2008 DraftThe regulation of any new economic activity should be of interest to New Jersey business owners, even if it does not directly affect their business. “Fantasy sports” has been both a popular pastime and a controversial topic lately. Many people participate in fantasy sports leagues organized among their friends, but businesses have also begun offering online fantasy sports competitions. This has led to concerns among lawmakers about whether they violate laws that regulate or prohibit sports betting. The Third Circuit Court of Appeals struck down a New Jersey law allowing sports betting, holding that it violates a 25-year-old federal statute. The U.S. Supreme Court has agreed to hear the state’s appeal in that case. At around the same time that the Supreme Court made that decision, the Governor of New Jersey signed a law authorizing and regulating fantasy sports, while maintaining that fantasy sports do not constitute “gambling” under state law.

In 1992, Congress enacted the Professional and Amateur Sports Protection Act (PASPA), codified at 28 U.S.C. § 3701 et seq. That law effectively prohibited sports betting throughout the country, except in several states, including Nevada and Delaware, which had already created sports lotteries. It prohibits gambling and related activities based on athletic competitions or on the performance of individual athletes. In addition to gambling by private individuals and entities, the statute prohibits governmental entities from “authoriz[ing] by law” any such gambling activities. Id. at § 3702(1).

New Jersey enacted a law in 2014 that repealed some of the state’s prohibitions on sports betting. See N.J. Rev. Stat. § 5:12A-7. In response, a group of sports organizations, consisting of the NCAA, NBA, NFL, NHL, and Major League Baseball, filed suit against the governor, other state officials, and several horse racing organizations. The plaintiffs alleged that the New Jersey law violated PASPA and was therefore invalid under the Supremacy Clause of the U.S. Constitution. A panel of the Third Circuit struck down the New Jersey law, and the full court affirmed this ruling after an en banc rehearing. NCAA, et al. v. N.J. Governor, et al., 799 F.3d 259 (3d Cir 2015); 832 F.3d 389 (3d Cir. 2016).

BlockchainMaintaining accurate records is one of a corporation’s most important responsibilities. New Jersey business and corporate laws give shareholders the right to examine a corporation’s books at almost any time. State courts have the authority to compel production by a corporation if it fails to make the books available. For many years, a corporation’s books were kept in literal book format at a corporation’s headquarters. Inspection required a shareholder to visit the corporate office, or to request photocopies of relevant records. Digital technologies have enabled corporations to experiment with new methods of corporate record-keeping. A new Delaware law allows corporations to use blockchain technology, which is mostly associated with “cryptocurrencies” like Bitcoin, to maintain corporate records. The law does not directly affect New Jersey or New York businesses, but Delaware’s corporate laws often serve as a model for new laws around the country.

New Jersey requires corporations to keep records, including minutes, of all official meetings of shareholders and the board of directors, as well as all formally established executive committees. Corporations must also maintain a current list of all shareholders that identifies the number and class of shares that they hold and the dates that they acquired the shares. The statute does not require any specific format for the corporation’s books, except that the records must be “capable of being converted into readable form within a reasonable time.” N.J. Rev. Stat. § 14A:5-28(1). Shareholders who meet a minimum standard for how many shares they hold and for how long may inspect the corporation’s books “for any proper purpose” with at least five days’ notice. Id. at § 14A:5-28(3).

Blockchain technology is rather notoriously complex and difficult to describe, which is part of its appeal for uses like cryptocurrency. It consists of individual digital records, known as “blocks,” that are connected, or “chained,” to other records across multiple devices on a shared network. Each block has unique identifiers, including timestamps and links to earlier blocks in the chain. The distribution of the blocks across a network, along with the identifying information associated with each block, makes it extremely difficult to alter or falsify information. In the context of corporate records, blockchains are known as “distributed ledger” technology. The chain of interconnected records, none of which can be altered without altering multiple other records, bears many similarities to a traditional corporate ledger system.

secretInformation is a critical asset for any New Jersey business, and the value of many types of information is based, in whole or in part, on its secrecy. State and federal laws protect businesses’ rights to keep certain information, known as “trade secrets,” from becoming known to competitors or the general public. The federal Defend Trade Secrets Act (DTSA) establishes criminal and civil penalties for misappropriation of trade secrets and other acts. Businesses must make affirmative efforts to preserve the secrecy of information in order to enjoy the protection of laws like the DTSA. A currently pending federal lawsuit involving trade secrets asserts multiple statutory and common-law causes of action, including a DTSA claim. The lawsuit specifically alleges that the breach of trade secrets resulted from a romantic relationship between a now-former executive of the plaintiff and an executive employed by the defendant. Teva Pharmaceuticals USA, Inc. v. Sandhu, et al., No. 2:17-cv-03031, complaint (E.D. Pa., Jul. 7, 2017).

Almost any kind of information used in business can constitute a trade secret. Common examples include designs or processes used by the business, client lists, and lists of sales leads. The DTSA defines a trade secret by two criteria:  the owner has made an effort to maintain the information’s secrecy or confidentiality, and the information has “independent economic value” specifically because it is not widely known or easily discoverable. 18 U.S.C. § 1839(3).

A person can violate the DTSA through a variety of acts undertaken “with intent to convert a trade secret,” for the “benefit of anyone other than the owner,” and with either the intent to injure the owner or the knowledge that an injury is likely to result. Id. at § 1832(a). Violations may include stealing or otherwise misappropriating trade secrets, copying or altering trade secrets without permission, and receiving information known to be a misappropriated trade secret. The DTSA allows the government to file a civil lawsuit seeking injunctive relief against further violations. The plaintiff in the Teva case is also asserting a claim under this statute.

TabletBusinesses in New Jersey and New York that import goods from overseas need to be aware of their obligations and potential liabilities under U.S. customs laws. Any individual or business that imports goods into the U.S. is responsible for paying tariffs, if any, on the goods. Various types of goods may also be subject to import restrictions or even bans. The federal government recently announced a settlement in a civil forfeiture action against a major retail company for allegedly importing cultural artifacts in violation of federal laws. United States v. Approx. 450 Ancient Cuneiform Tablets, et al., No. 1:17-cv-03980, complaint (E.D.N.Y., Jul. 5, 2017). While this is a rather extreme example, it demonstrates the complex web of laws affecting imports.

Tariffs on goods imported into the U.S., also known as customs duties, are established by the Harmonized Tariff Schedule for the U.S. (HTSUS). 19 U.S.C. § 1202. This voluminous document covers a wide range of items. To offer one example, Chapter 9 of the 2017 edition of the HTSUS covers “coffee, tea, maté and spices.” Most types of un-roasted coffee beans are not subject to tariffs, while “coffee substitutes containing coffee” are subject to a tariff of 1.5 cents per kilogram. Some tariff amounts are expressed as a percentage of the value of the goods. Imported thyme, for example, is subject to a 4.8 percent tariff.

U.S. Customs and Border Protection (CBP) identifies various “prohibited and restricted” items, which may be restricted for violations of domestic laws, violations of treaty obligations, or public health or safety regulations. The alcoholic drink absinthe, for example, is restricted because of federal regulations. Drums made from animal hides in Haiti, according to the CDC, are restricted because of a possible link to anthrax cases. In the Cuneiform case mentioned above, federal laws and international treaties addressing cultural artifacts play a major role.

Help WantedBuilding a team is one of the most important steps in creating a successful business. Taking on employees, however, creates an employer-employee relationship that could fall under the jurisdiction of local, state, and federal employment laws. One issue in employment law that has received considerable attention in recent years is the use of criminal history in hiring decisions. Employers may be hesitant to bring on a new hire with a criminal record for a variety of reasons. Laws in many jurisdictions, however, restrict employers’ ability to use criminal history as a factor. New York City has one of the most restrictive laws in the country on this issue, and many jurisdictions are following its lead. New Jersey business owners may find their state’s law less restrictive, but it applies statewide.

Laws limiting businesses’ consideration of criminal history in employment decisions are often known as “Ban the Box” (BTB) laws. They prohibit employers from asking about criminal history during the initial stages of the job application process. The “box” that these laws ban is the checkbox on a typical job application form asking whether an applicant has ever been convicted of a felony or another offense. Checking that box, for some employers, could mean automatic rejection of the application. From job applicants’ point of view, this makes it difficult for certain individuals to find a job, regardless of whether their particular criminal history would have any impact on a particular job. If people with a criminal history cannot find a job, they might be more likely to commit more crimes. See, e.g. N.J. Rev. Stat. § 34:6B-12. Employers need to know their potential liability in this area.

The New York City Human Rights Law (NYCHRL) generally prohibits discrimination on the basis of criminal convictions or arrest records. N.Y.C. Admin. Code §§ 8-107(10), (11). It also prohibits employers from discriminating in job advertisements, such as by stating that a job is only open to people without criminal records. Id. at § 8-107(11-a)(a)(1). Employers cannot inquire about a job applicant’s criminal history until they have made a “conditional offer of employment” to that individual. Id. at § 8-107(11-a)(a)(3).

Offensive balloonTrademark registration with the U.S. Patent and Trademark Office (USPTO) protects businesses’ rights to the exclusive use of names, logos, and certain other designs used in commerce. Business names, product names, and logos associated with either of these are eligible for trademark protection if they meet the criteria established by the Lanham Act, 15 U.S.C. § 1051 et seq. Section 2(a) of the statute prohibits the registration of “immoral, deceptive, or scandalous matter,” as well as “matter which may disparage” a wide range of individuals, institutions, or “national symbols.” Id. at § 1052(a). This provision, commonly known as the Disparagement Clause, was the subject of a dispute that went to the U.S. Supreme Court. In June 2017, the court held that the Disparagement Clause violates free speech rights under the First Amendment. Matal v. Tam, 582 U.S. ___ (2017).

The Lanham Act establishes the general principle that the USPTO may not reject a proposed trademark registration unless it falls under certain specified exceptions. These include flags, seals, or other official symbols of the United States or any U.S. state, city, or other local jurisdiction, or foreign country. A trademark is also ineligible for registration if it uses a person’s likeness without their permission. Any proposed trademark must not be so similar to an existing registered mark that it is likely “to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1052(d).

The Disparagement Clause prohibits the registration of any trademark that “may disparage…persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” Id. at § 1052(a). Determining whether or not a proposed mark is “disparaging” is highly subjective. Perhaps the most famous example of a trademark disparagement claim involves the professional football team in Washington, D.C. In one decision from that case, the Trademark Trial and Appeal Board (TTAB) held that an evaluation of whether a mark is “disparaging” should look at the mark from the perspective of a “substantial composite” of the group allegedly being disparaged, rather than the point of view of the general public. Harjo v. Pro-Football, Inc., 50 U.S.P.Q.2d 1705 (TTAB 1999).

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Handicapped signThe Americans with Disabilities Act (ADA) of 1990, 42 U.S.C. § 12101 et seq., significantly affected businesses across the country, requiring them to install facilities to ensure accessibility for people with disabilities. After more than 25 years, this aspect of the ADA has become commonplace, but the ADA’s reach to online, “virtual” spaces is still a matter of dispute. As more and more business is conducted online, the issue of website accessibility has gained in importance. This refers to measures that allow people with disabilities, such as impaired vision, hearing, or mobility, to use a website. A recent trial in an ADA discrimination lawsuit is believed to be the first to address website accessibility under the ADA. Gil v. Winn Dixie Stores, Inc., No. 1:16-cv-23020, verdict and order (S.D. Fla., Jun. 12, 2017). The verdict, which found a business liable for failing to make its website accessible to an individual with vision impairment, could affect businesses all over the country.

Title III of the ADA prohibits discrimination on the basis of disability by “public accommodations,” which are defined broadly to include hotels, restaurants, theaters, retail stores, laundromats and other service-oriented businesses, public transportation terminals, parks, museums, schools, and exercise or recreation venues like bowling alleys. 42 U.S.C. § 12181(7). The statute requires businesses “to design and construct facilities…that are readily accessible to and usable by individuals with disabilities,” unless doing so would be “structurally impracticable.” Id. at § 12183(a)(1). It set a deadline of “30 months after July 26, 1990.” Id. Perhaps the most common conception of an accommodation required by the ADA is a wheelchair ramp that allows access to a building. This is far from the only type of disability covered by the ADA, however.

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Chosen Group Light Bulbs Success Light BulbFor many businesses, intellectual property rights are their most important and valuable assets. Intellectual property refers to the legal right to use creative works, from a company name and logo to a new invention. The owner or holder of most types of legally protected intellectual property has the exclusive right to use the material in their business, or for any other purpose. This includes the right to license its use to other people or businesses, or to keep it for their own use.

Trade Secrets

Businesses often rely on information that has value primarily because of its confidentiality, also known as “trade secrets.” They might include client lists, internal business procedures, and business plans or strategies. Since their value depends on remaining confidential, businesses are not required to register them with a government office like a trademark, copyright, or patent. Instead, trade secret laws give businesses tools to prevent disclosure by employees and other insiders.

In order for information to qualify for trade secret protection under state law, it must meet three criteria: (1) it must “[d]erive[] independent economic value, actual or potential,” from being secret; (2) it must “not be[] readily ascertainable” by others who stand to benefit from it; and (3) it must be “the subject of [reasonable] efforts…to maintain its secrecy.” N.J. Rev. Stat. § 56:15-2. Individuals who misappropriate trade secrets may be liable to the business for damages. Theft of trade secrets may also be subject to federal criminal jurisdiction, under a law enacted last year. Pub. L. 114-153, 130 Stat. 376 (May. 11, 2016).
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Idea Innovation Bulb Energy Light Power LightbulbStarting a new business requires extensive planning, with regard to both the product or service that the business will offer and the structure and operations of the business itself. Protecting the new business’ assets is critically important, and this applies not only to its physical assets but its intellectual property as well. The brand names, logos, designs, business plans, and other creative works used by a business are all examples of intellectual property. State and federal laws provide multiple ways to protect a business’ intellectual property rights, but business owners must first understand the different types of intellectual property and the laws that protect them.

Defining “Property”

It might be easiest to define intellectual property in relation to other types of property:

Real property includes land and attached structures, such as houses and office buildings.
Personal property refers to movable property, such as a pencil, coffee mug, computer, car, or refrigerator.
Intangible property may include financial instruments like securities, although cash is often considered personal property.
Intellectual property, while also intangible, generally refers to the results of the creative process, such as designs, photographs, written works, and computer code.

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bookThe structure of a corporation establishes a division of rights and responsibilities among at least three groups. Ownership of the corporation is vested in the shareholders, while directors are charged with its overall management. Officers are responsible for the corporation’s day-to-day operations. A shareholder who is not also a director or officer may not have much of a role in the operation or management of a corporation, but they have rights to information about the corporation’s financial status. The Delaware Court of Chancery recently ruled in favor of a shareholder seeking access to a corporation’s books. Rodgers v. Cypress Semiconductor Corporation, No. 2017-0070-AGB, order (Del. Chanc. Ct., Apr. 17, 2017). The court’s order offers useful guidelines for shareholders seeking access to corporate information.

New Jersey law defines “shares” as “the units into which the proprietary interests in a corporation are divided,” and a “shareholder” as “a holder of record of shares in a corporation.” N.J. Rev. Stat. §§ 14A:1-2.1(l), (m). Any shareholder has the right to request financial documents, including balance sheets and profit and loss statements, from the corporation. Certain shareholders “have the right for any proper purpose to examine…[the corporation’s] minutes of the proceedings of its shareholders and record of shareholders.” Id. at § 14A:5-28(3).

Delaware law goes further, giving shareholders the right to inspect a wide range of corporate documents upon a “written demand under oath stating the purpose” of the shareholder’s request. 8 Del. Code § 220(b). If the corporation denies the shareholder’s demand, the shareholder can petition the Court of Chancery to compel production. A plaintiff in such a case must establish standing as a shareholder, compliance with the “form and manner of making a demand for inspection,” and a “proper purpose” for the inspection.” Id. at § 220(c).

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