a business with products that are easily counterfeited, you need to record your registered trademark with the US  Customs and Border Protection (CBP), lest you suddenly find your business is being drowned out by fakes, copies, and products that, while looking similar to yours, do not carry the same quality and pedigree that your company’s goods do. Oh, and you also do not make any money off of them because the counterfeiters are instead.

You’re probably asking yourself why you’ve never heard of the CBP trademark registry. Simply enough, it’s because the CBP registry is not very well known. If you’re a service provider, you probably don’t need to know about it—and you can stop reading this article at around 100 words in—but if you’re in the business of making a product, especially consumer focused products, the CBP database can actually be of incredible import. But first, a few facts about the CBP trademark registry. It was set up as a way for the CBP to record the trademarks and copyrights of intellectual property owners who were concerned about counterfeit goods flowing through America’s borders. When your trademark or copyright is recorded with the CBP, they start looking out for those goods as they come in through Canada and Mexico, as well as across the Pacific and Atlantic. Once they find counterfeit items, they can exercise a number of actions, including seizure, destruction, and monetary sanctions—but more on those later.

So, you’re selling goods, say, high end watches in the $5,000 to $15,000 range. You’ve spent a lot of time and effort developing the movements, the unique design, the branding, and the overall image for the type of lifestyle you’re selling. You’ve partnered with an excellent trademark attorney from the very beginning to help you develop your brand cohesively, and you’ve registered your trademarks for the company name, any of the unique names of the individual watches, any logos, and maybe even the trade dress for your uniquely designed watches themselves. At this point, you’ve already completed the first step in recording your trademark with the CBP—registering your trademark. You see, the CBP has to go through a lot of different products when they cross the border, and while it would be great for them to be able to check all of them for trademark violations, they have to cap it somewhere or the manpower necessary would be prohibitive. As a result, in order to record your trademark or copyright with the CBP, you need to make sure it is validly registered with the United States Patent and Trademark Office (USPTO). That’s your first step: trademark registration. Or, if you’re interested in protecting your copyrights with help from the CBP, you need to make sure that you register your copyrights with the US Copyright Office.

Benefits of Recording with the CBP

Now that you know the first step for recording your trademark with the CBP, let’s discuss some of the perks of doing so. There are four major benefits:

  1. The CBP will be able to monitor and seize any merchandise with any counterfeit marks that are similar or identical to the trademarks you have recorded with them.
  2. The CBP will be able to issue monetary fines/sanctions against anyone or any business who tries to bring counterfeit goods with your trademarks into the United States.
  3. The CBP will be able to contact the US Attorney’s Office in order to initiate criminal prosecution of counterfeiters.
  4. The CBP will be able to raid counterfeit production facilities both nationally and internationally depending on the scale of the counterfeiting operation.

If you’re faced with an influx of counterfeit goods steering sales away from your own products or you are afraid that as your brand grows, you’ll have problems curtailing counterfeiters later on, these are some very powerful weapons the CBP provides trademark and copyright holders. Effectively, by recording your trademark with the CBP, you can not only shut down the local importers and merchants who sell your goods in shady back alleys and low end swap meets, but you can even stop the flow of goods entering the United States or prevent them from being manufactured at all.

What is the Enforcement Process Like?

The enforcement process for trademarks and copyrights registered with the CBP is very simple. Once you have recorded your trademark or copyright with the CBP, they will contact the intellectual property owner (or the law firm you’ve listed as your attorney of record) to provide them with all of the necessary information regarding a seizure. Essentially, they will give you a description of the merchandise, the quantity of the items they’ve seized, who has been manufacturing these items, and who has been importing them into the United States. The CBP may, in some situations, even provide you with with a sample of the infringing counterfeit merchandise so that you can go after the manufacturers and importers with a civil case for trademark or copyright infringement, if you so choose. As you can see, the process is generally very simple with the CBP only contacting you (or your attorney) when they’ve detected a suspected counterfeiter.

How Much Does Recordation Cost?

Recordation with the CBP is very inexpensive—but more than the very low fees charged by the US Copyright Office for registering a copyright. As of this writing, the fee is only $190 per copyright and $190 per mark per international class for a trademark (if you don’t know what that means, please contact me). The form is fairly straightforward and everything can be done online. To be perfectly honest, you don’t even need an attorney to do it. But if you’d like to hire me, I’m always happy to help at a very reasonable flat fee with discounts for clients who have hired my office to register their trademarks.

There is one thing to keep an eye out for, if you’re going to register with the CBP. Around the time you successfully register a trademark, many people are contacted by third party organizations claiming to be working for or related to the CBP or some other governmental organization. They always send letters. These letters look very official, often bearing some kind of official seal or something along those lines—they are not from any official organization. Instead, they are designed to trick new trademark owners into believing they are not taking advantage of all of their registration rights. As such, they charge often exorbitant fees for services that shouldn’t cost more than a few hundred dollars. I’ve seen examples of letters that charge as much as $1,500 to register a trademark on the CBP. Do not fall for these scams, and if you’re going to hire someone to assist you with recording your trademark or copyright with the CBP, use someone you trust.

Ultimately, recording with the CBP is a very valuable tool for trademark and copyright owners who are looking to protect their products from counterfeiters. It is a service offered by the government at a reasonable fee that provides many great perks to intellectual proper rights holders. If you need more information or you’re interested in pursuing a registered trademark, a registered copyright, or a recorded trademark or copyright, please don’t hesitate to contact me. And, if you’ve dealt with counterfeiters before (either with the help of the CBP or on your own in civil court), please leave your story in the comments below.