New Trade Secrets Law – What it Means for Your Trade Secrets and Your Company

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”), which went into effect immediately. The DTSA will have a major impact on intellectual property law and also has implications related to employees and independent contractors. Although the DTSA contains elements similar to the Uniform Trade Secret Act adopted in some form by every state except for New York and Massachusetts, there are notable differences. For example, the DTSA creates a federal private/civil confidential-stamp_GyH5lHOdcause of action for trade secret misappropriation. Previously, federal law only provided for criminal actions brought by the government. Available remedies include injunctive relief, exemplary damages in addition to actual damages, and attorneys’ fees. The DTSA also allows for civil seizure of an opponent’s property in extraordinary circumstances. These remedies could provide powerful tools for trade secret protection.

The DTSA provision of most immediate concern is the required employee notice of civil and criminal immunity for whistleblowers who disclose trade secrets to government officials for the purpose of reporting a suspected violation of law. The immunity also protects disclosures to attorneys or in sealed court filings. In order to comply with the DTSA, all agreements with employees, independent contractors or consultants covering trade secrets or confidential information must include notice of the DTSA’s whistleblower safe harbors and immunity. Although the DTSA requires that an employer provide notice of the whistleblower immunity in any agreement with an employee that governs the use of a trade secret or other confidential information, the act defines “employee” to include any individual performing work as a contractor or consultant. Compliance can be achieved by including specific language in the agreement or providing a cross reference to an existing whistleblower policy document, such as an employee handbook. Failure to include the required notice in employment agreements results in the employer losing the right to recover attorneys’ fees or exemplary damages from the employee.

Employers should take the following steps to comply with the DTSA:

  • All agreements concerning trade secrets or confidential information should be revised. This likely includes employment agreements, non-disclosure and confidentiality agreements, contractor agreements, severance or separation agreements, and more. The DTSA notice provision applies to agreements entered into or updated after May 11, 2016.
  • Employers may want to consider changing forum selection clauses in any contract affected by the DTSA. Having federal and state court options could be beneficial in a trade secret or other employment dispute.
  • Contractor or consulting agreements should be amended so that the service provider is required to notify its employees of the DTSA’s whistleblower protections.

Additional compliance issues may arise as case law develops and companies adjust to the DTSA’s requirements.

Happy Birthday Copyright Ruled Invalid

birthday-937520_1280You may be hearing “Happy Birthday” more often now that a federal judge in Los Angeles has ruled that the copyright Warner/Chappell Music claimed to own in the lyrics of the song is invalid.  According to the opinion issued on September 22, 2015, “Because Summy Co. never acquired the rights to the Happy Birthday lyrics, Defendants [Warner/Chappell], as Summy Co.’s purported successors-in-interest, do not own a valid copyright in the Happy Birthday lyrics.”

Unless the ruling is overturned or someone else comes forward with a valid ownership claim, third parties will no longer be required to pay licensing fees to use the song in movies, TV shows, greeting cards and the like…and Warner/Chappell will be out an estimated $2 million a year in royalties it collected from the song.

Click here for more on the story.

Why Should I Register My Trademarks?

TrademarkIn the United States, trademark rights are based on (1) priority (who used the mark first), (2) territory (the geographic area(s) where the mark has been used), and (3) use (whether products or services are actually provided under the mark).

Generally, the first to either use a mark in commerce or file an intent-to-use application with the United States Patent and Trademark Office (USPTO) has the ultimate right to use and registration of the mark.

Common law rights arise when products or services are offered for sale in connection with the mark.  However, common law rights are limited to the trade area in which you actually use the mark and those rights may be limited or even prohibited by prior senior uses of the same or confusingly similar marks.

A trademark owner may also register a mark in one or more individual states through Secretary of State Offices.

Although registering your mark with the USPTO is not required to establish rights in a trademark, there are many important benefits of federal trademark registration with the USPTO.  For example, upon registration of a federal trademark, the registrant obtains rights to the mark throughout the United States retroactive to the date of filing of the application. The registrant also obtains the right to stop junior users from adopting confusingly similar marks in overlapping trade areas or anywhere the registrant has acquired goodwill in such mark.

Here are some of the benefits of registration:

  • Registration provides constructive notice nationwide of the mark owner’s claim in the mark and evidence of ownership of the mark.
  • The mark owner has the exclusive right to use the mark on or in connection with the goods or services set forth in the registration.
  • The mark owner may bring lawsuits for infringement in federal court.
  • The mark owner may be entitled to recover profits, damages and costs of infringement, attorneys’ fees and treble damages.
  • Registration can be used as a basis for obtaining registration in foreign countries.
  • The mark can obtain incontestable status after continuous use for 5 years after the date of registration on the Principal Register (which limits third parties’ rights to contest your mark).
  • Registration may be filed with U.S. Customs Service to prevent importation of infringing foreign goods.

An application for trademark registration requires: (1) a completed application form, (2) a nonrefundable filing fee ranging from $225-$375 per class of goods/services, and, for marks already being used in commerce, (3) specimens of the mark showing use of the mark in connection with the applicable goods/services.

Click here for more information about how to select and protect a trademark.

 

Trademarks – Principal Register vs. Supplemental Register

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Some marks are not as strong as other marks, and certain marks that are not eligible for registration on the Principal Register, but are “capable” of one day distinguishing an applicant’s goods or services (such as descriptive terms) upon the acquisition of secondary meaning (proof that the mark has become distinctive as applied to the applicant’s goods or services in commerce), may be registered on the Supplemental Register.

Descriptive marks describe an ingredient, quality, characteristic, function, feature, purpose or use of the product or service.  Examples of descriptive marks include BANK OF AMERICA for a bank headquartered in the United States and WHOLE FOODS for a grocery store that sells health foods (both of which have since acquired distinctiveness and are now registered on the Principal Register).

Only marks actually used in commerce may be registered on the Supplemental Register, so an intent-to-use application is not eligible for registration on the Supplemental Register until the applicant has filed an acceptable allegation of use.

Benefits of Registration on the Supplemental Register

While not the preferred trademark register, registration on the Supplemental Register does provide the following benefits over purely common law rights (i.e., no registration at all):

  • Notice of the mark to anyone who searches the USPTO records.
  • Protection against third-parties registering confusingly similar trademarks at the USPTO.
  • Right to use the official registered trademark symbol “®” as notice of federal registration.
  • Right to sue infringers in federal court and have federal law control key issues of validity, ownership, infringement, injunctions and damages.
  • Ability to obtain foreign trademark protection in countries with international treaties.
  • After five years of usage and/or registration on the Supplemental Register, the registrant can apply for registration of the mark on the Principal Register.

Benefits of Registration on the Principal Register Not Applicable to the Supplemental Register

The following benefits of registration on the Principal Register are not enjoyed by registration on the Supplemental Register:

  • Constitutes prima facie evidence of the registrant’s exclusive right to use the mark nationwide.
  • Constitutes constructive notice of the registrant’s claim of ownership to eliminate the good faith defense.
  • Has a presumption of validity.
  • Carries a presumption that the registrant is the owner of the registered trademark.
  • May be filed with the United States Customs Service to prevent importation of infringing foreign goods.
  • Can become incontestable after five years of registration.

Acquired Distinctiveness/Secondary Meaning

A mark that is descriptive in nature and/or registered on the Supplemental Register cannot likely be registered on the Principal Register without a showing that the mark has become distinctive of the applicant’s goods or services in commerce, namely, that the mark has “acquired distinctiveness” or “secondary meaning.”

After five years of use or registration on the Supplemental Register, a statement verified by the applicant that the mark has become distinctive of the applicant’s goods or services by reason of substantially exclusive and continuous use in commerce by the applicant for the five years before the date when the claim of distinctiveness is made is usually sufficient to show acquired distinctiveness/secondary meaning.

However, depending on the nature of the mark and the facts in the record, the examining attorney may determine that a claim of ownership of a prior registration(s) or a claim of five years’ substantially exclusive and continuous use in commerce is insufficient to establish a prima facie case of acquired distinctiveness. The mark owner may then submit actual evidence of acquired distinctiveness.

The amount and character of evidence required to establish acquired distinctiveness depends on the facts of each case and particularly on the nature of the mark sought to be registered.

To support the claim of acquired distinctiveness, a mark owner may respond by submitting additional evidence. Such evidence may include specific dollar sales under the mark, advertising figures (or indicating the types of media through which the goods and services have been advertised (e.g., national television) and how frequently the advertisements have appeared), samples of advertising, consumer or dealer statements of recognition of the mark as a source identifier, affidavits, and any other evidence that establishes the distinctiveness of the mark as an indicator of source.  So, if you are using a descriptive mark, it is wise to keep these requirements in mind and keep track of this information so it is available if needed.

If additional evidence is submitted, the following factors are generally considered when determining acquired distinctiveness: (1) length and exclusivity of use of the mark in the United States by the applicant; (2) the type, expense and amount of advertising of the mark in the United States; and (3) the applicant’s efforts in the United States to associate the mark with the source of the goods or services, such as unsolicited media coverage and consumer studies.  A showing of acquired distinctiveness need not consider all these factors, and no single factor is determinative.

 

Music Copyrights

When you talk about copyrights in the music industry, at least two different copyrights exist.  There is a copyright in the lyrics and/or music of the song [the musical composition], and a separate copyright in the recorded version(s) of the song [the sound recording(s)].  If you record or re-record a song (your own or a cover of someone else’s), the copyright in the lyrics and music would remain the same, but there would be a new copyright in each new sound recording. 

musician shows classical guitar and flower music

Copyright in Music and Lyrics

Under the U.S. Copyright Act, everyone that contributes to the songwriting has a claim to the copyright.  Regardless of how much or how little you contribute, the Copyright Act considers all contributors to the same song to be joint authors (a.k.a. co-authors).  Each joint author owns an indivisible share to the entire copyright, unless there is a written agreement stating otherwise between all of the contributors (or any non-contributors).  Therefore, each co-author can do what he wants with the copyright as long as he pays the other co-author(s) an equal share of the proceeds.  Copyright ownership of a song can be very profitable, as songwriters receive money from publishing.  (Sometimes, songwriters assign their copyrights to music publishers to exploit the songs and administer the rights.)

Copyright in Sound Recordings

Technically everyone that contributes to the recording has a claim to the sound recording.  However, usually whomever pays for the recording (usually a record label) owns this copyright through a contract.  The songwriter will own the copyright in the lyrics and music, but the record label will own the copyright in the sound recording.  If the artist pays for the studio time, then the musicians who play on the recording will jointly own the copyright to the sound recording unless this is a written contract to the contrary.  

If the same person or group of people own the copyright in one or more musical compositions as well as the resulting sound recordings, then both copyrights can be protected on one copyright application.  If the owners are different, then separate copyright applications will need to be filed for the musical compositions and sound recordings.

 

Band Agreement Checklist: What’s the Deal?

Are you a musical artist performing and collaborating with other musicians?  If so, then you should have a written agreement between the members of the group addressing, at least, the issues in the checklist below.  You might even want to consider forming a corporate entity for your group, which will protect your individual assets from liability related to group activities and address the issues below as well.  (Note:  A solo artist can benefit from the protection of a corporate entity.)dance-patry_1100012046-012914-int

A Band Agreement is to a band what a prenup is to a marriage or a will is to an individual…it addresses some important (and sometimes difficult) issues so a plan is in place — outlining how things will go, who is responsible for what, and who gets what — just in case the unexpected or unimaginable happens.  The Band Agreement should be negotiated towards the beginning of the relationship, when everyone is happy with everyone else.  Perhaps even more importantly, if your band doesn’t have its own written agreement, then state or federal laws may determine your band’s business relationship by default.  As with most relationships, if you wait until there are problems (or your band starts making money), it could be much more difficult (if not emotionally and financially draining), if not impossible, to resolve these issues.    

Band Members                                                                                                                                  

  • Who are the members of the band?
  • Is one or more band member(s) the “owner” of the band and the other “band members” really just employees or hired hands?
  • What happens when a new member is hired or an existing member leaves the band?
  • How can band members be fired?
  • Can a member quit at will?
  • What if a member becomes disabled or dies? (This may be important so surviving spouses/parents are(n’t) involved with the group’s business.)
  • What are the members’ responsibilities, relationship, etc.?
  • What is required of each member?
  • Does a member need permission from some or all of the other members to perform with another group while he’s a member of the band?
  • What if the band breaks up or decides to go their separate ways?

Money                                                                                                                                                

  • Who will pay/get paid for what?
  • How will band profits/debts be distributed? (Royalties, performance fees, etc.)
  • Do some members receive/contribute more than others?
  • Who will keep track of band monies?
  • What will happen when one band member contributes more time/money than expected?
  • Will band members receive payment for projects completed and/or be responsible for debts incurred prior to leaving? (Does this change depending on whether the person leaves or is removed?)
  • Does the band have to “buyout” the leaving member?

Acquisition of Assets                                                                                                                         

  • How will the band acquire gear/assets? (Instruments, PA system, lights, van, merchandise, website/domain name, social media accounts, etc.)

Business Decisions                                                                                                                             

  • How will band business decisions be made? (Hiring/firing lawyers, managers, agents, spending band money, signing with a record label, etc.) Majority vote? Unanimous vote? Veto power? Tie-breaker? Majority vote for some decisions and unanimous vote for others?
  • How can the band agreement be changed?

 Creative Decisions                                                                                                                             

  • Who owns the songs band members write? How is songwriting credit determined? Will the Band Agreement govern this issue, or will ownership be determined on a song-by-song basis in a separate songwriting split acknowledgement? (Note: You may want to seek advice on copyright law prior to deciding this, as those who write the songs get the publishing royalties. By the way…the U.S. Copyright Act will determine this if you don’t agree on the splits in a signed document.
  • Who decides which songs to perform/record?
  • Who decides what gigs to play?
  • Who decides if everyone has the same haircut and wears the same outfit on stage?

Band Name                                                                                                                                        

  • Who owns the band name?
  • How about websites/domain names, social media accounts and other media related to the band?
  • What happens to the band name if the band breaks up or a band member quits/is fired?
  • Who, if anyone, can still perform using the name? (Everyone must still be involved? The key player(s)/founder(s) must still be involved? No one can use the name?) (Note: You may want to seek advice on trademark law prior to deciding on a name and/or to determine if you want to apply for a federal trademark registration for the name.)

Corporate Entities                                                                                                                             

  • Partnership – Partnerships are easier to set up, but expose you and your personal assets to liability. You may want to start as a partnership and convert to a corporation once things get going. (Note: Unless a band has formed a corporate entity or created a written partnership agreement, state partnership laws will govern the bands’ business relationship.)
  • Corporations and Limited Liability Companies – Corporations are somewhat more expensive to set up, but provide more protection and shelter your personal assets. A Limited Liability Corporation (LLC) provides the flexibility of a partnership with the limited liability of a corporation.

This checklist provides some business and legal issues you should consider if you are engaging in activities in the music business as a musical performing artist.  However, the list is not exhaustive, is not necessarily in any particular order, and not every item on this list is necessarily appropriate for your particular situation.  Please consult with an Attorney who has music industry experience for advice regarding your particular needs and issues.  You may also want to engage the services of a Certified Public Accountant (CPA) to help you with tax preparation and entity-related decisions.