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As a lawyer representing start-up (or “young”) business clients, one subject always surfaces—web sites.  Web sites touch on many areas in the law, but primarily encompass critical intellectual property rights such as trademark, copyright, and trade secrets.  This article focuses only on protecting three critical areas of IP during the design and development of a business web site. 

The Three Pillars of Protection During the Web Site’s Design and Development Phase 

For many entrepreneurial companies, lawsuits can be fatal.  While the Internet is viewed by many as an open forum that carries little risk of litigation, business resources are far better used reducing the risk of litigation then defending against an expensive and potentially crushing, lawsuit.  With this in mind, a business must focus on three pillars of protection during the web site’s design and development phase-trademark, copyrights, and trade secrets. 

1.    Protecting the Business’ Trademark:  The business’ domain name is arguably one of the most important web site assets.  The domain name, like the business name, must be memorable and identify your goods or services.  Once you have settled on a name, immediately register a domain name that closely matches your business name/trademark.  

a.     Practice Tip 1 - If a web site will be integral to your business, research registered trademarks with the USPTO and the Nevada Secretary of State before you commit to a business name or register a domain name.  Do not commit to a name, or register a domain name, that possibly infringes on existing trademark rights.  Our firm recently encountered this issue with an existing, and very successful, client.  It will take significant time and resources to reach a resolution that satisfies both the client and the third party whose trademark may be infringed.  

b.    Practice Tip 2 - It is advisable to purchase additional domain names the business may not use, but are similar to your trademark.  As an example, if your trademark is “ACME Hardware” you may want to register both www.acmehardware.com and www.acmehardwarestore.com.  This ensures that third parties do not register a similar domain name and dilute your trademark in the future. 

2.    Obtaining Copyrights in the Design and Development of the Web Site: If the individual designing the “look and feel” of your web site or writing its code is an employee of the business, the business is generally considered the copyright holder of the work if the work is created in the course and scope of employment.  If, however, the business retains a third party to design the “look and feel” of your web site or write its code, the parties should execute a “work-for-hire agreement” to ensure the copyrights business is the legal author of the copyright.  

a.     Practice Tip 1- The United States Copyright Act of 1976 enforces work-for-hire agreements if certain prerequisites are met.  If the prerequisites are not met, however, then the business is not the legal author of the work.  Therefore, to hedge against the risk that the agreement is not enforceable under the Copyright Act, all agreements should also contain an appropriate assignment clause assigning all IP rights in the work to the business. 

b.    Practice Tip 2 – If the business hires a third party to design and develop the web site, and the third party utilizes its employees in the design and development, include a warranty in the agreement wherein the third party specifically warrants that all individuals designing and developing the site are employees of the third party, or, in the event they are not employees, the designer/developer has obtained all necessary copyrights in the assigned work.  An indemnity clause should then follow the warranty clause indemnifying the business against any loss resulting from a dispute over the copyright in the work. This protects the business if any individual who designed or developed the site later attempts to claim a copyright in the work. 

3.    Protecting Your Business’ Trade Secrets:  When a business designs and develops a web site, the employees or third parties involved in the process may become privy to a business’ trade secrets and/or confidential information.  Competitors are always looking to obtain this vital intellectual property.  Therefore, the business should take proactive steps to ensure this property is protected. 

a.     Practice Tip 1 – Businesses should have their employees execute an agreement when the employee is hired, or when the third party is retained to provide design and development services (whichever applies).  The agreement should contain appropriate confidentiality clauses, trade secret designation and protection clauses, non-disclosure clauses, and non-compete clauses in order to put the developer/designer on notice of the importance of the information and adequately protect the business’ trade secrets and confidential information. 

b.    Practice Tip 2 – Customer data is a hot-button issue when negotiating web site design and development agreements because the data has extensive value.  If your web site will collect customer data or that data is collected and stored on the web designer/developer’s servers, include an assignment of all rights in the customer data to the business.  Moreover, include appropriate confidentiality and trade secret clauses that will protect the data from being used or disseminated by the developer without the business’ express written permission. 

CONCLUSION 

This Level 1 Audit contains very general, high-level IP protection strategies for the three most important aspects of designing and developing a business web site.  Once the site is operational, a Level 2 Audit should be performed and resulting policies and procedures put in place (Level 2 Audit is not discussed here).  It is important to impress upon business clients that a web site places a business in the legal world of “publishing” and proper legal strategies are essential to protecting the business’ intellectual property assets in the design and development phase.

Matthew Digesti is a partner in The Digesti Law Firm LLP.  He advises a wide variety of entrepreneurial business clients in intellectual property portfolio protection, including extensive Web 2.0 transactions with celebrity athletes and musicians including Kobe Bryant, T-Pain, New Kids on the Block, Paul Oakenfold, the Game, Thalia, Chris Daughtry, and Third Eye Blind.  

- November 7, 2011

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So you have taken your lawyer's advice and formed an LLC, and LLP, or a Corporation?  Now what?  

Forming a business entity is a great idea to protect your personal assets.  Generally speaking, your personal assets such as your car or home are protected from your business creditors once you do form an entity.  That protection, however, is not automatic.  Even if you have formed an entity, you still need to manage your business in a way that provided ongoing protection to your personal assets.  Your entity's liability shield will do you no good if you do not follow several important steps while operating your business.  An example includes proper capitalization.  If you get sued, and you lose, the person suing your company may still be able to go after your personal assets by "piercing the corporate veil."  

In plain English, this means that the person who sued you may go after your personal assets, such as garnishing your wages, if your business was not properly capitalized.  An example would be if you own an online merchandise company.  If you routinely sell $1,000 worth of t-shirts, but you only carry a balance of $5 in your business checking account (and thus could not satisfy a judgment levied against your business), the plaintiff may be able to argue that the Court should allow him to go after your personal wages to satisfy the judgment.  This can absolutely be avoided if you follow these excellent tips from National Litigation's Consultant Review.  This is a must read for any business owner.

The recalls made by Toyota, and the product defect problems surrounding some vehicles, have been news for quite some time.  These issues have spawned a myriad of lawsuits against Toyota by Toyota owners. But what about those individuals who have not been injured because of a defective Toyota, but whose vehicle's value has decreased because of all the bad press?

Plaintiffs who have not been injured in their Toyota, but nevertheless feel they have been harmed, may be able to sue Toyota for "economic harm" to their vehicle.  An example is the value given to certain Toyotas by Kelley Blue Book.  The Blue Book has lowered the resale value of certain Toyotas, and given that bad press is certain to continue, many industry experts believe the value will decrease further.  This is potentially an example of economic harm.

To be successful in such a suit, a plaintiff must show that the manufacture or design caused injury (Soule v General Motors Corp. (1994) 8 C4th 548, 560, 34 CR2d 607).  Plaintiffs could argue that their injury is the decreased value, or "economic harm" to their property.  

This type of class action suit could, potentially, expose Toyota to even greater liability then the class actions involving individuals who were physically harmed in a Toyota.  Will these types of claims succeed?  Stay tuned . . . because this is just the beginning of the legal fallout for Toyota.

1) What Are Your Licensing Requirements? If one of the two choices below applies to your business, you need a business license with Washoe County.  All information on obtaining business licenses can be accessed here.

1. The business location address is in the unincorporated area of Washoe County. An map of the counties can be located here.  
2. The business is mobile and you will be doing business in the unincorporated area of Washoe County. 
   1. If your business is mobile, you will need to keep track of income earned in each jurisdiction in which you hold alicense to    report annual gross receipts. 
   2. Note:  You need a separate business license from each county in which you conduct business. 

2) Get Your Application:  There are 3 ways you can obtain a copy of the Washoe County business license application.

1. In person at of our office location. 
2. By mail by calling our office.
3. Via the internet from this web page.

3) What You Need to Get Your Business Name on File:  

1. If you are incorporated in the State of Nevada, you will need a copy of your Articles of Incorporation and a current list of officers. 
2. If you are using a business name other than your own first & last name, you will need to file a Fictitious Firm Name (DBA) certificate with the Washoe County Clerk at 75 Court Street, Reno, Nevada.  Make sure to include a copy of the filed certificate with your business license application.  The Fictitious Firm name (DBA) Certificate can be found here.    
3. If you are a Corporation doing business under a different name then the corporate name, a Fictitious Firm Name certificate will also be required.

4) Visit the Nevada Department of Taxation:  If you are selling anything, you will need to register with the Nevada Department of Taxation. They are located near the Reno/Sparks Convention Center at 4600 Kietzke Lane, Building L, #235, in Reno. Onde you arrive, they will provide you with a clearance letter that must be included in your business license application. 

5) Visit the Nevada Secretary of State:  All new businesses must register with Nevada Secretary of State’s Office for the Nevada State Business License. You may register with them in 1 of 3 ways.

1. In person at their office in Carson City.  
2. By mail.  
3. Through the Nevada Secretary of State's web site. 

6) Get the Required Federal and State Licenses:  Some businesses require additional licensing, and Washoe County will need proof that you have obtained these licenses when you file for the County’s business license. 

1. A good example is if you practice medicine.  A license from the State Board of Medical Examiners is required to practice medicine and must be obtained before a business license can be issued by Washoe County. If you’re not sure, please check with Washoe County’s main business office to determine if additional licensure and documentation is required. 

7) Make Sure to Follow All the Rules When You Are an Employer: All businesses that have employees must obtain workers compensation from the insurance company of their choice. Keep your policy handy.  Your policy information will be required on the State Industrial Insurance Compliance form contained in the County’s business license application package. 

8) Complete the Business License Application:  Make sure that ALL the forms included in the application package are completed and returned, including the Nevada Business Registration, Personal History (not applicable to corporations), Worker’s Compensation Insurance Compliance (even if you have no employees), and Child Support Compliance forms. Businesses that are operated from the home must also complete a two-part “Home Business Requirements” supplement.

9) Turn in the Application and Supporting Documents:  Most home-based businesses will be finished at this point. However, some are not.  See step 10 below. 

10) Complete the Sign-Offs: If you plan to open a commercial business (run from a storefront), or a non-home based business run from your property (such as horse boarding) you will be required to obtain approval from several County agencies before your license can be issued. The business license office will prepare the sign-off forms for you. 

IT’S IN THE MAIL! Your business license certificate will be mailed to you within 5 working days after you have submitted a complete application with all the required approvals, along with the $75.00 first year fee.  CONGRATULATIONS.  You are licensed!

What is a Structured Settlement?

A structured settlement most commonly results from a personal injury lawsuit involving product liability, vehicle accidents, wrongful death, medical malpractice and negligence.

A structured settlement is a second option when settling a personal physical injury claim.  The settlement plan can be designed to meet the unique needs of the injured party. Instead of accepting a cash settlement in a single lump sum, the injured party may receive payments spread out monthly or yearly via an annuity contract issued by an insurance company.  The damages awarded are funded in the form of an annuity contract issued by an insurance company. 

The settlement structure is typically as follows:

• A company (usually an insurance company) is selected by the defendant to structure the settlement.

• The structured settlement company purchases an annuity contract and sends the payments from the annuity to the plaintiff. The payments are fixed in time and amount.

• The structured settlement company retains ownership of the annuity even though the plaintiff is the beneficiary.

Structured Settlement – Tax Benefits and Principal Protection

Instead of receiving cash in a lump sum, a structured settlement allows the injured party to receive future periodic payments made through a structured settlement annuity. There are three main advantages of a structured settlement.

First, it is TAX FREE. Structured settlements are covered under section 104 of the Internal Revenue Code of 1986 and therefore totally tax free, both federally and at the State level.  This tax treatment differs significantly from a lump sum settlement because investment proceeds made with lump sum settlement proceeds (such as interest and dividends) are subject to both Federal and State taxes.

Second, structured settlements offer inherent spending protections. Since the settlement money is received over a period of time, the injured party enjoys protection from bad judgment, bad advice, bad spending habits, or bad luck. The injured party does not have the worry associated with managing a huge sum of money that must last a lifetime. In fact, a structured settlement can survive bankruptcy.

Third, a structured settlement is guaranteed by highly-rated life insurance companies and their benefits do not fluctuate based on the volatile financial markets.  Put simply, the injured party has peace of mind knowing that their future payments will be made as promised and in an amount expected. 

Should you Structure Your Personal Injury Settlement? 

If you suffer from a personal injury resulting from any type of accident, a structured settlement may be the strategic choice for you.  In addition to additional tax incentives, it guarantees you and your family a stream of income over a period of time.  Managing a large lump sum settlement can cause additional stresses in life, knowing that you and your loved ones will have a certain payment each month or year can provide a tremendous feeling of security.  The attorneys at The Digesti Law Firm LLP can help you make a decision whether your personal circumstances counsel you to receive your personal injury settlement in a lump sum or in a structured settlement.  

One of the principle benefits of a commercial arbitration agreement is that it provides for an efficient, formal decision-making process instead of protracted and expensive litigation.  A considerable reason that arbitration is a more efficient then litigation is because most arbitration decisions are final and very few issues can be appealed.  This long-standing principle, however, has changed and changed in a significant way.    

In the past, courts could not review an arbitration decision on the merits

Generally speaking, a court will not review an arbitration proceeding on the merits to determine whether the law has been correctly stated and correctly applied.  This has created problems because arbitration awards generally must be enforced by courts even if it appears that the arbitrators incorrectly applied the law to the facts, or ignored the law altogether.  Despite this glaring problem, this has been each court’s duty since the Moncarsh v. Heily & Blase case in 1992 (see Moncarsh, 3 Cal. 4^th 1) (stating that “in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute”)).

In California, courts may now review arbitration decisions for legal error

The law in California (and possibly in Nevada in the near future) has changed.  The California Supreme Court recently held that the parties to a contract can agree to allow for judicial review of legal error by an arbitrator as long as the parties structure the arbitration clause to trigger a statutory ground for review.  (Cable Connection, Inc. v. DirectTV, Inc. (2008) 44 Cal. 4^th 1334). 

The arbitration clause in the DirectTV contract stated that “the arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” 

The key here is the statutory trigger the clause referred to – California Code of Civil Procedure § 1286.2(a), which states “a court shall vacate the award if the court determined . . . the arbitrators exceeded their powers.”  The genius of the language in this arbitration clause is that by defining an arbitrator’s powers so that they have no power to commit legal error, CCP 1286.2(a) is triggered and a court is allowed to vacate an award because of legal error.  Put differently, before DirectTV a party could not appeal an arbitrator’s award because a legal error was committed.  However, if the arbitration clause is properly drafted, a party can now appeal a decision based upon legal error by utilizing CCP 1286.2(a). 

The DirectTV decision may run afoul of federal arbitration law

Interestingly, the DirectTV opinion comes glaringly close to running afoul of a United States Supreme Court case, Hall Street Associates, L.L.C. v. Mattel, Inc.  There, the Court stated that under the Federal Arbitration Act, parties could not expand the scope of judicial review of arbitration decisions.  However, by cleverly relying upon statutory authority (CCP 1286.2(a)), the California Supreme Court may have nullified the application of Hall Street. 

What does the DirectTV decision mean for your business?

The DirectTV decision will undoubtedly be tested by businesses and their attorneys.  As it stands, the DirectTV decision only applies to review of legal errors and not factual errors.  However, the opinion can be construed as allowing for review of factual errors as well.  

It is highly advised that businesses modify their arbitration clauses to include the language necessary to allow a court to review an arbitrator’s decision for at least legal errors.  While binding arbitration may be a better business option than full blown litigation, if the arbitrator's decision is based upon incorrect legal reasoning, the arbitration is a failure.  Allowing a court to review a decision for legal error is a necessary protection that every business should have access to.  

How your business should modify your arbitration clause in all its contracts 

In California, your arbitration clause must trigger a statutory ground for review.  The clause in DirectTV provides an excellent example of what language you can add to your arbitration clause to ensure a court has the power to review your arbitrator’s decision for legal error.

"The arbitrator(s) shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error."

However, an arbitration clause could even conceivably include review for factual errors.  An example could read as follows:

"The arbitrator shall not have the power to commit errors of law, fact, or legal reasoning, and the award may be vacated or corrected by a court of competent jurisdiction.  The parties agree that the court shall have jurisdiction to review, and shall review, all challenged findings of fact and conclusions of law based on a de novo review of the arbitration record and evidence."

While allowing a court to review an arbitrator’s award for factual errors may allow for peace of mind, doing so takes away several benefits of arbitration including the relative informal presentation of evidence and increased efficiency in reaching a decision.  Whether your business decides to modify your arbitration clause for review of legal error or legal and factual errors, the decision must be based on sound business principles and business goals. 

Stay tuned – the DirectTV decision will undoubtedly be tested and revisited as businesses seek to extend review of arbitration decisions.  

The FTC recently released a staff report that could impact your online advertising.  Click here for the FTC report on legal online adverstising guidelines.  This report is "voluntary" meaning that it is not the law, but it is highly advised that your company abide by these voluntary guidelines as best as possible for the reasons that follow.

Why These Guidelines Important

Behavioral advertising is the process of tracking a user's online activities so that the user's specific interests can be identified.  Once a user's interests are identified, the web site can direct specific advertising to that user.  

The amount of data a company can collect on a user is staggering (for a full discussion, see The Behavioral Advertising Blog).  As the power of companies to collect user data grows, so does the FTC's concern with protecting people's privacy on the Internet.

But what does this mean, practically, for your company?  If a user sues you because they believe your behavioral advertising practices are deceptive and/or unfair trade practices, you should produce evidence that your company complied with the FTC's voluntary guidelines.  If you can demonstrate compliance, you may be able to avoid liability.  In other words, if you follow these guidelines to the best of your ability, you will potentially minimize your legal exposure.

The FTC's Four Behavioral Advertising Principles to Consider

The staff report identifies four behavioral advertising areas that a company should review and revise if necessary.

(1) Offering consumers notice and choice before you collect behavioral advertising data.  Translation = Before collecting behavioral data, a web site must give consumers notice of what information is being collected and a choice of whether the consumer wants that information to be collected. 

(2) Limiting the time you retain data and providing reasonable security for protection of the data.  Translation = There is no specific amount of time or level of security.  How long you can retain data and how secure that data must be depends on several factors including the sensitivity of the data and the type of business the company is engaged in.

(3) If you change your company's privacy practices, you must notify each user. Translation = If any portion of your behavioral advertising practices change, notify each user that you have collected data on and give them a choice on whether they will allow the change.

(4) Provide an "affirmative notice" before sensitive data on a user's online acitivity is collected. Translation = Provide a specific "opt-in" choice for users if "sensitive information" such as financial data, data about children, health information, sexual orientation, social security numbers, etc. are requested by your company.

Make User Privacy a Paramount Objective in Your Company

Excellent user privacy is not only a legal consideration, but great business as well.  If users know that you take their privacy seriously, they will become repeat customers and your potential legal liability will be minimized.  It is a policy that provides for happy customers and limited legal exposure.  If you have additional questions on online user privacy, do not hesitate to contact The Digesti Law Firm LLP here.