New I-9 Form
March 28th, 2013
The USCIS has introduced a new I-9 form that will have to be used for new employees. While use is currently voluntary, it will be required from May onward. No need to panic, however — it does not have to be used for current employees, only those who are new, or return to the company after being away.
The form has more up-to-date formatting, although the information required is largely the same. The form comes with six pages of instructions, so it should be largely self-explanatory. If you need questions answered, though, give Bay Oak Law a call, or send an email to admin@bayoaklaw.com.
Churn, Baby, Churn
March 26th, 2013
The New York Times has an excellent article on a lawsuit in which a law firm is accused of running up the fees. Smaller firms can’t afford to do this.
Out comes money
Picture: By Marcel Jirina (Museum of butter, Maslovice, Czech Republic), GFDL or CC-BY-3.0, via Wikimedia Commons
Holy Batmobile!
March 18th, 2013
When is a fictional character copyrightable? Certainly main characters are. But what about lesser characters – even ones that do not have even a single line?
Protected intellectual property
Judge Ronald S.W. Lew faced this question in DC Comics v. Towle in February 2013 regarding the Batmobile. Defendant Mark Towle runs Gotham Garage a custom car business. He has been selling kits that allow people to customize their vehicles into the Batmobile. DC Comics sued for copyright and trademark infringement.
Like most of Batman’s fights, the outcome was not in much doubt. Batman wiped the floor with Towle. Judge Lew found that Towle violated DC Comics’ copyright and trademark rights in the Batmobile. Judge Lew found that the public is likely to be deceived by Towle’s product, and also that the Batmobile had enough “artistic features” to be protected under copyright law.
Batmobile certainly a unique image that justifies protection, if only because there is a demand for kits to fit out a car as a Batmobile. However, the line delineating what is protectable intellectual property starts getting very fuzzy as characters get less distinctive. Supporting characters and henchmen are almost always anonymous, or nearly so, and have little intellectual property protection. In Nichols v. Universal Pictures, 45 F.2d 119 (2d Cir. 1930), the legendary judge Learned Hand found that “the less developed the characters, the less they can be copyrighted; that is the penalty an author must bear for marking them too indistinctly” in ruling that two plays featuring a Jewish person marrying a Catholic person in New York were not so similar as to constitute copyright infringement. Copyright protects expression, not ideas. Luckily, “Holy _____” is not long enough to constitute protected expression.
Photo By Joy Acharjee (Flickr) CC-BY-2.0, via Wikimedia Commons
The Madness That Is March
March 16th, 2013
With the arrival of March Madness, employers need to know: gambling is illegal in California and can lead to up to one year in jail and a $5000 fine for the first offense.
Honest – I’m not writing this because I’m a lousy bracketologist. Just because my picks were almost wiped out once in the Sweet Sixteens doesn’t mean that I have a grudge against the NCAA Men’s Basketball Tournament. Employers that allow employees to bet on March Madness risk (however microscopically) being arrested.
Gambling on company time.
Let’s face reality, though – $2.5 billion will be wagered on the NCAA Men’s basketball tournament, and probably no one will be arrested. The reported cases on California’s law against gambling, Cal. Penal Code 337a, did not turn up any reported cases on NCAA brackets. However, that doesn’t mean that gambling is a fun morale builder without consequences. Particularly the first week of the tournament, when an exciting game with a school no one has ever heard of (yeah, I’m talking about you, Coppin State) is finishing every fifteen minutes, productivity can disappear.
Can’t Be A Killjoy. How does an employer allow the morale building aspect to survive, without being a buzzkill? Allow employees to choose brackets, but instead of the employees putting in cash, award prizes for best results for each weekend, biggest upset, and overall.
Know When to Walk Away, Know When to Run. Also, employers need to keep an eye out for the problem gamblers – the ones who invest too much energy in what should be harmless fun. While agonizing over the last-second shot that eliminates your favorite can be engaging, the beads of sweat that form on someone’s upper lip when a team is up by eleven with three seconds left means someone may be too invested in a point spread. Problem gambling can lead to problems at work, as productivity is sacrificed, and the risk of theft skyrockets. Addicts are experts at displacing responsibility – if the gambler is losing, it must be the employer’s fault, and that can justify stealing from the company.
Employers can’t pick and choose which laws to enforce, and which to ignore. Ignoring the costs of gambling can itself be costly.
Photo: White House Photographer Pete Souza, Wikipedia Commons
Now That’s a Hallmark Moment
March 8th, 2013
When you think of Hallmark, you often think of the word “giving.” In a recent case, though, Hallmark will be doing the getting: a repayment of a substantial severance package by a former executive who later used Hallmark’s trade secrets to compete against it.
As the Eighth Circuit Court of Appeal explained in Hallmark Cards, Inc. v. Murley, Janet Murley was a former Hallmark Vice-President until Hallmark eliminated her position in 2002. Murley received a severance package consisting of a $735,000 payment, 18 months of paid COBRA health insurance, and executive placement and tax preparation services. In return, Murley promised not to sue Hallmark, and not to use its trade secrets.
Murley went to work at one of Hallmark’s competitors, Recycled Paper Greetings (“RPG”). Murley admitted disclosing confidential Hallmark information, including information about Hallmark’s business model, its consumers’ buying process, and industry analysis that Hallmark paid for. Hallmark learned of the violation of the confidentiality agreement when American Greetings was buying RPG and wanted a third-party to inspect RPG’s information to ensure that RPG did not have any of Hallmark’s information. Hallmark then sued Murley.
The judge made it extra easy for the jury after finding that Murley had deleted 67 documents from her computer just before the computer inspection. The court instructed the jury that
If you should find that a party willfully destroyed evidence in order to prevent its being presented in this trial, you may consider such destruction in determining what inferences to draw from the evidence or facts in this case. You may, but are not required to, assume that the contents of the files destroyed would have been adverse, or detrimental to the Defendant.
The jury found in favor of Hallmark, and the Eighth Circuit Court of Appeals affirmed, overruling Murley’s objection to the jury instruction.
When employees and executives leave, companies have a difficult balancing act of respecting the law and acting fairly to its departing people, and protecting its own interests. The Hallmark case shows that courts will protects the company’s interests when a departure violates its agreement. Now that’s a Hallmark moment.
A Wait at the Gate
February 8th, 2013
Hold your horses
For all those employers (all none of you) ready to race ahead and give notices to employees about health insurance exchanges, you are going to have to hold off for awhile. Despite the Affordable Care Act (aka “Obamacare”) requirement that employers provide written notice
(1) informing the employee of the existence of an Exchange, including a description of the services provided by such Exchange, and the manner in which the employee may contact the Exchange to request assistance;
(2) if the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code of 1986 and a cost sharing reduction under section 18071 of Title 42 if the employee purchases a qualified health plan through the Exchange; and
(3) if the employee purchases a qualified health plan through the Exchange, and the employer does not offer a free choice voucher, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.
The Department of Labor has postponed the March 1, 2013 deadline:
The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.
Photo: From Wikipedia Commons
Description Horses starting out of the gate at w:Lone Star Park, April 10, 2010
Date 10 April 2010, 16:03:02
Source Flickr: And They’re Off
Author R Hensley
Taxing Taxes
February 6th, 2013
A former co-worker of mine, David Spence of the Royce Law Firm, was quoted in a Forbes blog today about Cutler v. Franchise Tax Board, where the California Second District Court of Appeal ruled as unconstitutional Cal. Rev. & Tax. Code § 18152.5 which allows sellers of small business stock (called “qualified small business stock” or “QSBS”) to exclude some of the gains on the stock if the seller reinvests the income in a qualified new small business in California. The Cutler case found that the California statute is unconstitutional because it prefers in-state corporations over out-of-state corporations:
because the statute affords taxpayers a deferral for income received from the sale of stock in corporations maintaining assets and payroll in California, while no deferral is afforded for income from the sale of stock in corporations that maintain assets and payroll elsewhere, the deferral provision discriminates on its face on the basis of an interstate element in violation of the commerce clause.
The Forbes blog criticizes the Franchise Tax Board for not allowing the statute to proceed: “Why. . . has California’s Franchise Tax Board (FTB) decided to eliminate a major tax benefit that helps attract creative risk-takers to set up shop here in California instead of in other states with lower taxes and fewer regulations?” However, the FTB was not the one who challenged the statute. Instead, the taxpayer who was denied the benefit of the statute because the business he had invested in did not qualify under the statute. The appellate court upheld the taxpayer’s argument that the statute was unconstitutional; the FRB had defended the statute. The FTB may not agree with the court’s conclusion, but it has a duty to uphold the law. Thus, the FTB has published a circular explaining that it will still allow the exclusion of gains:
For 2007 and prior tax years that are still open under the statute of limitations, a QSBS gain exclusion or deferral will be allowed if the taxpayer meets all requirements under California law, other than the unconstitutional California property and payroll requirements.
If the statute is unconstitutional, it was unconstitutional from the beginning — it means that there was never, legally, an exclusion of this income. The FTB does not have the power to decide which statutes are enforceable, and which are not. While dealing with the government, and especially tax agencies, can be absolutely maddening, it doesn’t help anyone to suggest that government is wrongfully refusing a deduction, when a court has already ruled the deduction is illegal.
Entrepreneurial Trap
January 31st, 2013
Entrepreneurs in California sometimes want to organize their companies in other states, like Delaware or Nevada. They learn that companies can pay less in franchise fees in Nevada, or that Delaware is seen as the state for great corporations. There are good reasons to organize in those states, but for many companies operating in California, it would be a waste of time and money.
Dela-where?
Delaware is well-known as the state of incorporation for most public corporations in the United States. Why? Because the laws of Delaware are quite favorable to the management of public corporations. Also, in part because of this favorable law, Delaware’s Court of Chancery is extremely experienced in business litigation, and juries are not used. For companies with a nationwide presence, incorporating in Delaware is quite advantageous. For smaller companies, there is not much advantage, and the annual franchise taxes, if matters are not structured correctly, can be devastating. A company that once incorporated in Delaware with a great number of authorized shares of stock was shocked to receive an annual bill for more than $1 million – many times their annual revenue for the year.
But We’re Superstars! Yet, you ask, what happens when (never if) we hit it really, really big? We are the new Google/Yahoo/Apple of the 21st century – won’t it be too late to choose Delaware? No. Once you become the superstar you are destined to be, you can reincorporate your business in Delaware. Until then, you can save your cash and your hassle by dealing with just California.
Nevada’s laws are more focused on the smaller entities. Advertisements pushing incorporating in Nevada say that it is cheap and private. While true, the ads do not reveal something else: all corporations and LLCs doing business in the state of California have to register with the California Secretary of State.
Gambling with Nevada
This applies for “foreign”corporations and LLCs – “foreign” here meaning “non-California.” According to California Corporations Code § 191(a) doing business in California “means entering into repeated and successive transactions of its business in this state.” Leasing office space or phone systems, hiring employees, and selling goods or services are considered doing business in the State of California. That means that you have to register as a foreign or domestic corporation or LLC. That means you pay at least the annual California $800 franchise fee, plus you have to file (and possibly pay) taxes here in California, as well as do all the paperwork normally associated with a limited liability entity in California.
The temptation, of course, is to skip on the registration in California – after all, who is going to catch you? The State of California, for one. If you have employees, you will have to make withholdings on their paycheck. You also have to have worker’s compensation. Even if you do not have any employees, you are counting on getting money from the business, and California’s many agencies can crosscheck to see if the business is in good standing.
Moreover, if the business wants to enforce – or defend – its rights in court, it will have to be in good standing to do so. A corporation or LLC that is not in good standing cannot appear in court.
Golden in California
Moreover, any contract signed by the “foreign” corporation or LLC may be voided by the other party to the contract. Someone who wants to void the contract with your business, or who is in a lawsuit with you, can get your business declared to be not of good standing – and you are frozen out of court until your business is back in good standing. Moreover, you are liable for penalties and back payments of the franchise fees. Foreign corporations are liable for $20 per day in which they do unauthorized business in the State of California, plus a $250 penalty.
The lesson – do not assume that what is good for a big company, or what is said in an ad on the radio – is the right solution for your business. Talk things over with an experienced business lawyer to find the right solution for you.
Maps courtesy of Wikipedia Commons:
Delaware: Courtesy of the University of Texas Libraries, The University of Texas at Austin
Nevada: Public domain, courtesy of the Perry-Casteneda Library, University of Texas
California: US Department of Commerce,
Public Domain Day
January 10th, 2013
What has Sonny Wrought?
How did you celebrate Public Domain Day, January 1st? I celebrated in suitable fashion, among 90,000 celebrants in red and white. Of course, in the United States, not much has entered into the public domain for the last 14 years or so, since the Sonny Bono Copyright Term Extension Act went into force, extending individual copyrights by 20 years, and works for hire by 25 years.
The balance in copyright between producers and consumers has been warped in favor of producers for a long time. Copyright protection is designed to encourage the production of new material — not reward the makers of old material. As Justice Steven Breyer stated in his dissent in Golan v. Holder:
“In order ‘[t]o promote the Progress of Science’ (by which term the Founders meant ‘learning’ or ‘knowledge’), the Constitution’s Copyright Clause grants Congress the power to “secur[e] for limited Times to Authors . . . the exclusive Right to their . . . Writings.’ Art. I, §8, cl. 8. This ‘exclusive Right’ allows its holder to charge a fee to those who wish to use a copyrighted work, and the ability to charge that fee encourages the production of new material.”
However, when copyright terms go from 14 years (the original term in 1790), to 28 years (1831), to life of the author plus 50 years (the original provision in the 1976 Copyright Act) to life of the author plus 70 years now, what new incentive to an author is there? Will studios make any more movies because copyrights on works-for-hire are now 95 years, instead of 70? I just don’t see someone saying that they’ll make this work if the copyright lasts until 2108, but not if it lasts only until 2083. In the meantime, many works are left ignored, because it costs too much to re-release them.
In 1974, Frank Capra’s classic It’s a Wonderful Life went into the public domain, after languishing on various studios’ back shelves for more than two decades. When I first saw it in 1981 on film, there was still some cost involved in preparing and shipping the film. Now, however, there are no costs to copying — it is available on YouTube, and millions of people can enjoy Jimmy Stewart saving Clarence (and the town of Bedford Falls), and discovering Zu-zu’s petals. By attempting to grab every last penny of worth in a work in an era in which the cost of good-quality copying approaches zero, producers’ over-reliance on copyright may cause the entire copyright regime to fail.
The Economist has another good examination of copyright law, which examines the sorry state of the public domain. No one wants to discourage artists and authors from creating new works, but it is in no one’s interest to have
Photo credit: By Peter Denton [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons
When Being The Best Is Not Enough . . .
January 9th, 2013
Dunkin’ Donuts has found the hard way that being the self-styled best isn’t good enough. The United States Patent & Trademark Office has refused to register its slogan “Best Coffee in America,” as being merely descriptive and not having a secondary meaning to consumers.
Not good enough for registration.
Dunkin’s prime claim to trademark registration is that the slogan became distinctive over the five years that Dunkin’ used it. However, the USPTO noted that similar self-praising slogans like “The Best Beer in America” (Boston Beer or America’s Freshest Ice Cream for Carvel Ice Cream is considered “puffery” and is not registrable.
The “Best” coffee in the United States is inherently subjective. While it is possible that there is some general agreement about what might be best in a certain industry, coffee is probably not one of them. Your favorite barista’s coffee might surpass, in your mind, anything found at the most expensive coffee shops in the world. Every shop thinks it makes its product the best – the consumers, not the USPTO, decide.
Dunkin’ Donuts will have to fall back on another product, like donuts. Mmmm, donuts.