In-House Counsel Solutions Series: 1Q 2024
In-House Counsel Solutions
This is the 1Q installment of our In-House Counsel Solutions Series for our blog Ideate. This series is focused on identifying trending legal issues facing in-house counsel and providing practical solutions to these problems.
In this issue, we discuss common mistakes in branding, the reporting requirements for the new Corporate Transparency Act, strategies for in-house counsel to defend against patent trolls, and the risks of demand letters as demonstrated by the Jack Daniel’s litigation.
Common Mistakes Businesses Make in Name and Brand Selection
The start of a new business endeavor is an exciting time, with grand plans and ideas for future expansion. But too many businesses ignore (or are unaware of) some of the more important aspects of business name and brand selection, and it ultimately costs them a great deal – in time, money, and a loss of consumer recognition. The following are four of the top mistakes businesses can make at this juncture and offer solutions for best avoiding these common pitfalls.
1. Choosing a Generic or Non-Distinct Name or Brand
In the current market, the strongest and most easily recognized businesses and brands are highly distinctive like Apple® and Nike® or even a made-up word like Google® or Xerox®. Not only does a distinctive name or brand stand out in a crowded market, but it increases the likelihood of obtaining a federal registration, which can afford greater protection and ensure exclusive use nationwide.
2. Failing to Conduct a Trademark Search Prior to Selecting a Business Name or Brand
Since business owners can be held on notice of common-law and federally registered trademarks already in use in connection with the same or even related goods, failing to conduct a search of common-law and federally registered trademarks prior to selecting your own name or brand can result in significant costs associated with a forced rebranding or even defending a trademark infringement lawsuit in federal court. Trademark infringement liability can arise even in the context of unintentional infringement and an early search prior to selecting a final business name or brand can eliminate that risk.
3. Failing to Investigate and Secure Domain Names and Social Media Handles
Domain name registrations and social media handles typically are handled on a “first come first served” basis. Business owners who wait to secure domain name registrations and social media handles after the name has been selected and significant amounts already spent on marketing and advertising may discover the relevant domain names and handles are not available—or can only be purchased at great expense. Failing to investigate and secure domain names and social media handles after an initial search but before launching into expensive advertising and marketing endeavors can leave business and brand owners out in the cold.
4. Failure to Confer With Intellectual Property Experts
Taking the appropriate steps to ensure the availability, strength, and enforcement of a proposed business name or brand and conferring with known experts in intellectual property prior to spending the significant costs often associated with the advertising, marketing and general formation of the business or brand is vital to establishing a strong foundation for efficient growth.
The startup of a new business or launch of a new brand is not for the faint of heart. Avoiding these common mistakes in business name and brand selection can help secure a healthy foundation for your business or brand and prevent significant issues (and expenses) down the road.
A more comprehensive discussion of common mistakes businesses make in name and brand selection can be found at our Ideate blog: Common Mistakes Businesses Make in Name and Brand Selection.
Reporting Under the Corporate Transparency Act Is Coming – Are You Prepared?
By Mark Stachiw
In September 2023, The Financial Crimes and Enforcement Network (FinCen) issued its final rules for compliance with the Corporate Transparency Act (CTA) and these rules are now in effect. A discussion of the requirements of the CTA can be found at https://www.klemchuk.com/ideate/fincen-final-rules-for-cta-reporting.
The deadline for filing the report with FinCen for reporting companies in existence prior to January 1, 2024 is January 1, 2025. However, it is not too early to begin the process of evaluating whether a reporting company will have to file and gathering the necessary information. The need for this is even more urgent for reporting companies formed after January 1, 2024 -- reporting companies created or registered after January 1, 2024 will have either 90 days (for those formed before January 1, 2025) or 30 days (for those formed on or after January 1, 2025) after receiving notice of their creation or registration, to file their initial reports.
The final rule requires certain information on the reporting company and its beneficial owners be supplied for each reporting company. In addition, certain personal information must also be reported on persons who direct the formation of a reporting company – known as company applicants. Given that the information required may take some time to collect, in-house counsel should start collecting the necessary information now. In-house counsel should start examining their company’s legal structure to determine which, if any, legal entities may be considered a reporting company and who might be considered a beneficial owner. In-house counsel of companies with complex subsidiary structures may also want to consider whether to reorganize their structure to take advantage of exemptions. Furthermore, in-house counsel should document in writing their conclusions as to whether a reporting company must make a filing and review that conclusion periodically and whenever circumstances may change.
Also, the CTA requires reporting companies to continuously monitor the information it has filed and to file amended reports within 30 days of its occurrence. This may include changes of address for its beneficial owners, or changes in the document numbers (e.g., if a new driver’s license has a different number than the previous one). This also includes if a previously exempt reporting company becomes obligated to file (e.g., if it qualified as a large operating company at the time the initial report was due and it ceases to be a large operating company). In-house counsel will need to set up an on-going compliance program to ensure that they are aware of any changes to the beneficial owners and to the status of the legal entities. Finally, as part of the CTA compliance program, in-house counsel will want to ensure that the personal identifying information (PII) gathered as part of its compliance with the CTA is protected.
Klemchuk has prepared a checklist that a reporting company can use to begin the process of determining whether it will need to file an initial report and the information that they will need to gather. You can get a copy of that checklist at https://www.klemchuk.com/corporate-transparency-act-checklist-resources.
A more comprehensive discussion of the reporting requirements of the CTA can be found at our Ideate blog: Reporting Under the Corporate Transparency Act Is Coming – Are You Prepared?
Non Infringement Opinions in Patent Cases: Strategic Solutions to a Growing Problem
It is a frequent practice for Non-Practicing Entities (NPEs or “patent trolls”) to send letters to targets they either believe infringe a patent or are willing to pay a nuisance settlement to avoid litigation (e.g., “shakedown” money). This strategy has two benefits to the NPE. First, whoever responds to the letter is added to the “warm” target list and has at least implicitly acknowledged a willingness to engage in conversation with the NPE. Second, it potentially creates evidence that the NPE provided the target with notice of the patent infringement claim. This can be used later to support a finding of willful infringement and possibly an exceptional case, which may lead to up to triple damages, attorney’s fees, and costs.
This creates a dilemma for businesses and their in-house counsel. Should you engage in discussion with the patent troll’s attorney or “licensing professional” and risk moving up on the target list? Should in-house counsel immediately obtain an expensive opinion of counsel as to whether the patent is actually infringed, the claims are invalid, and/or the patent is unenforceable? A letter bomb campaign to numerous potential infringers creates an asymmetric cost advantage to the troll. Often the initial letter may contain a less-than-thorough infringement analysis or claim chart, which could be reproduced quickly across numerous businesses in the target pool. However, the cost for each business to obtain a thorough non-infringement, validity, and enforceability opinion could be substantial.
1. Delay the Opinion Until Suit Is Filed
So how to resolve this dilemma? One option to consider is awaiting the filing of suit before obtaining the written opinion or responding to the troll. This comes with the risk that if infringement is shown later in the case, the defendant does not have the benefit of relying on an opinion to defend against a claim for willful infringement—at least until suit was filed and defense commences. In other words, it potentially increases the chances of willful infringement (if there is infringement), but saves the cost of obtaining the opinion. This analysis assumes that the NPE letter provides sufficient information and basis for infringement that an opinion is warranted.
2. Obtain a Full Comprehensive Non-Infringement Opinion
Another option is to hire an experienced private practice lawyer to conduct a comprehensive analysis and opinion. If the opinion is sufficiently competent, the business can rely upon it in its defense against a willful infringement claim later if suit is filed. The opinion acts like an insurance policy with the cost of the opinion as the premium. A few things to keep in mind about infringement/non-infringement opinions. First, they only matter when they are wrong. Put another way, if there is no finding of infringement, the opinion likely does not matter. If there is an infringement finding, the opinion may be sufficient to prevent a finding of willful infringement, which could lead to treble damages. The nature of this situation puts the lawyer rendering the opinion at risk for a malpractice claim, so these opinions tend to be thorough and expensive. A second consideration is that the lawyer that wrote the opinion is likely to be deposed and required to testify at trial. You may want to give careful consideration to hiring a technical lawyer to assist with drafting the opinion and a “testimony friendly” lawyer to be presented as the witness.
3. Conduct an Early Preliminary Infringement Analysis
A third option is to conduct an early analysis after sufficient notice of infringement has been received. The goal of the preliminary analysis is to see if two to three solid arguments exist why there is no infringement. If a lawsuit is filed, the client can elect to rely on the preliminary opinion to defend the case and/or invest in a comprehensive opinion. In my experience, this tends to be the best approach as it provides an analysis early and at a lower cost. These opinions do come with limitations since they are not comprehensive.
Key Takeaways on Using Non-Infringement Opinions in Patent Cases
Patent trolls employ broad letter campaigns to trigger responses as well as potentially putting future targets on notice of the alleged infringement;
A comprehensive and competent non-infringement opinion can provide a defense against a claim for willful infringement;
In-house counsel have several options to strategically address this situation;
An early preliminary infringement analysis is often the least expensive and most effective strategy; and
How a particular attorney is likely to perform as a trial and deposition witness is an important factor for consideration.
For a comprehensive discussion of using non-infringement opinions to defend against troll cases, see our Ideate blog post, Non Infringement Opinions in Patent Cases: Strategic Solutions to a Growing Problem.
The Real Takeaway From VIP Products LLC v. Jack Daniel’s
By Brian Casper
In VIP Products LLC v. Jack Daniel’s, the Supreme Court held that First Amendment protections for parodies are not as strong when those parodies are used as trademarks themselves. VIP makes chewable rubber toys called “Silly Squeakers” that squeak when bitten (presumably by a dog). These toys are made to strongly resemble the products they make fun of.
VIP was relying on a widely adopted case from the Second Circuit: Rogers v. Grimaldi, 875 F. 2d 994, 999 (CA2 1989). That case established what is now known as the “Rogers test.” Under the Rogers test, the plaintiff has the burden to show that the defendant’s use of the mark is either: 1) “not artistically relevant to the underlying work” or 2) “explicitly misleads consumers as to the source or content of the work.” But as the Court explained, the Rogers test has only ever applied to cases involving “non-trademark uses.” Because VIP was using the disputed marks as trademarks—that is as an identification of their source—the Court held that Rogers did not even apply. This gutted VIP’s entire legal theory.
Looking back on the origin of this case, it is easy to see how a breakdown in communication lead to a decade of legal bills. Jack Daniel’s sent a letter to VIP demanding that it stop selling its “Bad Spaniels” dog toy, and just one week later, VIP responded by filing a lawsuit.
There are two key takeaways from this case. First, the Rogers test does not apply if the challenged mark is used as a trademark. The second key takeaway is that VIP was too aggressive in responding to the demand letter with a lawsuit. Bully tactics only work if you are a bully facing a weaker opponent. Arming yourself with a sling when facing a giant might sound good on paper, but the outcome is more predictable when you are just a small company making squeeze toys for dogs.
This case demonstrates why demand letters and lawsuits should not be thrown about carelessly. Take the time to carefully review the law and all of the potential consequences before initiating, or even threatening, legal action and carefully consider how to respond.
A more comprehensive discussion of the risks of demand letters can be found at our Ideate blog: The Real Takeaway From VIP Products LLC v. Jack Daniel’s.
Klemchuk PLLC is a leading intellectual property law firm focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. We help clients protect innovation and increase market share through investments in IP.
This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2024 Klemchuk PLLC