Author: National Law Forum

A group of in-house attorneys developed the National Law Review on-line edition to create an easy to use resource to capture legal trends and news as they first start to emerge. We were looking for a better way to organize, vet and easily retrieve all the updates that were being sent to us on a daily basis.In the process, we’ve become one of the highest volume business law websites in the U.S. Today, the National Law Review’s seasoned editors screen and classify breaking news and analysis authored by recognized legal professionals and our own journalists. There is no log in to access the database and new articles are added hourly. The National Law Review revolutionized legal publication in 1888 and this cutting-edge tradition continues today.

ZIPped Back Up: Williams-Sonoma Gains Federal Dismissal Of New Jersey Consumer Privacy Claim in Feder

Recently published in the National Law Review an article by Theodore C. Max of Sheppard, Mullin, Richter & Hampton LLP regarding the United States District Court for the District of New Jersey joined the New Jersey Superior Court in weighing in on the issue of whether a retailer violates consumer privacy state law by requesting a customer’s zip code at the point of purchase.

In Feder v. Williams-Sonoma Stores, Inc., the United States District Court for the District of New Jersey joined the New Jersey Superior Court in weighing in on the issue of whether a retailer violates consumer privacy state law by requesting a customer’s zip code at the point of purchase.  Feder was brought by the same plaintiff’s lawyers and with claims similar to those in the state court case Imbert v. Harmon Stores, Inc.(Bed, Bath & Beyond). Imbert was decided last month, but without any written decision, and permitted that case to proceed past the pleading stage. The District Court in Feder, however, issued the first written opinion under the New Jersey statutes, finding that allegations that a zip code was verbally requested could not support a claim under New Jersey law.

Both Feder and Imbert involved plaintiffs suing under New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”), alleging that a store’s requirement that customers provide their zip codes during a credit card transaction violates their rights under the TCCWNA. The TCCNWA prohibits a seller from “offering, entering into, giving or displaying a written consumer contract or notice that violates a clearly established right of the consumer.” N.J. Stat. Ann. 56: 12-15.  As a predicate for the TCCNWA claim, both Feder and Imbert relied on the Restrictions on Information Required to Complete Credit Card Transactions (“Restriction Statute“). The Restriction Statute prohibits a retailer from requiring a customer to provide “personal identification information” to complete a credit card transaction, thus providing the basis for violation of a “clearly established consumer right.”

Senior District Judge Walls in Feder granted Williams-Sonoma’s Motion to Dismiss, finding that the plaintiff failed to sufficiently allege conduct that violated the TCCWNA because she failed to identify a particular provision of a written consumer contract that violated her rights. Feder pled that the credit card transaction form constituted the written consumer contract.  Judge Walls, skeptical of this assertion, reasoned that even if the form qualified as a contract, plaintiff’s recorded zip code and verbal request for the same did not constitute a contract provision. Consequently, Judge Wales found that plaintiff failed to satisfy the elements of TCCNWA because “[t]he alleged requirement that plaintiff provide her zip code would only violate the TCCWNA if it was a provision of a written contract.”  Plaintiff also alleged that her rights were violated under the Restriction Statute — not by the recording of her zip code — but by the requirement that she provide her zip code. However, the Restriction Statute does not provide for a private right of action, and, as discussed above, a claim under Plaintiff’s proposed private vehicle for enforcement, the TCCNWA, failed.

Williams-Sonoma also argued that if the credit card transaction was considered a written consumer contract, the court must consider all terms of that “contract” including the point of sale signage at Williams-Sonoma stores expressly stating that when a zip code is requested it is used for marketing purposes, and that providing it is voluntary and is not a condition of processing the transaction. The Restriction Statute differs critically from California’s Song-Beverly in that New Jersey’s Restriction Statute only applies to information being “required,” whereas Song-Beverly also applies to a “request.” This issue was not presented inImbert. However, since the District Court ruled on the TWNCCA, it did not need to reach this issue.

One additional anomaly between the Feder and Imbert cases is that in Imbert the state court permitted the plaintiff to proceed with an invasion of privacy claim. However, when presented with Williams-Sonoma’s Motion to Dismiss, Feder abandoned her invasion of privacy claim in her Opposition because the Motion revealed she had previously provided her contact information to Williams-Sonoma. Feder also filed a cross-motion for leave to file an Amended Complaint, which the District Court denied as futile.

Sheppard Mullin Richter & Hampton LLP

Second Circuit Finds that Employers May be Obligated to Accommodate a Disabled Employee's Commute

Posted in the National Law Review an article by attorneys James R. Hays, Jonathan Sokolowski and James R. Hays of Sheppard Mullin Richter & Hampton LLP regarding disabled employees and employers requirements to assist them:

 

The Second Circuit Court of Appeals has held that under the Americans with Disabilities Act (“ADA”) and the Rehabilitation Act, employers may be required to assist disabled employees with their commute.

In Nixon-Tinkelman v. N.Y. City Dep’t of Health & Mental Hygiene, No. 10-3317-cv, 2011 U.S. App. LEXIS 16569 (2d Cir. N.Y. Aug. 10, 2011), plaintiff Barbara Nixon-Tinkelman (“Plaintiff”), who has cancer, heart problems, asthma, and is hearing impaired, brought suit under the ADA and the Rehabilitation Act alleging that the New York City Department of Health & Mental Hygiene (“Defendant” or “DOHMH”) failed to reasonably accommodate her disability. Specifically, following her transfer from Queens to Manhattan, Plaintiff requested that DOHMH accommodate her commute by transferring her back to an office location closer to her home in Queens. DOHMH ultimately denied Plaintiff’s request.

The Southern District of New York dismissed Plaintiff’s complaint on Defendant’s motion for summary judgment, finding that activities which “fall outside the scope of the job, like commuting to and from the workplace, are not within the province of an employer’s obligations under the ADA and the Rehabilitation Act.” However, on appeal, the Second Circuit faulted the district court’s holding, explaining that certain circumstances may require an employer to provide commuting assistance to a disabled employee, and furthermore, that providing such assistance is not “inherently unreasonable.” Accordingly, the Second Circuit remanded the case to the district court, and tasked it with engaging in the “fact-specific inquiry” necessary to determine whether it would have been reasonable to provide Plaintiff with a commuting accommodation. On remand, the Second Circuit directed the district court to consider the following factors: (a) Defendant’s total number of employees; (b) the number and location of Defendant’s offices; (c) whether other positions exist for which Plaintiff was qualified; (d) whether Plaintiff could have been transferred to a more convenient office without unduly burdening Defendant’s operations; and (e) the reasonableness of allowing Plaintiff to work from home without on-site supervision.

In addition to the above-listed factors, the Second Circuit also noted that the district court should have contemplated whether transferring Plaintiff “back to Queens or another closer location, allowing her to work from home, or providing a car or parking permit” would have accommodated her needs.

Nixon-Tinkelman serves as a reminder to employers that they must carefully assess all requests for reasonable accommodations from disabled employees. Although employers are not required to provide the specific accommodations employees may request, they must nevertheless work with employees to determine what reasonable accommodations, if any, can be made.

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Common Attornment Provision Held Ineffective After Master Lease and Sublease Rejected in Bankruptcy by Debtor-Sublandlord

Posted in the National Law Review an article by attorney  Howard J. Berman of  Greenberg Traurig regarding a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord:

GT Law

In Green Tree Serv., LLC v. DBSI Landmark Towers LLC,1 a case that is significant for landlords and leasing attorneys, the Eighth Circuit recently held that a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord, notwithstanding an attornment provision in the sublease requiring the subtenant to attorn2 to the landlord when the landlord either terminates the master lease or otherwise succeeds to the interest of the sublandlord under the master lease.

Because the Eighth Circuit’s decision hinges on an interpretation of an attornment provision that is common in many sublease agreements, landlords and practitioners must be careful to draft attornment provisions that do not run afoul of the decision.

 

 

In a strict construction of the attornment provision, the court determined that because the master lease was rejected by the debtor-sublandlord and not terminated by the landlord, the attornment provision was never triggered. Because the Eighth Circuit’s decision hinges on an interpretation of an attornment provision that is common in many sublease agreements, landlords and practitioners must be careful to draft attornment provisions that do not run afoul of the Eighth Circuit’s decision.

In Green Tree, the landlord leased an office building to the debtor, DBSI Landmark Towers Leaseco, LLC (“DBSI”), under a master lease. DBSI then subleased the property to Green Tree Servicing, LLC (“Green Tree”). The master lease agreement between the landlord and tenantsublandlord DBSI required that any sublease include a provision providing for the subtenant to attorn to the landlord in certain circumstances. The sublease agreement entered into between DBSI and subtenant Green Tree required Green Tree to attorn to the landlord if the “[landlord] ‘terminates the Master Lease’ or ‘otherwise succeeds to the interest of [DBSI] under the foregoing Lease.’” 3

After tenant DBSI filed for bankruptcy, it rejected its master lease as well as its sublease with Green Tree pursuant to order of the bankruptcy court. In its motion to reject, DBSI indicated that the sublease would be terminated as a result of the rejection. In response, Green Tree exercised its rights under section 365(h) of the Bankruptcy Code (which allows a tenant whose lease is rejected by a debtor-lessor to either remain in possession or treat the lease as terminated) to treat the sublease as terminated.4 Although sublandlord DBSI did not object to Green Tree’s election to terminate the sublease, the landlord objected, claiming that the terms of the sublease required subtenant Green Tree to attorn to the landlord.5Green Tree then commenced an action in Minnesota state court seeking a declaration that the sublease was terminated and that it could vacate its premises. The landlord removed the case to federal court and cross-claimed for a judgment affirming the sublease.

The Eighth Circuit rejected Green Tree’s argument that because it exercised its right to terminate the sublease under section 365(h) it had no obligation to the landlord under the attornment provision in the sublease, stating “nothing in section 365(h) indicates that a debtor-lessor’s rejection of a lease extinguishes a third party’s rights and obligations under the lease.”6 The court then analyzed the language of the attornment provision strictly and determined that it would be triggered only when the landlord terminates the master lease or otherwise succeeds to the interest of sublandlord DBSI.7 Because DBSI and not the landlord rejected the master lease in DBSI’s bankruptcy case and because DBSI rejected and terminated the sublease, the court held that the attornment provision was never triggered and that subtenant Green Tree was free to vacate the premises. 8In reaching this conclusion, the court noted that DBSI never assigned its contractual interest in the sublease to the landlord prior to DBSI’s rejection and termination of the sublease and that the landlord “could not succeed to the interest in the sublease that no longer existed . . . .”9 Here, the only contractual interest to survive under the sublease was the landlord’s right to attornment, which right was not triggered.10

In light of the court’s strict interpretation of the attornment provision, landlords must be careful to include language in attornment provisions in both the master lease and sublease making it clear that a subtenant must attorn to the landlord in the event that a master lease and/or sublease is rejected under section 365 of the Bankruptcy Code by a debtor-sublandlord.

1__F. 3d__, 2011 WL 3802800 (8th Cir. Aug. 30, 2011).

2The term “attorn” means ‘“[t]o agree to be the tenant of a new landlord.’” Id. at *1 n. 5 (quoting Black’s Law Dictionary,
147 (9th ed. 2009)).

3Green Tree Serv., 2011 WL 3802800 at *1

411 U.S.C. § 365(h)(1)(A) provides in pertinent part:

If the trustee rejects an unexpired lease of real property under which the debtor is the lessor and –

(i) if the rejection by the trustee amounts to such a breach as would entitle the lessee to treat such lease as terminated by virtue of its terms, applicable nonbankruptcy law, or any agreement made by the lessee, then the lessee under such lease may treat such lease as terminated by the rejection . . .

5 See Green Tree Serv., 2011 WL 3802800 at *1.
6 Id. at *2 (citation omitted).
7 Id. at *3.
8 Id. at *3.
9 Id.
10Id.

©2011 Greenberg Traurig, LLP. All rights reserved.

NLRB Delays Implementation of Mandatory Notice Posting Rule

Recently posted in the National Law Review  an article regarding the NLRB postponing the date for employers to post notices informing employees of their rights to join a union  by Aaron J. Epstein of Andrews Kurth LLP:

 

Last week, the National Labor Relations Board (NLRB) postponed the effective date for its rule requiring most U.S. employers to post workplaces notices informing employees of their rights under the National Labor Relations Act (NLRA), including the right to join a union. The NLRB published the new rule on August 31, 2011, and initially set an effective date of November 14, 2011. However, in the face of two lawsuits challenging the validity of the new rule, and citing the need to conduct enhanced education and outreach, the NLRB has delayed the effective date until January 31, 2012.

Below is a brief overview of the new rule and the steps employers must take to comply.

To Whom the Rule Applies

The notice posting rule applies to all employers covered by the NLRA, whether or not they have a unionized workforce. NLRA coverage is intentionally broad and reaches almost all private sector employers. In the case of retail businesses, the NLRB’s jurisdiction covers any employer with a gross annual volume of business of $500,000 or more. The NLRB’s non-retail jurisdictional standard extends to most other employers. It is based on the amount of goods sold or services provided by an employer out of state, called “outflow,” or goods or services purchased by an employer from out of state, called “inflow.” Under this standard, any employer with an annual inflow or outflow of at least $50,000 is subject to the NLRA.

What the Rule Requires

The NLRB’s new rule dictates that employers post an 11-inch-by-17-inch notice detailing employee rights under the NLRA in a conspicuous place where other notifications of workplace rights and employer policies and rules are customarily posted. Employers are required to take reasonable steps to ensure that the notice is not altered, defaced, covered, or otherwise rendered unreadable. Additionally, employers who post personnel policies or workplaces notices on a company intranet or internet site must also post the NLRA notice on those sites, or they can provide a link to the notice on the NLRB’s website with the title “Employee Rights Under the National Labor Relations Act.”

Copies of the notice, in English and Spanish, are available at www.nlrb.gov or at any of the agency’s regional offices. The notice must be posted in English and in another language if at least 20 percent of employees are not proficient in English and speak the other language. The NLRB will provide translations of the notice, and of the required link to the NLRB’s website, in the appropriate languages. If a workforce includes two or more groups, each constituting at least 20 percent of the workforce, who speak different languages, an employer must post the notice in the language spoken by the larger group, and then may either post the notice in the language(s) spoken by the other group(s) or, at the employer’s option, distribute copies of the notice to those employees in their language(s). If such an employer is also required to post the notice electronically, it must do so in each of those languages.

Failure to Comply with the Rule

Failing to post the notice may, in and of itself, be treated as an unfair labor practice and subject an employer to remedial measures. The NLRB may also extend the six-month statute of limitations for filing a charge involving other unfair labor practice allegations against the employer. Finally, if an employer knowingly and willfully fails to post the notice, the failure may be considered evidence of unlawful motive in an unfair labor practice case dealing with other alleged violations of the NLRA.

© 2011 Andrews Kurth LLP

Turning eDiscovery Strategies into Practical Applications for Your Business

The National Law Review wants to remind you of the upcoming conference Turning eDiscovery Strategies into Practical Applications for Your Business held on December 14th-16th, 2011 in Sentry Center, New York, NY.

Navigating New eDiscovery Challenges and Achieving Records Management Excellence in a Digital Environment

eDiscovery is a maturing discipline in the legal technology field. In many respects, however, emergent technology and legal considerations in eDiscovery create uncertainty and risk more commonly found in a truly emergent field. Indeed the past year in the eDiscovery field has been distinguished by volatility and change as several key players have merged and entered this space.

Across all industries corporations are experiencing exponential growth in the data volumes that must be collected reviewed, and in some cases, produced in litigation. This broadening digital platform implicates new risks and opportunities for your organizations of all sizes in litigation and day-to-day records management. IQPC has paid particular attention to these dynamics in crafting this year’s program. You will benefit from an unparalleled mix of thought leaders and industry movers who will shape the future of eDiscovery for years to come.

This is a must attend event to keep your organization abreast of the developments and new horizons in this critical field.

eDiscovery Resource Center

video_smVideo

 

podcasts_smPodcast

 

articles_smArticles

 

articles_smQ&As

Early Confirmed Speakers:

Clinton Field
Records Management Specialist
American Eagle Outfitters, Inc.

Lucas G. Paglia
Vice President-Deputy General Counsel
American Eagle Outfitters, Inc.

Kathrin-D Fischer 
Legal, Risk & Capital Management
Deutsche Bank AG, Filiale New York

Andrew Stemmer
Legal Department
Deutsche Bank AG

Eric M. Albert
Director & Senior Counsel
Deutsche Bank AG, New York

Stephen Shine
Chief Regulatory Counsel
Prudential Financial

Ronald Hedges
Special eDiscovery Master

Hon. Richard Kramer
Superior Court Judge
District of California

Dave Shonka
Principal Deputy General Counsel
Federal Trade Commission

» View more speakers

Medical Marijuana User Not Protected from Termination

Recently posted in the National Law Review an article by Darren A. Feider  of Williams Kastner regarding medical marijuana and employment:

A developing exception to Washington law of employment at will is the tort of wrongful termination in violation of public policy. This narrow exception was recently tested in Roe v. TeleTech Customer Care, 171 Wn.2d 736 (2011), when a new hire employee asserted that her employer had violated Washington public policy for terminating her for a positive drug test for marijuana.

In Roe, the new hire claimed to suffer from migraine headaches, causing chronic pain, nausea, blurred vision and sensitivity to light. Her physician prescribed medical marijuana and she smoked it four times a day, but ingested it only at home. She was offered a position as a customer service representative contingent on a background check and a drug screening. After failing the drug screening, the new hire informed her supervisor she had been prescribed medical marijuana. Her supervisor informed her that use of medical marijuana violated the company drug policy and terminated her employment during the training phase. She sued the company for wrongful termination in violation of public policy. The trial court dismissed the claim, finding that medical marijuana merely provided an affirmative defense to criminal prosecution under Washington state drug laws but did not imply a civil cause of action in employment. She appealed.

On appeal, the Roe court recognized that the voters of Washington had provided a defense to caregivers and physicians who prescribed marijuana to those with certain illnesses such as the new hire. That statute, however, did not provide protection for employment and specifically noted that the law did not require any accommodation of on-site use of medical marijuana.

The Roe court had focused on the language of the medical marijuana statute which only discussed protecting health care providers. The court also emphasized that there was no evidence that the statute provided employment protection or prohibited an employer from discharging an employee for medical marijuana use. The court found that the statute did not support a broad public policy that would remove all impediments to authorized medical marijuana use or forbid an employer from discharging an employee because she used medical marijuana.

The Roe court also recognized that Washington patients have no legal right to marijuana under federal law, which has the effect of establishing that there is not a broad public policy that would require an employer to allow an employee to engage in illegal activity.

The take-aways from the Roe decision are that Washington courts will move cautiously in expanding the scope of legal protections for employees. Washington courts will not attempt to graft on an expansion of the public policy tort claims. The Roe decision also emphasizes that employment in Washington is at will and that any public policy exceptions are narrowly construed.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

The Top Five Intellectual Property Traps in M&A Transactions

Recently posted in the National Law Review an article by Carey C. Jordan of McDermott Will & Emery  regarding intellectual rights in M&A transactions:  

 

In M&A transactions, many lawyers assume that intellectual property (IP) rights will automatically transfer with the purchase and that IP issues can be cured by general representations and warranties. While getting strong representations and warranties covering intellectual property is useful, relying on a breach of representations and warranties as the only remedy to protect the covered IP can doom the deal to failure or lead to unexpected surprises after closing, including requiring significant changes to future business plans and opportunities. If the target’s IP rights are important to the ultimate deal, then those IP rights must be investigated thoroughly in the due diligence and fully understood.

A due diligence investigation into a company’s intellectual property assets is essentially a methodical audit which will cover at least the following main areas:

  • Patents
  • Know-how
  • Copyright
  • Trademarks
  • Infringements
  • Licenses and collaboration agreements

Failure to examine these during due diligence in a manner appropriate to the deal at hand can lead to reevaluation, repricing or structural changes of the transaction.

For example, Volkswagen outbid BMW in 1998 to buy Rolls Royce and Bentley and their British factory from Vickers PLC for $917 million. But an odd twist in the deal allowed the Rolls-Royce aerospace company to sell rights to the ROLLS-ROYCE trademark to BMW out from under Volkswagen for $78 million. Thus, after the deal closed, Volkswagen did not have the rights to use the ROLLS-ROYCE mark. Only after a separate deal was made with BMW to avoid litigation, did Volkswagen gain the ability to manufacture a trademarked ROLLS-ROYCE car.

Thus, IP due diligence in an M&A transaction should not be overlooked and should be undertaken early in the process. The following are five common IP issues that may impact M&A transactions.

1. Target Does Not Actually Have the Critical Patent Rights

A target company may not actually own the IP rights that it represents that it owns. This may be due to a failure to update the title through corporate name changes or lien releases, or a failure to ensure that employees have properly assigned their rights to IP assets developed with company resources to the target. This latter situation is particularly problematic. For example, under U.S. patent law, each joint inventor has the right to use and to license patented technology to a competitor without accounting to the other owner in the absence of an agreement to the contrary. As a result, a non-assigning employee can license a key competitor of the buyer (and even keep the royalties) without notifying the target. The problem can be more acute in the case of an independent contractor, who may not have an obligation to assign rights to the target. It is therefore important to review contractor agreements related to any IP relevant to the transaction to confirm that the agreements address ownership of any IP created by the contractor.

Trademarks must be evaluated in terms of their goods, services and countries of registration to confirm that they cover the buyer’s intended uses in intended markets. Certain countries recognize common law trademark rights, based on use of a mark, while other jurisdictions give priority to the first party to file a trademark application, regardless of use. Internet domain names are subject to fewer formalities, but must be investigated as well. Domain name registrations may expire and, if expired, the domain names can be bought by anyone. It is also important to confirm that important domain names are owned by an entity relevant to the transaction, as opposed to an information technology (IT) professional within the company, a licensee or another entity.

2. Prior Agreements Limit IP Rights

Sometimes, the target’s IP rights may be subject to prior agreements that restrict their use in other markets or fields of use. The target may have existing licenses or agreements with respect to some or all of its IP rights. For instance, the target may have granted a third party exclusive use in a key field of use, territory or patent, which may limited the buyer’s full and expected use of the IP rights.

For example, when the Clorox Company purchased the PINE-SOL business and trademark from American Cyanamid in 1990, Clorox planned to leverage the strength of the PINE-SOL mark into other products. Clorox purchased the PINE-SOL assets and mark subject to a prior 1987 agreement that Cyanamid had entered into with the owner of the LYSOL trademark to settle a trademark dispute years earlier. That prior agreement restricted Cyanamid (and subsequently Clorox) from expanding the use of the mark beyond the PINE-SOL pine cleaner. Clorox tried to void the terms of the settlement agreement through litigation, but was unsuccessful.

Licensors of intellectual property may argue that a merger in which a licensee does not “survive” as a separate corporate entity may void the license – even if the license agreement contained no prohibition against merger, acquisition or transfer. This argument is based on an arcane line of federal cases holding that patent licenses are not assignable unless expressly made so. More recently, some federal courts have extended this rule in ways that affect corporate mergers, and have found, in effect, that certain mergers can constitute transfers that void patent licenses. This is especially problematic in an acquisition of a licensee.

Additionally, in certain instances in which the U.S. government has provided funding to an entity (usually a nonprofit, university or small business), the U.S. government may retain certain rights to any relevant patents developed from that research, and any subsequent grants relating to those rights (e.g., a license or acquisition) will remain subject to the government’s retained rights. These government “march-in” include the right to license the invention to a third party, without the consent of the patent holder or original licensee, where it determines the invention is not being made available to the public on a reasonable basis.

3. Target is Subject to Pending/Threatened Infringement Claims

No buyer wants to buy an expensive IP-related lawsuit through an acquisition. Any potential litigation or enforcement risks must be assessed and independently analyzed, including evaluating potential indemnifications. Although others exist, two primary areas for inquiry in this context include potential patent infringement and copyright liabilities.

For potential patent liability issues, a purchaser does not want to spend a great deal of time and money to acquire rights that it will not be able to exploit because of third party’s potential infringement lawsuit. Potential litigation and enforcement risks may be identified through the target’s legal opinions, cease and desist letters, freedom to operate studies and similar materials, which should be requested and analyzed in the due diligence process.

As to open-source software, the GNU General Public License governs a large number of open-source products. Open-source code can only be tightly integrated into other open-source products, and a condition of using the code is that the user also publishes its modified version of the code to the public. The Free Software Foundation enforces the GNU General Public License. This can be problematic in an acquisition, especially when the software is a valuable piece of the assets being acquired. There have been instances where an acquiree has been sued by the Free Software Foundation after acquiring a company that had allegedly incorporate open-source code into its software. In at least one instance, the acquirer had to release the acquired software to the public as a result. Open-source liability can kill a deal and affect the value of a transaction. In the absence of insurance, some companies will accept a reduction in deal price.

4. Significant Barriers Exist to Exploitation of the Technology

With regard to patents and the ability to exploit the acquired patented technology, significant barriers may exist. Third parties may have blocking IP rights that prevent the buyer from exploiting the target’s IP or expanding the business as planned. Sometimes, this risk is not specifically known even to a target. Thus, the buyer’s freedom to operate often should be analyzed before completing the transaction, to make sure that the buyer will be able to use the assets purchased as intended in the conduct of the business operations, or as proposed to be used according to the buyer’s future plans. A freedom-to-operate analysis should be performed, which is an assessment of whether making, using sale, offering to sell or importation of a product in the U.S. will infringe any third-party patents.

If third party IP rights are identified that may block or limit the buyer’s use of particular IP rights, and a meaningful design-around is not possible, then it may be necessary to license or acquire ancillary rights to such third party blocking IP rights. Alternatively, the target could seek to invalidate the blocking IP at the United States Patent and Trademark Office (e.g., through a reexamination) or in a court. The inquiry is more complex when pending claims are published yet not issued, so the inquiry not only requires construction of the claims and infringement analysis, but also estimation of whether the published claim(s) will issue. Evolving application of infringement under the doctrine of equivalents and other changing legal standards through judicial decisions only adds to the complexity and cost of the analysis.

Of course, this still leaves unknown barriers to the exploitation of technology. Included in this category are issues such as unpublished patent rights that could block a buyer, misappropriation of technology, reverse engineering by competitors who have then patented improvements to a target’s trade secrets or even competitors who independently discover trade secrets and patent them, and the like. To the extent these can be explored, it is wise to do so. However, there are risks in any deal, and wise IP counsel can consider the impact of potential unknowns based on the industry and technology involved in the contemplated transaction.

5. Target’s IP Rights Are Encumbered by Liens

IP rights may also be encumbered by liens. To record and perfect a lien against both patents and trademarks in the United States, Uniform Commercial Code (UCC) filings need to be made. Although not legally required, most lenders also record the security agreement in the U.S. Patent and Trademark Office (USPTO). Under U.S. copyright law, however, only a lien recorded in the U.S. Copyright Office will perfect a security interest in copyrights. Due diligence should include reviewing reports from all of the applicable filing offices.

In sum, early and comprehensive IP due diligence in M&A transactions is important because it can lead to a reevaluation, repricing or restructuring of the proposed transaction.

© 2011 McDermott Will & Emery

National Federation of Paralegal Associations, Inc. Annual Conference

The National Law Review would like to remind you of National Federation of Paralegal Associations, Inc. 2011 Annual Conference on October 13-16, 2011 in Bloomington, MN:

2011 Convention

2011 Convention postcard art Metrodome with skyline

Online registration closes Friday, Sept. 30th

Walk-up registrations accepted at the door.

Hotel Information

Hilton Minneapolis St. Paul Airport (use group code NFP)
Single or Double Occupancy:  $159.00 per night

Education Sessions

This year we will be holding 24 seminars plus the Student Workshop. There will also be a cooking class offered on Wednesday featuring Hilton Chef Eric Gideon Baker.  There is limited space for the Chef’s class and it is expected to fill up quickly so sign up early! The convention brochure (PDF) has details for all of these educational opportunities.  All sessions other than F and X are approved for 1.25 hours of CLE credit each.

Casual Up! for Breast Cancer

Casual Up! logo

Support the National Breast Cancer Foundation and Casual Up!
Friday, October 14, 2011

We all know someone or have heard of someone affected by breast cancer. One of the ways NFPA can help fight this disease is by using the privileges we have at our Annual Convention to make an impact in the fight against breast cancer. Friday, October 14th will be casual day to help raise money for breast cancer awareness and funding for mammograms for those in need. It’s simple, fun, and a great way for attendees to become involved in something that saves thousands of lives.

What do you wear on Friday, October 14th to support the National Breast Cancer Foundation and Casual Up? The dress code for donors (minimum donation $5) on this particular day will be relaxed. Be creative and inspire your friends or regions to get involved in a good cause. You can wear jeans, a pink T-Shirt or a pink ball-cap. You can even wear pink socks. The point is to be creative and help increase awareness of breast cancer.

You can also purchase Casual Up T-Shirts for $20 each…must be ordered by August 30, 2011. Shirts are designed by NFPA and available in unisex adult sizes.

Keynote Speaker

Judge Meyer

Honorable Helen Meyer
Minnesota Supreme Court Judge

Judge Helen Meyer earned her Bachelor’s Degree in Social Work at the University of Minnesota. She earned her J.D. from William Mitchell College of Law and then worked for 20 years as a civil trial lawyer and mediator. She co-founded Pritzker & Meyer in 1987 and established Meyer and Associates in 1996.

Judge Meyer is certified as a civil trial specialist by the National Board of Trial Advocacy and the Minnesota State Bar Association, is a past board member of the Minnesota State Board of Legal Certification and the Minnesota Trial Lawyers Association, and has held leadership positions with the Minnesota State Bar Association and Academy of Certified Trial Lawyers.

Judge Meyer served for three and one-half years on Governor Ventura’s Judicial Merit Selection Commission, assisting him in the appointment of over 60 trial court judges and 5 appellate level judges. She was appointed by Governor Ventura as an Associate Justice of the Minnesota Supreme Court in June of 2002. Judge Meyer took the oath of office on August 5, 2002.

Pro Bono Conference

The 2011 Pro Bono Conference will be held on Friday, October 14, 2011, in conjunction with NFPA’s Annual Convention in Bloomington, MN.  The Conference will include presentations by paralegals working on pro bono projects across the country, as well as information on how to start or enhance your association’s pro bono efforts. Guest speakers include Erika Applebaum who is the Executive Director of the Innocence Project of Minnesota and Eric Cooperstein, chair of the Minnesota State Bar Association’s Rules of Professional Conduct Committee. There will be 1.25 hours of Continuing Legal Education available for Mr. Cooperstein’s presentation – Real-Life Ethical Predicaments for Pro Bono Coordinators and Volunteers.

Registration will be held in conjunction with registration for the Annual Convention. No charge for NFPA members!

Click here for the Pro Bono Conference details.

Leadership Workshops

3:45 to 5:30 PM Friday

Topics include:

  • Strategic Planning in Tough Economic Times – presented by Debra Hindin-King
  • Use of Technology for Local Associations – presented by Jessica Swedenhjelm, RP; Dana Murphy-Love, CAE; Kim Walker

The Financial Toll of the Arab Spring

Recently posted in the National Law Review an article by Jared Wade of Risk and Insurance Management Society, Inc. (RIMS) regarding political and social turmoil often disrupt business operations:

Political and social turmoil often disrupt business operations. And when we’re talking about revolutions like those seen throughout the Middle East in 2011, those disruptions — and the associated costs — amplify.

The Financial Times is here to provide some examples of just how much damage some companies have suffered. The start by noting a Grant Thornton survey from June that claims a whopping 22% of the world’s companies were affected by the Arab Spring. Globalization indeed.

International companies in sectors such as retail, travel and construction have unsurprisingly been early losers.

In July, Thomas Cook, the tour operator, said it expected operating profits this year of just £320m – compared with analysts’ estimates of £380m – because of declining business in Egypt, Tunisia and Morocco.

Cyril Sweett, a British consultancy and property company, warned last month that its next financial results would be hit because Middle Eastern turmoil had led to a number of projects being scrapped.

Other companies are struggling to collect payment for bills for projects disrupted by protest, armed conflict or regime change.

Dana Gas, a fuel producer heavily dependent on Egypt, is owed $200m by the country for invoices related to natural gas sales, according to Ahmed Al-Arbeed, chief executive, adding that some will be repaid this year.

Rentokil Initial, the pest-control to cleaning services company, said it would be “nice to get back” £4.8m it says it is owed for a rat-catching contract signed while Colonel Muammer Gaddafi was still in power in Libya, although it is as yet undecided on whether to revive its operations in the country.

Great anecdotes to help show the depth of the problem. And on the macro-level, here’s an infographic from Grant Thornton listing what percentage of companies in different regions have been negatively affected by the uprisings.



 

 

Risk Management Magazine and Risk Management Monitor. Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved.

Legal Issues Surrounding Social Media Background Checks

Posted in the National Law Review an article by Michelle Sherman of Sheppard Mullin Richter & Hampton LLP regarding establishing an internal procedure for using the Internet to make employment decisions is one more piece of a sound ethics and compliance program that addresses how your company is using social media.

Agatha Christie had a novel take on invention being the mother of necessity. She disagreed and said, “[I]nvention, in my opinion, arises directly from idleness, possibly also from laziness. To save oneself trouble.” She may have been onto something when you think about businesses that are turning to outside vendors to research employees and job candidates for them. Whether or not these outside vendors are the best solution, however, remains to be seen.

  1. Companies Should Have An Internal Procedure For Researching Job Candidates And Employees On The Internet

We recommended earlier this year that businesses establish an internal procedure for making employment decisions based on Internet research, so they would not run afoul of state and federal laws that prohibit job discrimination based on protected factors. The protected factors include, for example: (1) Race, color, national origin, religion and gender under Title VII of the Civil Rights Act of 1964; and (2) Sexual orientation, marital status, pregnancy, cancer, political affiliation, genetic characteristics, and gender identity under California law. Most states have their own list of protected factors, which should be considered depending on where your company has employees.

Not surprisingly, the legal risks of making employment decisions using the Internet have become a real concern for businesses, especially when you consider that 54% of employers surveyed in 2011 acknowledged using the Internet to research job candidates. The actual number of employers using the Internet is probably higher, and sometimes companies may not even be aware that their employees are researching job candidates and factoring that information into their evaluations. This is yet another reason to establish an internal procedure for researching job candidates, and communicating your procedure to employees who are participating in the employment process.

There is nothing wrong with researching people on the Internet so long as it is done properly. The Internet has a wealth of useful information, some of it intentionally posted by job applicants for employers to consider such as LinkedIn profiles.

With this “necessity” to do Internet searches properly, some businesses have turned to outside vendors to do the research for them, and, thereby, try to reduce their legal exposure and the administrative inconvenience of doing it themselves. At least one of these vendors has received letters concerning its business practices from the Federal Trade Commission (“FTC”) and, more recently, two U.S. Senators.

  1. The Business Practices Of Outside Vendors That Provide Social Media Background Checks Are Being Examined For Compliance With Privacy And Intellectual Property Laws

On May 9, 2011, the staff of the FTC’s Division of Privacy and Identity Protection sent a “no action” letter to Social Intelligence Corporation (“Social Intelligence”), “an Internet and social media background screening service used by employers in pre-employment background screening.” The FTC treated Social Intelligence as a consumer reporting agency “because it assembles or evaluates consumer report information that is furnished to third parties that use such information as a factor in establishing a consumer’s eligibility for employment.” The FTC stated that the same rules that apply to consumer reporting agencies (such as the Fair Credit Reporting Act (“FCRA”)) apply equally in the social networking context. These rules include the obligation to provide employees or applicants with notice of any adverse action taken on the basis of these reports. Businesses should also be mindful of similar state consumer protection laws that may be applicable (e.g. California Investigative Consumer Reporting Agencies Act).

The FTC concluded by stating that information provided by Social Intelligence about its policies and procedures for compliance with the FCRA appears not to warrant further action, but that its action “is not to be construed as a determination that a violation may not have occurred,” and that the FTC “reserves the right to take further action as the public interest may require.” This FTC “no action” letter was reported fairly widely, and probably increased the comfort level of businesses that wanted to use an outside service for Internet background checks.

On September 19, 2011, Senators Richard Blumenthal (D-Conn) and Al Franken (D-Minn) sent a letter to Social Intelligence with 13 questions regarding whether the company is taking steps to ensure that the information it is gathering from social networks is accurate, whether the company is respecting the guidelines for how the websites and their users want the content used, and whether the company is protecting consumers’ right to online privacy. The letter raises some legitimate concerns, and requests a prompt response from Social Intelligence to the questions presented.

  1. Legal Assurances That Your Company May Want To Seek If Using An Outside Vendor

Some of the questions also warrant due consideration on the part of businesses receiving reports from outside vendors about how much weight they want to give the information provided. Further, what the business may want in the form of legal assurances from the outside vendor that no laws (e.g. FCRA, privacy, copyright, or other intellectual property laws) have been violated in gathering the information or providing screenshot copies of pages from social networking sites.

Some of the questions from the Senators which raise these concerns include, for example:

1. “How does your company determine the accuracy of the information it provides to employers?” [Social Intelligence is reportedly collecting social networking activity dating back 7 years, and, therefore, may capture something that was later removed, or was a “tag” post through a picture that the job candidate was not responsible for making public, and may have removed once it came to his attention.]

2. “Is your company able to differentiate among applicants with common names? How?” [e.g. Have they researched the correct “Jane Smith” of the hundreds on Facebook since social security numbers or other specific identifying information is not useful on social networking sites as it is with the standard background check.]

3. “Is the information that your company collects from social media websites like Facebook limited to information that can be seen by everyone, or does your company endeavor to access restricted information.”

4. “The reports that your company prepares for employers contain screenshots of the sources of the information your company compiles…These websites are typically governed by terms of service agreements that prohibit the collection, dissemination, or sale of users’ content without the consent of the user and/or the website….. Your company’s business model seems to necessitate violating these agreements. does your company operate in compliance with the agreements found on sites whose content your company compiles and sells?”

5. There appears “to be significant violations of user’s intellectual property rights to control the use of the content that your company collects and sells. …. These pictures [of the users], taken from sites like Flickr and Picasa, are often licensed by the owner for a narrow set of uses, such as noncommercial use only or a prohibition on derivative works. Does your company obtain permission from the owners of these pictures to use, sell, or modify them?”

  1. Conclusion

Establishing an internal procedure for using the Internet to make employment decisions is one more piece of a sound ethics and compliance program that addresses how your company is using social media. If using an outside vendor to perform social media background checks is part of that policy, you should assure yourself that the company is acting in compliance with the relevant laws.  

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.