All Posts Archives - Page 11 of 14

Entrepreneurship Bootcamp Series : How to Hire the Right Tech Team

Thank you for joining us at the Entrepreneurship Bootcamp Series at WeWork Soho South! Steve Masur joined Asha Saxena, professor at Columbia University and CEO of Future Technologies Inc and Dasmer Singh, product manager at Venmo. Asha and Dasmer discussed the ins and outs of building a strong tech team for your start up and explained how to expand your networking platform in different sectors and industries.

Asha Saxena is a professor at Columbia University and CEO of Future Technologies Inc.. She is also an entrepreneur in residence at Eugene Lang Entrepreneurship Center and was rewarded NJBIZ’s Best 50 Women in Business award. The premise of her discussion was about how to hire the right tech team for your company.

Dasmer Singh is currently enrolled at Stanford’s Business School and is the project manager for Venmo, which has skyrocketed over the past couple of years. He constructed and completed a bulk of the coding that went into the Venmo app. And throughout his talk, Dasmer went over the workflows of project management and how to make sure your tech team is productive and efficient enough to bring your ideas to the real world.

The Entrepreneurship Bootcamp and these guest speakers were here to help you and your team overcome problems you may face when beginning your startup company. This specific series focused on ensuring you how to hire and pick the best fit tech team that will help you bring your idea to life. We are excited that you were able to hear these speakers talk about their companies and how they were able to build their ideas and turn them into successful startups.

Tickets are available at Eventbrite.

Disparaging Trademark or Reclaimed Slur? The Supreme Court Weighs In Matal v. Tam

By: Jon Avidor and Qualia Hendrickson

In a unanimous decision in Matal v. Tam, 582 U.S. __ (2017), the U.S. Supreme Court ruled that federal law prohibiting the registration of disparaging trademarks or service marks was unconstitutional under the First Amendment and that the United States Patent and Trademark Office (“USPTO”) may no longer reject applications to register trademarks deemed potentially offensive.

The “Disparagement” Clause of the Lanham Act

At issue in this case was Section 2(a) of the Lanham Act, which refused federal registration to trademarks and service marks that consist or comprise of “immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute . . . .” 15 U.S.C. § 1052(a). According to the Trademark Manual of Examining Procedure, in determining whether a proposed mark was disparaging, trademark examiners would look at “the likely meaning of the matter in question” based on the dictionary definition and other elements of the mark and how the mark is used, and “whether that meaning may be disparaging to a substantial composite”—not necessarily a majority—of the referenced, identifiable persons, groups, institutions, beliefs, or national symbols based on contemporary attitudes.

This prohibition—and case—only applied to registration of trademarks on the Federal Register (either the Principal Register or Supplemental Register). Federal registration provides substantial benefits to the trademark owner, including among other things, a legal presumption of nationwide ownership of a valid trademark, constructive notice to all other persons of the owner’s exclusive right to use the mark in commerce (plus the right to use the ® symbol), and greater monetary remedies in infringement lawsuits. However, prior to this case, potentially disparaging marks that would have otherwise been ineligible for federal registration could nevertheless develop common law trademark rights based on continued use in commerce.

The Slants

Matal v. Tam concerned the Asian-American dance-rock band The Slants, or as their new EP cleverly refers to themselves, “The Band Who Must Not Be Named.” The band applied to register THE SLANTS trademark with the USPTO twice, first in March 2010 and again in November 2011, in Class 41 for use in connection with “Entertainment in the nature of live performances by a musical band.” The USPTO issued an office action denying the application under Section 2(a) of the Lanham Act because the likely meaning of “SLANTS” was a negative term used in reference to the shape of certain Asian people’s eyes “in a disparaging manner because it is an inherently offensive term that has a long history of being used to deride and mock a physical feature of those individuals.” On appeal, the refusal was affirmed by the Trademark Trial and Appeal Board.

Lead singer of the rock band and named appellant Simon Tam argued he named his group The Slants to “reclaim” and erode the Asian stereotype and slur and to empower other Asians to “be proud of their cultural heritage, and not be offended by stereotypical descriptions.” Through their songs and performances, The Slants “weigh in on cultural and political discussions about race and society,” which Tam argued are at the heart of the First Amendment’s protection of free speech and expression. The U.S. Court of Appeals for the Federal Circuit agreed with Tam in a 10-2 ruling, writing, “Whatever our personal feelings about the mark at issue here, or other disparaging marks, the First Amendment forbids government regulators to deny registration because they find the speech likely to offend others. Even when speech ‘inflict[s] great pain,’ our Constitution protects it ‘to ensure that we do not stifle public debate.'” The government appealed the ruling to the Supreme Court.

Appeal to the Supreme Court

The Supreme Court heard arguments on January 18, 2017 (prior to Justice Gorsuch’s appointment) and decided the case on June 19, 2017, holding 8-0 in favor of Tam and The Slants. Justice Alito delivered the opinion of the Court, and Justices Kennedy and Thomas filed concurring opinions. The high court upheld the Federal Circuit’s decision and struck down the disparagement clause of the Lanham Act as a facial violation of the First Amendment to the Constitution, agreeing that the Lanham Act’s provision prohibiting the registration of trademarks that may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead” could not withstand legal scrutiny of laws that discriminate on the viewpoint of the speaker.

While the government may constitutionally regulate or prohibit certain types of speech, these restrictions are narrowed exceptions to the “fundamental principle of the First Amendment that the government may not punish or suppress speech based on disapproval of the ideas or perspectives the speech conveys.” Governmental restrictions on one’s speech based its the content, i.e., either the subject matter or viewpoint of the speech, must meet strict scrutiny, meaning the burden is on the government to prove that the content-based restriction is necessary to protect a compelling governmental interest and is narrowly tailored to serve that interest. The Lanham Act, as well as the Trademark Manual of Examining Procedures, generally establishes viewpoint-neutral guidelines for trademark examiners to determine whether to grant an applied-for mark based on factors such as the mark’s distinctiveness to the consuming public, its similarity to other existing marks in the marketplace, and the mark’s likelihood to confuse consumers, among others. However, the Court ruled that the disparagement clause at issue in this case provides the USPTO with broad discretion to reject trademark applications on the basis that the content could offend particular persons, groups, institutions, beliefs, cultures, or ideologies, and unconstitutionally placed the burden on the applicant to prove the mark was not disparaging—a burden Tam and The Slants could not overcome in their first appeal. While the Government argued that trademarks primarily serve to identify the source of good or services, and are therefore commercial speech entitled to lessor scrutiny than expressive speech, the Court held that allowing the government to approve or disapprove of a trademark’s expressive elements was a violation of applicants’ constitutional free speech rights, and that as a fundamental principle of the First Amendment, “Speech may not be banned on the ground that it expresses ideas that offend.”

In a concurring opinion, Justice Kennedy focused only on the disparagement clause’s viewpoint-based discrimination and how the government could not carve out a subset of language it did not approve of and disguise their viewpoint discrimination as censorship, writing, “By mandating positivity, the law here might silence dissent and distort the marketplace of ideas.” For that reason, the challenged provision of Section 2(a) of the Lanham Act could not pass rigorous scrutiny. He and Justices Ginsburg, Sotomayor, and Kagan found further discussion of the other arguments presented unnecessary.

In a separate concurring opinion, Justice Alito addressed the government’s other arguments, including the “government-speech” doctrine that the USPTO used to defend its right to express its own viewpoint, warning that the argument is susceptible to dangerous misuse. He distinguished this case from a 2015 case, Walker v. Sons of Confederate Veterans, 576 US __ (2015), in which the Court allowed Texas to refuse to print the confederate flag on specialty license plates because license plates are government speech. Justice Alito wrote, “Trademark is private, not government, speech,” and that to allow trademarks, which are created by private individuals or businesses, to be passed off as government speech by virtue of a government seal and registration to it would be to permit the government to limit and silence speech the government found offensive and infringe on individuals’ rights.

Implications on Future Trademarks

The Court’s decision in Matal v. Tam eliminating the disparagement clause of the Lanham Act will certainly open the door to registering trademarks that have been rejected or cancelled under the disparagement clause. Interestingly, Reuters found that, since 2014, the Supreme Court often disagrees with specialized intellectual property courts and has upheld only 2 of 16 cases decided by the Federal Circuit court of appeals, which hears appeals from the administrative Trademark Trial and Appeals Board and Patent Trial and Appeal Board.

Perhaps the most widely known and hotly debated case of a refusal of trademark protection occurred in 2015 when a judge in the U.S. District Court for the Eastern District of Virginia affirmed a 2014 ruling by the Trademark Trial and Appeal Board declaring that the Washington Redskins’ name was offensive to Native Americans, cancelling six of the football team’s trademark registrations. An appeal was on hold in the Court of Appeals for the Fourth Circuit pending the outcome of Matal v. Tam, though in light of the Supreme Court’s decision, the team, which has used the Redskins name since 1932 amid both wide support from fans and vocal criticism from Native American advocacy groups and in the media, believes their dispute with the government will resolve in their favor. The court of public opinion is an entirely different beast, however, so the future of Redskins brand remains to be seen, though in the meantime, owner Dan Snyder says he is “thrilled” with the ruling.

*We would like to thank our intern Qualia C. Hendrickson for her contribution to this article.

History of Marijuana Treatment in the United States

By: Sarah Siegel and Danika Johnson

Marijuana use in the United States has been a topic of debate for decades. From being accepted to highly regulated and criminalized, marijuana use has gained significant importance and credibility in the modern age.

While the cannabis plant can be used for various reasons, for example, hemp for fabrics, the use of marijuana for the body dates to the 1850s. In the 1850s, marijuana was available in pharmacies for the medical treatment of nausea, pain, and other ailments. Marijuana was a popular ingredient used in medicines and tinctures. At the turn of the 19th century, government regulation of marijuana began. The Pure Food and Drug Act in 1906 made the labeling of any cannabis in over-the-counter remedies a requirement.

Only a few years after the passage of the Pure Food and Drug Act and as a result of the Mexican Revolution of 1910, the United States saw an influx of Mexican immigrants into the U.S. Mexican immigrants brought with them the marijuana plant and introduced recreational use, and by the 1930s, it became popular throughout the U.S. In 1913, California was the first state to outlaw cannabis, followed by Utah in 1914. Following the Alcohol Prohibition Era, marijuana was seen as the readily available and inexpensive alternative to alcohol, making it even more popular in America.

Since marijuana was used mostly in the Mexican and Black communities, marijuana became the next target for xenophobic fears. Massive unemployment increased public resentment and fear of Mexican immigrants. Journalists, newspapers, and the media all contributed to the negative treatment of marijuana in American culture at the time. By 1931, 29 states outlawed marijuana. The Federal Bureau of Narcotics Commissioner then started a propaganda campaign throughout the U.S. claiming that marijuana caused insanity, reckless and criminal behavior, and death. This effort was made to encourage the remaining states to adopt the Uniform State Narcotic Drug Act.

The adoption of the Uniform State Narcotic Drug Act was not enough. A national propaganda campaign against the “evil weed” pushed for the growing concern Americans had about marijuana. An example includes Reefer Madness, a 1936 film renamed “Tell Your Children,” which showcases a group of students committing crimes after smoking marijuana. The FBN Commissioner published in the American magazine, Marijuana, Assassin of Youth, to continue lobby efforts for the adoption of federal legislation. In 1937, the Marijuana Tax Act was passed by Congress, imposing federal taxes on transfers of the drug and requiring persons dealing in marijuana register their names and places of business with the IRS.

Not everyone in the United States gave in to the national propaganda campaigns. The New York Academy of Medicine issued the LaGuardia Committee Report in 1944, laying out the results of a five-year comprehensive study. They found that marijuana did not lead to the use of morphine, heroin, or cocaine, was not the determining factor in the commission of crime, and the overall publicity regarding its catastrophic effects was unfounded. By the 1950s through the 1960s and 1970s, attitudes towards cannabis use began to shift, increasing marijuana uses acceptance, especially among youth.

While American culture began to shift to acceptance, the federal government continued to criminalize marijuana. In 1970, the Controlled Substances Act was passed, labeling marijuana a Schedule I substance. This imposed many restrictions, some of which are still prevalent today. While states have moved towards legalizing or decriminalizing marijuana, and many individuals have created new businesses, federal legislation prevents those businesses from fully participating in the financial industry.

As states to continue to pass measures to legalize or decriminalize and remove harsh restrictions on marijuana, the hope is that the federal government will follow suit. Significant campaigns throughout the nation and general acceptance for its use will encourage federal legislation to decriminalize marijuana and allow this industry to expand and develop further.

Digital Hollywood

By: Steve Masur

Steve Masur was at Digital Hollywood, May 24th from 2:30pm-3:30pm at the Skirball Center in Los Angels moderating a panel focused on VR. The panel, Virtual Reality Transforms Entertainment and Media – TV, Movies, News, Sports & Music, included participants from Fox Sports, Sony Music, Proof, Inc. , and Secret Location. On May 25th at 2:15pm Steve participated on a panel discussing Financing, Packaging & Investment: From Entertainment & Indie Project to Technology & Startups.

On that panel discussing Virtual Reality Transforms Entertainment and Media, Steve talked with other participants like Sean Charles (Vice President, Global Publisher and Developer Relations at ESL), Brad Spahr (Vice President of Product Development at Sony Music and Entertainment), Ted Kenney (Director, Field and Technical Operations at Fox Sports), Andy Cochrane (Independent Digital Director), Eric W. Shamlin (Managing Director/Executive Producer at Secret Location) and Christopher Bellaci (Head of Business Development at Proof, Inc.).

On May 25th, Steve participated on another panel discussing Financing, Packaging & Investment with other speakers such as Diane McGrath (Managing Director Media and Technology at J Streicher Capital), Greg Akselrud ( Partner, Stubbs Alderton & Markiles, LLP), Jennifer Post (Partner, Thompson Coburn), Nick Davidov (Co-Founder, Gagarin Capital), Jason Scoggins (President & COO of Slated, Inc.) and Joey Tamer (President, S.O.S. Inc., Moderator).

Entrepreneurship Bootcamp Series at WeWork Soho

Entrepreneurship Bootcamp Series on June 6th 6:30pm-8:30pm at WeWork Soho West. Join Asha Saxena, professor at Columbia University, entrepreneur in residence at the Eugene Lang Entrepreneurship Center, President and CEO of Future Technologies, Inc. and NJBIZ’s Best 50 Women in Business, as she presents her Business Model Canvas Walkthrough. Attorneys from MG+ will also lead a brief presentation on business formation and legal considerations for new ventures. Tickets are available through Eventbrite.

Benefit Corporations and Purpose-Driven Commerce

By: Jon Avidor

“Brands and consumers will continue to come together to form a more cohesive and fluid business ecosystem….The new era of business is about creating enterprises that work together in tandem to drive commerce that matters.”

– Billee Howard, We-Commerce

Entrepreneurs who seek to harness the power of business and innovation to address and implement solutions to critical social, cultural, and environmental issues are increasingly looking to social enterprise business structures, such as benefit corporations. In her book, We-Commerce: How to Create, Collaborate, and Succeed in the Sharing Economy, creative marketing consultant Billee Howard posits an economy of “we” built on “socialization, sharing, trust, purpose, passion, creativity, and collaboration,” and points to a shift in consumerism as the catalyst for this shift towards purpose-driven commerce. A growing number of innovative businesspeople and founders are foregoing traditional entities like partnerships, business corporations, and limited liability companies, and even not-for-profit corporations, in favor of new models that are designed for socially conscious businesses to commit to more than corporate philanthropy and for charities to pursue commercial activities with fewer restraints.

This article will discuss benefit corporations primarily, as well as social purpose corporations and low-profit limited liability companies, how they are different from traditional business corporations and not-for-profit corporations, and the meaning of the “certified B-Corp” distinction.

Benefit Corporations

A benefit corporation is a for-profit corporate entity, which according to model benefit corporation legislation commentary, “offers entrepreneurs and investors the option to build, and invest in, a business that operates with a corporate purpose broader than maximizing shareholder value and that consciously undertakes a responsibility to maximize the benefits of its operations for all stakeholders, not just shareholders.” Basically, a benefit corporation is a profit generating company that must also consider the impact of its decisions and business practices on its societal stakeholders and the environment, and not solely on its bottom line—referred to as the triple bottom line. Benefit corporations have a stated purpose of creating “general public benefit” and, at its shareholders’ election, one or more specific public benefits as identified in its articles of incorporation. This is a stark contrast from corporations, which exist to maximize shareholder value and whose board of directors could be liable to shareholders for pursuing courses of action that do not enhance corporate profits. See American Law Institute, Principles of Corporate Governance (1994).

Under New York corporate law, a general public benefit is an overall “material positive impact on society and the environment” created by a business and its operations. N.Y. Bus. Corp. § 1702(b). A benefit corporation may also set forth specific public benefits in its Certificate of Incorporation, including, but not limited to, providing goods or services to low-income or underserved individuals or communities, promoting economic opportunity beyond just job creation, protecting the environment, improving health and human services, promoting the arts, sciences, or education, and supporting other benefit corporations. N.Y. Bus. Corp. § 1702(e). California’s first benefit corporation, sustainable outdoor clothier Patagonia, Inc., included six specific benefit purposes in its Articles of Incorporation:

Source: Patagonia, Inc., Annual Benefit Corporation Report (2016)

For benefit corporations, meeting these public benefit commitments become part of the corporate management’s fiduciary duties and one way in which it’s held accountable. For example, under the model benefit corporation legislation, in addition to its regular obligations to shareholders under business corporation law, officers and directors must consider the effects of any action or inaction upon stakeholders, such as employees, subsidiaries, suppliers, customers, the community, and local and global government, as well as the sort and long term interests of the company, in meeting and best serving its beneficial commitments.

On the board of directors of a benefit corporation, a designated “benefit director” ensures compliance with the corporation’s beneficial purposes and preparing the annual compliance statement to shareholders. While a benefit corporation does not have to be accredited or certified under the model benefit corporation legislation, it must publish an annual benefit report to offer transparency between the corporation, its shareholders, and public beneficiaries, which is sent to shareholders, made available on its website, and sent to the Secretary of State of its state of incorporation. These annual reports must include a description of how the company pursued general public benefit and its specific public benefits and whether these benefits materialized or were hindered in some way, the third-party standard by which it defined and evaluated its social and environmental performance and the results of that overall assessment, and information about its directors, including the benefit director, and benefit officer, if any.

A Note on Certified B Corporations™

B Lab is a nonprofit organization that provides all business, not just corporations, with the resources and community to build socially-conscious ventures that create value for all stakeholders, not just shareholders. “Certified B Corp” designation is similar to Fair Trade USA’s “Fair Trade Certified” label that signals to consumers that the producer was audited and certified as complaint with international Fair Trade standards by this third-party nonprofit organization. “Certified B Corp” status is not a requirement for benefit corporations to secure or maintain benefit corporation status, but rather is B Lab’s endorsement of quality. A business becomes a “Certified B Corp” by meeting certain performance standards relating to governance and transparency, employee compensation and support, community engagement, and environmental sustainability on B Lab’s B Impact Assessment, as well as certain legal entity structure requirements regarding choice of entity and state of incorporation. If accepted for B Lab certification, the company must sign B Lab’s B Corp Declaration of Independence and B Corp Agreement, and pay an annual fee indexed to the business’ annual sales. Here is how benefit corporations relate to Certified B Corporations:

Source: B Labs, Certified B Corps and Benefit Corporations

Benefit Corporations Compared to Not-for-Profit Entities

A benefit corporation straddles the profit generating goals of a traditional business corporation and the socially beneficial mission and objectives of a not-for-profit corporation, though a benefit corporation is an entity all its own. A not-for-profit entity dedicates its assets, and uses surplus revenue generated from its activities, to further the organization’s mission and objectives, and not for the pecuniary benefit of its members or management. This is distinctly different from a benefit corporation, which is owned by shareholders who receive economic value from their ownership interests, such as dividends and distributions upon dissolution. For that reason, benefit corporations are taxed under the Internal Revenue Code as business corporations—as either C corporations or S corporations—and are not exempted from paying income tax under Section 501 as are many (but not all) nonprofits, such as the well-known 501(c)(3) charitable organization.

Not-for-profit entities are restricted, both by corporate law and tax law, from engaging in certain activities that depart from its mission and, if applicable, its tax-exempt purpose, and often rely on external funding sources, such as patron donations, fundraising, and foundation or government grants. Benefit corporations are not restricted in that way and can pursue diverse revenue streams like a traditional business, but when appropriate, dedicate resources and funds and give consideration to social, charitable, environmental, educational, sustainable, and other public causes and issues like not-for-profits. It’s this balance that has popularized the benefit corporation among socially conscious businesses, and led many well-known and well-respected brands of varying corporate structure to become Certified B Corporations, including Kickstarter, Warby Parker, Ben and Jerry’s, and Etsy.

Other Social Enterprise Business Structures

There are new business models in addition to the benefit corporation, such as the social purpose corporation and the low-profit limited liability company (abbreviated as L3C), that allow founders and shareholders to use profit-generating activities to support chosen social causes. While many states have introduced or enacted benefit corporation legislation, fewer states have adopted the social purpose corporation and low-profit limited liability company entity structures.

Source (State-by-State Status): Social Enterprise Law Tracke r

Converting to a Benefit Corporation

The model benefit corporation legislation provides a statutory mechanism for converting between a business corporation and a benefit corporation structure since both are typically governed by a common set of corporate laws. This conversion typically involves an amendment to the corporation’s articles of incorporation to include the requisite commitment to a publicly beneficial corporate purpose. Both New York and Delaware have such conversion statutes.

However, it’s often not as easy to convert between a not-for-profit corporation and benefit corporation structure since states typically govern not-for-profits under a set of not-for-profit corporate laws distinct from business corporation law. In New York, not-for-profit corporations are not eligible for conversion because they are incorporated under the Not-for-Profit Corporation Law, and not the Business Corporation Law, so in order to make the transition, the not-for-profit would have to dissolve and reincorporate as a benefit corporation under the Business Corporation Law. So this entity change is certainly possible with just a few more steps.

What’s the Point of New York’s LLC Publication Requirement?

By: Steve Masur, Amanda Chiarello and Luca Turchini

Every new limited liability company (LLC) organized under the laws of the State of New York must announce its formation by publishing a notice in two newspapers for a period of six weeks, which could cost the LLC up to $2,000 depending on where in New York it principally conducts its business. Despite the continuous and loud outrage of lawyers, investors, and others that the cost of publication hinders new startups to do business in New York, and the fact that for some reason the same requirement does not apply to corporations, the New York State Legislature has consistently reaffirmed the requirement. Until lawmakers discontinue the publication requirement, it’s up to law firms to work with new ventures to dispel confusion and help our clients’ businesses succeed in New York.

The LLC Publication Requirement

Section 206 of the New York Limited Liability Company Law requires every limited liability company to give public notice its formation in two newspapers in the county in which the LLC is located, one newspaper of daily circulation and the other of weekly circulation, for a period of six consecutive weeks. Despite the information being readily available on the New York Department of State’s corporation and business entity database, the LLC must generally include in the notice its name, formation date, address of its principal place of business, registered agent’s name and address (if any), the date or event that would trigger its dissolution (if not perpetually existent), and business purpose. The county clerk of the LLC’s home county typically designates the two newspapers in which the new LLC must publish. Once completed, the newspapers will provide the LLC with affidavits of publication, which the LLC files with the Secretary of State along with a Certificate of Publication.

The most significant problem with the publication requirement is the cost of running the notices in the two newspapers, and since the county clerk typically assigns the newspapers from a (sometimes secret) master list instead of allowing the LLC to choose the two newspapers that charge the least, costs can vary wildly, especially in New York City counties. Depending on the county in which the LLC is located, and the periodicals specified by the county clerk, the total cost hovers between $1,500 and $2,000.

Many LLCs see no immediate utility in publishing an expensive announcement that no one reads and simply ignore the requirement, allocating this money to more pressing areas of their new businesses. However, an LLC that does not comply with the publication requirement within 120 days of filing its articles of organization with the State forfeits its right “to carry on, conduct or transact any business” in New York. Practically, this means that the LLC loses standing to bring a lawsuit in New York, for example, to enforce a contract against a non-paying customer or supplier, and that the LLC would not be able to obtain a perfect Certificate of Status (also referred to as a Certificate of Good Standing or Certificate of Existence), which could be required to register in other states and even obtain a loan. However, noncompliance does not prevent an LLC from entering into valid contracts or forfeit the liability shield of its members, managers, or agents to the extent such liability may be limited by law. An LLC may reinstate its authority to carry on, conduct, or transact business in good status by completing the publication requirement as if it were just organized in New York. Thus, a noncompliant LLC wishing to sue, for example, would simply publish, file its Certificate of Publication with the State, and then file its complaint in court, or publish simultaneously with initiating its lawsuit and come into compliance prior to opposing counsel’s motion to dismiss for lack of standing.

The practical effect of the penalty language is seemingly nothing more than intimidation since there have been no visible enforcement actions against LLCs that lack the legal authority to do business in New York. Based on the Department of State’s inaction, it seems unlikely (but not impossible) that the Secretary of State maintains a record of noncompliant LLCs, further reducing any real liability for failing to publish. Today, LLCs still face the possibility of sudden enforcement of this requirement, and therefore, risk-averse attorneys would advise new ventures intent on an LLC structure to either comply with the publication requirement or simply organize elsewhere.

Intent versus Impact

In a 2006 letter to Governor George Pataki and legislative leadership, the New York County Lawyers Association cited consumer protectionism as the original legislative intent of the “antiquated” publication requirement, observing, “publication of the notice of formation ostensibly serves to put the public on notice that an entity has been formed to do business…within a corporate structure that shields its owners from personal liability for the debts, obligations and liabilities of the business entity.” But if this is the true purpose of the requirement, then it’s surely a holdover from a prior age, given the public’s easy ability to obtain the same information from Department of State’s corporation and business entity database for free. Furthermore, the commitment to print media and averseness to a more accessible and less expensive electronic format gives further pause. It is unlikely the statute achieved its stated goal of causing more LLCs to publish their existence. Instead, it seems clear that well-advised new businesses will use a different entity structure in New York, or will organize in a different state, as long as it can avoid filing an Application For Authority required for a foreign LLC to properly do business in New York.

So Why Have the LLC Publication Requirement at All?

Given the clear discrepancy between the stated purpose and actual consequences of the publication requirement, there must be some valid reason the New York State Legislature continues to preserve this requirement. It’s long been suspected and alleged that the powerful newspaper and print industries, which benefit from being on the short list of newspapers kept by county clerks across the State, have a vested interest in requiring the thousands of LLCs that form each year in New York to publish their notices.

Section 206 has strict requirements for publishing the notice in print, and not electronically. In addition, the county clerks maintain a short list of newspapers that fit the statute’s strict circulation and publication frequency requirements, and these approved newspapers can charge a premium for publishing the notices of formation. In Kings County (Brooklyn), the county clerk will not even release the full list to the public, further adding to the mystery of the cabal. Consequently, the publication requirement forces an LLC choosing to do business in New York to pay what amounts to a state mandated formation tax to a private publication, of an amount arbitrarily set by that publication. Like a Mario Puzo novel, an LLC wanting to do business in New York is given “an offer it can’t refuse” since its only other option is to willfully ignore the law. Some have even argued that the statute’s formatting requirements are “quasi-judicial” and will create a controlled market that is likely to further increase this premium.

An examination of the 2006 legislative history adds credence to this theory. The original Chapter 767 amendment scaled the publication period back to four weeks, but at the eleventh hour, the period was increased back up to six weeks. Two more weeks does not meaningfully increase the public’s chance of becoming aware of an LLC. The public already enjoys unfettered, 24-hour access to a database containing information about every New York business. The only beneficiaries are the periodicals that New York LLCs must pay to publish a fourteen-line ad, which get two more weeks of revenue.

New York or Bust

Many new LLCs avoid organizing in New York to bypass the publication requirement, or make the judgment to either not comply or chose another form. Section 206 additionally applies to foreign LLCs with sufficient contacts in New York to warrant filing for authority to do business within the State. Yet New York is the crossroads of the world, a global hub for business, technology, innovation, media, and culture. It’s unlikely that LLCs can avoid doing business in New York, so what are they to do?

Almost any business starting in New York would wish to spend its money more strategically and avoid the risk of having the LLC be declared invalid. As long as the New York State Senate and Assembly continue to overlook the negative effect that the publication requirement has on new ventures and the larger industries integral to business innovation and growth, businesses with a choice will form LLCs elsewhere, while those with no choice will choose a different form or buckle to the extortion.

Attorneys Counseling Their Clients

Responsible attorneys should counsel their clients to either form a corporation, or when forming an LLC, to comply with the publication requirement to remain in good standing within New York. However, since the penalty does not revoke the right to contract, clients may be made aware that the only direct penalty for not complying with the law is the loss of the right to bring lawsuits within the State. As a result, if a noncompliant LLC should ever need to file suit in New York, it must account for the time required to comply with the publication requirement before initiating its claim.

A Virtual Reality Check – Oculus v. ZeniMax: Applying Copyright Law to VR

By: Steve Masur and Sarah Siegel

On February 1, 2017, a Texas jury found Facebook subsidiary Oculus VR, Inc. liable for $500 million in damages in its dispute with ZeniMax over Oculus Rift, a virtual reality technology acquired by Facebook in 2014. The jury found Oculus infringed upon ZeniMax’s copyrighted computer code and misrepresented the origin of its VR technology, and that its co-founder violated a non-disclosure agreement he had signed with ZeniMax. However, the jury found Oculus had not misappropriated ZeniMax’s trade secrets when creating Oculus Rift.

Many eyes were fixed on this case, especially from companies such as Google, Samsung, and Sony, which have all recently launched their own virtual reality headsets. With new emerging technology comes a legal landscape that is still developing and taking shape. This case, which dealt with the fundamentals of intellectual property law, provides an example of how copyright law is uniquely applied to virtual reality technology.

Background

Like many start-up stories, this too starts in a 17-year-old’s parent’s garage with a video game enthusiast who wanted to improve and create a better technology experience. This particular 17-year-old was Palmer Luckey, and the technology in this story is the Oculus Rift virtual reality headset.

Oculus Rift was an idea that came from Luckey’s frustration with the existing virtual reality headsets on the market—the displays were poor quality, bulky, had a low field of view, and carried expensive price tags. He began working on his own design to improve upon these inadequacies, and created what would later be known as the Oculus Rift. In its early days, the Oculus Rift was created using duct tape, ski goggles, and wires. As Luckey made improvements and developments to the headset, he posted updates to a virtual reality online forum. John Carmack, a fellow VR enthusiast, kept up-to-date on Luckey’s forum posts and eventually requested a prototype from Luckey. At the time, Carmack worked at id Software, a software development company owned by ZeniMax, and was a notable video game developer for such series as Doom. At that time, ZeniMax had also been investing millions of dollars into researching and developing virtual reality technology. Luckey sent Carmack one of his two prototypes, and Carmack began making his own improvements, including writing code for the headset. With Luckey’s permission, Carmack demonstrated the Oculus Rift at a 2012 video game trade show by using the Oculus Rift headset with his new game, Doom 3. One year later, Carmack resigned from id Software for a new position as chief technology officer at Oculus Rift.

In March 2014, Facebook announced its acquisition of Oculus VR for $2 billion, and two months later, ZeniMax announced its intent to sue Oculus and Facebook over the Oculus Rift and its code.

Misappropriation of a Trade Secret

A trade secret is proprietary information that carries with it economic value solely by virtue of it not generally known or readily discernible by people who can benefit from it, and is the subject of reasonable efforts to maintain its secrecy. A misappropriation of a trade secret is the improper disclosure or acquisition of that secret.

In this lawsuit, ZeniMax argued that Carmack took company secrets with him when he left id Software for Oculus. Carmack never denied that he worked on the code for the Oculus Rift prior to his employment at Oculus, but he contended that this work was done in his free time, and not while he was on the clock at ZeniMax. ZeniMax, however, claimed that Carmack’s integral work and research for Oculus Rift was not done during his free time, but rather done during his employment at ZeniMax, using ZeniMax’s resources, computer, offices, and employees. The jury did not agree with ZeniMax and did not deem the work Carmack brought to Oculus as a misappropriation of a ZeniMax trade secret, meaning that ZeniMax trade secrets were not contributed to Oculus and its headset.

Copyright Infringement of Virtual Reality

Virtual reality source code is protected by copyright law, not patent law, as an original expression once fixed in a tangible medium, and therefore, any infringement on VR software is governed by the rules of copyright. Under copyright law, an affirmative defense to a claim of infringement is fair use, which allows parts of a copyrightable work to be used in a new work, so long as the new work is transformative, that the nature and objective of the underlying copyrighted work is different than the new work, the new work does not substantially and qualitatively use the original work, and that the intended market for the work is different than the old work.

In this case, Oculus’ fair use defense did not hold up because the jury found that the computer code Carmack took was “non-literally” copied when it was integrated in the Oculus technology, meaning that Carmack changed aspects of the code he developed at ZeniMax to create a different code and used that to create Oculus, which is a similar program with similar functions. Additionally, the market for the new code used in Oculus was the same as the code ZeniMax would use for its virtual reality headset which was in development. Ultimately, the jury found Oculus infringed upon ZeniMax’s copyright in its VR code.

The Implications for Virtual Reality

The gray area of this decision is how to apply and interpret it. How different must copyrighted computer code be in order not to constitute a copyright infringement of prior existing code? Since the code used in Oculus was different than ZeniMax’s code, but used for a similar product, does ZeniMax possess the copyright on all code for virtual reality headsets? Evidently, these are just two of many unanswered questions that have been left in this decision’s path, and which have ramifications on legal and business affairs decisions, including how to structure and present documents governing technology development relationships, and even outcomes of disputes.

After the case was decided, ZeniMax filed an injunction against Facebook to stop the sale of the Oculus Rift and its development kits. Facebook intends to appeal the court’s decision. The continuing shake-out of this case and its implications for virtual reality will be closely followed as it unfolds.

*We would like to thank our intern Sarah Siegel for her contribution to this article.

“Cannabusiness” in the U.S.

By: Steve Masur and Amanda Chiarello

What’s Kosher, What’s Crowded, and What Will Get Crushed?

As public opinion continues to shift in favor of legalizing marijuana and state legislatures respond accordingly, many people, including investment firms and financial analysts, believe that legalized cannabis and cannabis-related products will become the next big market. We’ve been advising an increasing number of entrepreneurs with cannabis-related products—from a high-end chocolatier to an investment fund to a mobile app that directs the user to dispensaries based on the strains carried. This article addresses some questions that often arise when entrepreneurs consider getting into a cannabis-related product business, or “cannabusiness.”

A Patchwork of Laws

One of the biggest issues entrepreneurs encounter when venturing into the cannabis industry is the inconsistency at the federal and state levels, and among the states, regarding the legal status of marijuana.

Although numerous states have legalized marijuana, the drug remains illegal at the federal level. The Controlled Substances Act (CSA) (21 U.S.C. § 801 et seq.) classifies marijuana as a Schedule I controlled substance, which the CSA defines as a drug or substance with a high potential for abuse and without currently accepted medical use and accepted safety controls.

As of the date of this post, twenty-six states and the District of Columbia have reformed their marijuana laws in some form, whether to legalize for medicinal or recreational use or to decriminalize. Legalization refers to repealing the prohibition on cultivating, possessing, and using cannabis, sometimes only for a specific purpose (e.g., medicinal use), whereas decriminalization just lessons enforcement measures and associated penalties, often depending on the amount of marijuana. Often, both legalization and decriminalization measures are limited by restrictions relating to public usage, age, driving under the influence, licensure, and other public safety issues. Even in states where marijuana is legal, cannabusinesses still face significant issues when attempting to operate legitimate commercial enterprises.

Taxation and Finance

Since marijuana is illegal at the federal level, cannabusinesses often run into difficulties when filing their federal income tax returns. While Section 61 of the Internal Revenue Code does not differentiate between income derived from legal and illegal sources, cannabusinesses remain obligated to pay tax on its taxable income, though Section 280E bars medical and recreational marijuana businesses, which may be operating legally in their home states, from certain benefits afforded to other “legal” businesses under federal tax law, such as taking tax deductions. This means cannabusinesses are taxed on their gross income without any deductions for business expenses, which according to a 2015 New York Times article, leads to these businesses paying as much as 70% of its profits in federal income taxes, which many entrepreneurs cannot sustain. The IRS has put out a memorandum on this topic. Cannabusinesses are also responsible for state income taxes, sales taxes, and, in many cases, excise taxes as well.

In addition to the high tax burden, cannabusinesses also face banking obstacles. Even though the Department of the Treasury issued a guidance on how banking institutions might serve marijuana related businesses, many banks remain reluctant to take on clients in the marijuana industry for fear of legal repercussions, such as government seizure by the Federal Deposit Insurance Corporation (FDIC) or charter forfeiture. This forces some cannabusinesses to operate on an all-cash basis, making it harder to track revenue and pay taxes.

Intellectual Property

While trademark rights arise from use in commerce and do not depend on registration, filing for and obtaining a federal trademark registration from the United States Patent and Trademark Office (USPTO) affords the owner a powerful tool in its brand protection arsenal. While the USPTO will not necessarily reject an application simply because the words “marijuana” or “cannabis” or a graphic of a cannabis leaf is part of the applied-for mark, the USPTO will reject a mark if the class description in its application contains goods or services that are illegal at the federal level. The Trademark Manual of Examining Procedure requires that, to be valid for registration, “the use of the mark has to be lawful,” and if it is not, “the use of the mark fails to create any rights that can be recognized by a federal registration.” Section 907 specifically calls out goods or services involved in the sale or transportation of a controlled substance or drug paraphernalia in violation of the Controlled Substances Act as the basis for refusing registration, regardless of state law. The USPTO has granted trademarks for goods and services that do not pertain to the sale or transportation of the Schedule I drug, for example, LEAFLY, for a website that provides visitors with cannabis recommendations, dispensary locations, and cannabis events, and WEEDMAPS, for a website that finds local dispensaries and delivery services. This is not to say that cannabusinesses are not afforded any trademark rights in states where their businesses are legal, as state trademark statutes and common law unfair competition law continue to apply.

Federal copyright law has proved more lenient, and the Copyright Act of 1976 (17 U.S.C. § 101 et seq.) provides very few prohibitions on the subject matter or nature of a work eligible for copyright protection. In an article written for the American Bar Association’s magazine Landslide, one former USPTO examining attorney pointed to cannabis grow guides and cookbooks as an example of how federal copyright law can protect cannabis-related products and further stated, “For cannabis brands, federal copyright protection is available to protect the text and artwork on logos, labels, product tags, product packaging, instructional materials, and the ornamental product design, as long as the foregoing contain sufficiently original and creative content to be copyrightable.” Case in point are High Times and Snoop Dogg’s cannabis lifestyle media platform, Merry Jane.

Making and Enforcing Contracts

Contracts made for an illegal purpose, or where the purported consideration or object of the contract itself is illegal, are void and unenforceable. This can present cannabusinesses with significant problems in carrying on a successful business considering the federal prohibition and interstate inconsistencies, especially with out-of-state suppliers, merchants, retailers, and consumers and on nationwide e-commerce platforms. However, various trial courts in states where marijuana is legalized have upheld the enforceability of certain cannabusiness contracts since contract law is largely a matter of state law and, therefore, their legality or illegality would depend on the underlying state law, and not on federal law.

For example, in Green Earth Wellness Center, LLC v. Atain Specialty Insurance Co., 63 F. Supp. 3d 821 (D. Colo. 2016), a federal district court judge in Colorado ruled that an insurance company could not void its commercial liability policy and deny coverage to a medical marijuana business following wildfire damage to its plants and theft of its plants. The judge rejected the insurance provider’s argument that the federal prohibition on marijuana required the policy be void on public policy grounds since medical marijuana is legal under Colorado law and the company willingly, knowingly, and intelligently entered into the contract to insure the medical marijuana dispensary.

The Future of the Market

In a 2016 report titled The Green Gold Rush, M&A advisory and financing firm Ackrell Capital, which launched a venture fund to target the cannabis industry, forecasted that the legal cannabis market for recreational and medicinal use will rise to approximately $9.5 billion by 2019, $50 billion by 2023, and $100 billion by 2029, though these projections assume marijuana prohibition ends by 2020. As we approach the 100-year anniversary of alcohol prohibition in the United States, we may be on the cusp of a watershed moment in public policy, yet exactly when, or how, remains difficult to predict for entrepreneurs and investors.

For such time as marijuana remains illegal at the federal level and in about half of the states, a cannabusiness could be shut down at any time, and as a result, everything from finding investors to creating good business practices for manufacturing products to working out legal lines of distribution will remain difficult. Still, as we have seen time and time again, the biggest and greatest entrepreneurial opportunities are rarely to be found where everyone else is looking, or without risk—and that is what funds like Ackrell Capital are betting on. Entrepreneurs must decide for themselves whether the risks are worth the possible huge rewards.

*We would like to thank our intern Amanda Chiarello for her contribution to this article.

(Trade)Marking Your Territory

By: Jon Avidor and Sarah Siegel

A strong trademark or service mark can become a valuable asset for your business, so when you come up with a great name or memorable tagline for your product or service, it makes sense to register the trademark. Common law trademark rights originate from use in commerce so all you have to do is use the particular name, word, phrase, logo, symbol, design, color, or sound in association with your good or service to establish priority ownership. However, obtaining a federal statutory registration from the United States Patent and Trademark Office (USPTO) heightens a trademark user’s ownership claim. It prevents later registrations of the same or similar marks and presumes the trademark’s legal validity, the owner’s exclusive right to use its mark nationwide, that the public is on notice, and that the marketplace associates the mark with its goods or services. Registration is a powerful deterrent to infringement and increases the value of a trademark.

Creating a Strong, Distinctive Mark

The first step in obtaining a trademark is to, well, create the trademark. Distinctiveness is the foundation of a protectable mark. Trademarks are evaluated along a spectrum of distinctiveness as shown below that correlates to whether an average consumer would likely associate the mark with the goods and/or services, as well as the producer and brand. In choosing a mark, the word or phrase should set your brand apart from competitors or anyone else in the marketplace so your trademark will be easier to protect and enforce.

A generic mark, like COMPUTERS for your line of personal computers, would not be protectable because it could refer to any old product and would prevent anyone else in the industry from using that general term for its PCs. Unless consumers have come to associate a descriptive mark with a certain brand, a mark that simply describes a product or service’s qualities, like ALL-BRAN CEREAL for bran cereal, would not warrant protection either. A stronger mark would be one that is either suggestive of the good or service’s qualities, arbitrary in its association with the good or service, or invented for the purposes of the trademark. For example, JAGUAR for automobiles would be suggestive of a car’s speed and agility; APPLE for computers, rather than fruit, would be arbitrary; and KODAK, whether used for photography equipment or not, is a fanciful, made-up word. Each of these are considered strong marks.

Be One-of-a-Kind and Be Sure of It

In addition to being a distinctive source identifier, to receive protection, a trademark must not be “confusingly similar” to any preexisting or preregistered mark for goods or services in the same or similar markets. The USPTO will deny or, if litigated, a judge will invalidate a trademark if an average consumer is likely to believe that the source of the goods or services is the same as that of another, senior trademark. It’s not enough to change a few letters or intentionally misspell an existing mark; your mark must look, sound, and feel different and distinct.

Before building your brand around a particular trademark, you should ensure the mark does not infringe upon another similar or exact trademark registered or already in use. You can search the USPTO database for applications and registrations for potential conflicts with your trademark, or possible variants, and use a search engine for common law trademarks. For a more extensive search, especially for the trickier-to-search “confusingly similar” marks, you should hire an attorney who is experienced in trademark law and can make use of more sophisticated searches and skilled analyses.

Use the Mark and Renew the Mark

Once granted, a trademark registration puts the public on notice that the mark is yours and should not be infringed upon. However, you must use your mark in commerce to secure or perfect your trademark rights—it’s use it or lose it. Trademark abandonment occurs if the mark’s owner either intentionally stops using the mark or otherwise discontinues its use for a continual three-year period. Whether abandonment is intentional or presumed, the lapse in use may strip the mark owner of its previous trademark protection.

To retain its federal trademark registration, the owner must file a Declaration of Use or Excusable Nonuse for the trademark between the fifth and sixth years following registration and a Combined Declaration of Use or Excusable Nonuse and Application for Renewal within one year before the end of each ten-year period after registration. Failure to adhere to the post-registration maintenance requirements and renew the trademark in a timely manner will result in cancellation and/or expiration of the registration. Note, however, that common law trademark rights will continue so long as the mark is used in commerce, even if the registration is cancelled or expired.

…and Use It Wisely

Using the mark is important, but using it correctly is critical. A pitfall of highly effective brand PR and marketing is your trademark becoming too popular and acquiring mind share. When the public begins to use a trademark to refer to the general product or service, rather than brand of product or service originating from the trademark owner, the trademark loses its meaning as a source-identifier and, with that, its legal protection. Examples of terms that have famously lost their trademark protection as a result of genericism include “aspirin,” “dry ice,” “escalator,” and “linoleum.” Some marks that are at risk for losing their protection include COKE for cola, GOOGLE for search engines, KLEENEX for tissues, PHOTOSHOP for photo editing generally, Q-TIPS for cotton swabs, TASER for stun guns, and XEROX for photocopy machines. The more famous the mark, the greater risk that mark faces of losing its distinctiveness and protection. Many of these brands even actively campaign to the public to remind them not to use the marks too generically.

Beware of Infringers

If your mark is strong and your product is reputable in the marketplace, others in the industry will inevitably attempt to piggy-back on your brand and customer goodwill. Cue the infringers. Trademark infringement occurs when another producer uses your mark, or a mark “confusingly similar” to yours, to sell goods and services that are not your own, thereby confusing consumers regarding the source of the goods or services. This can happen willfully or innocently.

Not only is trademark infringement illegal, it can threaten your claim to the trademark if too many people begin to capitalize on your mark and consumer goodwill. As the trademark owner, it is your responsibility to police your trademark and bring enforcement actions against any potential infringers lest you surrender your trademark rights. In two famous cases, Pepto-Bismol lost its claim to its distinctive pink coloring to other antacid producers but Christian Louboutin preserved its rights to its trademark red lacquered bottom shoes, with a key difference being whether the owners actively policed their trademark rights.

An easy way to keep track of your trademark is to set up Google Alerts™ notifications for your mark so that you will be notified any time your trademark is used online. You can also keep a close eye on the USPTO’s weekly publication, the Trademark Official Gazette, for trademark applications under consideration and oppose any published mark within 30 days if you believe the applied-for mark’s registration would infringe on your trademark.

If Trademark Official Gazette is not on your “must-read” list or this process seems too meticulous for one person, consider using a service that patrols your mark that will catch and resolve any potential infringement before substantial damage occurs. Third-party trademark watch services monitor potential infringement across multiple platforms, including the USPTO database, foreign trademark databases, and the Internet and social media sites. A monitoring service takes the pressure off the mark owner and allows an experienced trademark team to patrol your mark on your behalf.

With Great Power Comes Great Responsibility

The mere fact that a mark is protected by law does not magically prevent infringement. Trademark protection only works if it is properly enforced. As the proud owner of a trademark, you must decide how much money you are willing to spend on enforcing the mark and protecting your brand.

One way to deter infringers is to send a cease-and-desist letter asserting ownership rights and demanding the infringing use stops immediately or else risk a lawsuit. A cease-and-desist does not initiate a lawsuit, though it may scare the infringer into believing the owner is prepared to sue, which can be a cost-effective route to stop the infringing use.

Of course, you can also bring a lawsuit for trademark infringement and unfair competition, which if you win, may result a legal order instructing the infringement to stop (an injunction) and/or monetary damages for brand damage and lost sales or the infringer’s profits. However, litigation can be costly and time consuming and creates a financial burden for the plaintiff that might last months or years before settlement or adjudication. See Lex Machina’s Trademark Litigation Report 2016 for an insightful analysis of litigation trends from 2009 to 2016, including leading parties, causes of action, remedies, judgments, and damages.

However, you might not want to take any action against the potential infringer if, for example, you don’t believe the infringement threatens your market share or your goods or services. Recall though that failing to police your trademark against infringements may result in loss of your trademark rights by dilution.

Conclusion

Effective trademark protection starts at the very beginning and continues through the mark’s commercial use. A strong and distinctive trademark that leads consumers to associate a brand with its mark is easier to protect than one that is too generic or descriptive. When infringers take advantage of the goodwill built up around your brand, consider your legal options to enforce your trademark rights, and protect your mark. However, the best offense is a great defense, so consider using a trademark monitoring service to catch potentially damaging infringement before it tarnishes your mark.