Background of the Dispute

B&B Hardware holds a registered trademark for the name of its product SEALTIGHT, while Hargis Industries applied to register a trademark for its product SEALTITE. B&B raised an opposition to the trademark for Hargis, arguing that a high likelihood of confusion existed with its own type of metal fastener. In order to determine whether a trademark would create a likelihood of confusion, deception, or mistake in the face of opposition, the TTAB considers only how the mark is used in regard to the goods involved the application or registration. The TTAB generally does not extend its analysis to how the trademark will be used in commerce. The TTAB ultimately denied the trademark application filed by Hargis Industries finding that confusion was likely to occur.

Before the TTAB issued its decision, B&B also filed a trademark infringement claim in civil court and requested an injunction because use of the SEALTITE brand name was likely to cause confusion, deception, or mistake. Once the trademark denial was issued, B&B argued that the decision would preclude Hargis Industries from arguing that there would be no likelihood of confusion and thus moved for summary judgment in its favor. The court denied this motion, stating that the decision by the TTAB—a federal agency—would not preclude a decision in court. The decision was largely based on the fact that the TTAB does not do as thorough of an analysis as is required in an infringement claim, especially regarding the use of the mark in the marketplace. Both the district court and the Court of Appeals for the Eighth Circuit found that no preclusion existed based on the TTAB decision.

Supreme Court decision and Impact

In a 7-2 decision, SCOTUS disagreed with the lower courts and held that issue preclusion could exist based on the determination of the TTAB so long as the other requirements of issue preclusion are met. Generally, these elements are that an issue of fact or law was actually litigated, that the issue was decided in a valid and final judgment, and that the determination was essential to the judgment. The fact that the TTAB may use different factors in deciding a likelihood of confusion does not automatically prevent preclusion.

This decision may have an effect on trademark litigation in the future. For example, because more weight will be given to the TTAB decision, pursuing an opposition to a trademark based on likelihood of confusion could become more complicated and costly. Businesses may fight harder to oppose a trademark in the TTAB because they may not have the chance to present evidence on the matter in a subsequent court case. Litigation strategies regarding likelihood of confusion issues will have to evolve to ensure that trademarks are best protected

What is a Cease and Desist Letter?

Cease and desist letters are commonly sent to businesses or individuals to demand the discontinuation of a certain action (“cease”) and to refrain from further engaging in the action (“desist”). The cease and desist letter is a standard first step in protecting your rights. Sometimes the cease and desist letter is all you need to get the other party to stop the infringing actions. Other times it is the start of a negotiation process or the foundational groundwork for a civil law suit.

Cease and desist letters typically identify the infringed material, provide proof of ownership of the copyrighted or trademarked material, and outline the instances where the intellectual property has been infringed upon. In the world of intellectual property, a cease and desist letter is an assertion of rights and notice of the intent to assert those rights. If the offending party ignores the letter or continues the infringing actions, then the owner of the rights may decide to take legal action and the cease and desist letter may serve as notice and evidence in future litigation.

In the event of infringement, you will want to gather any documentation or evidence to support your case. If you have an attorney write the cease and desist letter, the attorney will often cite laws and regulations to support your position, such as the laws on copyright, trademark and patent rights.

What is Copyright or Trademark Infringement?

Copyright infringement is the use of works protected by copyright law without permission, violating certain exclusive rights  granted to the copyright holder, such as the right to reproduce, distribute, display or perform the protected work, or to make derivative works. Such infringement can be intentional or unintentional (“innocent” infringement) but even innocent infringement may be actionable. (See Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177 (S.D.N.Y. 1976). Copyright law protects any original creation such as literary works, paintings, photographs, drawings, films, music (and its lyrics), choreography, sculptures and many other creative works.

Copyright owners may obtain the following penalties for infringement:

• Infringer pays the actual dollar amount of damages and profits;
• Statutory damages of $200 to $150,000 for each work infringed;
• Infringer pays for all attorneys fees and court costs;
• The court can issue an injunction to stop the infringing acts;

• The court can impound the illegal works; or
• Infringer could serve jail time.

According to the USPTO, trademark infringement is the “unauthorized use of a trademark or service mark on or in connection with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the source of the goods and/or services.” In determining whether consumers are likely to be confused, the courts will typically examine a number of factors, known as the “Polaroid Factors” which include: (1) the strength of the mark; (2) the proximity of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the similarity of marketing channels used; (6) the degree of caution exercised by the typical purchaser; and (7) the infringer’s intent. Polaroid Corp. v. Polarad Elect. Corp., 287 F.2d 492 (2d Cir.), cert. denied, 368 U.S. 820 (1961).

If the infringer continues using the mark despite the cease and desist letter, the owner may want to consider filing a lawsuit. If the owner is able to prove infringement, available remedies for trademark infringement may include the following:

• A court order (injunction) that the infringer stop using the mark;
• An order requiring the destruction or forfeiture of infringing articles;
• Monetary relief, including the infringer’s profits, any damages sustained by the trademark owner, and the costs of the action; and
• Infringer pays for all attorneys’ fees.

What to Do If You Receive a Cease & Desist Letter

If you receive a demand letter notifying you to stop allegedly infringing behavior, you are not legally required to respond to the letter. In and of itself, a cease and desist letter is NOT legally binding. Additionally, there are times when cease and desist letters have been used to intimidate the recipient or mislead the recipient into paying for a license to use the mark. However, as outlined above, ignoring it may have legal ramifications.

If you get a letter, take the following steps:

1. Review the letter and determine what type of intellectual property rights are being asserted. Is the letter about copyright, trademark or patent infringement?
2. Assess whether the claims have merit.
3. Gather evidence or information about the issue that counter the claims or support your position.
4. Meet with an attorney to determine your rights, the validity of the legal claim and the appropriate response.

If the claims have merit, there may be defenses against infringement and Punzalan Law can help you identify the defenses and provide you with an assessment of the strengths, weaknesses and risks of the case. Additionally, Punzalan Law can help you register, protect and enforce your copyrights or trademarks.

Trade secret law provides an alternative way for people who have a unique idea from which they may be able to profit to protect their intellectual property, without having to disclose it to the rest of the world. In addition, unlike trademarks, patents, or copyrights, trade secret protections do not expire, allowing the protection to be extended indefinitely, which may be of significant importance to certain ventures. For example, the Cola-Cola Company has successfully protected the formula for its eponymous product as a trade secret for decades after its patent protections would have expired, resulting in untold billions in profits.

What is a Trade Secret?

California, along with a majority of other states, has adopted a version of the Uniform Trade Secrets Act (UTSA) in California Civil Code §§ 3426-3426.11, which defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process.” In addition, in order to one of the preceding ideas to be considered a trade secret, it must:

• Derive independent actual or potential economic value by not being known to the public or to other parties that may be able to profit from its disclosure or use, and
• Be the subject of reasonable efforts to maintain secrecy regarding its existence or content.

The types of intellectual property that may be considered trade secrets include recipes, customer or client lists, processes for the manufacture of certain products, computer programs or applications, techniques of products, research data, pricing information, marketing plans, and information regarding company personnel.

Misappropriation of Trade Secrets

The USTA refers to the theft or other misuse of trade secrets as “misappropriation.” The law defines misappropriation as the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means. In addition, misappropriation can occur when an unauthorized person discloses or uses a trade secret. Misappropriation can occur both through intentional and unintentional disclosure and could be the result of actions taken by both employees and third parties.

Remedies

There are a variety of remedies available to parties who have fallen victim to trade secret misappropriation under the UTSA. Among those authorized by the statute include:

• An injunction enjoining the actual or threatened misappropriation
• Payment of royalties
• Actual damages
• Unjust enrichment
• Double the actual damages, in cases of willful and malicious misappropriation
• Attorney’s fees

Various criminal penalties may also be available under California law, including under California Penal Code 499c, which specifically criminalizes the theft of trade secrets.

Protecting Trade Secrets

Importantly, businesses must make “reasonable efforts” to ensure that the ideas that they wish to protect as trade secrets are classified as such by the law. Such efforts could include informing employees about the confidential nature of certain information, marking confidential files as such, establishing internal network security measures, and the use of non-compete and non-disclosure agreements with employees and potential business partners.

Federal Law

There are a number of federal laws that can be used to criminally prosecute individuals and businesses that misappropriate trade secrets. Among the most commonly used is the Economic Espionage Act of 1996, which criminalizes the misappropriation of trade secrets, including knowingly buying, possessing, or receiving trade secrets. The penalties associated with violating the law include a fine of up to $5,000,000 and 15 years in prison for individuals and for organizations “the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”

For further information, contact Punzalan Law, P.C.

Anyone with questions regarding trade secret protections or who is currently involved in a trade secret dispute should consult with an attorney with experience in this area of law immediately. The attorneys at Punzalan Law, P.C. advise and counsel a wide variety of companies on legal matters related to intellectual property and trade secret protection.

Heidi has also exhibited a commitment to pro bono work and has worked with a variety of non-profit organizations in obtaining temporary restraining orders for domestic violence victims, assisting with asylum applications, and serving as a mentor to a foster child.  In her spare time, Heidi plays violin as a member of San Jose’s professional orchestra, Symphony Silicon Valley, and serves on the Board of Directors for the California Music Center in San Francisco.

Heidi received her Bachelor of Arts from Stanford University in 1999 and her Master of Music degree from the San Francisco Conservatory of Music and Yale University.  Heidi received her Juris Doctor from Santa Clara University School of Law in 2006.

a record $30 million to a whistleblower who provided original information that led to a successful

SEC enforcement action. SEC Press Release. As Sean McKessy, the Chief of the SEC’s Office of the Whistleblower,

stated, “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible

information about potential violations of the U.S. securities laws.” What is a whistleblower, and why are they

important? Corporations or other organizations that attempt to defraud the government can cost American

taxpayers billions of dollars. Employees or members of an organization who are brave enough to come

forward and report fraud, corruption, or other violations to governmental authorities are known as

“whistleblowers.” In many instances, individuals who are aware of unlawful activity taking place may fear

retaliatory action if they report the misconduct. For this reason, federal and state laws protect whistleblowers

from such retaliation and also provide financial rewards under certain circumstances. Anyone who is

considering blowing the whistle on an employer or other entity’s governmental fraud should seek the advice of

legal counsel.

Common Types of Whistleblower Actions

Different federal laws protect whistleblowers who expose different types of unlawful actions. The

following are some examples of laws that protect whistleblowers in the United States:

• False Claims Act (31 U.S.C. § 3729–3733)—This law includes a “qui tam” provision, which

gives certain rights to whistleblowers who report violations of the False Claims Act, which prohibits

fraud against federal government programs. The Act allows individuals to file a legal claim on

behalf of the government against an organization committing such fraud, thereby exposing the fraud.

The qui tam provision further allows the individual to receive part of the damages recovered by

the government—generally from 15% to 20% — depending on the extent of the whistleblower’s

assistance. Common qui tam actions arise from fraud involving military contracts, health care, or

other spending programs.

• IRS Whistleblower Law (26 USC § 7623)—Many companies and individuals try to pay as little

in taxes as possible, and some even go so far as to commit tax fraud in order to limit liability. If an

individual provides information about a party’s tax fraud and underpayments that exceed $2 million

and the IRS takes judicial action, the whistleblower may stand to receive 15% to 30% of the amount

the IRS collects.

• Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203)—This Act

created the SEC Whistleblower program, which rewards individuals who expose insider trading and

other securities fraud schemes. If a individual provides information and a successful legal action

worth more than $1 million results, the SEC Office of the Whistleblower is authorized to reward the

whistleblower 10% to 30% of the penalties recovered.

The above are only a few instances of whistleblower scenarios and laws that protect and reward

whistleblowers for their willingness to expose unlawful actions. At Punzalan Law, we understand

that whistleblowers have certain rights and deserve protection, and we provide the highest quality of

representation for each individual client. If you believe you have a case related to whistleblowing, please

do not hesitate to contact our office today.

An LLC’s appeal as a business entity stems from the entity’s protection of the business owners’ personal liability for LLC actions and its pass-through tax treatment.  Additionally, an LLC gives owners the flexibility to draft a customized Operating Agreement that governs the LLC, its members, and its managers.  LLC members can negotiate their percentage of ownership interests, their allocation of profits and losses, and their rights and responsibilities.  Even with the passage of RULLCA, LLC members continue to enjoy the freedom to negotiate terms of the Operating Agreement.  If an existing Operating Agreement adopts rules for operation different from RULLCA’s default rules, the terms of the Operating Agreement generally override the default rules.

With the passage of RULLCA, LLC managers and members should examine whether some of RULLCA’s default rules should be modified in their written Operating Agreement.  Here are some examples.

Member-Management

RULLCA provides that LLCs will be member-managed by default. To create a manager-managed structure, the LLC must specifically state such structure in both the Articles of Organization filed with the Secretary of State and the Operating Agreement.  LLC managers and members should review these two documents to ensure the designation is clear in both documents.

Conflicts between Operating Agreement and Articles of Organization

RULLCA provides that in the event of conflicting provisions between the Operating Agreement and its Articles of Organization, the terms of the Operating Agreement govern.  The previous LLC law, however, gave priority to the Articles of Organization. LLCs should thus closely examine both their Operating Agreement and Articles of Organization to eliminate any conflicting provisions.

Unanimous Member Consent Required

Also, under RULLCA, if the LLC is managed by a manager (rather than its members), then the manager may not take any action “outside the ordinary course of business” without the unanimous consent of the members.  If the LLC wants to allow its manager to take actions with majority consent, the LLC should review its Operating Agreement’s section on voting rights and consider whether amendment is necessary.

Fiduciary Duties

Under RULLCA, LLC members and managers owe the LLC and the other members a duty of care, a duty of loyalty, and a duty of good faith and fair dealing.  RULLCA allows LLCs to modify, but not eliminate, fiduciary duties in their Operating Agreements.  A written Operating Agreement should address any modifications desired in these fiduciary duties, and RULLCA requires the consent of members for these changes.  For example, LLC members may wish to include exceptions to the prohibition on competition for existing businesses or investments of the members.  The LLC members may also wish to authorize specific transactions or relationships between the LLC and other businesses controlled by a member or manager.  LLC members may even wish to increase the duty of care required of a manager to similar to the duty owed by a director of a corporation.  Such revisions should be made clear in an LLC’s Operating Agremeent.

Indemnification

Unlike prior law, RULLCA provides that LLCs must indemnify members and managers of an LLC, unless the indemnified manager or member has not complied with her statutory duties.  Thus, if the parties do not want mandatory indemnification, the Operating Agreement should be amended to reflect the parties’ intentions.  If the existing Operating Agreement does not address indemnification, then LLCs should consider the benefits and liabilities of RULLCA’s indemnification policies and amend its Operating Agreement accordingly.

Dissociation of Members

RULLCA provides a list of events, not included in the previous law that results in a member’s dissociation, effectively giving an existing member the legal status of an assignee, such as death, the appointment of a guardian or conservator, or a judicial order that a member is incapacitated.  If members or managers do not intend for these events to trigger dissociation or removal as managers, the Operating Agreement should be amended accordingly.

Amending the Articles of Organization and Operating Agreement

In light of RULLCA’s changes, California LLCs should seek legal advice to determine whether amendments to the LLC documents are necessary to reflect the intent of the managers or members.   Proper review and amendment of the LLC documents can help to avoid costly misunderstandings, potential internal conflict and unintended effects down the road. Contact Punzalan Law to help you review your Articles of Organization and Operating Agreement in light of RULLCA.

With the rising costs of litigation, the increased backlog of cases, and the decreasing budgets and personnel of the courts, filing a lawsuit and litigating to trial can be time consuming, less efficient, and expensive. In a 2013 survey by the Court Statistics Project, the median number of attorney hours in a contract dispute from initiation to post-trial procedures was 367 hours.  With a standard attorney rate of several hundred dollars an hour, a business client can expect to spend well over $100,000 in legal fees alone! If you include the hours expended by junior attorneys, paralegals and expert witnesses to litigate a business case, the fees and court costs continue to climb.

To save you time, money and possibly preserve business and personal relationships, exploring ADR options may be the right move. This article discusses three of these ADR options — negotiation, mediation, and arbitration – and their advantages over litigation.  While Punzalan Law represents clients in litigation, we also help clients resolve their dispute through these ADR methods.

NEGOTIATION. Negotiation is an option if both parties can enter into discussions aimed at reaching an agreement. Negotiation is often the first step in resolving a dispute and is “the preeminent mode of dispute resolution,” allowing the parties to control the process and the solution. It can be a quicker and less costly way to resolve disputes, and parties can try to resolve the dispute themselves, without involving attorneys. Negotiation is a give and take bargaining process where parties seek to discover common ground to resolve a matter of mutual concern or conflict in a manner that both parties find acceptable.

If the parties find it difficult to come to agreement, then hiring attorneys to represent their interests and negotiate the dispute on their behalf is the next step. Securing legal counsel at this stage is still more cost-effective than filing a lawsuit.  What should you look for in a lawyer-negotiator? Find an attorney who can:

• Problem-solve creatively, brainstorm solutions;
• Identify the goals or desired outcomes of the party;
• Evaluate strengths and weaknesses of both parties;
• Demonstrate emotional intelligence and read the political “temperature” of the room.

Negotiation can also be advantageous if you seek to restore, preserve or strengthen relationships between the parties. This is especially true in disputes between customers and companies, contractors and subcontractors, or business partners. While both sides may need to compromise in order to reach resolution, the parties may be able to reach an agreement that incorporates terms and ideas from both parties.

MEDIATION. Mediation is an informal process to settle a legal dispute through active participation of a third party, the mediator, who works to find points of agreement and guide those in conflict to a mutually agreeable result. In recent years, mediation has become more frequent in contract and civil damage cases. A mediator can help parties communicate more effectively, promote understanding, and focus the parties on their goals and interests rather than their entrenched positions. Mediators cannot impose a settlement upon the parties since they are unable to make legally binding decisions (unlike in arbitration). If the parties reach a resolution, then they can sign a settlement agreement just like any other contract.

While experienced professional mediators or lawyers may charge substantial fees, overall, the financial cost will likely be substantially less than litigating the matter in court as mediation generally takes less time. Resolving a dispute quickly through mediation can also help avoid the emotional cost of litigation that often takes a toll on the party’s time and spirits. Settling a dispute more quickly can also dispel anxiety and worry, allowing a business owner to focus less on her legal woes and more on running her business. Like negotiation, both parties must be willing to enter into mediation and cooperate with the process. Mediation has a structure, timetable and dynamics that “ordinary” negotiation lacks. The process is private and confidential, unlike in a lawsuit where court papers are public documents.  The mediator acts as a neutral third party and facilitates rather than directs the process.

Mediating a business a dispute can also offer the following potential advantages: (1) allows business relations to remain on good terms; (2) allows for a commercially sensible decision to be made that will benefit both parties; (3) avoids the winner / loser result of a court proceeding; and (4) allows both parties to remain in control as the parties select the neutral third party and the parties, not the mediator, makes the final decision regarding resolution.

ARBITRATION. Arbitration is a formal ADR technique with governing rules and procedure making it a simplified version of a trial. In arbitration, the parties submit their dispute to one or more impartial persons, the arbitrator, who act as judge and jury for their dispute. Additionally, many arbitrators are specialized experts in areas such as commercial, intellectual property, construction, and real estate law, saving parties from expert witness fees and the need to educate the arbitrator.

An arbitration is also usually governed by detailed arbitration laws or rules, such as those used by the American Arbitration Association or JAMS. Sometimes the contract itself governs the arbitration process. For instance, arbitration is used frequently in consumer and employment matters, where arbitration may be mandated by the terms of employment or the commercial contract.  The parties select their arbitrator, who may hold a preliminary hearing to discuss the substantive issues of the case. The parties typically exchange information and evidence, and write an arbitration brief for the hearing. During the hearing, the parties present their case, providing evidence, testimony and documents to the arbitrator. The arbitrator then renders a written decision, deciding the resolution for the case and determining which party wins.

If the parties agree in advance to “binding arbitration,” then arbitrator’s decision is called an “award,” enforceable in court if the losing party fails to comply with the terms of the award. Binding arbitration is more similar to litigation in this manner than mediation. However, unlike litigation, the parties cannot generally appeal the arbitrator’s decision. Many businesses now have binding arbitration clauses in their contracts that helps keep their costs down and their disputes private.

CONCLUSION. Litigation is just one way to resolve a dispute. Private negotiation, mediation or arbitration are other forms of resolution that may allow the parties to arrive at a settlement with less cost, less time, and even less stress. If you have a business dispute, contact Punzalan Law so we can help you discuss your options and select the right course for your business. We also assist clients with drafting contracts with binding arbitration clauses so you can remain focused on your business, instead of worrying about potential litigation.

Case in point – Twitter v. Twittad.  Since its IPO, Twitter, the microblog of 140 characters, reported an increase of 500 million tweets per day. However, did you know Twitter did not own the trademark rights to the word “Tweet,” thus launching one of the most notable trademark disputes in recent history?  While Twitter launched in 2006, it did not set about registering the word “Tweet” until 2009, long after several other companies, like Twittad, began incorporating “Tweet” into its business name or slogans. Finally, in 2011, Twitter got its Tweet but only after years of contentious litigation and agreeing to a confidential settlement.

Still not convinced you need to register your trademarks? Here are our top five reasons why you should:

1.  Courtroom Advantage. Just like a home team’s advantage, you can have advantage in court by having a federally registered trademark. Federal trademark registration provides you with “legal presumption of your mark nationwide and the exclusive right to use the mark.”  You don’t have to prove you are the owner of the mark in court; it is presumed you are the owner.

2. Asset Protection. Your company name, its products, and/or services are valuable assets that need protecting. While your brand may not yet be global, protecting your mark now ensures that the brand is poised for growth and expansion. Trademark protection allows you to protect company assets from unfair competition, infringement or dilution.

3.  National Recognition. A registered mark will be listed in the USPTO’s database, providing public notice of your claim of ownership to those conducting trademark searches that your mark is taken! Additionally, federal registration safeguards your ability to expand your business in other parts of the nation. For instance, even if you are currently only doing business in the states of California, Oregon and Washington, you can stop other business from filing similarly named companies in geographic areas where you have not yet conducted business.

4.  Domain Name Armor.  Cybersquatters abound on the internet and can infringe on your trademark by registering it as a domain name. Congress passed the Anticybersquatting Consumer Protection Act (ACPA) to make it easier for individuals and companies to take over domain names that are confusingly similar to their names. In April 2013, a US Magistrate judge recommended that Facebook be awarded $2.8 million in its trademark infringement case against multiple domain name holders that engaged in cybersquatting of the Facebook name. The domain names either incorporated or misspelled the Facebook name such as Facebobk.com or Facebookwelcome.com and through the remedies granted under the ACPA, Facebook recovered 105 cybersquatting domain names.

5. Globalization by Foreign Registration.  On a global level, Lady Gaga has been on a rampage to protect her US registered trademarked name through implementation of the Uniform Domain Name Dispute Resolution Policy. She has been successful in stopping cybersquatters from capitalizing on her fame by filing for domain name infringement and either having the domain name transferred to her (ladygagadress.com) or forcing withdrawal of the domain name (ladyaga.com). Lady Gaga’s global domination would not have been possible without US federal trademark registration. Federal trademark registration in the United States can be used as a basis to obtain registration in foreign countries. With the increasing globalization of American companies and brands, your regional business could one day go national, then international. Preserve your company’s ability to do so by filing a federal trademark registration.

The costs of registering a trademark are nominal in comparison to the costs of losing your unregistered business name or the legal expense of having to protect your unregistered business marks against infringers. If you have any questions regarding registering your company’s marks, please contact our office today.