The Benefits to Entrepreneurs

Probably, to entrepreneurs, the most important change in the “Act” is the elimination of the ban on “general solicitation”. This elimination in effect allows advertising of small (heretofore “private”) offerings of investments in their businesses. For companies seeking pre-seed, seed and angel investment, this step creates or implements essentially two new types of offerings: 

1. Accredited investor offerings, in which the investments may be sold only to accredited investors (those who meet significant net worth or income requirements), which offerings are not new, but in which now the issuing company may  advertise the offering in mass settings, such as newspapers, broadcast, and most importantly, on the Internet and in social media; and
2. “Crowdfunding” offerings, also generally solicited, in which non-accredited investors may purchase the investments, but only (a) up to the lesser of $10,000 and 10% of their annual income; (b) with the assistance to the company of “intermediaries” who must meet certain requirements; and (c) with maximum sales in each offering limited to $1 million in any 12 month period (hereinafter called “crowdfunding”). 

It is my belief that perhaps the most beneficial of the above two “new” offerings will be the first, that which simply removes the prohibition on advertising on offerings to accredited purchasers only.  The removal of that prohibition will allow an issuer to reach many more possibly interested persons, and therefore many more accredited investors. And although those offerings will not require the use of registered brokers dealers or unregistered intermediaries, the entrepreneur offering companies will now be able to use “intermediaries” (or “portals”) who no longer must be fully registered as broker-dealers, to assist in finding and working with accredited investors. This will be a huge advantage to entrepreneurs seeking capital. And this type offering will place no restrictions on the dollar amount which the purchasers may acquire or the amount which the entrepreneurial business may raise.  

It is likely that numerous qualified professional “finders,” i.e., informal investment bankers who are not registered as broker dealers with the securities regulators but with skills and contacts in marketing investments to accredited investors, will develop and become “intermediaries.”  Historically, such “finders” have been under severe risk of censure by the SEC and other regulators for carrying out this activity without registration as broker-dealers, a highly illogical and expensive process. When the Act is implemented, intermediaries will not face that risk.

The Need for Caution

However, entrepreneurs using the newly available will need to be cautious. In the early days of use of unregistered “intermediaries” and “portals,” some less than honest, and perhaps more less than skilled, finders calling themselves intermediaries may cause significant problems to issuing companies. And there are other prospective problems with the new “crowdfunding”  offering, such as the ability of many smaller, less sophisticated voting shareholders to at least create a significant need for costly investor relations efforts on the company’s part, and at worst, to use their votes to be problematic. 

Other problems may cause arise from such shareholders’ rights to inspect the company’s books and records under state law, their right to bring derivative claims on behalf of the company, and their rights under state law against “oppression” by the majority shareholders.  And startups will likely have difficulty raising funds in later rounds from angel investor groups and venture capitalists if they have even as few as one hundred unsophisticated shareholders from prior crowdfunding offerings. 

Also, such companies with many such unsophisticated shareholders may find it significantly more difficult to attract high value directors and consultants, and director and officer liability insurance coverage may increase significantly.

The ramifications of these new funding methods are mainly conjectural at present. And, because there will be 90 days for SEC rulemaking, 60 to 90 days of comment period, and probably another 60 days for the SEC to draft and adopt the regulations necessary, these methods (the crowdfunding and advertised accredited investor offerings) will not be implemented until early 2013.

Posted by Attorney Joseph R. Soraghan. Soraghan practices in legal matters pertaining to business operations and growth. He guides businesses in financing, contracts, acquisitions, mergers, and sales. Soraghan frequently resolves commercial disputes as an arbitrator or mediator, or through litigation.

Google, a 12-year-old company, has certainly fueled this growth.  Social media platforms have also supercharged Internet usage.  Facebook claims to have over 800 million active subscribers, LinkedIn claims 85 million subscribers and YouTube has over 100 million videos online.

However, the way we relate to and judge each other, whether it is for employment, relationships, or credit history, has not changed.  We are all trying to predict each other’s future behavior for the relationship(s) and transactions we seek.

Facebook purports to be worth $104 billion with its purchase of Instagram.  Why is it worth so much?  Because companies are spending over $2 billion per year to collect information from social media outlets about what we as consumers want.  Our behavior and our opinions can be measured in fine detail as we post and that behavior can be monetized.  For example, it is estimated that your personal/buying information is worth $50 to $500 to Google, depending upon how much you spend.  On Twitter, each of your followers, assuming you have a large following, could be worth as much as $2.50 each per month.  In short, personal data greases the Internet.  The data we share (names, addresses, pictures, precise locations, and links) helps companies target advertising based not only on demographic but also on personal opinion and desires. 

What does all of this information mean to you as an individual? Technology rules will continue to change, so you need to be vigilant. It is important for you to keep up with the positives and negatives of the rapidly changing technology. Right now, social media is at its height but it is designed for websites. That is predicted to change as the world moves to smartphones.  Nearly $1 million worth of features come with any smartphone and there are a billion smartphones in the world.  Within the next decade, 6 billion people will have a constant connection to the Internet.  This explains why Facebook recently bought Instagram, a mobile app company, for $1 billion. Facebook wants to conquer the smartphone market and not be left behind. 

So, focusing on social media, what is it really?  Social media is any web-based platform designed for online collaboration and interaction in a public space.  It is a free tool in your toolbox that, like fire, can either warm or burn up your life if it is not used skillfully, carefully and thoughtfully. 

When you engage in social media, you are creating the dreaded “permanent record” with instantaneous and world-wide dissemination.  More troubling, your information is being increasingly archived, making it available indefinitely, even when it is removed by you when you are much wiser with a more layered and nuanced personality (see Wayback Machine a/k/a the Internet Archive). For example, the Library of Congress has acquired the entire Twitter archive.  Searchability, compounded by our general ignorance and failure to keep abreast of changes, has created the end of forgetting. 

Social media users think less about what they will post and disclose more.  What causes this blurring of personal and professional lives is in dispute.  One theory is the online disinhibition effect.  John Suler of Rider University argues that we are social creatures who evolved to communicate in person.  When cues as to status and hierarchy are eliminated, the online experience feels like a peer relationship and thus we tend to withhold our judgment and “spill” or “dish.”

Use social media without caution or discretion, and your digital gaffes could cost you your job, damage your company’s reputation, and/or land you in the criminal justice system.   Anthony Weiner, the former Democratic New York Congressmen, resigned a $174,000 job after sending a sexually explicit photo of himself to a college student on Twitter. The NBA fined Miami Heat team owner, Micky Arison, $500,000 for commenting on the collective bargaining process.  Robert Murdoch and some of Scotland Yard’s highest ranking officers in the News of the World phone hacking scandals are facing criminal prosecution. 

To protect yourself as an individual or employee in the social media area, follow these tips:

1.  Review the “Terms of Use” on Internet sites (e.g., LinkedIn, Facebook, etc.).

• Determine the level(s) of privacy and whether you own what you post.  Privacy settings vary but they are not in your favor. 
• Use privacy settings religiously and constantly review the ever-changing “Terms of Use.”   

2.  Stop leaving a trail on the Internet. 

• Do not give your life away.  You leave a trail on the Internet to your personal life and your every predisposition.  This affects your ability to obtain credit, employment, housing, good credit checks and a myriad of necessary life tools.
• Use Firefox’s “do not track” option and realize that autofill functions are track functions. 

3.  Do not mix work and personal. 

• Have a separate smart phone for your personal use.  If you have a Twitter account for the purpose of marketing your employer’s products and services and your employer is actively involved in its creation, management and operation, be aware that your employer may have a good claim to ownership of the Twitter account.
  • For example, PhoneDog, an interactive mobile news and reviews web site, sued Noah Kravitz, a former employee, and claimed that the ex-employee’s Twitter account should be returned to it because it constituted a misappropriation of trade secrets and damaged the company’s business, goodwill and reputation.  The Northern District of California has not dismissed the claim and the case is proceeding. 
  • Employers have also made claims for LinkedIn accounts for the very same reason.
  • Further, your Tweets on behalf of your employer can leave your employer open to vicarious liability.  In Spooner v. Associated Press, the NBA sued Associated Press and one of its spot writers for defamation.  The writer’s tweet allegedly implied that the referee had engaged in game fixing. 

4.  Judgment, Judgment, Judgment. 

• Use your best judgment and consider whether griping on social media about your clients / employers / parents / co-workers / spouse / ex-spouse / children / etc. is a wise practice and a good investment.  Just because you can, and it may be legal in certain circumstances, does not mean it is wise and that it will not come back to haunt you in the future.  The world pays highly for those who exercise good judgment and your permanent social media history may take you out of the running for work opportunities.  

5.  Do not conduct personal business at work. 

• Your employer, with appropriate policies and notices, can review every keystroke you take on its server, even when you are checking your personal email. 
• If you are not paid to market on social media, stay off social media sites while at work.  You are, in effect, stealing your company’s time by making yourself non-productive, and, therefore, expendable.

6.  You are paying for Facebook/Yahoo/Skype. 

• Your mother was right: nothing is free. 
  • In exchange for a free social media platform, you are paying by providing details of your personal life and the personal life of your friends. 
  • Some of the most popular apps seek email addresses, current location and sexual preference of not only you but your friends, among other things.  

 Slow down, take a breath, and be strategic in your use of the Internet.  Do not set yourself on fire and create a permanent record of that damage.

For information on how to “Muddy Your Tracks on the Internet,” read this article from the New York Times.

Posted by Attorney Ruth Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, digital media law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.

This new trend has sparked an inevitable inquiry: is it legal? At this time, the answer is uncertain. Like many issues arising from the fast-paced and ever-changing world of the Internet and social media, the law has not caught up with the question. There does not appear to be a statute, regulation or court decision directly on point – either at the federal or state level. Consequently, experts on both sides of the issue have begun considering and arguing whether any statutes, regulations, or court decisions indirectly apply to the issue.

Missouri statute does not appear to directly prohibit such a practice; however, this does not mean it is wise for employers to engage in it. The reason has little to do with the actual practice of asking for the login information, but rather concerns what may be potentially discovered by such practice. No, I am not referring to finding rants about past employers or photos of bad decisions and misdemeanors. Employers should be concerned about finding family or pregnancy photos, photos of the applicant in the hospital, and/or religious views.

The employer’s discovery of this latter information could actually be used against the employer if that applicant chooses to pursue an employment discrimination complaint or lawsuit. The Missouri Human Rights Act provides that an employer, in making its hiring decisions, may not consider, classify, or discriminate against an applicant’s race, color, religion, national origin, sex, ancestry, disability or association with an individual with a protected status.* Requiring applicants disclose their Facebook accounts would appear to privy the employer to information about these protected traits at the very point in which they make their hiring decisions. Thus, the employer may lose the ability to argue it wasn’t even aware the applicant had the protected trait when it made its decision.

Note that merely becoming aware of a protected status will not constitute per se discrimination. However, the employer’s knowledge, amongst other factors, may be sufficient to constitute an inference of discrimination, and an inference of discrimination is actually sufficient to progress a complaint or lawsuit for employment discrimination. Ultimately, the employer may even be forced to disclose its own private information – its reasoning for hiring (and not hiring) applicants.

Thus, while there does not appear to be any direct answer as to whether the practice is legal, there are certainly some potential adverse consequences employers should consider before their next interview.

*Although this post is Missouri-state-law specific, it is important to note that these traits and others are also protected on the federal level by statutes such as Title VII, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Genetic Information Discrimination Act.

Posted by Attorney David A. Zobel. Zobel primarily represents individuals and corporations in the defense of civil litigation, including contract, negligence, and real estate matters. In addition to his court room work, Zobel assists in advising clients on contract and employment issues and regarding issues arising under the Sunshine Law.

Below are 10 best practices for your businesses to consider as you move forward:

1. Mandate Rules Regarding Recruiting and Background Searching on the Internet.
• Prevent low buzz stalking, cyber stalking or “creeping” in your Internet searches of applicants and employees.  The practice is not prudent because you inevitably find out Protected Status Information that could lead to a viable claim by the applicant or employee of disparate treatment or discrimination.
• Protected Status Information in connection with employment decisions falls into the following areas: Title VII (sex, race, color, national origin, religion, and gender), ADEA (40 and over individuals), Genetic Information Discrimination Act (genetic discrimination) and state law protections such as sexual orientation, marital status, disability, political affiliation, gender identity, and lawful use of alcohol and tobacco.
• Create a company policy regarding recruiting Internet searches that includes having searches being done by those not making employment decisions so as to allow filtering of Protected Status Information. 
• Likewise, do not ask for employee’s social media passwords. 
• Do not use mobile phone applications for background check reports given that they violate the Fair Credit Reporting Act.
2. Create a Computer Use Policy.  
• Implement and publicize a policy that makes it clear that employees have no right to privacy with respect to their use of company computers, email systems and Internet connections.
• Clarify that all information created, stored, received or transmitted on or by any system or device provided by the company is owned by the company and the company has the right to monitor, search, access, inspect and read all information stored on its servers. 
• Educate employees by alerting them to the fact that accessing private emails/social media sites leaves electronic footprints on the hard drives of company-issued computers. 
• Further, advise employees that the company will monitor said footprints from time to time with no notice. 
• Finally, recognize and carve out an exception for personal use of the company’s servers by employees so long as such use is limited, incidental and sporadic.   
3. Consider Actually Monitoring Employee Use. 
• Assuming the company has a well-drafted and publicized Computer Use Policy as described in #2 above, consider spot or systematic monitoring.  Employee web surfing can entail visiting websites, potentially creating a hostile work environment and/or criminal liability.  In Holmes v. Petrovich Development Co., the Court ruled that an employee attorney-client privilege was lost for emails sent through a work email account because it was “akin to consulting her lawyer in her employer’s conference room, in a loud voice, with the door open.”
4. Prevent Theft of Trade Secrets – Exercise Self-help. 
• Theft is always an issue.  Companies have frequently found evidence of “e-sabotage” where employees send confidential information from their employer’s computer system to their personal third party email.
• Computer Fraud and Abuse Act (CFAA), 18 U.S.C. 1030 provides for a civil remedy for a company that “suffers damage or loss” by reason of a violation of the statutes.  Some postings are for spite and cause the company to lose trade secret status.  China trade theft has been in the news lately.
5. Keep the Really Valuable Trade Secrets in Your Vault – Take Them off the Server.  
• Intellectual property and trade secret theft via the Internet is a huge concern.  Companies should take their secrets off their server to prevent cyber-attacks. 
• Many trade secrets and intellectual property are stolen internally by employees.  Treat employees who have access to sensitive information differently. 
• In 2011, China’s Simoval, the world’s second largest wind turbine manufacturer, abruptly refused shipments of American Superconductors’ wind turbine electrical system.  Simoval provided American Superconductor with 70% of its business – a total of $700 million.  Evidence emerged that Simoval had promised $1.5 million to an employee of American Superconductor, and, in turn, the employee actually transferred a copy of the software to Simoval.
6. Create a Narrowly-tailored Social Media Policy That Considers the National Labor Relations Act Issues. 
• Employers cannot punish employees for engaging in concerted activity or implement policies that infringe those rights.  Protected activities include soliciting co-workers to join a union, discussing poor work conditions or unfair wages with each other and appealing to the public. 
• However, employees can lose protection if their posts are sufficiently “opprobrious” or disruptive of workplace activity or discipline, or if the posts constitute disparagement of the employer’s products or services. 
• Employers have to tread very carefully in the determination of whether something is protected when reviewing questionable posts.
7. Update Your Employment Manuals and Employment Agreements. 
• Add electronic policies to your employment manuals and employment agreements including noncompetition agreements. 
• Consider whether your salesperson should provide you the passwords to his/her LinkedIn account and Twitter account if his/her sole purpose is to market for the employer.  In Eagle v. Morgan, a federal court ruled that an employer could claim ownership of a former executive’s LinkedIn account where the employer had a hand in the creation, maintenance and operation of the account. Social media platforms can be likened to a public rolodex with a relationship building element.  For example, a Colorado Court allowed a trade secret misappropriation claim to proceed based on the theft of MySpace “friends” Christou v. Beatport, LLC (D. Colo. Mar. 14th 2011).  
8. Consider the Availability of Friendly Monitoring Tools for Voluntary Self-help.
• Consider providing, auto-analytic tools to encourage employees to gather data about what they do at work so they can monitor and perform their job more efficiently.  Software like RescueTimes allows you to set up automatic alerts to help you control how long one spends at an open window, how long one has been idle, and how often one window switches. 
9. Curb Electronic Use to Avoid Bandwidth Problems. 
• Wall Street Journal reported that Proctor and Gamble Co. sent an internal memo to its 129,000 employees limiting the use of Pandora Media Inc.’s sharing music and Netflix Inc.’s streaming movies.  There are other sites that eat up bandwidth as well,  such as YouTube. 
10. Create Policies Regarding Data Theft. 
• Companies that collect personal data (social security numbers, credit card and banking information) should create policies and institute data compliance programs that prevent data theft and notify consumers of the theft of personal data. 
• Almost all states have enacted created varying types of statutes requiring companies to notify consumers of a breach of their personal data.  Given all the states are different, coordination is difficult.   See Massachusetts (201 Mass Code Regs. 201, 17.03-17.05), California (Calif. Civ. Code Section 1789.02 (a)) and Wisconsin (Wis. Stat. Section 134.98) with respect to notice.  
• There are also a host of federal statutes that could be violated, including federal antitrust laws, federal securities laws, FINRA broker standards, FTC online advertising guidelines as to endorsements and testimonials, and FDA regulations as to prescription drug advertising.

Technology will continue to change and business owners must keep up. As the Internet is increasingly accessed by smartphones as well as computers, the rules will change again and so will the best practices. Working with your attorney to keep your policies and procedures regarding social media and Internet usage updated should be your best practice.

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, digital media law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.

In the case, First Bank v. Fischer & Frichtel, the borrower, Fischer & Frichtel, a Missouri real estate developer, defaulted on loans to First Bank, which then foreclosed on properties securing the loan. First Bank purchased the property at the foreclosure sale. The lender proceeded to sue the borrower for the deficiency balance remaining on the loan. The borrower defended the case by alleging that the proper method of determining the deficiency was not the sale price at the foreclosure sale, but rather, the fair market value of the property. In so doing, the borrower essentially sought a modification of existing Missouri law with respect to calculations for suing on deficiency against a defaulted borrower. Fischer & Frichtel maintained that Missouri should align itself with other states which require a lender to determine the fair market value of the foreclosed property and apply that amount, which is generally higher than the foreclosure price, to the loan balance before suing a borrower.

The borrower argued that the current law often grants lenders a windfall after a foreclosure. Foreclosure sales require cash buyers on the day of the sale, except that the foreclosing lender can simply bid as a credit against the amount of the indebtedness owed by the borrower. This allows lenders to often easily outbid potential purchasers who may not have cash readily available. If the lenders obtain the properties at a depressed sale price at the foreclosure, they can then resell the property to a third party, in an arms-length transaction, and are entitled to keep any profits from the resale of the foreclosed property, without applying those profits to the borrower’s loan balance.

The Supreme Court disagreed, and struck down the borrower’s attempt to modify the state’s legal precedent, holding that, under the circumstances, the price paid by First Bank at its foreclosure was determinative of the deficiency and the borrower was not permitted to contest that sale price as part of the bank’s suit to recover the balance on the loan. The Court noted several times that this was a commercial loan transaction, with a sophisticated borrower, as opposed to a residential foreclosure, where a homeowner is threatened with the loss of a home and may not have access to credit or other means sufficient to recover their property, either prior to or at the sale. The Court also noted that the borrower had not alleged any irregularities or improprieties with respect to the foreclosure procedures, which, if present, could raise some issue as to whether the misconduct or irregularity led to chilled bidding or a depressed sale price at the foreclosure. The borrower’s case was further damaged by its failure to raise the matter of the sale price in a post-foreclosure suit to challenge the sale, which option it did not exercise, as opposed to raising it as a defense in a lawsuit by the bank for the deficiency.

Finally, the Court hinted that the matter might be better raised with the legislature, in order to change the foreclosure statutes, rather than asking the courts to change the existing method of calculating a deficiency. This method of changing the law was the case in several of the states that, unlike Missouri, dictate that a lender determine the fair market value of the property and deduct that amount from the loan balance.

The Court’s decision was highly anticipated by lenders throughout the state, who can rest assured that their current foreclosure and deficiency practices may be continued in compliance with Missouri law. Despite the borrower’s arguments in this recent case, foreclosures rarely result in substantial windfalls for lenders. Foreclosures, of course, do not occur without a default on a loan, which means the lender starts the process in a compromised position. Even if the lender repurchases the property at the foreclosure sale, the purchase price of the particular piece of property at a foreclosure, even at the fair market value, may be significantly less than the amount of the indebtedness. Lenders are required to incur costs and expenses throughout the foreclosure process and in seeking a deficiency judgment, and if they purchase a property at the foreclosure sale, have the added burden of maintaining and listing the property, which may be distressed as well. Many times, banks never recover a deficiency, or any of its increased expenses, from a borrower because of bankruptcy or the borrower’s mere inability to pay anything further to reduce the debt.

Posted by Attorney Jeffrey R. Schmitt. Schmitt leads the firm’s Title Litigation practice group and practices in commercial litigation including banking, real estate, construction, and other matters for businesses and individuals .

Co-authored by David R. Bohm and David A. Zobel

A major change involving subpoenas to non-parties has hit the business world in the state of Missouri.

A new amendment to the Missouri Supreme Court Rules now requires non-party record custodians to physically appear at deposition to produce subpoenaed items, unless all parties to the litigation have agreed that the subpoenaed party may produce the items without appearing.

The amendment changes the prevailing practice where parties send out subpoenas to third parties with a letter explaining that they will be excused from appearing at deposition if they produce the requested items along with what is known as a business records affidavit.

Rule 57.09, as amended, now requires parties to first obtain consent from all other parties to the litigation before a subpoenaed witness may produce documents without attending the deposition. This agreement must be communicated to the witness in writing. Absent this agreement, a witness must appear to produce subpoenaed items at deposition.

What does this mean to you? If you receive a subpoena, you may only produce the documents to the party serving the subpoena without appearing at deposition if that party represents to you in writing (e.g., in a letter) that all other parties have consented to production of the documents without need for you to appear at the deposition. Such a letter should protect you from allegations that you improperly produced records by mail, instead of bringing the documents to the deposition. You do not need to see the actual agreement. If you have any questions as to whether you can simply mail the documents, instead of appearing at deposition, you should either call your attorney for advice or simply wait and bring the documents at the time and place designated in the subpoena.

Additionally, the amendment provides the non-party 10 days to object to the subpoena’s request(s) and a minimum of 10 days to produce the subpoenaed items. If additional time is necessary to produce the subpoenaed documents, you should call the attorney who served the subpoena immediately and ask that the deposition be postponed. Most attorneys will accommodate such a request.

Click here to read Missouri Supreme Court Rule 57.09, as amended.

Please note that this new rule only applies to subpoenas issued in Missouri state court. In federal court, a party can issue a subpoena for production of documents, and unless the subpoena specifically demands that the subpoenaed party appear for the deposition, no appearance is required. See F.R.Civ.P. 45.

Posted by Attorneys David R. Bohm and David A. Zobel. Bohm is an experienced litigator working with health care, government, and business clients on employment, intellectual property, and complex contract issues. His is also skilled in alternative dispute resolution as a means to solve disagreements without litigation. Zobel primarily represents individuals and corporations in the defense of civil litigation, including contract, negligence, and real estate matters.  In addition to his court room work, Zobel assists in advising clients on contract and employment issues and regarding issues arising under the Sunshine Law.

In order to prevail on a claim of trademark infringement under the Lanham Act (the federal trademark law), a common law claim of trademark infringement, or a claim of unfair competition, a plaintiff is required to show that the infringing use be “likely to cause confusion or to cause mistake.” 15 U.S.C. § 1114(a).

In Sensient Technologies Corp. v. Sensory Effects Flavor Co., 636 F.Supp.2d 891, 899 (E.D.Mo. 2009), the Court set out determine whether such a likelihood of confusion existed. To make the determination, the Court

“… [considered] six nonexclusive factors.” Everest Capital Ltd. V. Everest Funds Management, LLC, 39 F.3d 755, 759 (8th Cir. 2005). These factors are:

“(1) the strength of the owner’s mark; (2) the similarity of the owner’s mark and the alleged infringer’s mark; (3) the degree of competition between the products; (4) the alleged infringer’s intent to ‘pass off’ its goods as the trademark owner’s; (5) incidents of actual confusion; and (6) the type of product, its cost, and conditions of purchase.”

Luigino’s Inc. v. Stouffer Corp., 170 F.3d 827, 830 (8th Cir. 1999).

Step One in the determination of a claim of trademark infringement involves the strength of the owner’s mark. If a mark is generic, it is entitled to no protection. If the mark is descriptive (which is the weakest category of protectable marks), it is only entitled to protection where the mark has developed secondary meaning; i.e., where the mark is widely recognized as identifying the source of the goods.

A generic term can never function as a trademark because it refers to the common name or nature of the article. Id. A generic term does not identify the source of a product, but rather indicates the basic nature of the product. See id…. “Because a generic term denotes the thing itself, it cannot be appropriated by one party from the public domain….” Likewise, descriptive terms are generally not protectable because they are needed to describe all goods of a similar nature. Such a term describes the ingredients, characteristics, qualities, or other features of the product…to be afforded protection, then, a descriptive term must be so associated with the product that it becomes a designation of the source rather than a characteristic of the product. Schwan’s IP, LLC v. Kraft Pizza Co., 460 F.3d 971, 974 (8th Cir. 2006).

“A strong and distinctive trademark is entitled to greater protection than a weak or commonplace one.” SquirtCo v. Seven-Up Co., 628 F.2d 1086, 1091. (8th Cir. 1980).

Strong marks are those that are suggestive, fanciful or arbitrary, with the last classification (essentially made up words) being the strongest.

Step Two involves comparing the marks to determine if they are similar. The less similar the marks, the less the likelihood of confusion.

Step Three is to compare the products or services being offered under the mark to determine if they are competitive. Some of the questions asked in determining whether products are services are competitive include: Are they used for the same purpose? Are they marketed through the same channels of trade?

Step Four, asking what the alleged infringer’s intent is, is often highly subjective. Unless the alleged infringer is trying to counterfeit the products sold under the mark by the complaining party, in which case the intent to pass off as the goods of another is obvious, it is often difficult to determine whether the infringer intended confusion. To the extent the alleged infringer has tried to distinguish his goods or services from that of the complaining party, this factor is usually found to weigh in the alleged infringer’s favor.

As regards Step Five, one or two instances of actual initial confusion are unlikely to be enough to swing the pendulum in favor of the complaining party. This is particularly true where the customer for the product or services is a sophisticated consumer (i.e., where the product or service is expensive, particularly in a business-to-business transaction). In fact, the Eighth Circuit has not, at least so far, adopted the initial interest doctrine, stating in Sensient Technologies Corp. v. SensoryEffects Flavor Co., 613 F.3d 754, 766 (8th Cir. 2010) cert. denied, 131 S. Ct. 1603, 179 L. Ed. 2d 500 (U.S. 2011):

We decline Sensient’s invitation to adopt the “initial interest confusion” doctrine in this case because, even if the doctrine applied generally in this circuit, it would not apply in this case. Under the doctrine, courts look to factors such as product relatedness and the level of care exercised by customers to determine whether initial interest confusion exists. Checkpoint Sys., Inc. v. Check Point Software Techs., Inc., 269 F.3d 270, 296 (3d Cir.2001). Here, although the products are similar, the parties agree the customers are sophisticated and exercise a relatively high degree of care in making their purchasing decisions. This sophistication makes it less likely customers will experience initial confusion, ultimately resulting in a benefit to the alleged infringer. Id. at 296–97. As a result, the district court correctly rejected the application of the doctrine under these facts.

… (E)ven several isolated incidents of actual confusion that occur initially upon the creation of a potentially confusing mark are insufficient to establish a genuine issue of material fact as to the likelihood of confusion. [Duluth News-Tribune, 84 F.3d at 1098].

Finally, Courts look at the type of product, its cost, and the method of sale in weighing likelihood of confusion. The more complex the product, the higher the cost, and the more interaction between the seller and purchaser prior to a sale being consummated, the less likely a court is to find likelihood of confusion.

Posted by Attorney David R. Bohm. Bohm is an experienced litigator working with health care, government, and business clients on employment, intellectual property, and complex contract issues. His is also skilled in alternative dispute resolution as a means to solve disagreements without litigation.

In Estate of Roberts v. CIR, the taxpayer had established an LLC to lease equipment to his S corporation. He lent money to the LLC, which issued him a promissory note in that amount. With the proceeds of the loan, the LLC purchased an RV. However, there were several issues with the RV’s ownership and use. Even though the RV was titled in the name of CTI Leasing, it was not titled in the name “CTI Leasing, LLC,” the company’s legal name. The EIN on the car title belonged to his S corporation. The RV was not on the LLC’s depreciation schedule. The taxpayer used the RV for his own purposes. Lastly, there was no record that the LLC ever used the RV, because there was no written lease between the LLC and the S corporation concerning the RV.

As a result, the IRS concluded, and the Tax Court confirmed, there was no evidence that the LLC owned the RV or used it. Because the taxpayer could not show that the LLC owned or used the RV, the taxpayer was unable to claim tax deductions based upon the LLC’s capital at-risk in connection with the RV.

There are a few items to take away from this case:

1. You should always properly title your corporate assets and use the corporate title LLC, Corp., or Inc., as the case may be.
2. If you have multiple business entities, you must keep assets of each entity separate from other assets. If you lease an asset among entities, you must have a proper lease in writing executed by both entities.
3. It would be much cheaper for the taxpayer to seek the guidance of an accountant or attorney when completing these transactions than suing the IRS in Tax Court for the disallowed tax deductions.

These days, with Legal Zoom and other ready-to-order LLCs, people are buying assets and operating businesses without knowing the consequences of their actions. Before you enter into large transactions, it is important to understand the formalities that must be followed in order to receive the intended tax consequences.

Posted by Attorney Patrick J. Murphy, CPA. As both an attorney and a CPA, Murphy’s practice includes sophisticated estate planning approaches as well as corporate transactions and advice in mergers and acquisitions, buy/sell agreements, corporate structuring, and real estate transactions for small to medium-sized businesses.

Tablet computers offer numerous apps designed to help children with special needs, and apps specifically designed for people with autism can work wonders in helping them communicate.

St. Louis native Mark Bowers designed an app called Sōsh that helps young people develop social skills. According to the app’s website, Sōsh uses a methodology designed around the “five R’s” – Relate (connect with others), Relax (reduce stress), Regulate (manage behaviors), Reason (think it through) and Recognize (understand feelings).

Of course, tablet computers can be pricey, and so can the apps that run on them. There are numerous websites dedicated to reviewing apps designed for children with special needs.

One of the most popular websites is Apps For Children With Special Needs (A4CWSN).

Autism Speaks also maintains a list of useful apps.

CBS News also ran a story on the subject in October 2010. The story was titled “Apps for Autism: Communicating on the iPad.”

Download full Special Needs Community newsletter (PDF)

Posted by Attorney Misty A. Watson. Watson’s practice focus is estate-related: planning, administration, and probate. She creates trusts, wills, financial, and health care powers of attorney, guardianships, and conservatorships.

St. Louis Circuit Court Judge Mark Neill initially opined in May 2011 that the ordinance violated state law. He made his ruling “temporary,” in order to allow St. Louis officials to present evidence to the contrary. The city provided nothing, and Judge Neill issued a permanent ruling on February 17, 2012.

Judge Neill’s decision is based on two legal findings:

First, the City of St. Louis did not have authority from the State of Missouri to enact the red-light ordinance. Missouri municipalities are entitled to enact ordinances only with proper authority provided by the State of Missouri. Traffic ordinances are typically enacted under the authority of state-authorized “police power.” However, police power provides authority for ordinances that protect the health, safety, peace, comfort, and general welfare of the citizenry. Judge Neill found that the red-light ordinance does “nothing to regulate and control the streets of traffic” and, therefore, does not protect the general welfare of the inhabitants of the city.

Second, the red-light ordinance violated procedural due process. Oversimplified, procedural due process entitles each U.S. citizen the right to notice and the right to hearing with regard to governmental decisions that affect the citizen’s liberty. Judge Neill essentially opined that red-light camera violation notices are deficient. He stated that the violation does not offer sufficient means for the owner of the vehicle to contest the alleged violation. He also cited that the violation notices do not include a summons or court dates on which they can be contested.

In finding a due process violation, Judge Neill distinguished the St. Louis ordinance from a Creve Coeur ordinance that was recently upheld by the Missouri Court of Appeals. Judge Neill noted that the Creve Coeur ordinance specifically provides that offending drivers cannot be subject to imprisonment as a result of the red-light camera violations. The St. Louis ordinance does not contain such a provision.

Unfortunately for individuals that have paid for red-light camera violations in the past, Judge Neill held that past payments are not refundable because they were paid “voluntarily.” Certainly, there would be an incredible administrative burden for the city to reimburse millions of dollars to individual defendants, not to mention the corresponding drain to the city’s budget as a result.

The City of St. Louis has announced it will appeal Judge Neill’s decision. In the meantime, the city plans to keep the red-light cameras in operation and continue to issue citations pending a decision from the Eastern District Court of Appeals.

Posted by Attorney Christopher D. Vanderbeek. Vanderbeek is involved in the evaluation and defense of workers’ compensation and other insurance claims, protecting the interests of employers and insurers.