Articles Posted in Sell Product Phase

penguinDigital technology enables businesses to store information electronically, without the need for expansive file cabinets and storage facilities, and to transmit data quickly and efficiently. It also exposes businesses to the risk of data breaches, which expose consumers to risks like identity theft. The Federal Trade Commission (FTC) recently issued guidelines regarding compliance with two major federal statutes that protect consumers and their privacy:  the Health Insurance Portability and Accountability Act (HIPAA) of 1996, Pub. L. 104-191, 110 Stat. 1936 (Aug. 21, 1996); and the Federal Trade Commission Act (FTC Act) of 1914, 15 U.S.C. § 41 et seq.

HIPAA is a comprehensive law dealing with various aspects of health insurance, but it is perhaps best known to the public for its provisions regarding medical information privacy. The statute directed the Department of Health and Human Services (HHS) to present “detailed recommendations on standards with respect to the privacy of individually identifiable health information” to several Congressional committees. Pub. L. 104-191 § 264, 110 Stat. 2033. HHS developed a set of standards and procedures from this, commonly known as the Privacy Rule, found at 45 C.F.R. Part 164.

In a very general sense, the Privacy Rule only applies to health care providers, insurers, and related businesses, described as “covered entities.” 45 C.F.R. 160.103. The Rule also applies, however, to “business associates,” defined to include any “subcontractor that creates, receives, maintains, or transmits” PHI. Id. This definition can apply to many types of businesses besides medical professionals and health care providers.

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highway signsThe Commerce Clause of the U.S. Constitution gives Congress the power “to regulate Commerce…among the several States.” U.S. Const. art. I, § 8, cl. 3. Federal laws can therefore regulate business activities if they affect interstate commerce. This authority has led courts to identify a converse legal principle, known as the “dormant” Commerce Clause, which holds that state laws may not discriminate against out-of-state businesses in a way that impedes interstate commerce. A petition for certiorari currently before the U.S. Supreme Court could lead to changes in how states may regulate interstate commerce. Texas Package Stores Assoc., Inc. v. Fine Wine and Spirits of North Texas, LLC, No. 16-242, pet. for cert. (Sup. Ct., Aug. 19, 2016). The petitioner is asking for clarification about the scope of the dormant Commerce Clause in relation to the rarely-discussed Twenty-First Amendment, which ended Prohibition and gave broad authority to the states to regulate alcohol.

The U.S. Supreme Court has given Congress very wide authority under the Commerce Clause. The dormant Commerce Clause is essentially the negative converse of this authority. If Congress can regulate interstate commerce, the states cannot unreasonably impede it, nor can they discriminate against out-of-state businesses in favor of in-state businesses. For example, the Supreme Court found that a Massachusetts law imposing a tax on milk produced out of state, while providing a subsidy for in-state milk producers, violated the dormant Commerce Clause. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).

The Twenty-First Amendment ended the period of American history known as Prohibition, when alcohol was banned nationwide, in 1933. The Eighteenth Amendment, ratified in 1919, had started Prohibition. Section 1 of the Twenty-First Amendment officially repealed the Eighteenth Amendment. Section 2 states that transporting, importing, or possessing alcohol in any U.S. state or territory is prohibited if it is done “in violation of the laws thereof.” This has generally been construed to mean that the states have broad authority to regulate alcohol within their own jurisdictions. Courts have had to address the apparent conflict between § 2 and the dormant Commerce Clause on several occasions.

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chess gameDebt collection is, unfortunately, an inevitable part of doing business for just about every business in New Jersey, the country, and probably the world. Whenever a business relies on customers or clients for revenue, it runs the risk of unpaid bills. Any business or individual engaging in debt collection should be aware of the time limit to bring a lawsuit, known as the statute of limitations (SOL). The New Jersey Appellate Division recently ruled in a case involving a dispute over retail store credit account debts. The parties disagreed over whether the six-year SOL for breach of contract claims should apply, or the four-year SOL for sales of goods. The court ruled that the four-year time limit applies. Midland Funding v. Thiel, et al., Nos. A-5797-13T2, A-0151-14T1, A-0152-14T1, slip op. (N.J. App., Aug. 29, 2016).

State and federal laws, such as the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., regulate businesses that engage in debt collection activities on behalf of third parties. Creditors that attempt to collect their own debts are also subject to various laws and regulations. Prohibited conduct under the FDCPA includes excessive or harassing attempts to contact debtors. The law establishes a procedure for alleged debtors to dispute a debt and to receive documentation of the alleged debt from the debt collector. Violations of these provisions can result in civil liability to the debtor.

Most debt collection efforts do not lead to lawsuits, but a lawsuit offers the only legal means of compelling payment by a debtor. Under New Jersey law, a plaintiff alleging a breach of contract must bring suit within six years of the date of the alleged breach. N.J. Rev. Stat. § 2A:14-1. A four-year SOL, however, applies to “contract[s] for sale” in New Jersey. N.J. Rev. Stat. § 12A:2-725. State law defines a “contract for sale” as any contract for the “present sale of goods” and “to sell goods at a future time.” N.J. Rev. Stat. § 12A:2-106. Parties to a contract for sale may agree to reduce the SOL to a minimum of one year, but the law expressly states that they cannot extend it beyond four years.

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baseballBusinesses that engage in new types of business activity, particularly those on the internet, often face scrutiny from regulators. The New Jersey Legislature is considering at least two bills that would regulate daily fantasy sports (DFS). “Fantasy sports” refer to games in which participants create imaginary sports teams based on real players and earn points based on those players’ actual performance. DFS games typically take place on a more accelerated basis online and involve cash awards to whomever has the most points. Multiple state regulators have concluded that this violates laws prohibiting sports betting and online gambling. The two New Jersey bills are under consideration at a time when the state is also challenging the constitutionality of a federal law that bans sports betting.

Two federal statutes could apply to DFS. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, 31 U.S.C. § 5361 et seq., essentially prohibits many forms of online gambling by prohibiting online gambling companies from accepting transfers of money from anyone they know to be making a “bet or wager” via the internet. 31 U.S.C. § 5362(10). The law had a devastating impact on some online gambling companies. It also led to a complaint against the United States by Antigua and Barbuda before the World Trade Organization (WTO), which built on a previous complaint regarding online gambling laws. DFS companies have argued that they are not subject to this statute because DFS is a “game of skill” rather than a “game of chance.”

The Professional and Amateur Sports Protection Act (PASPA) of 1992, 28 U.S.C. § 3701 et seq., created a rather uneven national standard for the legality of sports betting. It generally prohibits sports betting but exempts states that established sports lotteries during a specified time period. At the time of the law’s passage, this included Delaware, Montana, Nevada, and Oregon.

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Open APISA jury recently issued a significant verdict in a legal fight between two major technology companies, although it might not resolve some questions brought up by the litigation. The two companies are fighting over protocols used in a wide range of software applications, known as application programming interfaces (APIs). The plaintiff sued for copyright infringement, alleging that the defendant unlawfully appropriated its APIs for use in its mobile device operating system. Oracle America, Inc. v. Google, Inc., No. 3:10-cv-03561, complaint (N.D. Cal., Aug. 12, 2010). APIs are essential tools for countless digital technologies, so the outcome of this case ought to be of great interest to anyone who regularly uses the web. A federal judge ruled in 2012 that APIs are not subject to copyright infringement, but an appellate court reversed that ruling. On remand, a jury found that Google breached Oracle’s copyright, but the breach was excused under the Fair Use Doctrine.

Copyright law protects “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). This includes books and other written works, musical recordings, video or film recordings, and software code. It does not, however, include “any idea, procedure, process, system, [or] method of operation.” Id. at § 102(b). A copyright can be a very valuable asset for a business, and copyright owners must take affirmative steps to protect their copyright interests. The Fair Use Doctrine holds that unauthorized use of a copyrighted work is not infringement under certain circumstances, including “criticism, comment, news reporting, teaching…, scholarship, or research,” provided that the use is “transformative.” Id. at § 107; Campbell v. Acuff-Rose Music, 510 U.S. 569, 579 (1994).

The Oracle case presented the question of whether APIs are subject to copyright protection, or whether they are non-copyrightable procedures or processes. An API, simply stated, allows one software application to communicate or interface with another application, acting as a sort of translator between different pieces of software. APIs are essential parts of many common digital technologies, allowing mobile devices to run a wide range of applications and allowing websites to interface with social media services like Facebook and Twitter, to name just two examples.

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Coca ColaThe protection of trade secrets is a critical component of building a competitive business. Companies must safeguard proprietary information against misappropriation by employees and others, typically through nondisclosure agreements. State law provides remedies through the court system, both to enjoin potential disclosures of trade secrets and to obtain damages for theft or misappropriation. Most states have enacted the Uniform Trade Secrets Act (UTSA) in some form, but the enforcement of these laws across state lines can be difficult. In May 2016, the U.S. Congress passed the Defend Trade Secrets Act (DTSA) of 2016, Pub. L. 114-153 (May 11, 2016), which gives the federal court system jurisdiction over claims of trade secret theft that affect interstate and international commerce. This gives trade secrets federal legal protection that is comparable in many ways to copyrights, trademarks, and patents.

The precise definition of a “trade secret” may vary from one jurisdiction to another, but every definition has common features. The UTSA, drafted by the National Conference of Commissioner on Uniform State Laws, and approved by the American Bar Association in 1986, ascribes two key elements to a trade secret. First, it must have “independent economic value” that derives from the fact that it is not known to others who might derive economic benefit from it, nor is it something they could easily figure out on their own. Second, reasonable efforts must have been made to keep it secret. The “secret recipe” for Coca-Cola is perhaps the most famous example of a trade secret.

Unlike other forms of intellectual property, such as copyrights, trademarks, and patents, no government agency registers or directly regulates trade secrets. This makes sense, considering that the whole point of a trade secret is to keep it out of the public eye. It also means, however, that the owners of trade secrets have the sole responsibility to protect and enforce their rights, using a patchwork of state laws. All but three states have enacted the UTSA. See, e.g., N.J. Rev. Stat. § 56:15-1 et seq. New York is one of the three states that has not enacted it, relying instead on common law trade secret protections. A bill is currently pending that would add the UTSA to the New York General Business Law.

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PakpongICCH444 (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia CommonsOne of the key features of capitalism, as the concept is generally understood in our society, is competition. Consumers benefit from a competitive marketplace, and they suffer when businesses use anticompetitive practices. Congress began enacting laws to curb monopolistic and other anticompetitive practices, known as antitrust laws, in the late nineteenth century. Having a monopoly is not, by itself, necessarily a violation of antitrust law. Antitrust law deals with actions or practices that prevent competition. The Federal Trade Commission (FTC) brought a case against a company that was first to market with a new medical product, alleging that it used exclusive contract terms to prevent competitors from entering the market for that product. The company agreed to cease these practices in a recently announced settlement. In the Matter of Victrex plc, et al., No. 141-0042, consent order (FTC, Apr. 27, 2016).

In an ideally competitive market, consumers may choose among competing companies for a particular good or service, leading to the success of the companies that provide the “best” experience for consumers. In this context, the “best” is really just whatever consumers en masse—i.e., the “market”—want. When one company dominates a market, however, it no longer has to compete for customers, so it arguably lacks the incentive to give consumers what they want. This can result in higher prices, diminished quality, and other problems.

A single, monopolistic company might engage in anticompetitive practices that prevent other companies from entering the market, such as contracts with exclusivity clauses that prohibit a company’s customers or vendors from doing business with its competitors. Multiple companies might act together to limit competition, such as by fixing prices or by dividing geographic areas between themselves. The federal Sherman Antitrust Act of 1890, 15 U.S.C. § 1 et seq., prohibits a wide range of anticompetitive practices. The FTC Act, 15 U.S.C. § 41 et seq., prohibits “unfair methods of competition,” which can overlap with antitrust law.

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Captain Albert E. Theberge, NOAA Corps (ret.) [Public domain], via Wikimedia CommonsMaritime commerce constitutes a major part of the economies of New York City and Northern New Jersey. Any type of business transaction involves a complex web of legal obligations and risks, and transactions involving interstate and international shipping can be the most complex of all. Legal claims arising from maritime disputes can be particularly difficult. The debtor/defendant might be based in a different jurisdiction—possibly a different country—from the creditor/plaintiff, and any assets might be located in yet another jurisdiction. The Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Action (the “Supplemental Rules”), part of the Federal Rules of Civil Procedure, provide methods for asserting claims over otherwise highly mobile assets in maritime disputes. This should be a last resort, of course, since carefully drafted contracts with dispute-resolution provisions often yield more satisfactory results in a shorter span of time.

Rule B of the Supplemental Rules enables plaintiffs to attach a defendant’s assets in an ex parte proceeding, provided they cannot locate the defendant in the same jurisdiction as the asset. The plaintiff files a quasi in rem lawsuit in the jurisdiction where the asset is located. Lawsuits typically proceed in personam, against a particular person, business, or organization; or in rem, against a particular item of property. A quasi in rem lawsuit combines elements of both types of suit, with a plaintiff asserting a claim over a piece of property in connection with a claim against its owner.

In maritime transactions, parties often do business using multiple corporate shells to protect assets and other interests. As a result, the record owner of an asset that could be subject to attachment under Rule B might not be the same as the business entity against which the plaintiff has a claim. Rule B allows a plaintiff to attach an asset owned by a different business entity if they can establish that the entity functions as an “alter ego” of the defendant. A New York court recently addressed this issue in a Rule B claim in D’Amico Dry Ltd. v. Primera Maritime (Hellas) Ltd., et al., No. 1:09-cv-07840, order (S.D.N.Y., Jul. 30, 2015).

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Blue Diamond Gallery [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/)]Trademark law enables businesses to protect brand names, logos, and other “marks” used to identify, or that are strongly associated with, their products and services. The owner of a registered trademark can use the courts to prevent another business or individual from using a name or logo that is the same as, or substantially similar to, the registered mark. Since a trademark registration confers such a great deal of authority, federal law allows objections to pending trademark registrations, as well as petitions to cancel existing registrations, on various grounds. The Trademark Trial and Appeal Board (TTAB) recently dismissed a cancellation petition alleging fraud during the registration process. Embarcadero Tech., Inc. v. Delphix Corp., Opposition No. 91197762, Cancellation No. 92055153, opinion (TTAB, Jan. 21, 2016).

The term “trademark” generally refers to “any word, name, symbol, or device” used by someone in commerce “to identify and distinguish his or her goods…from those manufactured or sold by others…” 15 U.S.C. § 1127. The term “service mark” has the same meaning applied to services, rather than goods, but the term “trademark” may often refer as a shorthand to both trademarks and service marks.

A person can oppose the registration of a mark by the U.S. Patent and Trademark Office (USPTO) on the ground that they “would be damaged by the registration of a mark.” 15 U.S.C. § 1063(a). This might include harm to the person’s own registered trademark, such as by causing confusion among consumers or by diminishing the value of the existing mark. These are known, respectively, as “dilution by blurring or dilution by tarnishment.” Id. After the USPTO has registered a mark, a person can petition for cancellation of the mark on the same grounds. 15 U.S.C. § 1064. In most cases, this must occur within five years of the registration date.

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geralt [Public domain, CC0 1.0 (https://creativecommons.org/publicdomain/zero/1.0/deed.en)], via PixabayStarting and operating a business requires many substantial investments. In addition to money and time, business owners invest the ideas and plans that they bring into their new venture and that they create once it is underway. The term “intellectual property” covers numerous rights and interests that a business must protect in order to succeed. Federal law protects many types of intellectual property, and state law offers additional protections. Business owners and entrepreneurs can make use of federal and state laws to protect their important business assets.

Defining “Property”

Before discussing intellectual property, it might be helpful to consider how we define “property” in a legal sense. In short, “property” is anything that someone—a person, business, or other organization—can own, but that is not very helpful.

Owning property implies a set of rights, such as the right to use or dispose of the property. Perhaps the most important aspect of ownership, and therefore of property, is the right to exclude others from using the property. In the case of a motion picture, an owner might have exclusive rights to display or distribute the film, to modify it, to create works derived from it, or to use it for any other commercial purpose.

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