General Business Law News and Updates

There is much confusion in the public about the difference between a trade secret and a patent. Both are associated with innovation, and each constitute a business asset that should be vigorously protected. But why do some companies choose to patent their innovation while others choose to cloak it as a trade secret? The Uniform Trade Secrets Act defines a trade secret as information that: (1) derives economic value from not being generally known or readily ascertainable by proper means; and (2) is the subject of “reasonable efforts” under the circumstances to maintain its secrecy. A properly-guarded trade secret could potentially last forever, since it derives its legal protection from its inherent secret nature. On the other hand, patent protection only lasts for 20 years, and patents can only be protected through public disclosure. Specifically, patent protection is acquired through a public application process with the United States Patent and Trademark Office. On the surface, it would appear that trade secret protection is the preferred route due to the potential for perpetual protection. However, there is a risk with considering such an approach. Unlike with patents, it is perfectly legal to reverse engineer and copy a trade secret.  Once someone is able to successfully determine the components of a trade secret, the owner is without recourse and could instantly lose the peace of mind and protection that was enjoyed up to that point. However, with a patent an owner in effect has a “monopoly” for the duration of the patent, and it can exploit this powerful position by excluding all others who dare to manufacture a similar product. This is the case even if someone else independently came up with the same idea. Of course, a patent owner pays a price for this 20 year window of exclusivity. Once the patent expires, the once-protected idea enters the public domain and can then be manufactured and sold by anyone. Therefore, the patent owner’s goal will be to maximize the profits of their invention during this 20 year period.

Although trade secret owners can potentially enjoy profits indefinitely, they can be knocked off their perch at any moment if it is determined by a court of law that the idea does not qualify for trade secret protection (either because the information is readily ascertainable by other means, or because sufficient measures were not put in place to protect the idea). The trade secret owner can also lose the benefits of protection due to events beyond their control. For example, although most conscientious business owners will procure the requisite non-disclosure and confidentiality agreements from their employees, there is no accounting for a rogue or disgruntled employee beaming out these secrets to competitors. Even if an owner files a lawsuit to protect its trade secrets, there is an inherent tug-of-war between the secretive nature of the information at stake and the policy of open courts to the public. Although courts typically allow sealed filings and protective orders to be implemented in lawsuits, suing another party may require disclosure of trade secrets due to the burden of proof placed on plaintiffs.

Determining whether to seek patent protection or trade secret protection requires a realistic analysis based on the nature of the company as well as the type of invention at stake. Budget constraints should factor into this analysis, as well as a clear protocol on how the intellectual property of the business will be protected and enforced in the future. The following are some questions to consider when making this decision:

  • Is it possible for someone to reverse engineer the idea?
  • Is it possible for the invention to be independently discovered in the future?
  • Will the idea still be useful and profitable more than 20 years down the road?
  • Does the company have the monetary and legal resources to pursue patent protection?
  • Does the company have a revolving door of employees whereby adequate protection of the idea cannot be ensured?

Not everyone can be a Fortune 100 company, with their secrets locked in expensive vaults and with costly measures in place to ensure secrecy. The answer is not always clear, and the ultimate decision will be based on a sliding scale of risk that will be commensurate with the vision and goals of the company.

Much like the actual “bike share” bikes themselves, the topic of bike share programs seems to pop up around every corner in Dallas. Let me start by going on record as being pro-bike share.

But not everyone is a fan. Complaints about the bikes seemingly ring from every neighborhood from Oak Cliff to Preston Hollow. Perhaps we have all forgotten how impossible it used to be to bike around Dallas just 10 years ago. Maybe we need to realize this is not our daddy’s Dallas.

Take a drive through Downtown or Uptown on a weekend or, better yet, take a ride on a bike share bike. Look around. There are people biking everywhere. It’s all so beautiful.

Well, except for the bike share bikes themselves.

There are supposedly more than 20,000 bike share bikes currently located in Dallas, more than twice as much as New York City. They are scattered along the sidewalks, often laying on their side and inching over the curb into the street. Head to White Rock Lake and find some drowning in the shallow water near the shore. Make your way to Klyde Warren Park and find them strewn about, turning into a makeshift obstacle course for visitors. Or head to Highland Park and find a dozen parked in the front yard of a luxury home, the hip new alternative to toilet papering houses.

Many argue the bikes have become a nuisance and every Dallasite’s favorite gripe. The residents are declaring war on the two-wheeled invaders clogging their streets and sidewalks. They want laws protecting their city, but no one really knows what those laws should be.

In January, Dallas City Manager T.C. Broadnax issued a letter to LimeBike, Ofo, VBikes, Spin, and Mobike giving a February deadline to clean up their messes. Broadnax threatened the city “may be left with no choice but to begin removing the bicycles in its rights of way, sidewalks, trails and/or trailheads that are identified as obstructions or hazards.” February came and went, and no laws were passed by the City of Dallas to rectify the problem. Instead, during a February 26, 2018 City Hall Meeting, attendees were informed regulations are coming, likely in the fall. So what is the holdup?

Perhaps the City is gauging the success of another major city that is attempting to solve their own bike share headaches.

After Seattle determined public bike share programs with required docking stations failed to encourage potential riders, it shut down its city-owned “Pronto” bike share system and opened its doors to privately owned dockless bike share programs like those in Dallas. Unlike Dallas, before allowing the companies to roll out their bikes, Seattle enacted regulations to govern how they could operate. The regulations require bikes be parked upright in areas of sidewalks with trees, poles, and other fixtures, or on a designated bicycle rack. On blocks without sidewalks, the bikes must be parked in a way that does not impede pedestrian or vehicle traffic. In addition, the bike share companies must provide a contact to the Seattle Department of Transportation (SDOT) to call for staff to relocate or rebalance bikes within the specified time limits (two hours on weekdays, ten hours on weekends and holidays). The city can assess penalties for their crews having to relocate or remove bikes from any prohibited locations.

Seattle’s regulations were introduced in 2017, and the city is currently reviewing data obtained through the bike share companies and analyzing the success of its current permitting requirements. However, the city has already conceded the parking issues remained the most obvious problem. SDOT spokesperson Mafara Hobson identified problems with holding riders responsible for parking the bikes in improper spots when it could not be proven whether the rider actually parked incorrectly or someone came along later and moved the bike. As of the publishing of this post, SDOT was reviewing its options, and hopeful to have its final parking and storage requirements in place by Summer 2018, coincidentally just before Dallas plans to unveil its plan.

Thus, it appears Dallasites will have to embrace the beauty of bikes scattered among their streets for the foreseeable future while they await their own set of rules and regulations. Perhaps if they squint hard enough, they can imagine the neon bikes as the bright lights of New York City or Las Vegas… both of which actually have bike share regulations.

 

Each day more and more women come forward to share their stories of abuse within the workplace and without. And people are actually listening.

In the not-so-distant past, the primary concern for some employers may have been the legal consequence of firing a worker after she internally reported sexual harassment. Now, as women become more emboldened to speak up and as the public becomes more receptive to listening, employers have more to worry about than just the legal repercussions. In the year 2018, merely an accusation could end a career, or even a business. Thus, it is more important now than ever for employers to implement workplace procedures for preventing harassment and properly handling accusations.

Addressing sexual harassment requires first understanding what it looks like. It might surprise you to know that harassment is likely much broader than you think. In general there are two types of sexual harassment—quid pro quo and hostile work environment. The hostile work environment cases are typically more difficult to prove because the question arises of just how hostile the environment must be.

Sexual harassment falls under the category of sex discrimination, which is impermissible under Title VII of the Civil Rights Act of 1964. To be actionable under Title VII, the conduct must be “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” Meritor Sav. Bank v. Vinson, 477 U.S. 57, 67 (1986) (internal quotations omitted). A worker need not suffer an adverse economic effect to meet this standard. And, the inquiry does not center on whether the sex-related (not sexual-related) conduct was voluntary, but rather focuses on the unwelcome nature of the behavior.

Thus, even conduct that appears to be tolerated by a subordinate or coworker may constitute sexual harassment if the advances are unwelcome. Considering that the courts struggle with the concept of unwelcome versus welcome conduct, employers and their supervisors should hesitate to assume that seemingly innocent behavior is ok with a female (or even a male) colleague.

When employers receive a complaint of sexual harassment, they must act. In the current climate, the public will not accept a company’s claim of ignorance. Sticking your head in the sand is no longer a viable option when a woman comes to you to say “me too.”

 

During the last five years, the United States has seen a drastic increase in mass shootings.

On November 5, 2017, just after 11:00a.m., a gunman entered a church in Sutherland Springs, Texas and opened fire. That Sunday morning 26 church patrons were killed and another 20 were injured including men, women and children.

On October 1, 2017, a gunman opened fire on a crowd of concertgoers at a music festival in Las Vegas leaving 58 people dead and 851 injured.

On June 12, 2016, a 29-year-old security guard killed 49 people and wounded 58 others in a nightclub in Orlando, Florida.

On December 14, 2012, a man walked into an elementary school and killed 20 children between the ages of six and seven years old, as well as 6 adult staff members.

In the wake of some of the deadliest mass shootings in U.S. history, many businesses, schools and churches are asking themselves whether they should be doing more with regard to security. From a legal standpoint, the answer may be evolving. As mass shootings become more and more frequent in the United States, what should hosts of large groups be doing to protect their patrons from violence and themselves from liability exposure?

Unfortunately, the answer varies widely depending on the circumstances. Factors such as 1) crowd size, 2) location, 3) specific existing threats, 4) previous security problems and 5) the level of vulnerability of patrons are just some of the issues that should be considered. However, what we believe is reasonable and necessary when it comes to security is evolving rapidly. For example, many “soft targets” such as open venues, churches and schools that previously would not have been expected to have private armed security guards, may need to re-evaluate their security plan given the increase in mass shootings across the country.

While we hope we never reach the point where a jury of our peers is judging our security decisions in retrospect, when addressing security needs from a legal standpoint, consider what is reasonable and prudent given the current environment and substantial increase in mass shootings across the country.

The moral answer to this question is outside the scope of this article; however, from a legal standpoint, in a civil lawsuit alleging inadequate security, a jury would likely be asked to determine whether the Defendant was negligent. Negligence is defined as:

The failure to use ordinary care, that is, failing to do that which a person of ordinary prudence would have done under the same or similar circumstances

In an era where mass shootings are becoming commonplace, churches, schools and businesses should consider that what may have been reasonable (i.e. ordinary prudence) five years ago, is not necessarily reasonable today. At what point does it become negligent to fail to have professional armed security if you are hosting a large, vulnerable group of people? While the answer to this question will vary depending on the circumstances, in the context of a civil lawsuit, a jury will inevitably decide.

So you are a party to a new civil litigation case, which means you have either sued someone or just been sued.  Your lawyer sends you an email that the Court has just set your case for a non-jury trial for a date in the future.  In the same email, your lawyer asks if you want to pay the jury fee, which usually is nominal, and have the matter set for jury trial, or whether you prefer to have the case remain as a non-jury trial.  It is, after all, the client’s decision on whether to have a jury trial or a non-jury trial.  What do you do?

Both types of trials – jury and non-jury – have advantages and disadvantages.  A non-jury trial, also known as a bench trial or a trial before the Judge, generally is more informal than a jury trial,  shorter than a jury trial, and less expensive to prepare for and conduct.   For example, in a non-jury trial, the lawyers do not have to draft a jury charge (the questions the jury will answer, such as who was responsible for the accident, and the percentage of responsibility each party), or have a “charge conference” with the Judge where each side argues that its proposed jury questions should be included in the jury charge.  The charge conference is conducted outside of the presence of the jury, and can last from several hours to an entire day or more, depending on the case.  After the jury charge is finalized, the Judge will read the jury charge to the jury, the lawyers will make closing arguments, and then the jury will retire to the jury room to deliberate.

None of these time-consuming jury charge issues are present in a bench trial.  However, one of the disadvantages of a non-jury trial is that one person – the Judge – hears all the evidence, weighs the credibility of the witnesses, decides which facts are true and not true, rules on evidentiary issues and objections, applies the law to the facts, decides who should win, and the amount of damages awarded, if any.  In a jury trial, the jury hears the evidence, weighs the credibility of the witnesses, decides which facts are true and which are not, decides who should win, and whether any damages should be awarded.  In a jury trial, the Judge’s role is to preside over the trial, rule on evidentiary objections, and apply the law to the facts after the jury has answered the questions on a jury charge – but in most cases, the Judge does get to decide by his-or-herself which party should win.

There are lots of other issues to be considered in deciding whether to have a jury trial or a non-jury trial.  Additionally, a litigant does not always have a choice regarding which type of trial.  We will discuss the additional factors in upcoming posts in this series.

The last decade has seen an unprecedented growth in technology, which has paved the way for internet globalization and given new meaning to the term “international commerce”. Consequently, the digital highway has become populated with modern day highwaymen out for a fast buck. These rogues, known as “cybersquatters”, are individuals who register domain name addresses with the primary purpose of reselling them. Therefore, trademark holders are forced to pay these cybersquatters a substantial amount of money in order to get back a domain name making use of their trademark.  When cybersquatting first reared its ugly head, the only ammunition that trademark holders had was traditional theories based on trademark law. However, these proved to be insufficient in the wake of internet technology, thus necessitating the creation of new enforcement mechanisms. Hence, the Anti-Cybersquatting Consumer Protection Act (ACPA) was enacted.

In enacting the ACPA, Congress was attempting to create a bright-line rule that would clearly resolve cybersquatting disputes. However, what it has also done is create uncertainty in many cases.  Granted, the Act is useful in cases involving obvious bad faith.  But where the circumstances surrounding bad faith are unclear, the Act is less helpful. In determining bad faith, one of the more important factors in the Act is whether the defendant “offered to transfer, sell, or otherwise assign the domain name to the mark owner or any third party for financial gain without having used, or having an intent to use, the domain name in the bona fide offering of any goods or services.” The difficulty comes in where the court has to determine whether a defendant intended to use the domain name.  It would be very difficult to say with any certainty that someone did not intend to use a name.  It is possible that a defendant registered a domain name with the intention of offering goods and services, but later decided that the business venture was not economically viable.  In this situation, it would make sense to sell the domain name if there were any takers.  However, it is also plausible that the defendant will not be able to prove that it had plans to start a business.  The court might then infer bad faith in a situation where the defendant was nothing more than conscientious in promptly registering a domain name.

It is easy to see how a defendant can be snagged in the cybersquatting net when it had no bad faith intentions to begin with. More important, a defendant’s use of a domain name may not even infringe on a valid trademark. Trademark law in the U.S. is complex with many factors that need to be considered before superior rights are determined. But the problem with the concept of cybersquatting is that it assumes that one of the parties has to be the “bad guy” (usually the domain name registrant). The ACPA can be used to pressure a defendant into giving up a domain name in what is known as “reverse cybersquatting,” and it can be a powerful bullying tool given the substantial penalties that the ACPA inflicts on cybersquatters.

So in the event you receive a cease and desist letter from a business claiming that you wrongfully registered a domain name that infringes on their trademark, do not automatically cave in to the pressure. You need to seek the advice of trademark counsel if you registered the domain name in good faith. You may in fact have superior rights to both the domain name as well as the trademark itself. It could very well be that the accuser is trying to bully you into giving up a domain name that it did not have the foresight to register.

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.

It seems that a lot is going on in DC these days. In what may have been lost in all the other activity, yesterday the Department of Labor issued a Request for Information seeking notice and comment before issuing revised proposed regulations regarding the minimum salary level required to  meet the three most common exemptions under the overtime provisions of the Fair Labor Standards Act.  Who cares, right?  Mind-numbing administrative procedures, right?  Maybe.

A little background is probably necessary.  Back before Russia, fake news, alternative facts, and leaks, the DOL under President Obama issued new regulations that raised the minimum salary level for the executive, professional, and administrative exemption to the FLSA’s overtime requirements from $455 per week to $913 per week.  The rule was supposed to go into effect on December 1, 2016, and would have resulted in millions of more workers becoming eligible for overtime.  Employers spent a lot of time in 2016 getting ready for the new rule by making changes to the workforce to make sure that workers were properly classified under the new rules.

Then there was a lawsuit.  And from that lawsuit came an injunction against the new rule going into effect.  And that injunction resulted in an appeal.  And that appeal is still pending.  But here is where things get interesting.  Candidate Trump became President Trump, and Trump’s DOL took another look the new salary limit.  Trump’s DOL told the United States Court of Appeals for the Fifth Circuit that the DOL was no longer pursuing the $913 salary level that was set by Obama’s DOL.  To be sure, Trump’s DOL still wanted the authority to set a salary level, but it just was not interested in the salary level set by the previous administration.

Yesterday’s notice by DOL is the first step in the process to decide if there should be an increase in the salary limits for the overtime exemptions under the FLSA.

What does all of this mean?  First, the DOL is not going to pursue the new rule that was to have gone into effect on December 1, 2016.  With no one left to fight the appeal, any confusion regarding how the injunction would impact the workforce and the potential retroactive application of the Obama DOL rule if the appeals court overturned the injunction no longer seems in play.  Second, it will be several months (or years) before the DOL decides whether to issue a new rule regarding the salary level for the executive, professional and administrative exemptions under the FLSA.

 

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.