Given the state of the economy, companies are more and more focused on bankruptcy issues. In software licensing transactions where the software is a mission critical application for the licensee, it is not uncommon for the licensee to require that the source code be placed in escrow. Typically, the purpose of the escrow is to provide the licensee with a comfort level that the source code will be available for the licensee’s use if certain events occur. These events are typically referred to as “release events.” One release event that is commonly negotiated in technology escrow agreements is the bankruptcy of the licensor. For more on this issue you can listen to my podcast on this topic.
The licensee’s fear arises (at least in part), from the generally accepted perception that bankruptcy is a bad thing. And, as a licensee, if a bad thing happens to my mission critical application licensor, I want a back up plan. On the other hand, licensor’s carefully guard the confidentiality of their source code. Accordingly, they generally resist release events which would allow the source code to be released while the licensor is still in business. In the abstract, however, the bankruptcy of the licensor does not always spell disaster for the licensee.
In an involuntary bankruptcy of a licensor, the licensor can always get out of bankruptcy by paying off or settling with the creditors that put the licensor into the bankruptcy. Of course if the licensor does not or cannot do so, then the bankruptcy will continue. If the bankruptcy continues as a chapter 7 liquidation, then there is an expectation that the licensor will eventually go out of business. In this case, the licensee would be rightfully concerned about the ability of the licensor to continue to support the software. However, if the involuntary bankruptcy is either filed as a chapter 11 reorganization or the licensor converts it to a chapter 11 reorganization, then the expectation is that the licensor will reorganize its financial position and will not go out of business.
In a voluntary bankruptcy, the key risk for the licensee turns on whether the case will proceed as a chapter 7 liquidation or a chapter 11 reorganization. If the licensor voluntarily files for a chapter 7 liquidation, then, as mentioned above, the licensee has good reason to be concerned. If, however, the licensor files for a chapter 11 reorganization, then, as long as the licensor does not otherwise breach it support and maintenance obligations, there is no need for the licensee to have access to the source code (other than the licensee’s general insecurity). Filing for bankruptcy under chapter 11 does not mean that the licensor will go out of business. It is quite possible that the licensor could file for bankruptcy under chapter 11 and “come out of bankruptcy” with a reorganized and stronger financial position, and, without a "hic up" in the performance of its support and maintenance obligations during the bankruptcy.
From the licensor’s perspective, the risk of compromising the confidentiality of its source code (the company’s key asset) can be terribly problematic. This is especially important where the software and source code will perform a pivotal role in the ability of the licensor to reorganize itself in the context of the bankruptcy. When considering bankruptcy as a release event under a source code escrow, analyzing the pros and cons of the possible scenarios may not be as straight forward as it otherwise seems.
Wednesday, October 14, 2009
Tuesday, August 25, 2009
They’re Saying Bad Things About My Company. Can I Sue?
Sooner or later, every company ends up finding negative statements about it published on the Internet in chat rooms, bulletin boards, blogs or otherwise. I periodically get asked, what can I do?
A New Jersey court recently addressed a claim of trade libel. Bovial Corporation vs. SAC Capital, Docket ESX-L-1583-06 (N.J. Law Div., August 20, 2009). Trade libel is similar to defamation. However, where defamation is a claim based on general injury to reputation, trade libel is a claim based on specific injury to the good will associated with particular goods or services. In New Jersey, for example, the claim is sometimes referred to as a claim for "product disparagement." The use of a brand for a specific good or service, however, can actually help to insulate a company from defamation since negative statements about a brand tend more to diminish the brand than the company as a whole.
Both defamation and trade libel involve claims of a false statement being made to others and resulting damages. One key difference, however, is that for defamation, a drop in stock value, for example, can be valid evidence of damage cause by defamation. For trade libel, the claimant must prove lost sales caused by the libelous statements (referred to as “special damages”).
The tough thing about bringing either of these claims is proving damages. In the Bovial case, the plaintiff’s claim was dismissed on the basis that Bovial had allegedly failed to plead special damages with specificity. Why didn’t Bovial claim defamation? Because the statute of limitations had run on any claim for defamation whereas claims for trade libel are subject to a longer statute of limitations. In New Jersey, claims for defamation must be brought within one year, whereas claims for trade libel may be brought within six years.
A New Jersey court recently addressed a claim of trade libel. Bovial Corporation vs. SAC Capital, Docket ESX-L-1583-06 (N.J. Law Div., August 20, 2009). Trade libel is similar to defamation. However, where defamation is a claim based on general injury to reputation, trade libel is a claim based on specific injury to the good will associated with particular goods or services. In New Jersey, for example, the claim is sometimes referred to as a claim for "product disparagement." The use of a brand for a specific good or service, however, can actually help to insulate a company from defamation since negative statements about a brand tend more to diminish the brand than the company as a whole.
Both defamation and trade libel involve claims of a false statement being made to others and resulting damages. One key difference, however, is that for defamation, a drop in stock value, for example, can be valid evidence of damage cause by defamation. For trade libel, the claimant must prove lost sales caused by the libelous statements (referred to as “special damages”).
The tough thing about bringing either of these claims is proving damages. In the Bovial case, the plaintiff’s claim was dismissed on the basis that Bovial had allegedly failed to plead special damages with specificity. Why didn’t Bovial claim defamation? Because the statute of limitations had run on any claim for defamation whereas claims for trade libel are subject to a longer statute of limitations. In New Jersey, claims for defamation must be brought within one year, whereas claims for trade libel may be brought within six years.
Thursday, July 16, 2009
Inside Google's US Trademark Policy
It has been a while since Google's new trademark policy allowing the use of trademarks in the text of ads went into effect. This was a big deal when it was announced (ironically during the Annual Meeting of the International Trademark Association). Even the New York Times covered the story. I thought it might be helpful to take a closer look at the limitations on when Google will allow or disallow an advertiser to use a trademark in the text of an ad.
Google's policy places 5 limitations on when an advertiser can use a trademark in the text of its ad (and I'm paraphrasing here):
1. If the ad uses the trademark in a descriptive or generic way not referring to the trademark owner or the corresponding goods or services.
2. If the ad uses the trademark to refer to the trademark owner.
3. If the ad is used in connection with the re-sale of the trademarked goods or services.
4. If the ad uses the trademark in connection with the sale of replacement parts or compatible components corresponding to the trademark.
5. If the ad uses the trademark for informational purposes where the advertiser does not sell competiting goods.
What are your thoughts? Is this adequate to guard against trademark infringement? Take the poll in the right hand margin on whether you think keyword advertising is trademark infringement.
Google's policy places 5 limitations on when an advertiser can use a trademark in the text of its ad (and I'm paraphrasing here):
1. If the ad uses the trademark in a descriptive or generic way not referring to the trademark owner or the corresponding goods or services.
2. If the ad uses the trademark to refer to the trademark owner.
3. If the ad is used in connection with the re-sale of the trademarked goods or services.
4. If the ad uses the trademark in connection with the sale of replacement parts or compatible components corresponding to the trademark.
5. If the ad uses the trademark for informational purposes where the advertiser does not sell competiting goods.
What are your thoughts? Is this adequate to guard against trademark infringement? Take the poll in the right hand margin on whether you think keyword advertising is trademark infringement.
Thursday, April 30, 2009
Copyright in Aerial Photos
In November, the New Jersey district court threw out the $20,000,000 copyright infringement claim of an aerial photographer due to the running of the statute of limitations on the claim. Bruss v. Berger, 2008 WL 5111284. This case is a good reminder that copyright claims must generally be filed within 3 years after the claim accrues and that the damages for copyright infringement in real estate cases have the potential to be significant.
In this case, in 1986 the photographer took aerial photos of the Paramus and Monmouth malls for a real estate developer. The developer allegedly borrowed the negatives with the understanding that he would order prints from the photographer. The developer allegedly used the photos to sell the properties and never compensated the photographer.
The photographer alleged copyright infringement and claimed $20,000,000 in damages.
The case is unclear as to why the photographer waited so long to bring his claim. What is interesting is that the court did not suggest that the photographer's claim was meritless. The court also did not address whether the copyright in the photograph had been registered prior to bringing the case (copyright registration is a prerequisite to filing an infringement law suit). Nonetheless, the court did not hesitate to dismiss the photographer's claim and rightly so. The clear lesson learned here is to be aware of the limited time allowed to bring copyright claims.
It's fun (if you're a lawyer) to speculate as to what the result would have been if the case had been brought before the expiration of the statute of limitations. Assuming that the developer made copies/prints, there may have been infringement. But how much would that infringement have been worth? In a case recently blogged about on the Photo Attorney blog, a photographer obtained a $12 million verdict for the unauthorized use of her photographs to sell high-end homes.
Under the copyright act, the photographer's damages are measured, at first, by the profits obtained by the infringer. In the Bruss case, the damages would, initially, have been the $20,000,000 alleged. It would then have been the burden of the infringer to prove what portion of the profits were attributable to factors other than infringement of the copyrighted work. In a real estate case, its easy to imagine how other factors could be demonstrated to be the driving force in determining the selling price (square footage, condition of the building, location, quality of existing tenants, etc.). However, if the photographer had timely registered his copyright, he would have been entitled to statutory damages of up to $150,000 per infringed photograph without having to prove damages!
In this case, in 1986 the photographer took aerial photos of the Paramus and Monmouth malls for a real estate developer. The developer allegedly borrowed the negatives with the understanding that he would order prints from the photographer. The developer allegedly used the photos to sell the properties and never compensated the photographer.
The photographer alleged copyright infringement and claimed $20,000,000 in damages.
The case is unclear as to why the photographer waited so long to bring his claim. What is interesting is that the court did not suggest that the photographer's claim was meritless. The court also did not address whether the copyright in the photograph had been registered prior to bringing the case (copyright registration is a prerequisite to filing an infringement law suit). Nonetheless, the court did not hesitate to dismiss the photographer's claim and rightly so. The clear lesson learned here is to be aware of the limited time allowed to bring copyright claims.
It's fun (if you're a lawyer) to speculate as to what the result would have been if the case had been brought before the expiration of the statute of limitations. Assuming that the developer made copies/prints, there may have been infringement. But how much would that infringement have been worth? In a case recently blogged about on the Photo Attorney blog, a photographer obtained a $12 million verdict for the unauthorized use of her photographs to sell high-end homes.
Under the copyright act, the photographer's damages are measured, at first, by the profits obtained by the infringer. In the Bruss case, the damages would, initially, have been the $20,000,000 alleged. It would then have been the burden of the infringer to prove what portion of the profits were attributable to factors other than infringement of the copyrighted work. In a real estate case, its easy to imagine how other factors could be demonstrated to be the driving force in determining the selling price (square footage, condition of the building, location, quality of existing tenants, etc.). However, if the photographer had timely registered his copyright, he would have been entitled to statutory damages of up to $150,000 per infringed photograph without having to prove damages!
Monday, March 30, 2009
Another Poor Name Choice (Only The Lawyers Won)
The moral of this story is simple. Choosing a trademark is a business decision. It's about managing risk and making money. When choosing a new trademark, there is no good business reason to choose a mark that is in use by others. Not only is it likely to provoke unnecessary and costly legal battles, but also it fails to effectively distinguish your goods/services from others and may result in committing to a name that is not protectable. This case is the classic example.
On December 9, 2008, the New Jersey District Court ruled in favor of plaintiff Heritage Community Bank in a trademark infringement action against defendant Heritage Bank, N.A. Heritage Community Bank v. Heritage Bank, N.A., 2008 WL 5170190. This is a case that never should have happened.
Plaintiff owned a federal trademark registration for "Heritage" for banking services. Defendant ran a trademark search and found several other users of "Heritage." According to the court, there were five other users of the word "Heritage" in the banking industry nationwide and none of them were in the New Jersey area. Nonetheless, the defendant apparently concluded that the banking industry was a crowded field as to the use of word "Heritage."
The crowded field theory is not easily quantifiable. Generally, though, the theory is that if there are several similar marks already in use (i.e., a "crowded field"), then courts will tend to construe the scope of rights very narrowly. That is, for marks in a crowded field to be found confusingly similar, they generally have to be exactly (or almost exactly) the same and for very similar goods.
It is often difficult to effectively evaluate the impact of the crowded field on the rights of the parties to use the mark. For this reason, this theory is typically used as a shield not a sword. That is, it is typically a defense used by a business which has already committed to a name and finds itself in the middle of a dispute.
In the Heritage case, it is hard to understand why the defendant would have relied on this legal theory in committing to a new mark. Even if it were successful, the theory would necessarily have resulted in the defendant's inability to perfect trademark rights (i.e., the right to stop others from using the name). If the defendant won, the court would likely have decided that the word "Heritage" was so weak that the plaintiff's had no ability to stop the defendant from using the "Heritage" name other than in the exact same manner. The corollary to this is, of course, that the defendant would then have no right to stop others from using the "Heritage" mark.
Once the search was run and the plaintiff's registered trademark was discovered, it is hard to understand why the defendant would have chosen to commit to the Heritage name. At this stage, the defendant would have had nothing invested in the Heritage name and could have easily chosen another name.
Second, defendant received a cease and desist letter from plaintiff before starting business. Again, knowing that the plaintiff (holder of the federal trademark registration) objected to the use of the Heritage name, why did the defendant provoke this fight by continuing to use the name? Clearly, the less costly alternative would have been to choose a different name.
Finally, once the case was filed, it must have seemed very unlikely that the defendant would have succeeded in this case. This should have settled.
On December 9, 2008, the New Jersey District Court ruled in favor of plaintiff Heritage Community Bank in a trademark infringement action against defendant Heritage Bank, N.A. Heritage Community Bank v. Heritage Bank, N.A., 2008 WL 5170190. This is a case that never should have happened.
Plaintiff owned a federal trademark registration for "Heritage" for banking services. Defendant ran a trademark search and found several other users of "Heritage." According to the court, there were five other users of the word "Heritage" in the banking industry nationwide and none of them were in the New Jersey area. Nonetheless, the defendant apparently concluded that the banking industry was a crowded field as to the use of word "Heritage."
The crowded field theory is not easily quantifiable. Generally, though, the theory is that if there are several similar marks already in use (i.e., a "crowded field"), then courts will tend to construe the scope of rights very narrowly. That is, for marks in a crowded field to be found confusingly similar, they generally have to be exactly (or almost exactly) the same and for very similar goods.
It is often difficult to effectively evaluate the impact of the crowded field on the rights of the parties to use the mark. For this reason, this theory is typically used as a shield not a sword. That is, it is typically a defense used by a business which has already committed to a name and finds itself in the middle of a dispute.
In the Heritage case, it is hard to understand why the defendant would have relied on this legal theory in committing to a new mark. Even if it were successful, the theory would necessarily have resulted in the defendant's inability to perfect trademark rights (i.e., the right to stop others from using the name). If the defendant won, the court would likely have decided that the word "Heritage" was so weak that the plaintiff's had no ability to stop the defendant from using the "Heritage" name other than in the exact same manner. The corollary to this is, of course, that the defendant would then have no right to stop others from using the "Heritage" mark.
Once the search was run and the plaintiff's registered trademark was discovered, it is hard to understand why the defendant would have chosen to commit to the Heritage name. At this stage, the defendant would have had nothing invested in the Heritage name and could have easily chosen another name.
Second, defendant received a cease and desist letter from plaintiff before starting business. Again, knowing that the plaintiff (holder of the federal trademark registration) objected to the use of the Heritage name, why did the defendant provoke this fight by continuing to use the name? Clearly, the less costly alternative would have been to choose a different name.
Finally, once the case was filed, it must have seemed very unlikely that the defendant would have succeeded in this case. This should have settled.
Thursday, March 12, 2009
Obama Trademarks
Here is some interesting trivia. The "O" design used by the Obama campaign is actually a registered trademark. The New York Times did an interesting interview with the designer that you can read here. The application was filed in May of 2007, but, not surprisingly, did not register until December 2008. Well, he didn't have the registration for the election, but the USPTO did come through in time for the inauguration. :->
As was to be expected, there continues to be an onslaught of people trying to register Obama formative and Obama comprised trademarks. By my count, since the first of such applications was filed in November 2006, there have been 84 applications filed for Obama marks of which 13 have already died and I suspect that most of the others will likely have a similar fate. Most of these applications will be rejected without the President's consent. Under §2(c) of the Trademark Act, in order to register a trademark that contains the name, portrait or signature of a living person, you must obtain their consent. For the record, there are one or two I suspect may obtain such consent (e.g., one filed by the Presidential Inaugural Committee).
Here are some of the more amusing attempts so far:
OBAMA BALM
OBAMA BAHAMA PAJAMAS
OBAMA VODKA
BUSH ROBBED MY MAMA SO I VOTED FOR OBAMA
OBAMA JAVA VICTORY BLEND
BROCCOLI OBAMA
WHO'S YO'BAMA NOW? (for t-shirts, etc.)
and my personal favorite
OB-LA-DI OB-LA-DA O-BA-MA
As was to be expected, there continues to be an onslaught of people trying to register Obama formative and Obama comprised trademarks. By my count, since the first of such applications was filed in November 2006, there have been 84 applications filed for Obama marks of which 13 have already died and I suspect that most of the others will likely have a similar fate. Most of these applications will be rejected without the President's consent. Under §2(c) of the Trademark Act, in order to register a trademark that contains the name, portrait or signature of a living person, you must obtain their consent. For the record, there are one or two I suspect may obtain such consent (e.g., one filed by the Presidential Inaugural Committee).
Here are some of the more amusing attempts so far:
OBAMA BALM
OBAMA BAHAMA PAJAMAS
OBAMA VODKA
BUSH ROBBED MY MAMA SO I VOTED FOR OBAMA
OBAMA JAVA VICTORY BLEND
BROCCOLI OBAMA
WHO'S YO'BAMA NOW? (for t-shirts, etc.)
and my personal favorite
OB-LA-DI OB-LA-DA O-BA-MA
Wednesday, February 25, 2009
Another Trap for Consultants in a Down Economy; Unregistered Consultants Barred From Court
In 2002 and again in 2003, I wrote about the importance of consulting firms making sure to register in New Jersey as temporary help service firms. A new case decided in January makes this point yet again. If you are providing staff augmentation or consulting work, you probably need to be registered. Camo Technologies Inc. v. Pathan, 2009 WL 17890 (N.J.Super January 2, 2009). Here is an excerpt from a piece I wrote in 2002 explaining the dilemma which is even more poignant today.
"In a down economy, companies try to cut costs by limiting their outside consulting. Rather than engage an outside consultant for a full project, they try to save money by fixing the problem [using] mostly in-house [personnel]. However, many companies also seek help from short-term, skilled people engaged on a limited basis. Hungry consulting companies respond by gladly offering up their skilled employees on a temporary basis for whatever projects their customers need. Consulting companies who do so risk becoming subject to the [Private] Employment Agency Act and, therefore, may be unable to enforce customer contracts unless they are licensed or registered under the [Act]."
The first big case on this point was decided in 2001. At that time the New Jersey courts refused to enforce a subcontracor contract entered into by a temporary help service provider who was unregistered under the Private Employment Agency Act. Data Informatics v. AmeriSource Partners, 338 N.J. Super. 61 (App.Div. 2001). Then in 2003, the New Jersey courts refused to enforce a business-to-business non-solicitation provision between consulting companies. Software Int'l v. Real Soft, Inc., Docket No. A-1454-01T3 (Unpublished App.Div. 2003).
The 2009 Camo case confirms some important aspects of the statute and takes this a step further. In Camo, the New Jersey court held that:
1. Registration after the fact doesn't cure the problem for contracts entered into before registration;
2. Employment agreements of unregistered temporary help service providers are unenforceable; and
3. Not only will contracts not be enforced, but also the courts will not enforce other claims arising out of the same circumstances (e.g., torts).
The first holding would seem to fall squarely within the statute.
The second holdings represents a broad reading of the statute, but is consistent with prior case law.
The third holding is an even broader interpretation of the statute than prior cases. The statute only expressly prohibits unregistered companies from using the courts "for the collection of a fee, charge or commission." N.J.S.A. §34:8-45. Arguable, compensatory damages arising out of breach of an employment agreement or a tort are not a "fee, charge or commission." However, since all of the claims arose out of the same set of circumstances which were all related to the temporary help service business, the court concluded that they were all unenforceable.
After Camo, it is harder to imagine a set of circumstances in which an unregistered temporary help service firm would be able to bring any action in any court in the state.
This case (together with its predecessors) send a clear message. Unregistered temporary help service providers will not be provided access to the courts for almost anything related to the conduct of their business.
"In a down economy, companies try to cut costs by limiting their outside consulting. Rather than engage an outside consultant for a full project, they try to save money by fixing the problem [using] mostly in-house [personnel]. However, many companies also seek help from short-term, skilled people engaged on a limited basis. Hungry consulting companies respond by gladly offering up their skilled employees on a temporary basis for whatever projects their customers need. Consulting companies who do so risk becoming subject to the [Private] Employment Agency Act and, therefore, may be unable to enforce customer contracts unless they are licensed or registered under the [Act]."
The first big case on this point was decided in 2001. At that time the New Jersey courts refused to enforce a subcontracor contract entered into by a temporary help service provider who was unregistered under the Private Employment Agency Act. Data Informatics v. AmeriSource Partners, 338 N.J. Super. 61 (App.Div. 2001). Then in 2003, the New Jersey courts refused to enforce a business-to-business non-solicitation provision between consulting companies. Software Int'l v. Real Soft, Inc., Docket No. A-1454-01T3 (Unpublished App.Div. 2003).
The 2009 Camo case confirms some important aspects of the statute and takes this a step further. In Camo, the New Jersey court held that:
1. Registration after the fact doesn't cure the problem for contracts entered into before registration;
2. Employment agreements of unregistered temporary help service providers are unenforceable; and
3. Not only will contracts not be enforced, but also the courts will not enforce other claims arising out of the same circumstances (e.g., torts).
The first holding would seem to fall squarely within the statute.
The second holdings represents a broad reading of the statute, but is consistent with prior case law.
The third holding is an even broader interpretation of the statute than prior cases. The statute only expressly prohibits unregistered companies from using the courts "for the collection of a fee, charge or commission." N.J.S.A. §34:8-45. Arguable, compensatory damages arising out of breach of an employment agreement or a tort are not a "fee, charge or commission." However, since all of the claims arose out of the same set of circumstances which were all related to the temporary help service business, the court concluded that they were all unenforceable.
After Camo, it is harder to imagine a set of circumstances in which an unregistered temporary help service firm would be able to bring any action in any court in the state.
This case (together with its predecessors) send a clear message. Unregistered temporary help service providers will not be provided access to the courts for almost anything related to the conduct of their business.
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