It has become an almost perfunctory practice. You catch wind of another business using a confusingly similar name. You then call a lawyer to immediately send out a cease and desist letter. More often than not, this would be the right play. But there are pitfalls to this strategy if you are not careful. In order to understand how a cease and desist letter can backfire in certain situations, it is important to understand how trademark rights are acquired in the United States. Unlike most countries where trademark rights are granted to the first to register a mark, the U.S. grants such rights to the first to register OR the first to use the mark. When a business obtains a federal trademark registration, it confers nationwide rights to use the mark except for geographic areas where a prior user has established common law trademark rights. A prior user’s common law rights are cemented regardless of whether they registered their mark. If you send a cease and desist letter to such a prior user, you may get a response letter demanding that you cease and desist using your mark in their neck of the woods. In that situation, your federal trademark registration is of no effect, and you risk having the tables turned on you by this prior user (assuming that this prior use was uninterrupted). This is because the prior user established their rights to use that name in their area before you obtained your registration. To add insult to injury, if your trademark registration is less than five years old, the prior user can petition the Trademark Office to cancel your registration! Oftentimes, these prior users are not even aware of your trademark registration. But by sending out that cease and desist letter, you put yourself in their radar and opened up your business to more trouble than the initial demand was worth.

Before you start questioning the utility of a trademark registration given this seemingly unfair situation, keep in mind that when a trademark is registered, it “freezes” all prior users in place so they can no longer expand the use of their current business name. If a prior user in State A later decides to expand into your State B, then you as a trademark registrant can prevent such an expansion. Therefore, before sending out a cease and desist letter you need to be reasonably certain that you are not dealing with a prior user in an overlapping geographic area. With larger businesses, you can possibly determine this with an internet search. But for smaller “mom and pop” shops, you may not be able to determine when they first used the business name in question. There are companies that can provide you with a report on the earliest use of a name by another business. The cost of such a report is relatively modest given what is at stake, and obtaining a report before sending out a cease and desist letter is money well spent. At the very least, a prudent trademark registrant should consider the risks and rewards of pursuing a business using a similar name, and conduct an internet and public records search to get an idea of the pecking order of trademark users in certain geographic areas.

 

From Tressie McKeon, in Fox Rothschild’s Dallas office:

Texas has long been one of the best locations to start a business, and a big reason for this is the liability protection afforded by the business-friendly Texas courts. Most business owners seek to limit their personal liability if something goes wrong with the business. This leads to one of the questions I get most often: Which business structure provides more liability protection to the business owner? The short answer is it depends on what happened.

I believe most owners are concerned with what is known as piercing the corporate veil.   “Piercing the corporate veil” is a legal term that means that the owners/members of a corporation or LLC lose the limited liability protection the business entity provided, thus the piercing of the veil of protection. When this happens, personal assets can be used to satisfy business debts and liabilities, not just corporate assets.  The result is that individuals start getting named in lawsuits, in addition to the LLC or corporation they own.

When we look at the Texas Business Organizations Code (TBOC) we see that the two most popular business structures, corporations and limited liability companies, have similar protections for owners. Both organization structures limit liability on contract issues, and absent actual fraud or unless some extraordinary circumstances exist, the veil will not be pierced on a contract action.

But it is a little easier to pierce the corporate veil when it comes to tort liability. Businesses get sued for all kinds of torts, like slip and falls, job site accidents, etc… The two prevailing theories used to pierce the veil in a tort action are the alter ego theory and the single business enterprise theory.

The alter ego theory boils down to looking at how the owners managed internal matters, how the financial interests were kept separated from personal interests and the degree of control the individual had over the company. Basically, was the LLC put in place as a shield to liability or were business formalities observed? The courts will look at everything from the existence of a corporate book to the payment of taxes in order to determine the degree the alter ego was employed.

The other theory used to pierce the veil is the single business enterprise theory. This is used to impute liability to companies that share resources and operate as if they were one entity. This is rarely used, but when it is it can considerably open up the pool of damages available to the plaintiff.

There are a number of other things to consider when analyzing business and personal liability when starting a business. For example, when starting a new business, an owner may need to personally guarantee a business loan. No piercing of the veil is necessary to hold the owner personally liability for the guaranteed debt. Oh, and it goes without saying, no business entity will insulate an owner from criminal liability or protect them if their personal actions cause an injury to someone.

 

 

The Texas Supreme Court in 2015 issued an opinion that should make it easier for defendants to win summary judgment in premises liability cases. In Austin v. Kroger Texas, L.P. (2015), the Court clarified that an invitee’s awareness of a dangerous premises condition does not bear on the issue of contributory negligence, but instead relieves the landowner of a legal duty to warn the invitee of the condition. This holding effectively reinstates the “no duty” doctrine in Texas, which the Court had abolished nearly forty years ago in Parker v. Highland Park, Inc. (1978).

Under the rule announced in Austin v. Kroger, a landowner generally does not have a duty to warn or protect an invitee against unreasonably dangerous premises conditions that are open and obvious or known to the invitee. Establishing that a condition is open and obvious can be difficult. Some judges may find that a condition is open and obvious as a matter of law, while others may submit the issue to a jury. Establishing that the invitee knew about the condition, however, is more straightforward. For example, a plaintiff’s deposition testimony that the plaintiff saw the dangerous condition before the plaintiff got hurt can be enough to defeat the claim entirely.

The new no-duty rule has two exceptions. The first is the criminal-activity exception, which applies when a dangerous condition results from the foreseeable criminal activity of a third party. The second is the necessary-use exception, which applies when the invitee necessarily must use the dangerous premises, and despite the invitee’s awareness of the danger, the invitee is incapable of taking precautions that will adequately reduce the risk. If a plaintiff raises one of the exceptions, defense counsel should argue that it is the plaintiff’s burden to prove the exception applies. After all, a plaintiff is required to prove the defendant owed him a duty, and if a duty would exist only if an exception applies, then a plaintiff should be required to prove the exception.

Although the Supreme Court issued its ruling two years ago, litigants and courts have been slow to catch up. The contributory negligence doctrine is well ingrained and has been instrumental to the analysis of whether a fact issue exists on a premises liability claim. And it appears that many judges are still reluctant to dismiss a plaintiff’s case when confronted with an open and obvious dangerous condition, opting instead to declare a fact issue despite the new legal standard. But in situations where it is proven that a plaintiff was aware of the condition, judges will be hard pressed to ignore Austin. Eventually, the body of law will develop as to what constitutes an open and obvious condition, and courts will then become more comfortable in granting summary judgment in those situations.

In October, I wrote about How the Practice of Law is Like the NHL.  This article was about how rule changes in the practice of law, and changing skill sets in the NHL have made finesse and skill more important than brawling.  Recent experience has shown that this trend continues in law, and that Judges hate “gotcha games.”

Brett Myers and I recently sat through a trial docket call in County Court at Law No. 1 in Dallas County.  While waiting for our turn, we watched Judge Benson make two interesting rulings during a pre-trial hearing for the case ahead of us.

First, Judge Benson ruled that at trial, Defendant could not call as witnesses any of the twenty-three doctors it had recently disclosed.  Interestingly, Defendant’s attorney had added the doctors to Defendant’s disclosure responses forty-five days before trial, which is timely under the Texas Rules of Civil Procedure.  It did not come out during the hearing whether Defendant’s tardiness was a mistake or was intended as a “gotcha,” so as to not allow Plaintiff to conduct discovery on these witnesses.

Either way, the Judge sustained the Plaintiff’s objection to the witnesses, and held that this late disclosure caused unfair prejudice to Plaintiff.  In her commentary from the bench, Judge Benson said if there had been a timely supplementation of one or two witnesses, it would have been okay, but such a late disclosure of this amount of witnesses simply was not fair.

Second, in a turn of the tables, Judge Benson ruled against Plaintiff for similar reasons.  Defendant’s attorney had produced a video made by Defendant’s expert late according to the rules.  Although the video was produced late according to the technical letter of the law, it was produced eight months before trial.

Rather than taking any action to remedy the tardiness issue, Plaintiff’s attorney waited until a week before trial to object to the video – a clear attempt at a “gotcha.”  The Judge denied Plaintiff’s motion to exclude the video, and allowed Defendant’s expert to use the video.  Judge Benson stated that Plaintiff’s attorney had been in the possession of the video for so long that Plaintiff could not have been prejudiced, and that if Plaintiff felt it was prejudiced, it should have taken action during the intervening time period.

I think there are two lessons to be learned from this experience: 1) Supplement your discovery responses early and often; and 2) If you have a problem, take it up with the Court as soon as possible and do not sit back to try to wait on a “gotcha” ruling from the Court, because you may not get it.

We invite you to read Part 1 and Part 2 in a series of posts by Fox partner Dori K. Stibolt, regarding the new trend in ADA Title III litigation involving web access for the visually impaired.

Many of these cases have focused on travel, hospitality and financial services companies.  However, here in Texas, there has been a micro trend of these web site accessibility cases naming dentists and physicians.

One of the ironies in the business world is that the foresight and planning that goes into a creative work is often left behind when it comes to the subsequent protection of these efforts. Copyright protection is a concept that many are familiar with on a superficial level. But a lot of confusion exists as to what copyright protects and how you go about obtaining that protection. Copyright protects original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and websites. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed. In other words, if there is only one way to express an idea then it is not eligible for copyright protection. Although the bar for creativity is not set particularly high, there must be at least some modicum of original thought in the final work product.

So what is the proper way of obtaining copyright protection? It may surprise many people that copyright protection exists the moment a work is created. In fact, as soon as your work is complete, you have the right to include the © symbol on it. Aside from the cachet associated with any “legal” declaration of rights, the © symbol also serves as a deterrent to would-be infringers. But despite the ease with which an author can obtain instant copyright protection, enforcing these rights is another story. In order to be able to sue someone for copyright infringement, you have to first obtain a copyright registration. This entails submitting your work specimen along with an application to the U.S. Copyright Office. The cost of filing such an application is modest, and it pales in comparison to what it will cost if this crucial step is not undertaken. Without the ability to sue in federal court, you can never be compensated or receive money damages when someone copies your work. More important, you cannot stop someone from continuing to use your work. Further, if you register your copyright within three months of publication you may be entitled to attorney’s fees and statutory damages. Statutory damages are a powerful remedy in that you do not have to prove lost profits in order to receive them. Plaintiffs who can show willful infringement may be entitled to statutory damages up to $150,000 per work. So what is the moral of the story? If something is worth your time to create, it is worth your time to protect.

I get questions all the time about the enforceability of noncompetes in Texas.  I have to respond in the most-irritating lawyer-like way possible: I say that the enforceability of any particular noncompete all depends on the language of the noncompete and the facts of the case.  That response predictably results in a long period of silence.

There is ample Texas case law enforcing noncompetes against former employees to prevent former employees from competing.  In these cases the employers successfully have demonstrated that there is a threat to the employers’ business interests through the disclosure of confidential information or damage to company good will.  There also is a lot of seemingly irreconcilable Texas case law where the courts have refused to enforce noncompetes to prevent former employees from competing where the employers offered proof that former employees had confidential information and were in a position to use the confidential information to the employers’ detriment.

Legally speaking, Texas has a statute that allows an employer to enforce a noncompete when what would otherwise be a restraint on trade is necessary to protect a legitimate interest of the employer.  In Texas, a legitimate interest of the employer could be (1) preventing the disclosure of confidential or proprietary information; or (2) protecting company good will.  Contrary to what a lot of people believe, the enforceability of a noncompete is not dependent on the employer paying the employee compensation that is tied to the noncompete, and is independent from the reason that the employee’s relationship with the employer ended.

In my practical experience I have found that judges in general do not like noncompetes.  They do not like the idea of putting a person out of work, unless the facts particularly justify the extraordinary step of entering a injunction.  You can get a sense of the courts’ uneasiness with noncompetes in the Dallas Court of Appeals recent decision affirming a trial court’s denial of the employer’s request for a temporary injunction in BM Medical Management Service, LLC v. Turner.

Turner had a one-year noncompete that prohibited him from working in a competing business, soliciting BM Medical’s clients, recruiting or hiring BM Medical’s employees, or disclosing BM Medical’s confidential information.  BM Medical fired Turner, and a month later he went to work for a competitor.  Despite having access to BM Medical’s client list of over 1600 customers, the trial court denied BM Medical’s request for a temporary injunction to prevent Turner from soliciting BM Medical’s clients.  The court found that BM Medical failed to prove that Turner “possessed, used or disclosed any confidential information and if failed to prove that Turner was soliciting its clients.”  One BM Medical client did follow Turner to his new employer, but the Dallas Court of Appeals noted that this single client was a “good friend of Turner’s whom Turner had known before he went to work for BM Medical.”

Notably, BM Medical only sought to prevent Turner from contacting BM Medical’s clients (and not enforcement of the outright ban on any competition), and from disclosing BM Medical’s confidential information. But even limiting its request for relief was not enough to satisfy the court.  Presumably the result would have been different if BM Medical had established that Turner actually solicited BM Medical’s clients, or if BM Medical had shown that the information that Turner had was particularly sensitive to BM Medical’s business interests.

Based on the court’s conclusion, I get the impression that neither the trial court nor the court of appeals thought that Turner was a threat to BM Medical’s business interests.  So if you want to enforce a noncompete in Texas, here are some important considerations to maximize your chances of having the judge agree with you:

  • Spell out for the judge the actual threat that the former employee poses to the business interests of the employer.  The degree to which an employer wants to restrict a former employee from competing is directly related to the actual threat that the former employee poses to the business’s legitimate business interests. For example, a sales employee who is terminated for poor performance probably does not pose an actual threat to the employer’s existing sales.
  • Explain to the judge what relief you need to address the actual threat posed by the former employee.  The restrictions that the employer seeks to enforce against a former employee must be tied closely to the actual threat to the employer’s legitimate business interests.  An employer’s desire to restrain all competition is not a legitimate business interest, and an outright ban on all competition everywhere rarely is closely tied to the actual threat posed by the former employee to the employer’s legitimate business interests.
  • Judges do not like noncompetes.  When asking for temporary relief, give the judge way to overcome this dislike of noncompetes by asking for the bare minimum of what you need to address the actual threat.  If you can ask for relief that allows the former employee to continue to work, even better.  As an example, courts seem more willing to restrict a former employee from soliciting actual clients with whom the former employee had contact as a result of the employer, but not so willing to restrict a former employee from soliciting any and all of the company’s customers regardless of whether the former employee knew about the customers.

And if you ask me if noncompetes are enforceable in Texas, I will probably say “It depends…”

 

When starting a new business, it is easy to get caught up in the excitement of putting all of your creative energy into the development of the goods and services that will serve as the backbone of your enterprise. Unfortunately, it is also easy to put important and fundamental components of the business plan on the backburner.  One such component is the business name and associated brand. Business owners sometimes assume that the business name they intend to go by will always be there for the using. Those who strive to be somewhat conscientious on this issue will go to domain registrars such as GoDaddy and reserve a domain name that includes the intended business name. However, registering a domain that contains your business name does nothing in the way of the intended trademark protection that a business owner seeks. After all, a trademark is how you go about protecting the brand that you worked hard to create.

While such efforts can be commended for their foresight, they are incomplete without the follow up efforts required for true business name protection. This false sense of security sometimes begins at the corporate formation stage, where business owners often mistakenly believe that the corporate name that the Secretary of State told them was “available” is akin to a formal protection of the business name. However, the only thing the Secretary of State was representing was that the name had not yet been used for purposes of a corporate formation.

The only true way to protect your business name is through state (and where appropriate) federal trademark registration. Unless your business will truly be relegated to your local community, a federal trademark registration is preferred since it provides the broadest scope of protection across the country. The process is not as daunting and costly as you may think. An experienced trademark attorney can assist you in preparing the application and getting it on file with the United States Patent and Trademark Office within a matter of days. Although the process of obtaining a trademark registration may take several months, there are protections in place that preserve your business name rights as of the date of your filing, and in some cases, the date of first use. It is important to tackle business name matters on the front end, as it can be a costly mistake to invest money on a name only to later have to abandon its use because someone else has superior trademark rights.

When I was a kid I watched Sesame Street and The Electric Company.  One of the shows had this bit where there would be four items on the screen.  Three were alike, and one was not.  The point was to identify which of the four was not like the others.  There was a catchy jingle that went along with the images, and if you have ever heard it, you very well know the definition of an ear worm.

I love craft beer.  I love craft breweries.  And my love of craft beer and craft breweries makes me ponder my own adult version of “one of these things is not like the other.”  So keeping with the memories of my childhood, imagine you have four images before you: a winery, a distillery, a brew pub and a brewery.  One of these things is not like other, at least under existing Texas law when it comes to on-site purchases for off-site consumption.

All four allow a consumer to purchase alcohol onsite for onsite consumption.  But under existing Texas law, I can go to a winery, a distillery, or a brew pub and buy the alcohol produced by these three entities and take the alcohol home.  A brewery is not like the other three.  I cannot go to a brewery and buy beer to take home and drink.

There is a lawsuit challenging the distinction pending in the Western District of Texas.  The case is Deep Ellum Brewing Company, LLC v. Texas Alcoholic Beverage Commission, Civil Action No. 1:15-cv-00821, Honorable Robert Pitman presiding.   Deep Ellum Brewing contends that there is no rational basis for distinguishing a brewery from a winery, distillery, or a brew pub.  Therefore, the distinction does not past muster under the Equal Protection Clause or the Due Process Clause.  TABC, predictably, contends that there is a rational basis for treating breweries differently from wineries, distilleries, and brew pubs.  Both sides have moved for summary judgment.

This is the second legal challenge mounted by craft breweries to address a few holes left by the 2013 legislative session that otherwise favored the Texas craft beer industry. The first legal challenge was over the prohibition against craft breweries receiving compensation from distributors for the rights to distribute craft beer in Texas.  Three craft breweries (Live Oak Brewing in Austin, Peticolas Brewing and Revolver Brewing in Dallas-Fort Worth), argued that they should be able to sell distribution rights and use the capital raised to grow their businesses.  In August 2016 a state judge ruled that prohibiting craft breweries from receiving compensation from distributors was unconstitutional.

I personally don’t understand why breweries should be treated differently from wineries, distilleries, and brew pubs.  But every time I think about it, that song pops back into my head.  Please, Judge Pitman, I need some relief.

 

 

 

Over the weekend the Washington Post reported that France has enacted a new law that allows employees to ignore work emails outside typical working hours.   According to the Washington Post, the purpose behind the new French law is to reduce the impact of the stress of work on people’s personal time.  While the new French law received a lot of attention over the weekend, how to handle after hours emails is not a new issue.

In the United States employees are either exempt or nonexempt.  Nonexempt employees are entitled to overtime and minimum wage for all hours worked.  The Wall Street Journal reported here back in 2015 that there have been several lawsuits across the United States over whether nonexempt employees under the Fair Labor Standards Act who are answering emails or texts after working hours are entitled to compensation under the FLSA, including overtime in the appropriate circumstances.  Under the FLSA, compensable time is any time that the employee is “permitted” to work by the employer.  This means that if a nonexempt employee is answering emails after hours and the employer does nothing to stop it, then the nonexempt employee is working and entitled to compensation.  According to the Department of Labor, “time spent doing work not requested by the employer, but still allowed, is generally hours worked, since the employer knows or has reason to believe that the employees are continuing to work and the employer is benefiting from the work being done.”

The implications of allowing nonexempt employees to answer emails or texts after hours is that the employees have the right to expect to receive compensation for “all hours worked” at the applicable minimum wage, and to have the time spent answering emails or texts after hours included in the weekly total to determine whether the employees are entitled to overtime.  The practical problems for the employer with allowing employees to answer emails or texts after hours is that the time spent by employees is difficult to document and monitor.

As for all the exempt employees under the FLSA, these employees still may have to answer after hours emails and texts, or face whatever consequences may arise from not answering after hours emails or texts.  But even exempt employees may benefit from the DOL’s position on after hours emails when it comes to calculating compensation and deducting full days missed for personal reasons.  As a general rule, if an exempt employee performs any work during the workweek, he or she must be paid the full weekly salary amount.  Under the DOL’s position, an exempt employee answering emails could transform unpaid leave into paid leave.

France’s approach is to give the employees the right to ignore after hours emails.  In the United States nonexempt employees might be able to demand payment for the time spent answering after hours emails, and exempt employees might be able to claim that they were working to avoid a full day deduction.

If employers do not want to get caught up into whether answering after hours emails and texts constitutes work, they should implement very clear rules prohibiting employees from answering after hours emails and texts, and then strictly enforce those rules to avoid “permitting” nonexempt employees to work after hours.