What Employers Should Know About “The Working Families Flexibility Act”

On May 2, 2017, by a vote of 229-197, the United States House of Representatives advanced a bill that would allow employers to offer compensatory time in lieu of cash compensation for overtime worked.  This Act would amend the Fair Labor Standards Act (“FLSA”) and would offer private sector employers the opportunity to allow private-sector overtime-eligible employees to accrue up to 160 hours of compensatory time (“comp time”) in a year, at a rate of 1.5 hours for each hour of overtime worked (for hours worked beyond 40 a week).  Lawmakers believe this Act will help employees balance the demands of family and work by giving them flexibility to earn paid time off. Currently, this option is only available to federal, state and local government employees.

How would this Act affect you as an employer?

Under this Act, an employer may offer to provide comp time off in lieu of cash payments for overtime only if the employer enters into a written agreement with the employee.  The employee must voluntarily enter into the agreement and the employer must relay to the employee that electing to receive comp time off is not required and they can still elect to receive cash compensation instead. Your employee would be permitted to use the comp time within a reasonable period of time after the request so long as the comp time does not “unduly disrupt the operations of the employer.”  Employees would also have the option to change their minds at any time and cash out their unused comp time and return to cash compensation for overtime. In order for an employee to be eligible under this Act, they must have worked at least 1,000 hours for the employer during a period of continuous employment with the employer in the 12-month period preceding the date of the written agreement.  An employer would also have the option to instead pay out any accrued comp time to employees that exceeds 80 hours, so long as the employee is given at least 30 days notice.  Similarly, the bill allows employees to elect to receive a payout for their accrued but unused comp time.  Employers would have 30 days to pay out these requested payments.

What would this Act do to your bottom line?

If this Act passes the Senate and is signed by the President, the option to offer comp time off instead of paid overtime might lower your overtime costs and boost morale throughout your company.  However, there are concerns that the Act may make employers more susceptible to lawsuits for wage violations and retribution claims.   An employer who is found to have violated the Act is subject to penalties, including liquidated damages.  The Act provides that employees can use their comp time within a “reasonable period,” which is so far left open to interpretation; employers need to make clear policies regarding employees’ requests for personal time off.

What should you do to ensure compliance if the Act is enacted into law?

While the Act does provide some guidance on how to implement its policies, it is important to consult with your attorney to ensure you do not open up your company to possible violations. You should also revise your employee agreements and manuals to properly and clearly state your policies for comp time. Additionally, in order to properly implement the Act within your company, you should meet with your Human Resources or Payroll department to ensure they are complying with the Act’s policies from an administrative standpoint. As an employer you will have to determine whether implementing this Act would be beneficial to your company or if the administrative and policy burdens would be too great.  Just as no employee would be required to take paid time off, no business would be required to offer this benefit.

Is there anything I should be doing now?

The Act has only crossed the hurdle of being passed by the House.  In order for the Act to go into effect, it must still be passed through the Senate and signed into law by the President.  President Trump’s advisors have indicated that he will sign the bill if passed.  If the bill passes, it will impact nearly every private employer.  As an employer, you should be cognizant of the implications of the Act and keep up to date on its passage.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Contact Danielle S. McKinley or another attorney at Roberts McGivney Zagotta LLC if you would like to further discuss whether offering comp time rather than overtime makes sense for your company and for recommendations to make sure your company properly complies with the Act if passed.

Employee Sick Leave

In 2017, (a) an employer in Illinois who provides sick leave to an employee will be required to extend such sick leave to care for such employee’s Immediate Family Members (as defined below) pursuant to the Illinois Employee Sick Leave Act and (b) all employers in Chicago will be required to provide up to 5 days of paid sick leave for eligible employees pursuant to an amendment to the Chicago Minimum Wage and Paid Sick Leave Ordinance.

 (a)   Illinois Employee Sick Leave

Effective as of January 1, 2017, the Employee Sick Leave Act (the “Act”) permits an employee to use Personal Sick Leave Benefits for family care purposes. “Personal Sick Leave Benefits” is defined as time accrued and available to an employee to be used for absence from work due to an illness, injury, or medical appointment; however, Personal Sick Leave Benefits do not include absences from work for which compensation is provided through an employer’s benefit plan.

An employee may use Personal Sick Leave Benefits for absences due to an illness, injury or medical appointment of such employee’s child, spouse, sibling, parent, mother-in-law, father-in-law, grandchild, grandparent or stepparent (collectively, “Immediate Family Members”) for reasonable periods of time as the employee’s attendance may be necessary, on the same terms upon which such employee is able to use Personal Sick Leave Benefits for such employee’s own illness, injury or medical appointment.

The Act does not define the maximum amount of time an employee may use Personal Sick Leave Benefits, however it allows employers to limit the use of Personal Sick Leave Benefits to “an amount not less than the personal sick leave that would be accrued during six months at the employee’s then current rate of entitlement”. In other words, employers may restrict employees from using more than half of his or her yearly sick leave benefits for the care of an employee’s Immediate Family Members. Additionally, the Act does not extend the maximum amount of leave to which an employee may be entitled under the Family and Medical Leave Act, as amended (“FMLA”).

Employers cannot (i) deny an employee the right to use Personal Sick Leave Benefits in accordance with the Act or (ii) discharge, or threaten to discharge, demote, suspend or in any manner discriminate against an employee for using Personal Sick Leave Benefits.

The Act does not require employers that already have paid time off policies that extend such leave to Immediate Family Members to modify existing policies.

(b)   Chicago Minimum Wage and Paid Sick Leave Ordinance

 Effective July 1, 2017, an amendment to the Chicago Minimum Wage and Paid Sick Leave Ordinance (the “Ordinance”) requires all Covered Employers in the City of Chicago to provide an Eligible Employee up to 5 days of paid sick leave in each 12-month period of such Eligible Employee’s employment.

Under the Ordinance, (i) a “Covered Employer” is defined as an employer that (A) maintains a business facility within the geographic boundaries of the City of Chicago or (B) is subject to the City’s licensing requirements and (ii) an “Eligible Employee” is any employee (A) who works at least 80 hours for a Covered Employer within any 120-day period and (B) who performs at least two hours of work for a Covered Employer in any two-week period while physically inside of the geographic boundaries of Chicago (“Minimum Hourly Requirement”). In calculating the Minimum Hourly Requirement, any compensated travel time qualifies towards the Minimum Hourly Requirement; however, uncompensated time spent commuting does not qualify.

An Eligible Employee of a Covered Employer accrues 1 hour of paid sick leave for every 40 hours worked; however, paid time off or paid holidays are not considered hours worked. Paid sick leave (i) accrues in 1 hour increments and (ii) begins to accrue on the first calendar day after an employee begins employment.

An Eligible Employee (i) may begin using paid sick leave no later than the 180th day following the beginning or his or her employment and (ii) may accrue a maximum of 40 hours of paid sick leave per 12-month period; provided, however, such Eligible Employee may carry over half or his or her unused accrued paid sick leave, up to a maximum of 20 hours. To the extent a Covered Employer is subject to the provisions of FMLA, an Eligible Employee may carry over up to 40 hours of unused accrued paid sick leave to use exclusively for leave under FMLA.

An Eligible Employee may use paid sick leave (i) for the Eligible Employee’s own illness, injury or medical care; (ii) to care for a Family Member who is ill, injured or receiving medical care; (iii) as a victim of domestic violence or a sex offense, (iv) if the Eligible Employee’s place of business is closed due to a public health emergency or (v) if the Eligible Employee needs to care for a child whose school or childcare location has been closed to due public health emergency. “Family Member” is defined as an Eligible Employee’s child, legal guardian, spouse, domestic partner, parent, spouse or domestic partner’s parent, sibling, grandparent, grandchild, or any other individual related by blood or whose close association with the Eligible Employee is the equivalent of a family relationship.

If paid sick leave is foreseeably foreseeable, a Covered Employer may require up to 7 days’ notice before paid sick leave is taken. If paid sick leave is unforeseeable, the Covered Employer may require the Eligible Employee to provide notice as soon as is practicable on the date such Eligible Employee intends to take paid sick leave.

To the extent an Eligible Employee is absent more than 3 consecutive work days, a Covered Employer may require certification that the absence qualified for paid sick leave. For absence due to (i) an Eligible Employee’s or Family Member’s illness, injury or receipt of medical care, documentation signed by a licensed healthcare provider satisfies the certification requirement and (ii) domestic violence or a sex offense, any evidence that supports the Eligible Employee’s claim, including a police report, a court document or a signed statement from an attorney, clergy member or a victim services advocate, satisfies the certification requirement.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  It is important that any policy providing for paid time off and already is in place meet each requirement of the Act and Ordinance. Consult one of the attorneys of Roberts McGivney Zagotta LLC to make sure your employment handbooks and policies are up to date.

 

You Just Got Served with a Subpoena…Now What?!

Your company just received a subpoena demanding that you produce certain documents, however your company is not even a party to the lawsuit.  What next? Do you have to respond? Are there consequences if you do not respond?  As common as subpoenas are to attorneys, they can be foreign to many businesses or individuals.  There are many issues that you must consider and this article is designed to help you navigate the terrain.

A subpoena commands the recipient to provide information either in-person by testifying or by producing items such as documents.  Section 2-1101 of the Code of Civil Procedure authorizes any attorney in Illinois, in addition to the court’s clerk, to issue subpoenas in a pending action.  735 ILCS  § 512-1101.  Litigators may use a “third-party subpoena” for documents (or “subpoena duces tecum”) to collect documents they believe to be relevant to their pending lawsuit.  Therefore, your company can be served even when it’s not involved in the lawsuit.

Once served with a subpoena, many companies are unsure of whether they should respond. Subpoenas are issued for a variety of reasons and we recommend that you consult with an attorney before responding.  This article, however, contains preliminary information to assist you in better understanding just what a third-party subpoena for documents is and issues you should be aware of when responding.  Rules for subpoenas vary from state to state and this article only addresses subpoenas issued in Illinois.

There are four basic types of subpoenas: Subpoena for Documents, Subpoena for Deposition, Trial or Hearing Subpoenas and Grand Jury Subpoenas.  The most common misunderstanding when most companies receive a subpoena is that their attendance is required somewhere.  In a majority of instances, the subpoena received by a company is a Subpoena for Documents.  In Illinois, the subpoena for documents will usually state “THIS IS FOR RECORDS ONLY.”  Most of our clients tend to breathe a sigh of relief when they realize their attendance is not required for this type of subpoena as long as the documents are produced prior to the deadline identified in the subpoena.  According to Illinois Supreme Court Rule 204, in lieu of your appearance, the party who issued the subpoena can state that no deposition will be taken if the deponent produces the requested documents prior to the deadline identified in the subpoena.  Ill. S. Ct. Rule 204(a)(4).  Although your appearance may not be required, responding to a subpoena is important because the failure to do so can result in a variety of penalties, including being held in contempt, monetary fines, legal fees and in some instances a judgment.  As long as you have produced the documents (whether by mail, email, facsimile, or another agreed upon method) prior to the deadline listed on the subpoena, you will have satisfied your obligations.

In Illinois, the party issuing the subpoena must “describe with reasonable particularity matters on which examination is requested.”  Ill. S. Ct. Rule 206(a)(1). Further, the subpoena must be directed to someone at your business who is in charge of the documents, books or records requested.  Upon receipt of the subpoena, it is helpful to look into the underlying claim and confirm there is an actual proceeding in order to determine whether it is in fact a lawful subpoena.  In addition to confirming the subpoena is lawful, understanding the underlying claim will assist you in identifying the type of documents being requested and determining whether to object to the request or assert certain privileges.  Issuing a “litigation hold” at the time of receipt can also be crucial, because it will give notice to your employees that they must preserve any documents or information that may be responsive to the subpoena.  A litigation hold is a process that an organization uses to preserve all forms of relevant information when litigation is reasonably anticipated in order to avoid ruining or destroying documents you may be required to produce.  You should consider consulting with an attorney at this time because they will be able to assist your company in implementing the litigation hold, determining what objections to the subpoena are proper (if any) and identify which documents should be produced and which may be privileged or confidential.  An attorney can also help evaluate whether your company may be subject to any legal exposure because of the subpoena.

When responding to a subpoena, you are only required to produce documents in your control or possession.  It is not necessary for you to go on a fishing expedition for documents requested in a subpoena.  Examples of documents that may be requested are:

  • Employee payroll records;
  • Medical records;
  • Computer files and downloaded material; and
  • Photographs, graphs, & charts.

Even if you are not in possession of any (or some of) the requested documents, you or your attorney should still contact the attorney who issued the subpoena and provide them with a proper written notification.  If you fail to respond to a subpoena there can be serious ramifications.

Subpoenas, however, have their limits and they cannot be overly burdensome.  For instance, if you are not a party to the underlying lawsuit, a request to produce a voluminous amount of documents may be considered overly burdensome.  You have the right to object to a subpoena but your objection should be in writing prior to the deadline.  If you fail to object, you waive that right.  You should consult with your attorney to determine whether you have grounds for an objection.  There may also be grounds to “quash” the subpoena (which would render the subpoena void).  The Illinois Code of Civil Procedure provides that “for good cause shown, the court on motion may quash or modify any subpoena or, in the case of a subpoena duces tecum, condition the denial of the motion upon payment in advance by the person in whose behalf the subpoena is issued of the reasonable expense of producing any item therein specified…” 735 ILCS 5/2-1101.  If your Motion to Quash is granted, then the subpoena is void.  However, the Court may instead choose to modify the subpoena, or require the person who issued the subpoena to pay reasonable fees before you are required to produce the responsive documents.  A Motion to Quash is usually the only way to avoid responding to a subpoena and may be granted, for example, if the subpoena does not allow for a reasonable amount of time to respond, or the subpoena is considered unduly burdensome.

Another common question that tends to arise upon receipt of a subpoena is whether you are required to take on the expense of producing the requested documents.  Who covers the expense for subpoena production varies from court to court.  In Federal Court, when a third party is ordered to produce documents pursuant to a subpoena, the presumption is that the responding party must bear the expense of complying with the request.  DeGeer v. Gillis, 755 F.Supp.2d 909,928 (N.D. Ill. 2010).  However, pursuant to Rule 45, the issuing party “must take reasonable steps to avoid imposing undue burden or expense” on the party subject to the subpoena.  Fed.R.Civ.P.45(d)(1).  Cost shifting may also occur in Federal Court when a subpoena subjects a non-party to a “significant expense.”  DeGeer v. Gillis, 755 F. Supp. 2d at 928. On the other hand, if the subpoena is issued in state court (i.e. Circuit Court of Cook County), costs may be shifted to the requesting party.  Pursuant to Illinois Supreme Court Rule 204(a)(4), unless otherwise ordered or agreed, reasonable charges incurred by the recipient  shall be paid by the party requesting the documents.

While subpoenas are a common tool in the litigation process, there are several issues that your company may not be familiar with or comfortable dealing with on its own.  An experienced attorney will be able to assist you in responding to a subpoena and provide you with a better understanding of the process and preparing your response.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  If you have received a subpoena or have questions regarding the information contained in this article, please consult with Danielle McKinley at (312) 251-2292 or any attorney at Roberts McGivney Zagotta LLC for advice about your particular circumstance.

Do mere employees owe their employers a duty of loyalty?

In short, yes, mere employees do owe a certain degree of loyalty to their employer.  Illinois is an “at-will” employment state.  This means that an employer or employee can terminate their employment relationship at any time, without any reason (except an illegal reason), with or without notice (absent a written agreement stating otherwise).  Independent of any contractual or statutory provisions, the rule in Illinois is that an employment relationship at will can be terminated for “a good cause, a bad reason, or no reason at all.” Hogge v. Champion Laboratories, Inc., 190 Ill.App.3d 620,629, 137 Ill.Dec. 912,917, 546 N.E.2d 1025 (1989).  Although Illinois has a rather lenient standard for termination or resignation of employment, Illinois law does impose certain (fiduciary) duties on employees that protect the rights of employers.  Employees are required to conduct themselves lawfully while employed and when considering new employment.

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Non-Competes in Illinois: Just what is Adequate Consideration?

“What is adequate consideration for a restrictive covenant?” has been a question that has been plaguing the Illinois courts.

Consideration in contract law is simply the exchange of one thing of value for another. In order for a contract to be enforceable, there must be adequate consideration.  Post-employment restrictive covenants (non-compete agreements) are carefully scrutinized under Illinois law because they operate as partial restrictions on trade.

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Federal Court & Trade Secrets: What Employers Need to Know

Unanimously passed in the Senate and ratified by the House of Representatives by a vote of 410-2, the Defend Trade Secrets Act of 2016 (the “DTSA”) now allows an employer to file claims of misappropriation of trade secrets in federal court.  Prior to the passage of the DTSA on May 11, 2016, an employer could enforce misappropriation of trade secret claims through state law claims under the Uniform Trade Secrets Act (“UTSA”) adopted by nearly all states.

It is important to note that the DTSA does not eliminate or preempt the UTSA, but rather supplements the UTSA by allowing claims in federal court. Similar to the UTSA, the DTSA allows employers to obtain (a) equitable remedies, (b) actual damages, (c) punitive damages, and (d) reasonable attorneys’ fees in connection with claims of misappropriation of trade secrets.  In contrast to the UTSA, the DTSA allows an employer to apply for a court order that allows the government to seize misappropriated trade secrets without notice where the person against whom the seizure is ordered “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person”.

In order for such employer to take advantage of the remedies that can be obtained under the DTSA, an employer must update or amend all confidentiality, non-disclosure, employment, consultant, independent contractor, non-competition, non-solicitation and separation agreements to include a whistleblower immunity notice in any agreement with a person who performs work for such employer that involves the use of trade secrets or other confidential information. The immunity notice must provide that any person who discloses a trade secret to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law is granted immunity from being held civilly or criminally liable under any federal or state trade secret law. Additionally, the immunity notice must advise that any person suing an employer for retaliation based on the reporting of a suspected violation of law may disclose a trade secret to his or her attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal and such person does not disclose the trade secret except pursuant to court order.

If an employer fails to provide the required immunity notice, the employer cannot recover punitive damages or attorneys’ fees under the DTSA from an employee, consultant or independent contractor to whom the required immunity notice was not provided.

It is recommended that all employers (a) amend all executed confidentiality, employment, consultant, and independent contractor agreements to provide the immunity notice and (b) update any templates used with such employees, independent contractors or consultants to include this immunity notice.

Consult one of the attorneys of Roberts McGivney Zagotta LLC to make sure you can obtain all the remedies afforded by the DTSA and to make sure your employment handbooks and policies are up to date.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.

Minority Stockholders Can Owe Fiduciary Duties

There appears to be a recent trend in Delaware courts towards increased scrutiny of transactions involving controlling stockholders.  Most practitioners are probably familiar with the concept that a stockholder that owns a majority of a corporation’s voting stock, and is therefore considered a “controlling stockholder”, can owe certain fiduciary duties to the corporation’s minority stockholders under certain circumstances, most notably in the context of mergers, changes of control, and tender offers.  A recent Delaware Chancery Court opinion, Calesa Associates LP et al. v. American Capital, reinforces the idea that a minority stockholder may also owe a fiduciary duty to the corporation’s stockholders in certain circumstances.

The setup in Calesa is a common one in venture capital and private equity transactions. Defendant American Capital, Ltd., a publicly-traded private equity firm, initially held, together with its affiliates (collectively, “ACAS”), a 26% equity interest in Halt Medical, Inc. (“Halt”) after making an $8.6M investment in the company.  In connection with the initial investment, ACAS was granted the right to appoint two of the 5 directors and the right to block subsequent investments in Halt.  After Halt’s board of directors negotiated a potential deal with investors for a $35M loan at a 15% interest rate, ACAS exercised its blocking right, offering instead to loan Halt $20M at a 22% interest rate with the right to appoint one additional director.  ACAS accepted Halt’s offer notwithstanding the less favorable terms from ACAS.  As the loan reached its maturity date, despite indications that ACAS would extend the note, ACAS unexpectedly demanded repayment in full.  Faced with the impending maturity of an aggregate $50M in loans and the company’s failure to secure additional financing, ACAS demanded that Halt enter into a merger transaction pursuant to which ACAS’s ownership in Halt increased from approximately 26% to 66%, with ACAS controlling four of the seven board seats.  The plaintiffs alleged that ACAS received a disproportionate benefit from such transaction, representing an unfair price to the plaintiff stockholders, and that only after the transaction was completed did ACAS’s true motive emerge: starving Halt and ensuring the dilution of the plaintiffs’ interests and the cancellation of their preferred stock, all in order to “squeeze” the minority investors out of the company and seize the value of the company for itself.

The plaintiff stockholders alleged that (1) ACAS owed a fiduciary duty to the Halt’s other stockholders because ACAS could be deemed a controlling stockholder given ACAS’s actual control of Halt’s board of directors and (2) ACAS breached its fiduciary duties by promoting its own interests over the interests of the plaintiff stockholders.  In focusing on a stockholder’s influence over the company’s board of directors, the court reaffirmed that “control” is a highly fact-specific inquiry and there is no magic formula to find control. Ultimately, the court found that the plaintiff’s allegations were enough to find that a majority of the board of directors was not independent or disinterested, that ACAS was indeed a controlling stockholder that owed fiduciary duties to Halt’s other stockholders.  Notably, the court was not persuaded by the defendant’s argument that it was merely exercising certain contractual rights that gave it a superior bargaining position.

Stockholders that own a minority interest in a company should keep in mind that courts will not simply rely on a bright-line ownership test to determine control.  When engaging in related-party transactions in which a stockholder is on both sides of the table, even a minority stockholder should ensure there are procedural safeguards in place such as having the transactions approved by independent directors or by other informed and unaffiliated stockholders.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.

Nominative Fair Use-Using Another’s Trademark

From sampling in hip-hop [Central District of California Strikes Gold for Music Samplers-http://rmczlaw.com/blog/?p=36] to budding YouTube entrepreneurs the concept of using another’s copywritten material “fairly” is better known and more widespread as the Digital Age continues.  However, what about the use of another’s trademarks?  “Nominative fair use,” a lesser known but similar concept to “fair use,” covers these situations.

Even though the use of another’s trademarks is generally impermissible, there are certain specific circumstances under which they can be used.  These exceptions fall into one of four categories:

1)      Comparative Advertising – “Our phone has twice the battery life of the Apple iPhone 6s”;

2)      Expressing compatibility/interoperability – “This product is compatible with all Apple iPhone models 4, 5, 5s, 6, and 6s;

3)      Indicating services – “We repair all Apple iPhones and Apple Macbooks”; and

4)      Educational or non-commercial, informational purposes – “Apple iPhone 6s sales down by 15% this quarter

The Lanham Act, the source of federal trademark law, does not specifically define “nominative fair use”. As a result, the federal courts have created a patchwork of guidance.  Generally, the use of another’s trademark must meet the following three criteria:

1)   The product or service in question is not readily identifiable without use of the trademark;

2)   Only so much of the mark is used as is reasonably necessary to identify the product or service; and

3)   Use of the mark does not suggest sponsorship or endorsement by the trademark owner

The most common problem arises where businesses use too much of another’s mark.  The federal courts have provided the following guidance as to what is not permitted:

1)      Distinctive lettering instead of plain lettering.

2)      Use of design marks when the word mark would suffice.

3)      Color schemes.

However, in all cases, the burden is on the owner to show that the use triggers a likelihood of confusion and therefore, the argument of “fair use” is often available and persuasive.  KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111 (2004).  This standard permits a business claiming “nominative fair use” to demonstrate that it has distanced itself from the trademark owner and the goods or services, such as through a disclaimer.  See e.g. Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002) (noting several times defendant made a ‘clear statement’ disclaiming any connection with plaintiff); Hensley Manufacturing, Inc. v. ProPride, Inc., 579 F.3d 603 (6th Cir. 2009) (finding fair use of another’s mark when, in part, disclaiming connection with trademark’s owner).

Like “fair use” under copyright law, “nominative fair use” under trademark law is often based on facts and circumstances. As such, this article is not a substitute for legal advice.  If you have questions regarding the use of another’s trademark please contact one of the attorneys at Roberts McGivney Zagotta LLC.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.

Online Agreements; Modifications

As companies increasingly rely on the Internet to reach new customers and clients, online agreements are becoming commonplace.  These agreements can cover critical terms between a company and its clients and customers, whether “terms of service”, “privacy policies”, “terms of sale” or otherwise.  Companies utilizing online agreements should be familiar with standard contract principles and avoid missteps that could render their agreements unenforceable.

“Clickwrap” and “Browsewrap”

Courts will categorize most online agreements as either “clickwrap” or “browsewrap” agreements. Clickwrap agreements require the user’s affirmative acknowledgment and agreement to terms before the user is allowed to continue to use the company’s websites or services.  Browsewrap agreements are often found on a separate web page and do not require a user to seek out this page to utilize the company’s websites or services.

Browsewrap agreements are typically found through a hyperlink on a company’s website (for example, a “Terms of Use” link posted the bottom of the homepage).  In general, courts are less willing to enforce browsewrap agreements against the users of a website or service, often finding that a particular user did not have actual or constructive knowledge of the agreement or did not unambiguously assent to its terms.[1] In certain jurisdictions, even a conspicuous hyperlink on every page of a website (in close proximity to relevant buttons), without more, could be found insufficient to show a user’s constructive notice of the agreement.[2]  In order to enforce the terms of a browsewrap agreement, most courts will require a company to demonstrate that a user had an independent knowledge of their terms.[3]

Clickwrap agreements will require a user to consent before continuing to use a company’s site or services (for example, a “pop up” on the screen requiring a user to click “I agree”).  Courts routinely uphold the terms of clickwrap agreements – by requiring a physical manifestation of assent of the user, a user is on notice of the terms of such agreement.

If a company hopes to be able to enforce the terms of its online agreements, clickwrap agreements are almost always preferable to browsewrap agreements.  If a browsewrap agreement is to be used, a company will need to ensure that users have actual or constructive knowledge of the agreement (i.e., a screen before an online checkout unambiguously reminding users to review the “Terms of Use”, etc.).

Modifying Existing Online Agreements

Once an online contract is established between a company and its users, issues with enforceability can arise when the company attempts to modify its terms.  Although a company may believe it has “reserve[d] the right to modify the terms at any time” within its online agreements, such modifications are unlikely to be enforceable unless the company can show that the user was on notice to and accepted the modification.  For example, the Ninth Circuit has refused to enforce modifications where a company attempts to impose a duty on users to continually check back on the terms of use or privacy policy for changes.[4]  Other courts have stricken entire online agreements as “illusory” due to clauses allowing the host company to modify the terms and conditions at any time.[5]  Alternatively, when modifications are implemented in a clickwrap format, courts are more likely to find that users have affirmatively consented and to enforce the terms of the modification.[6]

When drafting online agreements, it is best to avoid using language that implies that one party can make unilateral modifications to that agreement.  Companies should provide a procedure within the online agreement for modifications and follow the outlined procedure.  After making changes to an online policy or agreement, a company should consider utilizing a “pop-up” to notify users of changes to the policy and require affirmative acceptance to proceed.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  If you have questions about your online agreements, consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice.

[1] See Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014).  See also Fteja v. Facebook, Inc., 841 F. Supp. 2d 829 (S.D.N.Y. 2012); Berkson v. Gogo LLC, 97 F. Supp. 3d 359 (E.D.N.Y. 2015)

[2] See Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014).

[3] Id. at 1178; See also AvePoint, Inc. v. Power Tools, Inc., 981 F.Supp.2d 496, 510 (W.D. Va. 2013)

[4] See Douglas v. U.S. District Court, 495 F.3d 1062 (9th Cir. 2007); Rodman v. Safeway, Inc., 2015 U.S. Dist. LEXIS 17523 (N.D. Cal. 2015)

[5] See Harris v. Blockbuster, Inc., 622 F.Supp.2d 396 (N.D. Tex. 2009)

[6] See TradeComet, LLC v. Google, Inc., 693 F. Supp.2d 370 (S.D.N.Y. 2010), aff’d, 435 Fed. App’x 31 (2d Cir. 2011)

Common Trademark Scams-How to Spot and Avoid

Applicants of recently filed trademarks often receive hard copy letters and e-mails from entities purporting to be the United States Patent and Trademark Office (“USPTO”), under color of the USPTO, or as another government entity. Part of why these deceptions are prevalent and sometimes convincing is the databases of the USPTO are largely public and are easily searchable, making it easy to populate template and form letters. Scammers have immediate access to information about your company (its address, state of incorporation, telephone number, signatory name and positions) and the mark itself (goods/services, filing dates, application numbers, if connected to foreign registrations).

What is the scam?
Currently, the most pervasive and popular scheme states that money is due before the trademark can officially register and implies that those fees are going directly to the government. However, the language in the fine print discloses the fees being charged are actually for publication/registration in the company’s own database or periodical. In other words, the payment ends up in the scammer’s pocket and nothing is due or paid to the USPTO. Another variation sometimes quotes the fee as for registration in its trademark watch service. The United States does not require a ‘Registration’ fee for trademarks and neither of these services is a requirement for the registration or maintenance of a trademark.

How do the letters look convincing as real?
Spotting these fake letters can be difficult due to the combination of several tactics:

o Use of names similar, but not necessarily identical to, the United States Patent and Trademark Office
o Actual data points and truthful information highlighted and used alongside of the deception
o Inclusion of bar codes, QR codes, and invoice and reference numbers
o Use of potentially non-public knowledge, such as a signatory’s name and position

Easy Ways to Likely Spot a Spoof Letter
So, the question is, how can I know if a letter is a scam or not? Fortunately, there are a few dead giveaways:

o The inclusion of ANY foreign addresses or telephone numbers
While the address at the top may be in the United States, the banking information or telephone number to call may be foreign. Keep an eye out for telephone numbers starting with a leading zero. For example:

o The use of dd/mm/yy (or dd.mm.yy) date formats
o The use of a comma instead of a period in number formats
o The use of European spellings such as “cheque”
o E-mail addresses not ending in USPTO.GOV

However, the best way to positively spot a fake letter is to know who is registered as the correspondent with the USPTO. ALL OFFICIAL COMMUNICATIONS FROM THE USPTO WILL GO TO THE PARTY IDENTIFIED AS THE CORRESPONDENT IN THE TRADEMARK APPLICATION (OR SUBSEQUENT FILINGS).

If an attorney filed the application the correspondent will almost always be the attorney. A letter sent to the owner of the application, but not the correspondent, is almost certain to be a scam. Thus, if an attorney filed your application any correspondence you receive is very likely to be a fake.

Some sample letters (with client information redacted) are included below for educational and demonstrative purposes. For a positive identification, however, please forward any suspicious correspondence to your attorney for review.

Spoof-RPT Servis (March 2016) (00068167xCED56)

Spoof-Trademark Monitoring Office (March 2016) (00068161xCED56)

Spoof-TMDB (March 2016) (00068160xCED56)

Spoof-PSave (March 2016) (00068157xCED56)

Spoof-WPAT v1 (March 2016) (00068162xCED56)

Spoof-WPAT v2 (March 2016) (00068164xCED56)

Spoof-TM Edition v1 (March 2016) (00068158xCED56)

Spoof-TM Edition v2 (March 2016) (00068159xCED56)

 

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.