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The National Law Forum - Page 549 of 753 - Legal Updates. Legislative Analysis. Litigation News.

Mind Regulations When It Is Time To Mine

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The Department of Labor recently issued a reminder to employers involved in themining industry. As spring (slowly) approaches, surface mines will reopen. As miners head back to the job site and prepare equipment for the new season, potential for injury is high.

Of the 12,000 metal and nonmetal mines overseen by the Mine Safety and Health Administration (“MSHA”), almost half are operated on a seasonal basis, closing for winter when conditions make operations too difficult. According to MSHA information, injuries at seasonal mines climb sharply in the spring. MSHA is vested with the power to enforce compliance with mandatory safety and health standards as a means to eliminate fatal accidents; to reduce the frequency and severity of nonfatal accidents; to minimize health hazards; and to promote improved safety and health conditions in the Nation’s mines.

Miner operators and managers should review safety information available at http://www.msha.gov and take the time to educate employees on the numerous hazards associated with the job. Always keep in mind that employers are responsible for providing a safe workplace; employee injuries are not only detrimental to operations, but can be costly – both financially and reputation-wise.

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The Best ACC (Association of Corporate Counsel) American Conference Giveaways. Part One

I like to wander Exhibit Halls to see what grabs my attention, and evaluate the law firms’ booths and tchotchkes. Below is a collection of some of my favorite giveaways.  Most were the typical low-end crap — cheap logo’d pens, hard candy, miscellaneous squishy or light-up doo-dads.  But some of the freebies were more creatively branded or executed.  I’ll write 2-3 posts summarizing those that caught my attention.

Part One, below, is dedicated to geographically focused messages, implicitly “If you need a firm in [location] remember [our firm].”  A simple, straightforward marketing theme. 

I attend so many conferences every year that I rarely shlep home the swag.  But for ACC’s particularly target-rich environment of clients and prospects, the law firms went the extra mile to capture the clients’ attention.  I actually squeezed a number of them into Bird & Bird’s handy, environmentally friendly cloth bag.

 Swag bag

Initially, some of the hottest items were Meritas’s simple but clever luggage tags:

  

Meritas is an international law firm network, so a travel theme made sense.  Some tags were pre-printed, others were written by Tanna Moore, Kim Heinrich and the Meritas gang, e.g. “Hands off or I’ll call my lawyer.”   Frankly, I was slightly concerned that the tags’ sayings might be perceived as too cute, but the incredibly high demand for them proved me wrong.  You could see attendees surreptitiously walking past the booth many times over two days, seeking to complete their collection.  We were able to swap these coveted tags for other booths’ giveaways. I have a few tags on my roller bag and they actually generate a lot of conversation.

Most booths are happy to pass out their promotional items. That’s the point, after all — get your logo’d materials in the hands of targeted attendees.  And most don’t want to drag all the leftover goodies back home anyway.  But some supremely confident firms make you really work for them.

The best example of this was Blakes’ coveted Canadian wool hats.  With new designs every year, some in-house counsel said that they look forward to collecting them each year.   Great quality, useful, impossible to discard, and well-branded both with the firm name and implicit connection to their Canada brand, it’s effective marketing from every angle.  Even better, CMO Alison Jeffrey wouldn’t give them up easily, greatly increasing the demand.  My family and I have been sharing them throughout this miserable 2014 Chicago winter.

    

Another firm, Stikeman Elliott also played up their Canadian connection with an adorable, plush beaver wearing a red logo’d t-shirt.  The children of many ACC members are playing with these.

     Canada

Migrating south to Louisiana, I also liked the Kean Miller’s Cajun cooking collection.   They offered Cajun spices, étouffée mix, a cookbook of KM employees’ favorite recipes, and a wooden spoon/spatula that my wife is currently using.  Of course, you can’t go wrong with Mardi Gras beads.  Every item is useful, branded, and memorably connected to their Baton Rouge/NOLA locations.  BTW, I’ve already used up the delicious private-labeled KM hot sauce, Steve Boutwell.  Just sayin’….

      Cooking set

 

Even farther south, all the way to Brazil, Demarest Advogados leveraged Brazil’s “beach” connection with a high-quality folding mat, complete with inflatable pillow.  These were also very popular, with passersby trying to sneak two or more as they strolled passed the booth.

       swag bag

In short – an effective, well-considered collection.

More examples, from high-tech videos to low-tech oven mitts, will be shown Part Two.

 

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The 7 Blocks to a Firm Marketing Foundation: Block One

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Being a successful attorney is something that takes more than just knowledge of the law. It’s an unfortunate fact that many attorneys will find themselves faced with. You may be the best lawyer in your city or even state, but no one will ever know that if you don’t make a point to make yourself known.

Now, people have heard me say these tips at events, but I’m going to give you the information because I’m committed to making the attorney dream come true. The dream we all had when we entered into law school of the firm with our names on the sign, with the staff that handles things well and the cases that we enjoy doing. I know that dream because I’ve managed to achieve that dream.

The foundation of achieving this dream is much easier than you would expect. It’s built on 7 solid blocks.

Block number one: Videos

When someone visits your website, they’re subconsciously looking for something that is different; something that they don’t see on other lawyer websites.

If you have a set of videos available to them, they’ve found that one thing.

Videos are some of the most important parts of my firm marketing foundation; they are one of the things that I will probably never give up.

When a potential client goes to your website and watches a few videos, the information that you relay causes a psychological trigger that makes them trust you more. The more videos you have on your website (and even YouTube) can (and probably will) start the ball rolling for a good attorney-client relationship.

You may be wondering what exactly you should even make videos on, especially since some states have strict restrictions on things that could be construed as legal advice.

One of the things that I’ve found to be most popular with consumers is a Frequently Asked Questions series. Think of the 5 (or more) questions that you hear from almost each person you meet with.

These are questions that you could probably answer in your sleep and find yourself repeating the same information up to 10 times a day. You already know how to answer these particular questions in a short way that gives the most information because of the frequency of which you actually hear them.

Those questions are not going to go away, you hear them every day because people want to know those answers. If you take some time to film the answer to each of those videos and produce a series of one a week for however many weeks, you’re going to see some changes. Instead of having to answer the questions day after day, the people you meet with will have the answers or, if they haven’t had a chance to see the video yet, you can just send them the link and they’ll be even more impressed.

Videos are marketing tools that never stop working. A video can answer questions for you, 24 hours a day, 7 days a week, 52 weeks a year.

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U.S. Supreme Court Clarifies That Severance Pay is Taxable—in Most Cases

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On Tuesday, March 25, 2014, the U.S. Supreme Court, in an 8-0 decision, ruled that severance payments made to employees who are involuntarily terminated are taxable wages under the Federal Insurance Contributions Act (FICA).  Quality Stores, Inc., et al., 12-1408.  The Court reversed the Sixth Circuit Court of Appeals ruling in favor of Quality Stores, which was seeking a $1 million tax refund based on its argument that severance payments were not covered by FICA and were excluded from taxation based on the Internal Revenue Code.  The Court’s ruling resolved a split between the Sixth Circuit and the Federal Circuit, and ended a legal battle with more than $1 billion at stake in potential tax refunds to employers involved in 11 separate cases with more than 2,400 refund claims.

Quality argued that its severance payments to terminated employees were actually supplemental unemployment compensation benefits (SUB), which are not considered “wages” under the Internal Revenue Code.  According to the company, “a SUB payment is a type of payment that—although made by an employer to [its] former employee—nonetheless does not meet the statutory definition of ‘wages’ because it is not remuneration for services.”  The Court noted that the severance payments were made only to employees and were based on employment-driven criteria including the position held, the employee’s length of service with the company and salary at the time of termination.  Relying on the “broad definition of wages under FICA,” the Court ruled that severance payments to employees who are terminated involuntarily are taxable under FICA.

However, in its decision the Court noted IRS revenue rulings that severance payments tied to the receipt of unemployment compensation benefits “are exempt not only from income tax withholding but also FICA taxation.”  Thus, employers appear to continue to be able to make severance payments not taxable through a carefully crafted structure linking the severance payments to the employee’s receipt of unemployment compensation benefits.

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Six Critical Pillars for Associates to Rock Their Practices

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No doubt, ambitious and motivated associates have read plenty about what they “should do” as they begin their legal practice to be successful. I’ve listed below the six ‘must do’ pillars for associates to be successful, early and often.

  1. Develop Productive Habits from Day One.  As you no doubt are learning, developing the discipline of effectively managing your time, harnessing the power of active listening, and maximizing non-billable time will serve you well throughout your entire career. These habits will manifest into your activities which, in turn, will determine your level of success.
  1. Create a Marketing/Business Plan, Today. Though a number of my younger lawyer clients think their primary focus should be to learn their craft, setting written goals by way of a marketing plan will serve as the blueprint of your development as a lawyer and business generator. Having a written plan will provide for outlining actionable items and give you more control over your career. Today is not soon enough.
  1. Proactively Build Your Network – Often, our newer lawyer clients tell us that they “don’t really know anyone” to which I respond “rubbish”. Think broadly. Enter into a contact list (Outlook or Gmail contact list will work just fine) names of your law school classmates, bar association colleagues, gym buddies, friends you run with, who live in your building, etc. Everyone you know could potentially be a referral source. Do not overlook the obvious, then get and stay connected with them via some communications means (social media update, e-blasts, etc.).  This will serve you very well as you grow your network.
  1. Double Check Your Professional Image and Etiquette. You are not in Kansas anymore, ya’ll, and how you present yourself professionally inside the workplace as well as in professional settings sets a tone. Be sure you are making the “right” first impression. Aside from professional guidance, there is a fantastic new book (“The Essentials of Business Etiquette: How to Greet, Eat and Tweet Your Way to Success”) which can be a perfect primer in this area.
  1. Develop a Marketing Mindset. Tweaking your bio and social media profile (with a professional headshot), refining your elevator pitch, and deciding upon your “targeted networking” venues are all part of developing a marketing mindset. As a private practice attorney, you must always have your radar “on” to recognize opportunities to present yourself as a “go-to” resource, to thoughtfully build your network, and leverage new business engagements.
  1. Be Mindful of Your Clients. As a new attorney, you have many clients – – namely, your supervising partner, potentially all partners in your firm as well as any prospective new clients you may cultivate. Understanding clearly how to meet their expectations (and beyond), how to deliver extraordinary service and all that it entails in addition to producing an excellent work product will help distinguish you from your peers.

While there are space limitations to providing in-depth insights to all of the six pillars above, I will break each of them down in more detail in subsequent marketing posts. The implementation of these pillars is crucial to getting and staying on the top of the uber competitive legal services environment that we are in.

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Northwestern Scholarship Football Players Found to be Employees Eligible for Union Representation

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Peter Sung Ohr, the Regional Director for Region 13 of the National Labor Relations Board issued a Decision and Direction of Election pertaining to the effort of the Northwestern University football players to unionize. The Regional Director found that scholarship football players at Northwestern University are “employees” within the meaning of the National Labor Relations Act and eligible for union representation. The Regional Director found appropriate a bargaining unit composed of “all football players receiving a grant-in-aid football scholarship and not having exhausted their playing eligibility.”

The Regional Director used the common law definition of employee in reaching his decision. Under the common law test, a person is an employee if he performs a service for another, under a contract of hire, for compensation, and is subject to the other’s right of control. He found the following:

  • The scholarship football players perform a service (playing football) for compensation (a scholarship)
  • The scholarship players’ commitments to play football in exchange for the scholarship constitutes a contract for hire
  • The scholarship players are under the control of the University for the entire year, including in-season and out-of-season workouts, restrictions on their entire personal life and detailed regulations players must follow at the risk of losing their scholarship

The Regional Director decided the NLRB’s 2004 Brown University decision, in which the NLRB found graduate assistants not to be employees of the university, to be inapplicable here because playing football is not part of the players’ academic degree program. However, he wrote that even if the Brown University test was applied, the scholarship football players would be found to be employees. He noted:

  • The scholarship players are not primarily students due to the 50-60 hours a week during the season that they devote to football
  • The scholarship players’ football “duties” do not constitute a part of their academic degree requirements
  • The academic faculty does not supervise the players’ football duties; rather, coaches who are not part of the faculty do so
  • The grant-in-aid football scholarship is not need-based like the financial aid other students receive but is given solely in exchange for playing football

The Regional Director rejected two additional arguments made by the University:

  • He decided the scholarship football players are not “temporary employees” (who are generally ineligible to participate in collective bargaining) because they work more than 40 hours a week during the season, work year round, expect to work for 4-5 years and play football as their prime consideration
  • He did not include the “walk-on” players in the bargaining unit. He found that they are not employees within the meaning of the NLRA because they do not receive a scholarship and are not subject to the conditions for its receipt

The University now has until April 9, 2014 to file a Request for Review to appeal the Regional Director’s ruling to the NLRB in Washington, D.C.

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Forward-Publishing Patents: A Way to Tell Competitors “Stay Out”?

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On March 10, 2014, Sonos announced it would forward-publish its patent applications before they would traditionally be available to the public.  This has given rise to quite a bit of discussion in patent legal circles.  What are the advantages and disadvantages?  Should you or shouldn’t you?  Are you giving a leg-up to the competition or telling competitors to “Stay Out”?

The best-case scenario when forward-publishing a patent is that the patent largely reduces competition and gains your company additional funding.  A well-written patent has the capability of warding off competition and preventing other companies from receiving funding. If savvy investors investigating an opportunity see that another company has already filed strong patents in the same space, they will be less tempted to invest in a competitor in that same space. Additionally, forward-publishing can show competitors that a company is confident they will attain a broad patent, potentially keeping those competitors from entering the space.

The worst-case scenario is that a competing company may use the ideas in the applications as a launching pad for their designers and block a move your company has been planning.  If the patent has weaknesses which can be exploited, forward-publishing could result in large monetary loss.

So is the risk worth the reward? The answer is (unfortunately)… it depends on the patent. Forward-publishing a patent should be considered on a patent-by-patent basis and you should discuss the options with your counsel before proceeding.

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California Announces Initial Draft Priority Products Under California Safer Consumer Products Regulations

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On March 13, 2014, the California Department of Toxic Substances Control (“DTSC”) announced the first set of draft priority products that, if finalized, will be subject to the requirements of the California Safer Consumer Products (“SCP”) Regulations.

Notably, while DTSC had legal authority to identify up to five products, it chose to identify only three draft priority products at this time. The three products are:

  1. Children’s Foam Padded Sleeping Products containing the flame-retardant chemical, Tris (1,3-dichloro-2-propyl phosphate) or (“TDCCP”). Such products include nap mats and cots, travel beds, bassinet foam, portable crib mattresses, play pens, and other children’s sleeping products. In its press release announcing the draft priority products, DTSC asserted that TDCCP is a known carcinogen, is released from products into air and dust where it can be absorbed, inhaled, or transferred from hand to mouth, and has been found in California waters and sediments. DTSC also noted that there is no legal requirement applicable to these products that would require them to be made with flame retardants. For more information on DTSC’s selection of this draft priority product, click here.
  2. Spray Polyurethane Foam (“SPF”) Products containing Unreacted Diisocyanates. SPF products are used for home and building insulation, weatherizing and sealing, and roofing. DTSC asserted in its press release that exposure to wet or “uncured” SPF materials can contribute to occupational asthma and noted that unreacted diisocyanates are a “suspected” carcinogen. DTSC expressed its concern for populations using these products that are not protected by Occupational Safety & Health Administration regulations, such as independent contractors and people performing their own home repairs. In its press release, DTSC noted that currently there are no alternatives to unreacted diisocyanates for spray-foam applications. For additional information from DTSC on this draft priority product, click here.
  3. Paint and Varnish Strippers containing Methylene Chloride. Methylene chloride is a well-known and widely used solvent in paint strippers. According to DTSC, when metabolized, methylene chloride converts to carbon monoxide, which is acutely toxic to the brain and nervous system. DTSC claimed that alternative products without methylene chloride are readily available. For more information on this draft listing, click here.

In announcing the “draft list” of proposed priority products, DTSC emphasized that the naming of these products does not constitute a ban on the products, but rather the initiation of process to examine whether the chemicals of concern used in these products are “necessary” or may be replaced with safer alternatives. To put the draft priority products announcement in context, this announcement begins the second of four steps established by California’s SCP Regulations for identifying, prioritizing, and evaluating the use of chemicals and their alternatives in consumer products. The four steps include:

  1. Identification of Candidate Chemicals. The final SCP Regulations promulgated by DTSC include an initial list of candidate chemicals (~1,200), which DTSC later pared down to an informational “initial” list of fewer than 200 candidate chemicals that exhibit a hazard trait and/or environmental or toxicological endpoint.
  2. Identification of Priority Products. The SCP Regulations require DTSC to evaluate and prioritize product/candidate chemical combinations and to develop a list of priority products for which alternatives analyses must be conducted. Once a candidate chemical is the basis for a priority product listing, it is considered a chemical of concern. March 13’s announcement identifies the first product/candidate chemical combinations that DTSC is proposing to subject to the procedural process outlined in the SCP Regulations.
  3. Alternatives Analysis. Responsible entities of a product listed as a priority product must perform an alternatives analysis to determine how best to limit exposures to, or the level of adverse public health and environmental impacts posed by, the chemicals of concern in the product.
  4. DTSC Regulatory Response. The SCP Regulations provide a range of potential regulatory responses that DTSC may require after review of the alternatives analysis. These include provision of information for consumers (such as safe handling or instructions to limit exposure), restrictions on the use of chemicals of concern in the products, sales prohibition, engineered safety measures, and end-of-life management requirements. DTSC may require regulatory responses for a priority product (if the responsible entity decides to continue producing and distributing the priority product to the California market), or for an alternative product selected to replace the priority product.

Applicability

The SCP regulatory requirements apply to businesses (“responsible entities”) that manufacture, import, distribute, sell or assemble consumer products[1] identified by DTSC as priority products that are placed into the stream of commerce in California. Responsible entities are defined to include manufacturers, importers, retailers and assemblers. The SCP Regulations assign the principal duty to comply with the requirements to manufacturers. If a manufacturer does not comply with its obligations with regard to a priority product, DTSC may notify an importer, retailer or assembler of its duty to meet the requirements with respect to the priority product. Even if not called on to conduct an alternatives analysis, importers, assemblers and/or retailers of priority products may be impacted by regulatory responses selected by DTSC after the manufacturer’s completion of the alternatives analysis (e.g., if DTSC imposes a sales prohibition or requires additional information to be provided to the consumer at the point of sale) .

Requirements for Responsible Entities

Once the draft priority products are formally proposed and finalized through a public rulemaking process (which may take up to one year), responsible entities will be required to:

  • Within 60 days after finalization of the final priority products list, notify DTSC that the responsible entity makes or sells a priority product (DTSC will post information obtained from notifications, including the names of the responsible entities as well as the product names, on its web site);
  • Within 180 days after finalization of the final priority products list, prepare a Preliminary Alternatives Analysis[2] to determine how best to limit exposures to, or the level of adverse public health and environmental impacts posed by, the chemicals of concern in the product; and
  • Within one year after DTSC issues a Notice of Compliance for the Preliminary Alternatives Analysis, prepare a Final Alternatives Analysis.

Next Steps

Those that manufacture, sell, use, or otherwise have an interest in the draft priority products may wish to submit comments to DTSC as part of the priority product listing process. DTSC will follow a formal rulemaking process to finalize the draft priority products, which will take up to a year after the products are formally proposed. DTSC plans to hold several workshops in May and June of 2014 before publishing the notice of proposed rulemaking and opening the public comment period. Stakeholders will then have the opportunity to weigh in on whether, and how, the proposed priority products will be regulated by DTSC.

If your products were not among the three proposed priority products,stay tuned: By October 1, 2014, DTSC is required to issue a Priority Product Work Plan that identifies and describes the product categories that DTSC will evaluate to select priority products for the three years following the issuance of the Work Plan (roughly from 2015 to 2017). DTSC intends the Work Plan to serve as a signal to consumers and the regulated community as to the categories of products it will examine next.

Once DTSC finalizes the initial priority product listings (anticipated late summer or early fall of 2015), responsible entities will be required to meet a series of deadlines for notification and submission of alternatives analysis reports outlined above. Manufacturers of draft priority products should engage their supply chain partners to evaluate options prior to finalization of the priority product listings. Note that manufacturers that choose to reformulate products prior to finalization of the priority product listing will not be subject to the DTSC notification or alternatives analysis requirements.


[1] “Consumer product” is defined for purposes of the California Safer Consumer Products regulations to mean “a product or part of the product that is used, brought, or leased for use by a person for any purposes.” Cal. Health & Safety Code § 25251(e). Certain limited products, such as dental restorative material or its packaging, prescription drugs or devices and their packaging, medical devices and their packaging, food, and federally registered pesticides, and mercury containing lights are excluded from the definition of consumer product.

[2] DTSC is currently developing an alternatives analysis guidance document to assist responsible entities in carrying out their obligations under the SCP Regulations. As of March 13, 2014, the guidance is still in development. DTSC anticipates that it will be released sometime before the first set of priority products is finalized.

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Rolex Says "Time is Up" for Alleged Craigslist Counterfeiter

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On February 5, 2014, Rolex Watch U.S.A.,Inc. (“Rolex”) of New York, New York, filed a complaint against Nicholas Peter Karettis (“the defendant”) of Tyrone, Georgia, allegingTrademark Counterfeiting and Infringement under 15 U.S.C. § 1114.

The complaint alleges Mr. Karettis sold, offered for sale, distributed, promoted, and advertised merchandise that was counterfeit and infringing upon Rolex’s federally registered trademarks.

Rolex owns numerous trademarks and trade names including at least the following:

CROWN DEVICE (design) Registration no. 657,756 Registered on 1/28/1958 for timepieces of all kinds and parts thereof.

DATEJUST Registration no. 674,177 Registered on 2/17/1959 for timepieces and parts thereof.

DAY-DATE Registration no. 831,652 Registered on 7/4/1967 for wrist watches.

DAYTONA Registration no. 2,331,145 Registered on 3/21/2000 for watches.

EXPLORER Registration no. 2,518,894 Registered on 12/18/2001 for watches.

EXPLORER II Registration no. 2,445,357 Registered on 4/24/2001 for watches.

GMT-MASTER Registration no. 683,249 Registered on 8/11/1959 for watches.

GMT-MASTER II Registration no. 2,985,308 Registered on 8/16/2005 for watches and parts thereof.

OYSTER Registration no. 239,383 Registered on 3/6/28 for watches, movements, cases, dials, and other parts of watches.

OYSTER PERPETUAL Registration no. 1,105,602 Registered on 11/7/1978 for watches and parts thereof.

PRESIDENT Registration no. 520,309 Registered on 1/24/1950 for wristbands and bracelets for watches made wholly or in part or plated with precious metals, sold separately from watches.

ROLEX Registration no. 101,819 Registered on 1/12/1915 for watches, clocks, parts of watches and clocks, and their cases.

ROLEX DAYTONA Registration no. 1,960,768 Registered on 3/5/1996 for watches.

ROLEX DEEP SEA Registration no. 3,703,603 Registered on 10/27/2009 for watches.

SEA-DWELLER Registration no. 860,527 Registered on 11/19/1968 for watches, clocks and parts thereof.

SUBMARINER Registration no. 1,782,604 Registered on 7/20/1993 for watches.

TURN-O-GRAPH Registration no. 2,950,028 Registered on 5/10/2005 for watches and parts thereof.

YACHTMASTER Registration no. 1,749,374 Registered on 1/26/1993 for watches.

Rolex Trademark Infringement
The Rolex Crown Device design

According to the complaint, Rolex discovered a classified advertisement appearing on the website “www.craigslist.org” (“Craigslist”) advertising for sale watches bearing counterfeits and infringements of the Rolex Registered Trademarks. These watches were allegedly advertised as “AAA Quality Replica” watches and listed for sale at a price of $200. 

Also according to the complaint, Rolex forwarded the Craigslist add to its private investigator who then called the number provided on the advertisement and arranged a meeting with a man identifying himself as “Nick.”  Rolex’s investigator also arranged for members of the Douglas County Sheriff’s Department to be present at this meeting.  At the meeting, members of the Douglas County Sheriff’s Department arrested the defendant and seized five (5) watches identified by Rolex’s investigator as bearing counterfeits and infringements of the Rolex Registered Trademarks.

Thereafter, the defendant was charged with forged or counterfeited trademarks, service marks, or copyrighted or registered designs, constituting unauthorized reproductions as defined in O.C.G.A. § 10-1-454. Defendant’s vehicle was impounded and the Douglas County Sheriff’s Department seized $14,800.00 in cash found on the defendant’s person at the time of his arrest.

The complaint further alleges irreparable harm, unjust enrichment, willful and malicious infringement, and that the case is exceptional under 15 U.S.C. § 1117(a) because of the defendant’s alleged reckless disregard or willful blindness in connection with unlawful activities.

Rolex seeks an injunction and treble damages or statutory damages under 15 U.S.C. § 1117(c).  Rolex also seeks legal and investigative fees along with any further relief as the court deems just and proper.

The case is Rolex Watch U.S.A., Inc. v. Karettis No. 3:14-cv-12-TCB filed in United States District Court for the Northern District of Georgia, Newnan Division on February 5, 2014, and is assigned to Judge Timothy C. Batten.

 
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Has Your Trust Lost Touch With Illinois? If So, It May Not Be Subject to Illinois Income Tax

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Overview

In December 2013, an Illinois Appellate Court of the Fourth District held that an inter vivos trust – that had no connections with Illinois other than the fact that the settlor of the trust was residing in Illinois when the trust was created – was not subject to Illinois income taxation.  Linn v. Department of Revenue, 213 IL App (4th) 121055.  Even though the Illinois Department of Revenue (“IDOR”) had the opportunity to appeal the ruling, it did not do so.  As a result, there may be an opportunity for inter vivos trusts established by an Illinois settlor to avoid Illinois income tax – if such trusts no longer have sufficient contact with the State of Illinois.

Background

The relevant portion of the Illinois Income Tax Act defines an Illinois resident as “[a]n irrevocable trust, the grantor of which was domiciled in [Illinois] at the time such trust became irrevocable.” 35 ILCS 5/1501(a)(20)(D).  The trust at issue in Linn was established in 1961 when the grantor and trustee of the trust were Illinois residents.  At the time the trust was established, the beneficiary of the trust resided in Illinois, and the trust assets were deposited in Illinois.  The trust instrument provided that Illinois law would govern the construction, administration and validity of the trust.

In 2007, the trust filed a 2006 nonresident Illinois income tax return – as the trustee and beneficiaries were no longer residents of Illinois and the trust had no Illinois situs income.  Additionally, the trust agreement had been modified in 2002 to provide that it shall be construed and regulated under Texas law.  Due to the lack of sufficient contact with Illinois, the Illinois Appellate Court held that the imposition of Illinois income tax on the trust was unconstitutional in violation of the due process clause – as the trust did not meet any factors that would give Illinois personal jurisdiction over the trust.

Review of Existing Irrevocable Trusts

As a result of the decision in Linn, there may be an opportunity for certain trusts that have no contact with Illinois to avoid Illinois income tax.  In spite of Illinois law that deems a trust to be an Illinois resident if the grantor of a trust resides within the State when it becomes irrevocable, the decision in Linn effectively invalidates that law when a trust no longer has any connections to Illinois.  In the wake of Linn decision, we recommend that you review any irrevocable trusts established by a grantor who resided in Illinois (at the time of creation) to consider the following:

  • The current residence or location of the trustee and the beneficiaries, and the present location of the trust assets.
  • Whether the trust agreement contains provisions that (i) allow a trustee to be appointed outside the State of Illinois, or (ii) permit the law governing the trust to be changed to another state.
  • Whether the trust allows “decanting” – which is a process authorized by a recent Illinois statute that allows the transfer of assets to a new trust, which could be governed by the law of another state.
  • Whether a trust with no connections to Illinois for the past several years (and which filed Illinois income tax returns and paid Illinois income taxes) should file a claim for refund.  Generally, there is a three year period from the due date (or filing date) of an income tax return to file an amended return and claim a refund.

Conclusion

The Linn decision is now the law in Illinois.  Therefore, if you are a beneficiary or a trustee of a trust originally created in Illinois (or an advisor to any such beneficiary or trustee), you should examine whether the trust has sufficient connections to Illinois to be taxed.

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