Upcoming Talk: Legal Issues for Online Sellers

September 27, 2012

Update: The article from the talk is now available on my law firm website here.

My next scheduled talk is on Legal Issues for Online Sellers,  at the Sellers’ Conference for Online Entrepreneurs (SCOE) 2012 this Sunday, September 30, 2012 here in Seattle.

I am going to provide an overview of the legal issues you need to be aware of as an on-line seller. I will start with the basics, including what form of business entity you should be and why and where to register that entity, and a review of the Amazon and eBay seller agreements. Then I will cover a number of other important legal issues facing the on-line seller. These businesses touch upon many different areas of law. Most of them are technology related. The law is constantly changing as it tries to keep up with the changes in technology.

I hope to turn that talk into an article available for download on my law firm website and into a series of blog entries.


Top Ten Intellectual Property (IP) Law Traps

November 2, 2011

Intellectual property (IP) law is a deceptively complex area of law. IP law is very rules based, and the rules vary depending on the type of IP protection. Non-IP attorneys and individuals who attempt to practice IP law without the assistance of an IP attorney often run into trouble. Here are ten common traps.

Copyright

1. Copyright law is one of the few areas of law where transfers of rights must usually be in writing (real estate is the other obvious example.)

2. The owner of the copyright is the person who created the work, not the person who paid for it. You hire someone to design a website for you. It is your website. You paid for it. But absent a written agreement to the contrary, the website developer owns the copyright in the website.

3. It is deceptively easy to end up accidentally jointly owning the copyright instead of owning it outright. Say you write a software game program, but you hire an outside firm to handle the sounds. It is quite possible for the outside firm to own part of the copyright in the entire software game program. (This is called joint authorship.) This is easy to fix with a written agreement that covers copyright ownership.

Trademark

4. The right to register a federal trademark belongs to the person who used the mark first in interstate commerce, not the person who filed a registration first. But if the first person to use does not object to the other person’s improper federal registration within five years of registration, they may permanently lose the right to object.

5. You do not lose copyright rights by not policing your rights, but you can lose trademark rights by not aggressively policing your rights.

6. One way you can fail to police your rights and lose your trademark is if you license someone to sell your widgets under your trademark and the license agreement does not allow you the right to police the other party’s use of your mark.

Copyright and Trademark Registration

7. Copyright rights and trademark rights are both created automatically. Copyright rights exist as soon as you create something. Trademark rights exist as soon as you use a trademark in commerce. But in each case, you gain considerable additional protection by registering your rights. People often neglect to register.

Copyright registration is only at the federal level. It is fairly straightforward and can usually be done by a non-lawyer. (Practice Tip: Have you registered the copyright in your website and other marketing materials?) Trademarks can be registered at both the state and federal level. State trademark registration is also fairly straightforward but does not help much. Federal trademark registration is deceptively complex. Sometimes a federal trademark registration will be approved as submitted, but quite often it will not. You may need to negotiate with the Trademark Office, and there is a specialized technical language that they use and expect you to use as well. When trying to register a trademark federally, it is best to use an attorney who is familiar with the federal trademark registration process.

Trade Secret

8. A customer list is considered a trade secret. An employee cannot take a physical copy of the list with them when they leave a company. If the employee memorizes the list, that is considered the same as taking a physical copy.

Non-Compete Agreements

9. In Washington, where I practice law, a non-compete agreement entered into after the employee has started working for a company is not enforceable unless the employee is given new consideration for signing the agreement. The right to continue working for the company and to not get fired is not considered new consideration. Labriola v. Pollard Group, Inc., 152 Wn.2d 828, 834,100 P.3d 791 (2004).

Family Law and Estate Planning

10. Intellectual property is property. Yet I often see a divorce property settlement agreement or a will where there is no mention of intellectual property. Have you written a book, or painted a picture, or created other intellectual property? If so, it should be accounted for in the legal documents.

 

(These examples are oversimplified. Although they apply most of the time, I omitted all of the caveats for when they do not apply. Do not rely on these rules without seeking specialized IP law advice first. )

 


A common and nasty trap for start-ups and how to avoid it – Forgetting to put founder’s IP licensing rights in writing

May 19, 2011

I said in an earlier blog that when you license technology, you should put everything in writing. Here is one trap that often gets start-ups in trouble. Founders often neglect to put licenses between themselves and their company in writing. They just assume that the company can use the technology they create. But what happens when they are no longer associated with the company? Can the company continue to use the technology? Can the founder?

We have a restaurant chain here in Washington called Ezell’s Fried Chicken. Late last year the company got in a fight with its co-founder and namesake Ezell Stephens. The headline in the local news read Founder Of Ezell’s Chicken Fired In Feud With Board.As I started reading the article I was pretty sure of what I would discover. Ezell’s the company and co-founder Ezell Stephens never had a written agreement as to who owned the Ezell trademark and their proprietary fried chicken recipe. Now they both claim ownership.

Mr. Stephens had recently started his own chain of restaurants, which he also called Ezell’s, claiming it was his name after all. And he used the same chicken recipe that Ezell’s Fried Chicken used. He claimed rights in the recipe because he had developed the recipe and it was based on an old family recipe that he had brought with him to Ezell’s Fried Chicken. (See his statement from his court filing at the end of this blog.) One can easily understand and sympathize with his emotional attachment to his own name and his own recipe.

On the other hand, Mr. Stephens stayed quiet for over 20 years while the company used the Ezell’s trademark and the Ezell family recipe. He did not object when the company applied for and obtained federal trademark registration for the marks Ezell’s Famous Chicken and Ezell’s Fried Chicken. He allowed the company to bring in outside investors. He profited from the company as an owner and an employee. Even if there were no written agreement, there had to be an implied agreement that the company owned the trademark and the recipe. Mr. Stephens allowed the other owners to invest in and work for the company all the time relying on that implied agreement.

In determining the terms of any implied contract, the court will not look at the subjective intent of the parties – what Mr. Stephens thought he was agreeing to. Rather the courts look to the objective intent of the parties – given the facts and circumstance, how would a reasonably prudent person in their situation interpret the contract. Using the objective standard, it should be clear that Mr. Stephens transferred any ownership interest he had in the intellectual property to the company.

I can understand how he feels. He lost the right to his own name and to his family recipe. But a startup is a business. He chose to make a business decision. It is too late now. He took the money. End of story.

As I write this blog, the case is still active in court. The parties are fighting over who owns the Intellectual Property rights and over several agreements that the parties had entered into. I am not privy to all of the facts of the case, and do not know the details about the agreements, but as to the intellectual property rights, I would be very surprised if Mr. Stephens prevails.

For a similar take on the Ezell trademark issue, see fellow Seattle trademark attorney Michael Atkins’ Seattle Trademark Lawyer blog entry: Ezell’s Case Illustrates Need to Decide Who Owns Mark Before Dispute Arises.

The Ezell case reminds me of a story that I have heard several times from different sources. I have not been able to verify this story on the Internet and now believe it is apocryphal (being of questionable authenticity). But it could have happened and it illustrates my point very well.

The background story is true. Gene Roddenberry created the popular television series Star Trek, which aired in the 1960’s. Years later he helped produce a sequel television series, which was called Start Trek: the Next Generation. It was very successful. The Star Trek concept was also used in a series of successful movies and several other television series. Mr. Roddenberry had married an actress who was a regular in the first Star Trek show (she played Nurse Christine Chapel.)

Mr. Roddenberry died in 1991 while the Star Trek: The Next Generation show was on the air.

Now the story goes that Mr. Roddenberry owned the intellectual property rights to the Star Trek universe. Since he was personally involved with Star Trek: The Next Generation, no one thought that the television show needed a license to use the Star Trek universe. Supposedly, his wife was resentful of Star Trek because her husband spent too much time with Star Trek and not enough with her. When he died, she inherited the rights to the Star Trek universe. She initially refused to let Star Trek: The Next Generation continue to use the Star Trek universe. Without the Star Trek rights the show would have to shut down. Supposedly she was offered more money and a major recurring role in the show and she relented and the series was saved. (She did play the role of the recurring character in-your-face Betazoid Ambassador Lwaxana Troi. She appeared in every Star Trek television series that followed as well.)

Whether true or not, and I now think probably not, the point is still valid – make sure your company has valid written licenses for all of the intellectual property it uses, even if the you the founders brought that intellectual property to the company yourself.

——————

UPDATE: On October 18, 2011 the press reported that the parties had settled. Mr. Ezell agreed to give up the restaurant name Ezell but he can keep using his fried chicken recipe.

——————

From Mr. Stephens’ Answer and Counter-claim court filing:

3.9 Upon incorporation, Ezell Stephens retained all rights to his EZELL’S FRIED CHICKEN trademark; the Logo; and his recipes, procedures, and techniques.

3.10 Ezell Stephens also retained all rights to control the use of his name, voice, signature, photograph and likeness. These rights, along with the EZELL’S FRIED CHICKEN word trademark, the Logo trademark, and Ezell Stephens’s recipes, procedures and techniques are referred to collectively herein as “Ezell Stephens’s Intellectual Property.”

3.11 Ezell Stephens allowed EFC to use Ezell Stephens’s Intellectual Property without charge as long as he was involved with the day-to-day operations of the business. It was specifically anticipated and understood that Ezell Stephens would remain as an officer and director of the company that he founded, in order that he might control the quality of the goods and services provided in connection with the Ezell Stephens’s Intellectual Property.

3.12 Ezell Stephens did not intend to execute, and does not recall ever executing an assignment of Ezell Stephens’s Intellectual Property to EFC.

3.13 Ezell Stephens never intended, and has never agreed, that EFC could use Ezell Stephens’s Intellectual Property, including his name and photograph, after he was no longer involved with EFC’s business.

3.14 There are no written agreements that authorize EFC to use Ezell Stephens’s name or photograph.

3.15 There are no written assignments of any of the Ezell Stephens’s Intellectual Property to EFC.

3.16 The oral permission from Ezell Stephens to EFC to use Ezell Stephens’s Intellectual Property was also granted with the understanding that it was non-exclusive. In particular, Ezell Stephens retains, and has always retained, the right to use his name as a trademark in connection with separate restaurant businesses. Such rights have been recognized by EFC as part of its course of dealing with Ezell Stephens.